S-1

As  filed  with  the  Securities  and  Exchange   Commission  on  May  28,  2004
Registration No. 333-

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM S-1
             REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933


                              GulfWest Energy Inc.
             (Exact name of registrant as specified in its charter)



              Texas                        6790                   87-0444770
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification number)

          GULFWEST ENERGY INC.                              JIM C. BIGHAM
480 N. Sam Houston Parkway, Suite 300     Executive Vice President and Secretary
       Houston, Texas 77060               480 N. Sam Houston Parkway, Suite  300
(         281) 820-1919                                 (281) 820-1919
(Address including zip code, and                    Houston, Texas 77060
telephone number, including area code, of        (Name, address, including zip
registrant's principal executive offices)           code, and telephone number,
                                                       including area code, of
                                                        agent for service)

                                    COPY TO:
                                BRAD L. WHITLOCK
                              Jackson Walker L.L.P.
                           901 Main Street, Suite 6000
                               Dallas, Texas 75202
                                 (214) 953-5687

     Approximate date of commencement of proposed sale to the public:  From time
to time  after the  effective  date of this  Registration  Statement  as selling
shareholders may decide.  If any of the securities being registered on this Form
are to be offered on a delayed or  continuous  basis  pursuant to Rule 415 under
the  Securities  Act of 1933,  check the following box. If this Form is filed to
register additional securities for an offering pursuant to Rule 462(b) under the
Securities  Act,  please check the  following  box and list the  Securities  Act
registration  statement number of the earlier effective  registration  statement
for the  same  offering:  ? If this  Form is a  post-effective  amendment  filed
pursuant to Rule 462(c) under the  Securities  Act,  check the following box and
list the Securities Act registration  statement number of the earlier  effective
registration statement for the same offering:?  If delivery of the prospectus is
expected to be made pursuant to Rule 434, please check the following box: ?

                  CALCULATION OF REGISTRATION FEE
======================================================== =============== =================== ===================== ==============
                     Title of Each                                        Proposed Maximum     Proposed Maximum      Amount of
                  Class of Securities                     Amount to be     Offering Price     Aggregate Offering   Registration
                   To be Registered                        Registered      Per Share (1)          Price (1)             Fee
- -------------------------------------------------------- --------------- ------------------- --------------------- --------------
Class A Common Stock, par value $.001 per share  to be
offered for resale by certain holders of preferred
stock and warrants assuming the exchange or conversion
of such preferred stock and the exercise of such
warrants                                                   19,179,191           $.38              $7,288,093           $924
======================================================== =============== =================== ===================== ==============
(1)  Estimated solely for the purpose of calculating the registration fee.
Pursuant to Rule 457(c), the offering price and registration fee are computed on
the basis of the average of the high and low bid and asked prices of the common
stock as traded over-the-counter on May 26, 2004.

     The Registrant  hereby amends this  Registration  Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further  amendment  which  specifically  states  that  this  Registration
Statement shall  thereafter  become effective in accordance with Section 8(a) of
the  Securities  Act of 1933 or until the  Registration  Statement  shall become
effective  on such a date as the  Commission,  acting  pursuant to said  Section
8(a), may determine.



                    Subject to Completion Dated May 28, 2004
                    ----------------------------------------
                               P R O S P E C T U S

                              GULFWEST ENERGY INC.


         19,179,191 Shares of GulfWest Energy Inc. Class A Common Stock
                                 (the "Shares")




     This prospectus  relates to the resale of up to 19,179,191  Shares issuable
to certain selling shareholders assuming the exercise of warrants or exchange of
certain  preferred  stock by those  shareholders.  This  offering  is not  being
underwritten.  The selling  shareholders have advised us that they will sell the
shares  from  time  to  time  in  the  open  market,  in  privately   negotiated
transactions  or a combination  of these methods at market prices  prevailing at
the  time of sale,  at  prices  related  to the  prevailing  market  prices,  at
negotiated  prices,  or otherwise as described under "Plan of  Distribution." We
will pay all expenses of registration incurred in connection with this offering,
but the selling shareholders will pay all of their selling commission, brokerage
fees and related expenses.

     Our common stock is traded over-the-counter under the symbol "GULF". On May
26,  2004,  the  average of the high and low bid and asked  prices of our common
stock as traded over-the-counter was $.38 per share.


     Investing  in our stock  involves a high  degree of risk.  Please see "Risk
Factors" beginning on page 5 for a discussion of certain factors that you should
consider before investing.



     Neither the  Securities and Exchange  Commission  nor any state  securities
commission has approved or  disapproved  of these  securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.

     The information in this prospectus is not complete and may be changed.  The
selling  shareholders  may  not  sell  or  offer  those  securities  until  this
registration  statement  filed with the  Securities  and Exchange  Commission is
effective.  This  prospectus is not an offer to sell these  securities and it is
not soliciting an offer to buy these  securities in any state where the offer or
sale is not permitted.


                 The date of this prospectus is ________________

                                TABLE OF CONTENTS



PROSPECTUS SUMMARY............................................................2

WHERE YOU CAN FIND ADDITIONAL INFORMATION.....................................4

RISK FACTORS..................................................................5

FORWARD-LOOKING STATEMENTS...................................................11

CAPITALIZATION...............................................................11

DIVIDEND POLICY..............................................................11

MARKET PRICE OF COMMON STOCK.................................................12

SELLING SHAREHOLDERS.........................................................13

PLAN OF DISTRIBUTION.........................................................16

SELECTED HISTORICAL FINANCIAL DATA...........................................18

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
   OPERATIONS................................................................19

BUSINESS AND PROPERTIES......................................................27

MANAGEMENT...................................................................34

EXECUTIVE COMPENSATION.......................................................36

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...............38

CERTAIN TRANSACTIONS.........................................................39

DESCRIPTION OF SECURITIES....................................................40

GLOSSARY OF INDUSTRY TERMS AND ABBREVIATIONS.................................44

LEGAL MATTERS................................................................46

EXPERTS......................................................................48

INDEX TO FINANCIAL STATEMENTS...............................................F-1
                                      -i-

                               PROSPECTUS SUMMARY

     This summary highlights  selected  information  contained elsewhere in this
prospectus.  The following  summary does not contain all of the information that
may be important.  You should read the detailed information  appearing elsewhere
in this prospectus before making an investment  decision.  Certain terms that we
use in our  industry  are  italicized  and defined in the  "Glossary of Industry
Terms and Abbreviations" on page 44. Unless otherwise indicated,  all references
to "GulfWest", the "Company", "we", "us" and "our" refer to GulfWest Energy Inc.
and our subsidiaries.

Our Business

     We are primarily engaged in the acquisition,  development, exploitation and
production of crude oil and natural gas. Our focus is on  increasing  production
from our existing  properties  through  further  exploitation,  development  and
exploration,  and on acquiring additional interests in crude oil and natural gas
properties in the United States of America.

     Since  we  made  our  first  significant   acquisition  in  1993,  we  have
substantially  increased  the value of our crude oil and  natural  gas  reserves
through  a  combination  of  acquisitions  and  the  further   exploitation  and
development  of our  properties.  At December 31,  2003,  our  estimated  proved
reserves were  approximately  5.0 million barrels (MBbl) of oil and 32.7 billion
cubic feet (Bcf) of natural gas with a Present  Value  discounted at 10% (PV-10)
of $114.4  million.  Due to the limited  available  capital  over the last three
years,  we have not spent enough  capital to maintain or increase our  reserves.
This has led to a decrease in our proved  reserves in each of the years.  All of
our properties are located on land in Texas, Colorado,  Louisiana,  Oklahoma and
Mississippi,  with the exception of Grand Lake in Louisiana.  In the future,  we
plan to expand by continued  exploitation of our existing properties and through
the acquisition of additional properties.

     Our  operations are  considered to fall within a single  industry  segment,
which is the acquisition, development, production and servicing of crude oil and
natural gas properties.  See "Management's  Discussion and Analysis of Financial
Condition and Results of Operations" beginning on page 19.

Our Company

     We were formed as a corporation under the laws of the State of Utah in 1987
as  Gallup  Acquisitions,  Inc.,  and  subsequently  changed  our  name to First
Preference  Fund,  Inc.  and then to  GulfWest  Energy,  Inc.  We became a Texas
corporation by a merger effected in July 1992, in which our name became GulfWest
Oil Company.  On May 21, 2001,  we changed our name to GulfWest  Energy Inc. Our
common stock is traded over-the-counter (OTC) under the symbol "GULF".

     Our  principal  office is located at 480 North Sam  Houston  Parkway  East,
Suite 300, Houston, Texas 77060 and our telephone number is (281) 820-1919.

Recent Transactions

     On April 27, 2004, we completed an $18,000,000  financing  package with new
energy  lenders.  We used  $15,700,000 to retire  existing debt of  $27,584,145,
resulting in forgiveness of debt of  $11,884,145,  the  elimination of a hedging
liability  and the  return to the  Company of Series F  Preferred  Stock with an
aggregate  liquidation  preference of $1,000,000  (this preferred  stock, at the
request of the Company,  was  transferred to two companies  affiliated  with two
directors  of the  Company.  See  "Certain  Transactions.")  This  taxable  gain
resulting  from these  transactions  will be completely  offset by available net
operating  loss  carryforwards.  The term of the note is eighteen  months and it
                                       2

bears interest at the prime rate plus 11%. This rate increases by .75% per month
beginning in month ten. We paid the new lenders $1,180,000 in cash fees and also
issued  them  warrants to purchase  2,035,621  shares of our common  stock at an
exercise  price of $.01 per share,  expiring in five  years.  The  warrants  are
subject  to  anti-dilution  provisions.  We are  required  by the  terms  of the
warrants to register the resale of the common stock underlying the warrants, and
those shares are offered by this prospectus.  See  "Management's  Discussion and
Analysis of Financial Condition and Results of Operations."

     Simultaneously,   our  wholly-owned  subsidiary,  GulfWest  Oil  &  Gas
Company,  completed  the  initial  phase of a private  offering  of its Series A
Preferred  Stock for  $4,000,000.  The Series A Preferred  Stock is exchangeable
into our common stock based on a liquidation value of $500 per share of Series A
Preferred  Stock  divided by $.35 per share of our common  stock,  or 11,428,571
shares. As part of an advisory fee, we issued $500,000 of the Series A Preferred
Stock to a financial advisor.  One of our directors  acquired  $1,500,000 of the
Series A Preferred  Stock. The resale of the shares of common stock to be issued
upon the exchange of the Series A Preferred Stock is offered by this prospectus.

     The Series A Preferred  Stock is entitled to receive  dividends at the rate
of $45.00 per share per annum,  payable  quarterly,  as declared by the Board of
Directors. The Series A Preferred Stock is redeemable in whole or in part at any
time,  at the  option  of the  issuer,  at a price of $500 per  share,  plus all
accrued and undeclared  unpaid  dividends.  The conversion price of the Series A
Preferred  Stock is based  upon  $0.35 per share of  common  stock.  None of the
Series A Preferred Stock has been redeemed or converted.

     Pursuant to an agreement with the financial advisor, who provided access to
the lenders and raised  $1,900,000  of the Series A Preferred  Stock,  we paid a
cash fee of $400,000,  in addition to the $500,000  issued in Series A Preferred
Stock.  The advisor  contends that additional fees are due,  however we disagree
and do not know what the outcome of the disagreement will be.

     Of the $21,500,000  total cash raised,  we used $15,700,000 to pay existing
debt and $1,580,000 to pay fees and commissions,  leaving  $4,220,000  available
for capital expenditures and working capital.

Other Securities Being Offered

     In addition to the  transactions  described  above,  this  prospectus  also
covers the resale of our common  stock to be  acquired  upon  conversion  of our
preferred stock and upon exercise of certain other warrants we have issued.

     As of May 26, 2004,  there was a total of 19,000 shares of preferred  stock
issued and  outstanding  in three  series,  including  8,000  shares of Series D
Preferred  Stock,  9,000 shares of Series E Preferred  Stock and 2,000 shares of
Series F Preferred Stock (collectively,  "Preferred Stock"). The 8,000 shares of
Series D  Preferred  Stock are held by a former  director,  the 9,000  shares of
Series E Preferred Stock are held by a current  director and the 2,000 shares of
Series F are held by two companies  affiliated  with two  directors.  On a fully
converted  basis,  the 8,000 shares of Series D Preferred Stock would convert to
500,000 shares of common stock. On a fully converted  basis, the 9,000 shares of
Series E Preferred Stock would convert to 2,250,000 shares of common stock. On a
fully  converted  basis,  the 2,000  shares of Series F  Preferred  Stock  would
convert to 1,000,000 shares of common stock.

     Since 1996 we have occasionally  issued warrants to employees,  consultants
and directors as additional  compensation.  These warrants have exercise  prices
ranging  from  $0.75 to $1.20 per share  and  entitle  the  warrant  holders  to
purchase up to 990,000  shares of common  stock.  The warrants  contain  certain
anti-dilution  provisions  and have  expiration  dates  from  January 6, 2005 to
December 7, 2006.
                                       3

     Additionally,   warrants  have  occasionally  been  issued  to  lenders  or
guarantors on loans to the Company as additional consideration for entering into
the loans or  guaranties.  These  warrants  have an  exercise  price of $.75 per
warrant  and entitle  the  warrant  holders to purchase up to 875,000  shares of
common  stock.  A director of the Company  has  625,000 of these  warrants.  The
warrants  contain certain  anti-dilution  provisions and have  expiration  dates
ranging from February 12, 2005 to April 1, 2008.

Summary of the Offering

     This  prospectus  relates to the resale of an aggregate of up to 19,179,191
shares of our common stock (the "Shares")  issuable or issued to certain selling
shareholders,  assuming  the  exchange  or  conversion  of the  preferred  stock
described above and the exercise of the warrants  described  above.  The selling
shareholders may offer to sell the Shares at fixed prices,  at prevailing market
prices at the time of sale, or at varying negotiated prices. We will not receive
any proceeds from the resale of Shares by the holders thereof.

     As of May  26,  2004  the  total  number  of  shares  of our  common  stock
outstanding was 18,492,541,  not including the shares reserved for issuance upon
the  exchange  or  conversion  of the  preferred  stock and the  exercise of the
warrants described above.

     On May 26,  2004,  the average of the high and low bid and asked  prices of
our common stock as traded over-the-counter was $.38 per share.

                    WHERE YOU CAN FIND ADDITIONAL INFORMATION

     We have filed a registration statement on Form S-1, as amended, to register
the shares of common stock being  offered by this  prospectus.  In addition,  we
file  annual,   quarterly  and  special  reports,  proxy  statements  and  other
information with the Securities and Exchange Commission.  Prospective purchasers
may read and copy any reports,  statements or other  information  we file at the
Securities and Exchange  Commission's public reference facilities in Washington,
D.C.,  New York and Chicago,  Illinois.  Please call the Securities and Exchange
Commission at  1-800-SEC-0330  for further  information on the public  reference
facilities. Our Securities and Exchange Commission filings are also available to
the public from  commercial  document  retrieval  services,  and at the web site
maintained by the Securities and Exchange Commission at  http://www.sec.gov.  As
allowed by Securities and Exchange  Commission  rules,  this prospectus does not
contain  all the  information  contained  in the  registration  statement  or in
exhibits to the registration statement.
                                       4

                                  RISK FACTORS

     Investing in our stock involves a high degree of risk. You should carefully
consider the following risk factors in addition to the other information in this
prospectus  before making an investment in our stock. Any of the following risks
could cause the trading price of the Shares to decline.

     Our success  depends  heavily  upon our ability to market our crude oil and
natural gas production at favorable prices.

     In recent decades, there have been both periods of worldwide overproduction
and  underproduction  of crude oil and natural gas, and periods of increased and
relaxed energy  conservation  efforts.  Such  conditions have resulted in excess
supply  of, and  reduced  demand  for,  crude oil on a  worldwide  basis and for
natural gas on a domestic basis. At other times, there has been short supply of,
and increased demand for, crude oil and, to a lesser extent,  natural gas. These
changes have resulted in dramatic price fluctuations.

     The  degree  to  which  we are  leveraged  could  possibly  have  important
consequences to our shareholders, including the following:

          (i)  Our   indebtedness,   acquisitions,   working  capital,   capital
     expenditures or other purposes may be impaired;

          (ii) Funds available for our operations and general corporate purposes
     or for capital  expenditures  will be reduced as a result of the dedication
     of a substantial  portion of our consolidated  cash flow from operations to
     the payment of the principal and interest on our indebtedness;

          (iii) We may be more highly leveraged than certain of our competitors,
     which may place us at a competitive disadvantage;

          (iv) The  agreements  governing  our long-term  indebtedness  and bank
     loans may contain restrictive financial and operating covenants;

          (v) An event of  default  (not cured or waived)  under  financial  and
     operating  covenants contained in our debt instruments could occur and have
     a material adverse effect;

          (vi) Certain of the borrowings under our debt agreements have floating
     rates of  interest,  which  causes  us to be  vulnerable  to  increases  in
     interest rates; and

          (vii) Our substantial degree of leverage could make us more vulnerable
     to a downturn in general economic conditions.

     Our  ability  to make  principal  and  interest  payments  under  long-term
indebtedness and bank loans will be dependent upon our future performance, which
is subject to financial,  economic and other  factors,  some of which are beyond
our control.

     We cannot  assure you that our  current  level of  operating  results  will
continue or improve.  We believe that we will need to access capital  markets in
the  future in order to  provide  the  funds  necessary  to repay a  significant
                                       5

portion of our indebtedness. We cannot assure you that any such refinancing will
be possible or that we can obtain any additional financing, particularly in view
of our  anticipated  high levels of debt. If no such  refinancing  or additional
financing were available, we could default on our debt obligations.

     We have incurred net losses in the past and there can be no assurance  that
we will be profitable in the future.

     We have  incurred  net losses in three of the last five fiscal  years.  Our
accountants   have  included  a  "going   concern"   notation  in  their  letter
accompanying our audited financial statements. See "Financial Statements." If we
continue to sustain net losses in future years, it will be difficult to continue
as an operating entity.

     Our future operating results may fluctuate  significantly  depending upon a
number  of  factors,  including  industry  conditions,  prices  of crude oil and
natural gas, rates of production,  timing of capital  expenditures  and drilling
success.  These variables could have a material  adverse effect on our business,
financial  condition,  results of operations  and the market price of our common
stock.

     Estimates of crude oil and natural gas reserves depend on many  assumptions
that may turn out to be inaccurate.

     Estimates  of our proved  reserves  for crude oil and  natural  gas and the
estimated  future net revenues  from the  production  of such reserves rely upon
various  assumptions,  including  assumptions  as to crude oil and  natural  gas
prices,  drilling  and  operating  expenses,  capital  expenditures,  taxes  and
availability  of funds.  The  process of  estimating  crude oil and  natural gas
reserves is complex and imprecise.

     Actual  future  production,  crude oil and natural  gas  prices,  revenues,
taxes,   development   expenditures,   operating   expenses  and  quantities  of
recoverable crude oil and natural gas reserves may vary  substantially  from the
estimates we obtain from reserve  engineers.  Any significant  variance in these
assumptions could materially  affect the estimated  quantities and present value
of reserves we have set forth.  In addition,  our proved reserves may be subject
to downward or upward revision due to factors that are beyond our control,  such
as production history, results of future exploration and development, prevailing
crude oil and natural gas prices and other factors.

     Approximately  25% of our total  estimated  proved reserves at December 31,
2003 were proved undeveloped reserves, which are by their nature less certain.

     Recovery of such reserves  requires  significant  capital  expenditures and
successful  drilling  operations.  The  reserve  data set  forth in the  reserve
engineer reports assumes that substantial  capital  expenditures are required to
develop such reserves.  Although cost and reserve estimates  attributable to our
crude oil and  natural  gas  reserves  have been  prepared  in  accordance  with
industry  standards,  we cannot be sure that the  estimated  costs are accurate,
that development will occur as scheduled or that the results of such development
will be as estimated.

     You should not interpret the present value  referred to in this  prospectus
as the current market value of our estimated crude oil and natural gas reserves.

     In accordance with  Securities and Exchange  Commission  requirements,  the
estimated  discounted  future net cash flows from proved  reserves are generally
based on prices and costs as of the date of the  estimate.  Actual future prices
and costs may be materially higher or lower.
                                       6

     The estimates of our proved reserves and the future net revenues from which
the present  value of our  properties  is derived were  calculated  based on the
actual  prices of our  various  properties  on a  property-by-property  basis at
December 31, 2003. The average  prices of all properties  were $29.51 per barrel
of oil and $5.82 per thousand cubic feet (Mcf) of natural gas at that date.

     Actual  future  net cash  flows  will  also be  affected  by  increases  or
decreases in  consumption by crude oil and natural gas purchasers and changes in
governmental  regulations or taxation. The timing of both the production and the
incurring of expenses in connection with the development and production of crude
oil and natural gas properties affect the timing of actual future net cash flows
from proved reserves. In addition, the 10% discount factor, which is required by
the  Securities  and Exchange  Commission to be used in  calculating  discounted
future  net cash  flows for  reporting  purposes,  is not  necessarily  the most
appropriate  discount factor.  The effective  interest rate at various times and
the risks  associated  with our  business or the oil and gas industry in general
will affect the accuracy of the 10% discount factor.

     Except to the extent that we acquire properties  containing proved reserves
or  conduct  successful  development  or  exploitation  activities,  our  proved
reserves will decline as they are produced.

     In  general,  the  volume of  production  from  crude oil and  natural  gas
properties  declines as reserves are depleted.  Our future crude oil and natural
gas  production  is highly  dependent  upon our success in finding or  acquiring
additional reserves.

     The  business of  acquiring,  enhancing  or  developing  reserves  requires
considerable capital.

     Our ability to make the necessary capital  investment to maintain or expand
our asset base of crude oil and  natural gas  reserves  could be impaired to the
extent that cash flow from operations is reduced and external sources of capital
become limited or  unavailable.  In addition,  we cannot be sure that our future
acquisition and development activities will result in additional proved reserves
or that we will be able to drill productive wells at acceptable costs.

     Crude oil and natural gas drilling and production activities are subject to
numerous risks, many of which are beyond our control.

     These risks include (i) the possibility that no commercially productive oil
or gas  reservoirs  will  be  encountered;  and,  (ii)  that  operations  may be
curtailed,  delayed  or  canceled  due to title  problems,  weather  conditions,
governmental requirements, mechanical difficulties, or delays in the delivery of
drilling rigs and other equipment that may limit our ability to develop, produce
and market our  reserves.  We cannot  assure you that new wells we drill will be
productive or that we will recover all or any portion of our  investment in such
new wells.

     Drilling for crude oil and natural gas may not be profitable.

     Any wells that we drill may be dry wells or wells that are not sufficiently
productive  to be  profitable  after  drilling.  Such wells will have a negative
impact on our profitability.  In addition,  our properties may be susceptible to
drainage from production by other operators on adjacent properties.

     Our industry  experiences  numerous  operating risks that could cause us to
suffer substantial losses.

     Such  risks  include   fire,   explosions,   blowouts,   pipe  failure  and
environmental  hazards,  such as oil  spills,  natural  gas leaks,  ruptures  or
                                       7


discharges of toxic gases.  We could also suffer losses due to personnel  injury
or loss of life;  severe damage to or destruction of property;  or environmental
damage that could result in clean-up responsibilities, regulatory investigation,
penalties or suspension of our operations. In accordance with customary industry
practice, we maintain insurance policies against some, but not all, of the risks
described  above. Our insurance  policies may not adequately  protect us against
loss or liability. There is no guarantee that insurance policies that protect us
against the many risks we face will  continue  to be  available  at  justifiable
premium levels.

     As owners and operators of crude oil and natural gas properties,  we may be
liable under federal,  state and local environmental  regulations for activities
involving water pollution, hazardous waste transport, storage, disposal or other
activities.

     Our past growth has been  attributable  to  acquisitions of producing crude
oil and natural gas properties  with proved  reserves.  There are risks involved
with such acquisitions.

     The  successful   acquisition  of  properties  requires  an  assessment  of
recoverable reserves,  future crude oil and natural gas prices, operating costs,
potential  environmental  and other  liabilities,  and other factors  beyond our
control.  Such assessments are necessarily inexact and their accuracy uncertain.
In  connection  with such an  assessment,  we  perform  a review of the  subject
properties that we believe to be generally  consistent with industry  practices.
Such a review,  however, will not reveal all existing or potential problems, nor
will it  permit  us, as the  buyer,  to become  sufficiently  familiar  with the
properties  to fully  assess  their  capabilities  or  deficiencies.  We may not
inspect every well and, even when an inspection is  undertaken,  structural  and
environmental problems may not necessarily be observable.

     When  we  acquire  properties,  in  most  cases,  we are  not  entitled  to
contractual indemnification for pre-closing liabilities, including environmental
liabilities.

     We  generally  acquire  interests  in  properties  on an "as is" basis with
limited  remedies  for  breaches of  representations  and  warranties.  In those
circumstances   in  which  we  have  contractual   indemnification   rights  for
pre-closing  liabilities,  we cannot  assure you that the seller will be able to
fulfill its  contractual  obligations.  In addition,  the competition to acquire
producing crude oil and natural gas properties is intense and many of our larger
competitors have financial and other resources  substantially greater than ours.
We cannot  assure  you that we will be able to acquire  producing  crude oil and
natural  gas  properties  that  have  economically   recoverable   reserves  for
acceptable prices.

     We  may  acquire  royalty,  overriding  royalty  or  working  interests  in
properties that are less than the controlling interest.

     In such  cases,  it is likely  that we will not  operate,  nor  control the
decisions affecting the operations,  of such properties. We intend to limit such
acquisitions  to  properties  operated by  competent  parties  with whom we have
discussed their plans for operation of the properties.

     We will need  additional  financing  in the future to  continue to fund our
development and exploitation activities.

     We have made and will continue to make substantial capital  expenditures in
our  exploitation and development  projects.  We intend to finance these capital
expenditures with cash flow from operations,  existing financing arrangements or
new  financing.  We cannot  assure you that such  additional  financing  will be
available.  If it is not available,  our development and exploitation activities
may have to be curtailed,  which could adversely affect our business,  financial
condition and results of operations, as was the case in 2003.
                                       8

     The  marketing of our natural gas  production  depends,  in part,  upon the
availability, proximity and capacity of natural gas gathering systems, pipelines
and processing facilities.

     We could be  adversely  affected by changes in existing  arrangements  with
transporters  of our  natural  gas  since  we do not own  most of the  gathering
systems and pipelines  through which our natural gas is delivered to purchasers.
Our  ability to  produce  and market  our  natural  gas could also be  adversely
affected  by   federal,   state  and  local   regulation   of   production   and
transportation.

     The crude oil and natural gas industry is highly  competitive in all of its
phases.

     Competition  is  particularly  intense with respect to the  acquisition  of
desirable  producing  properties,  the  acquisition of crude oil and natural gas
prospects  suitable  for  enhanced  production   efforts,   and  the  hiring  of
experienced personnel. Our competitors in crude oil and natural gas acquisition,
development,  and  production  include the major oil  companies,  in addition to
numerous independent crude oil and natural gas companies, individual proprietors
and drilling programs.

     Many of these  competitors  possess  and  employ  financial  and  personnel
resources  substantially  in excess of those which are  available to us and may,
therefore,  be able to pay more for desirable producing properties and prospects
and to define,  evaluate,  bid for, and  purchase a greater  number of producing
properties and prospects than our financial or personnel  resources will permit.
Our ability to generate  reserves in the future will be dependent on our ability
to  select  and  acquire  suitable  producing  properties  and  prospects  while
competing with these companies.

     The domestic oil industry is extensively  regulated at both the federal and
state levels.  Although we believe we are presently in compliance with all laws,
rules and regulations,  we cannot assure you that changes in such laws, rules or
regulations,  or the  interpretation  thereof,  will not have a material adverse
effect on our financial condition or the results of our operations.

     Legislation affecting the oil and gas industry is under constant review for
amendment or  expansion,  frequently  increasing  the  regulatory  burden on the
industry.  There are numerous  federal and state  agencies  authorized  to issue
rules  and  regulations  affecting  the oil and gas  industry.  These  rules and
regulations are often difficult and costly to comply with and carry  substantial
penalties for noncompliance.

     State statutes and  regulations  require  permits for drilling  operations,
drilling  bonds,  and  reports  concerning  operations.  Most  states  also have
statutes  and  regulations  governing   conservation   matters,   including  the
unitization or pooling of properties,  and the establishment of maximum rates of
production from wells. Some states have also enacted statutes  prescribing price
ceilings for natural gas sold within their states.

     Our industry is also  subject to numerous  laws and  regulations  governing
plugging and  abandonment of wells,  discharge of materials into the environment
and other matters  relating to  environmental  protection.  The heavy regulatory
burden on the oil and gas industry  increases the costs of our doing business as
an oil and gas company, consequently affecting our profitability.
                                       9

     We have "blank check" preferred stock.

     Our  Articles of  Incorporation  authorize  the Board of Directors to issue
preferred stock without further  shareholder action in one or more series and to
designate  the dividend  rate,  voting rights and other rights  preferences  and
restrictions.  The issuance of preferred  stock could have an adverse  impact on
holders  of  common   stock.   Preferred   stock  is  senior  to  common  stock.
Additionally, preferred stock could be issued with dividend rights senior to the
rights of holders of common stock.  Finally,  preferred stock could be issued as
part of a "poison pill",  which could have the effect of  determining  offers to
acquire the Company See "Description of Securities"

     We do not pay dividends on our common stock.

     Our board of directors  presently intends to retain all of our earnings for
the expansion of our business,  therefore we do not anticipate distributing cash
dividends on our common  stock in the  foreseeable  future.  Any decision of our
board of  directors  to pay  cash  dividends  will  depend  upon  our  earnings,
financial position, cash requirements and other factors.

     The  holders  of our common  stock do not have  cumulative  voting  rights,
preemptive rights or rights to convert their common stock to other securities.

     We are  authorized to issue  80,000,000  shares of common stock,  $.001 par
value per share.  As of May 26,  2004,  there were  18,492,541  shares of common
stock issued and outstanding.  Since the holders of our common stock do not have
cumulative  voting  rights,  the holder(s) of a majority of the shares of common
stock present,  in person or by proxy,  will be able to elect all of the members
of our board of directors. The holders of shares of our common stock do not have
preemptive rights or rights to convert their common stock into other securities.

     Management controls the Company.

     Mr. J. Virgil  Waggoner,  our  Chairman of the Board and one of the selling
shareholders, owns 9,601,829 shares of our common stock, which represents almost
52% of the currently  outstanding common stock.  Additionally,  Mr. Waggoner has
the right to acquire an additional  4,285,714  shares  pursuant to conversion of
preferred stock and exercise of currently  exercisable warrants and options. See
"Security Ownership of Certain Beneficial Owners and Management."  Additionally,
all current  directors and officers as a group own almost 70% of the outstanding
common  stock  (assuming  they  convert all  preferred  stock and  exercise  all
currently  exercisable  warrants and options  held by them).  For as long as Mr.
Waggoner and the other directors and officers continue to own over a majority of
the  outstanding  common  stock,  they will be able to control  elections to the
board of directors and other matters  submitted to shareholders.  The percentage
ownership of directors  and officers  could be reduced by the issuance of common
stock on conversion of preferred stock and the exercise of warrants, although it
is impossible to say how many shares will be actually issued.

     The  number  of  shares  of   outstanding   common  stock  could   increase
significantly as a result of our recent transactions.

     If all of the  common  stock  offered by this  prospectus  is issued by the
Company,  the number of our  outstanding  shares of common  stock will more than
double.  It is impossible to say how many shares,  if any, will be issued by the
Company and how many  shares,  in turn,  will be resold  under this  prospectus.
However,  it is possible that our stock price could decline  significantly  as a
result of an increased number of shares being offered into the market.
                                       10


                                 CAPITALIZATION

     The following table sets forth our  capitalization as of March 31, 2004 and
as adjusted to give effect to the  transaction  listed  under  "Summary - Recent
Transactions  and - Other  Securities  Being  Offered"  and the  issuance of the
shares offered by this prospectus,  assuming  conversion of all of the preferred
stock  described  in this  prospectus  and  exercise  of all of the  outstanding
warrants.  You  should  read  this  table  in  conjunction  with  our  financial
statements,  "Selected Financial Data" and "Management's Discussion and Analysis
of Results of Operations  and Financial  Condition"  included  elsewhere in this
prospectus.


                                                                                     March 31, 2004
                                                                            Actual                   As Adjusted
                                                                   -------------------------    ----------------------

Total long-term debt, less current portion                                       $  27,759                $18,027,759
Total current liabilities                                                       45,069,515                 17,485,370
                                                                   ------------------------      ---------------------

Total debt                                                                     $45,097,274                $35,513,129
                                                                   ------------------------      ---------------------

Shareholders' equity
     Series  D  Preferred   Stock,   $.01  par  value,   $500
     liquidation value, 8,000 shares outstanding                                      80                 -
     Series  E  Preferred   Stock,   $.01  par  value,   $500
     liquidation value, 9,000 shares outstanding                                      90                 -
     Series  F  Preferred   Stock,   $.01  par  value,   $500
     liquidation value, 2,000 shares outstanding                                      20                 -
     Class  A  Common  Stock,  $.001  par  value,  18,492,541
     shares outstanding actual, 37,671,733 as adjusted                            18,493                      37,672
     Additional paid-in equity                                                29,283,692                  34,777,558
     Accumulated deficit                                                    (23,746,355)                (11,590,097)
                                                                  -----------------------      ----------------------

     Total shareholders' equity                                                5,556,020                  23,225,133
                                                                  -----------------------      -----------------------
Total capitalization                                                           $50,653,294                $58,738,262
                                                                   ========================      =====================

                                 DIVIDEND POLICY

     We have never  declared  or paid cash  dividends  on our common  stock.  We
currently  intend to retain all available  funds and any future earnings for use
in the operation of our business and to fund future growth. We do not anticipate
paying any cash dividends in the foreseeable future.

                           FORWARD-LOOKING STATEMENTS

     We make forward-looking statements throughout this prospectus. Whenever you
read a statement that is not simply a statement of historical fact (such as when
we describe what we "believe,"  "expect" or "anticipate"  will occur,  and other
similar statements), you must remember that our expectations may not be correct,
even  though  we  believe  they are  reasonable.  We do not  guarantee  that the
transactions  and events  described in this  prospectus will happen as described
(or that they will happen at all). The forward-looking  information contained in
this  prospectus  is  generally  located  in the  material  set forth  under the
headings  "Summary,"  "Risk Factors,"  "Management's  Discussion and Analysis of
Financial  Condition and Results of Operations"  and "Business" but may be found
                                       11

in other locations as well. These forward-looking statements generally relate to
our  plans  and  objectives  for  future  operations  and  are  based  upon  our
management's reasonable estimates of future results and trends.

     YOU SHOULD RELY ONLY ON THE INFORMATION  CONTAINED IN THIS  PROSPECTUS.  WE
HAVE NOT AUTHORIZED  ANYONE TO PROVIDE YOU WITH  INFORMATION  THAT IS DIFFERENT.
THIS PROSPECTUS MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS
PROSPECTUS,  REGARDLESS OF WHEN THIS  PROSPECTUS IS DELIVERED OR THE DATE OF ANY
SALE OF OUR COMMON STOCK.

                          MARKET PRICE OF COMMON STOCK

     Our common stock is traded  over-the-counter (OTC) under the symbol "GULF".
Fidelity Transfer Company,  1800 South West Temple, Suite 301, Box 53, Salt Lake
City, Utah 84115, (801) 484-7222 is the transfer agent for the common stock. The
high and low trading prices for the common stock for each quarter in 2004,  2003
and 2002 are set forth  below.  The  trading  prices  represent  prices  between
dealers,  without  retail  mark-ups,  mark-downs,  or  commissions,  and may not
necessarily represent actual transactions.

                                                                     High              Low
                                                                     ----              ---
                  2004
                  ----
                      First Quarter                                  $.45             $.32

                  2003
                  ----
                      First Quarter                                  $.45             $.42
                  Second Quarter                                      .47              .35
                  Third Quarter                                       .47              .43
                      Fourth Quarter                                  .47              .32

                  2002
                  ----
                  First Quarter                                      $.66             $.55
                  Second Quarter                                      .60              .46
                  Third Quarter                                       .51              .20
                      Fourth Quarter                                  .44              .32

     We are authorized to issue  80,000,000  shares of Class A common stock, par
value  $.001 per share (the  "common  stock").  As of May 26,  2004,  there were
18,492,541  shares of common stock issued and outstanding  (not including shares
issuable upon exercise of outstanding  warrants or upon  conversion of preferred
stock) and held by approximately 580 beneficial owners.
                                       12


                              SELLING SHAREHOLDERS

     The selling  shareholders may offer and sell, from time to time, any or all
of the Shares.  Because the selling  security holders may offer all or only some
portion of the 19,179,191  Shares to be registered,  no estimate can be given as
to the amount or  percentage  of these  Shares  that will be held by the selling
shareholders upon termination of the offering.

     The following table sets forth the name and  relationship  with us, if any,
of certain of the  selling  shareholders  and (i) the number of shares of common
stock  beneficially  owned by the selling  shareholders as of May 26, 2004, (ii)
the  maximum  number  of shares of common  stock  which may be  offered  for the
account of the selling  shareholders  under this prospectus and (iii) the amount
and  percentage of common stock that would be owned by the selling  shareholders
after  completion  of the  offering,  assuming a sale of all of the common stock
which may be offered  hereunder.  Except as otherwise  noted below,  the selling
shareholders have not, within the past three years, had any position,  office or
other material relationship with us.

     Beneficial  ownership is determined  under the rules of the  Securities and
Exchange  Commission.  The  number  of  shares  beneficially  owned  by a person
includes  shares of common stock subject to options held by that person that are
currently  exercisable  or  exercisable  within  60  days  of the  date  of this
prospectus.  The  shares  issuable  under  these  securities  are  treated as if
outstanding  for computing the percentage  ownership of the person holding these
securities but are not treated as if  outstanding  for the purposes of computing
the percentage ownership of any other person.

- ------------------------------------------------------ ------------------ ----------------- ------------------
                 Name and Address of                     Total Shares      % of Ownership     Total Shares
               Selling Security Holder                    Registered                              Owned
- ------------------------------------------------------ ------------------ ----------------- ------------------
Petrobridge Investment Management, LLC                     2,035,621            9.9             2,035,621
1600 Smith Street, Suite 4250
Houston, TX 77002
- ------------------------------------------------------ ------------------ ----------------- ------------------
Petro Capital Advisors                                    1,428,571,            8.0             1,428,571
1845Woodall Rodgers Frwy. ,Suite1700
Dallas, TX  75201
- ------------------------------------------------------ ------------------ ----------------- ------------------
Virgil Waggoner1                                           6,535,714            64.5           16,157,543
6605 Cypresswood Drive, Suite 250
Spring, TX 77379
- ------------------------------------------------------ ------------------ ----------------- ------------------
Patrick Parker                                              857,143             5.0              857,143
Scarbrough Building, 6th and Congress,
101 W. 6th St. Suite 610
Austin, TX  78701
- ------------------------------------------------------ ------------------ ----------------- ------------------
Douglas Moreland                                           1,428,571            8.0             1,428,571
1655 East Layton Drive
Englewood, CO  80110
- ------------------------------------------------------ ------------------ ----------------- ------------------
Stanley Chason                                              71,429               .4              71,429
1230 Watervale Court,
Pasadena, MD  21122
- ------------------------------------------------------ ------------------ ----------------- ------------------
XMen, LLC                                                  1,714,286            9.5             1,714,286
520 Lake Cook Road, Suite105
Deerfield, IL  60015
- ------------------------------------------------------ ------------------ ----------------- ------------------
Bruce Goldstein                                             57,143               .3              57,143
1934 Deercrest Lane
Northbrook, IL  60062
- ------------------------------------------------------ ------------------ ----------------- ------------------
Barry S. Cohn Revocable Trust                               214,286             1.3              214,286
2505 Astor Court
Glenview, IL  60025
- ------------------------------------------------------ ------------------ ----------------- ------------------
Bargus Partnership                                          714,286             4.2              714,286
664 South Evergreen Ave
Woodbury Heights, NJ  08097
- ------------------------------------------------------ ------------------ ----------------- ------------------
USGT Investors                                              371,429             2.2              371,429
1845 Woodall Rodgers,Suite1700
Dallas, TX  75201
- ------------------------------------------------------ ------------------ ----------------- ------------------
Star-Tex Trading Company                                    285,713             .02              370,381
16300 Addison Rd., Suite 300
Addison, TX 75001
- ------------------------------------------------------ ------------------ ----------------- ------------------
John E. Loehr                                              1,698,751            9.1             1,846,242
16300 Addison Rd., Suite 300
Addison, TX 75001
- ------------------------------------------------------ ------------------ ----------------- ------------------
Thomas R, Kaetzer                                           225,000             3.3              633,852
480 N. Sam Houston Parkway, Suite 300
Houston, TX 77060
- ------------------------------------------------------ ------------------ ----------------- ------------------
                                       13

                                       8

- ------------------------------------------------------ ------------------ ----------------- ------------------
                 Name and Address of                     Total Shares      % of Ownership     Total Shares
               Selling Security Holder                    Registered                              Owned
- ------------------------------------------------------ ------------------ ----------------- ------------------
Jim C. Bigham                                               125,000             1.3              245,985
480 N. Sam Houston Parkway, Suite 300
Houston, TX 77060
- ------------------------------------------------------ ------------------ ----------------- ------------------
Marshall A. Smith III                                       290,000             5.6             1,055,759
480 N. Sam Houston Parkway, Suite 300
Houston, TX 77060
- ------------------------------------------------------ ------------------ ----------------- ------------------
Intermarket Management LLC                                 1,428,751            7.7             1,428,751
170 Broadway., Suite 1700
New York, NY 10038
- ------------------------------------------------------ ------------------ ----------------- ------------------
Star Investments , LTD                                      100,000             .01              139,500
3421 Causeway Blvd., Suite 103
Metairie, LA 70002
- ------------------------------------------------------ ------------------ ----------------- ------------------
Ray B. Nesbitt                                              150,000             .02              393,333
1 Winston Woods
Houston, TX 77024
- ------------------------------------------------------ ------------------ ----------------- ------------------
J. T. Thompson                                              40,000               -               40,000
1212 Woodhollow Drive, No. 15101
Houston, TX 77057
- ------------------------------------------------------ ------------------ ----------------- ------------------
Rick Gardner                                                100,000             .01              100,000
1615 Poydras, 5th Floor
New Orleans, LA 70112
- ------------------------------------------------------ ------------------ ----------------- ------------------
Ron Zimmerman                                               60,000               -               60,000
1212 Woodhollow Drive, No. 15101
Houston, TX 77057
- ------------------------------------------------------ ------------------ ----------------- ------------------
Steven M. Morris                                           500,000               -              500,000
P.O. Box 941828
Houston, TX 77094
- ------------------------------------------------------ ------------------ ----------------- ------------------


1        Mr. Waggoner is Chairman of the Board of the Company.  See "Management."

                                    14

                              PLAN OF DISTRIBUTION

     The selling  shareholders  may, from time to time, sell all or a portion of
the  shares of common  stock on any market  upon  which the common  stock may be
quoted (currently the OTC Bulletin Board), in privately negotiated  transactions
or otherwise.  Such sales may be at fixed prices prevailing at the time of sale,
at prices  related to the market prices or at negotiated  prices.  The shares of
common  stock  being  offered  by this  prospectus  may be  sold by the  selling
shareholders using one or more of the following methods, without limitation:

          (a) Block trades in which the broker or dealer so engaged will attempt
     to sell the shares of common  stock as agent but may  position and resell a
     portion of the block as principal to facilitate the transaction;

          (b)  purchases  by broker or dealer  as  principal  and  resale by the
     broker or dealer for its account pursuant to this prospectus;

          (c) an  exchange  distribution  in  accordance  with the  rules of the
     applicable exchange;

          (d) ordinary  brokerage  transactions  and  transactions  in which the
     broker solicits purchasers;

          (e) privately negotiated transactions;

          (f) market  sales (both long and short to the extent  permitted  under
     the federal securities laws);

          (g) at the  market to or  through  market  makers or into an  existing
     market for the shares;

          (h)  through  transactions  in  options,  swaps or  other  derivatives
     (whether exchange listed or otherwise); and

          (i) a combination of any aforementioned methods of sale.

     In the event of the  transfer by the selling  shareholder  of its shares to
any pledgee,  donee or other  transferee,  we will amend this prospectus and the
registration  statement of which this prospectus forms a part by the filing of a
post-effective amendment in order to have the pledgee, donee or other transferee
in place of the selling shareholder who has transferred his or her shares.

     In effecting  sales,  brokers and dealers engaged by a selling  shareholder
may arrange for other brokers or dealers to participate.  Brokers or dealers may
receive  commissions or discounts from the selling shareholder or, if any of the
broker-dealers  act as an  agent  for the  purchaser  of such  shares,  from the
purchaser  in amounts to be  negotiated  which are not  expected to exceed those
customary in the types of transactions involved. Broker-dealers may agree with a
selling  shareholder to sell a specified number of the shares of common stock at
a  stipulated  price  per  share.   Such  an  agreement  may  also  require  the
broker-dealer  to purchase as principal any unsold shares of common stock at the
price  required  to  fulfill  the   broker-dealer   commitment  to  the  selling
shareholder if such  broker-dealer is unable to sell the shares on behalf of the
selling  shareholder.  Broker-dealers  who  acquire  shares of  common  stock as
principal may thereafter  resell the shares of common stock from time to time in
transactions which may involve block transactions and sales to and through other
broker-dealers, including transactions of the nature described above.
                                       15

     Such  sales  by a  broker-dealer  could  be at  prices  and on  terms  then
prevailing at the time of sale,  at prices  related to the  then-current  market
price or in  negotiated  transactions.  In  connection  with such  resales,  the
broker-dealer  may  pay  to  or  receive  from  the  purchasers  of  the  shares
commissions as described above.

     A selling  shareholder and any  broker-dealers  or agents that  participate
with that selling  shareholder  in the sale of the shares of common stock may be
deemed to be "underwriters" within the meaning of the Securities Act of 1933, as
amended, in connection with these sales. In that event, any commissions received
by the  broker-dealers  or agents  and any profit on the resale of the shares of
common stock purchased by them may be deemed to be  underwriting  commissions or
discounts under the Securities Act of 1933, as amended.

     From time to time,  a selling  shareholder  may pledge its shares of common
stock  pursuant to the margin  provisions  of its customer  agreements  with its
brokers. Upon a default by a selling shareholder,  the broker may offer and sell
the pledged shares of common stock from time to time.  Upon a sale of the shares
of common stock, the selling  shareholders  intend to comply with the prospectus
delivery  requirements  under  the  Securities  Act  of  1933  by  delivering  a
prospectus  to  each  purchaser  in the  transaction.  We  intend  to  file  any
amendments or other necessary documents in compliance with the Securities Act of
1933 which may be required in the event a selling shareholder defaults under any
customer agreement with brokers.

     To the extent  required  under the Securities Act of 1933, a post effective
amendment to this registration  statement will be filed,  disclosing the name of
any broker-dealers,  the number of shares of common stock involved, the price at
which the common  stock is to be sold,  the  commissions  paid or  discounts  or
concessions  allowed  to  such  broker-dealers,   where  applicable,  that  such
broker-dealers  did not conduct any  investigation to verify the information set
out or  incorporated by reference in this prospectus and other facts material to
the transaction.

     We and the selling shareholders will be subject to applicable provisions of
the Securities  Exchange Act of 1934, as amended,  and the rules and regulations
under it, including,  without  limitation,  Rule 10b-5 and, insofar as a selling
shareholder is a distribution  participant and we, under certain  circumstances,
may be a distribution participant,  under Regulation M. All of the foregoing may
affect the marketability of the common stock.

     All expenses of the registration  statement including,  but not limited to,
legal,  accounting,  printing  and mailing fees are and will be borne by us. Any
commissions, discounts or other fees payable to brokers or dealers in connection
with  any sale of the  shares  of  common  stock  will be  borne by the  selling
shareholder, the purchasers participating in such transaction, or both.

     Any shares of common stock covered by this prospectus that qualify for sale
pursuant to Rule 144 under the Securities  Act of 1933, as amended,  may be sold
under Rule 144 rather than pursuant to this prospectus.
                                       15

                       SELECTED HISTORICAL FINANCIAL DATA

     The following  table sets forth selected  historical  financial data of our
Company for the  three-month  period  ended  March 31, 2004 and 2003,  and as of
December 31, 2003,  2002,  2001, 2000 and 1999, and for each of the periods then
ended.  See  "Business" and  "Management's  Discussion and Analysis of Financial
Condition and Results of  Operations."  The income  statement data for the years
ended  December 31, 2003,  2002 and 2001 and the balance  sheet data at December
31, 2003 and 2002 are derived from our audited  financial  statements  contained
elsewhere  herein.  The income  statement  data for the years ended December 31,
2000 and 1999 and the balance sheet data at December 31, 2001, 2000 and 1999 are
derived from our Annual Report on Form 10-K for those  periods.  You should read
this data in  conjunction  with our  consolidated  financial  statements and the
notes thereto included elsewhere herein.

                      (in thousands, except per share data)

                                   Three-Month Period
                                    Ended March 31,
                                      (unaudited)                                                                                                            Year Ended December 31,

                                   2004         2003         2003          2002         2001          2000          1999
                                   ----         ----         ----          ----         ----          ----          ----
Income Statement Data
- ---------------------
Operating Revenues              $ 2,538,729  $ 3,250,603  $ 11,010,723  $10,839,797  $ 12,990,581  $ 8,984,175   $   2,812,639

Net income (loss) from
     operations                     363,693      862,683       917,571      927,655     3,451,875    2,464,017     (1,464,094)

Net income (loss)                  (268,628)     120,659    (3,024,426)  (4,502,313)    1,044,291      352,774     (2,269,506)

Dividends on preferred stock        (34,375)       -          (127,083)    (112,500)      (56,250)                   (450,684)

Net income (loss) available
to      common shareholders        (303,003)     120,659    (3,151,509)  (4,614,813)      988,401     352,774      (2,720,190)

Net income (loss), per share
     of common stock              $    (.02)    $    .01   $     (.17)   $     (.25)    $     .05   $     .02     $      (.34)

Weighted average number
     of shares of common
     stock outstanding           18,492,541   18,492,541    18,492,541   18,492,541    18,464,343   17,293,848       7,953,147

Balance Sheet Data
- ------------------

Current assets                    2,003,513    2,953,646   $ 1,742,689  $ 2,353,046  $  2,205,862  $ 2,934,804   $   1,357,465

Total assets                     52,334,478   53,355,980    52,428,774   53,088,941    51,379,209   32,374,128      20,009,793

Current liabilities              45,069,515   44,160,887    44,619,652   43,998,566    12,492,365    7,594,986       4,650,691

Long-term obligations             1,405,323      115,223     1,393,607      137,808    26,541,957   18,077,371      11,304,318

Other liabilities                   303,620    1,110,137       591,467    1,128,993

Shareholders' Equity              5,556,020    7,969,733   $ 5,824,648  $ 7,823,574  $ 12,344,887  $ 6,701,771   $   4,054,784
                                       16

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

     You should read the following  discussion in conjunction with our financial
statements and the notes thereto  included  elsewhere in this  prospectus.  This
discussion and analysis contains  forward-looking  statements within the meaning
of the federal securities laws. These forward-looking  statements are subject to
risks and  uncertainties  that could cause actual  results to differ  materially
from  historical  results  or our  predictions.  Please see "Risk  Factors"  and
"Forward-Looking  Statements" for a discussion of the  uncertainties,  risks and
assumptions associated with these statements.

Overview

     We are engaged  primarily in the  acquisition,  development,  exploitation,
exploration  and  production  of crude  oil and  natural  gas.  Our  focus is on
increasing  production  from our existing  crude oil and natural gas  properties
through  the  further   exploitation,   development  and  exploration  of  those
properties,  and on acquiring  additional interests in crude oil and natural gas
properties. Our gross revenues are derived from the following sources:

     1.   Oil and gas  sales  that are  proceeds  from the sale of crude oil and
          natural gas production to midstream purchasers;

     2.   Operating  overhead  and other income that  consists of earnings  from
          operating  crude oil and  natural  gas  properties  for other  working
          interest owners, and marketing and transporting natural gas. This also
          includes earnings from other miscellaneous activities.

     3.   Well  servicing  revenues that are earnings from the operation of well
          servicing equipment under contract to other operators. During 2003, we
          worked only for our own account.

     The  following is a discussion  of our  consolidated  financial  condition,
results of operations,  financial  condition and capital  resources.  You should
read this discussion in conjunction with our Consolidated  Financial  Statements
and the Notes thereto contained elsewhere herein. See "Financial Statements."

Results of Operations

     The factors which most  significantly  affect our results of operations are
(1) the sales price of crude oil and natural  gas,  (2) the level of total sales
volumes of crude oil and natural gas, (3) the cost and  efficiency  of operating
our properties, (4) depletion and depreciation of oil and gas property costs and
related  equipment,  (5) the level of and interest rates on borrowings,  (6) the
level and success of new  acquisitions  and development of existing  properties,
and (7) the adoption of changes in accounting rules.

     We  consider  depletion  and  depreciation  of oil and gas  properties  and
related  support  equipment  to be  critical  accounting  estimates,  based upon
estimates of oil and gas reserves.

     The  estimates  of oil and gas  reserves  utilized  in the  calculation  of
depletion  and   depreciation   are  estimated  in  accordance  with  guidelines
established  by  the  Securities  and  Exchange  Commission  and  the  Financial
Accounting  Standards  Board,  which require that reserve  estimates be prepared
under existing economic and operating conditions with no provision for price and
cost  escalations  over  prices  and  costs  existing  at year  end,  except  by
contractual arrangements.
                                       17

     We emphasize that reserve estimates are inherently imprecise.  Accordingly,
the  estimates  are  expected  to change  as more  current  information  becomes
available.  Our policy is to amortize  capitalized oil and gas costs on the unit
of  production  method,  based upon these  reserve  estimates.  It is reasonably
possible the estimates of future cash inflows, future gross revenues, the amount
of oil  and gas  reserves,  the  remaining  estimated  lives  of the oil and gas
properties,  or any  combination of the above may be increased or reduced in the
near term. If reduced, the carrying amount of capitalized oil and gas properties
may be reduced materially in the near term.

     Comparative  results of operations for the periods  indicated are discussed
below.

     Three-Month  Period  Ended  March 31, 2004  compared to Three Month  Period
Ended March 31, 2003.

Revenues

     Oil and Gas Sales.  Revenues from the sale of crude oil and natural gas for
the first quarter  decreased 22% from  $3,204,900 in 2003 to $2,500,600 in 2004.
This was due to a decrease in oil and natural gas sales volumes. The lower sales
volumes were due to (1) the natural  decline in  production  from our Gulf Coast
fields;  (2) the  temporary  shut-in of some natural gas wells in the Grand Lake
and  Madisonville  Fields,  as a result of gas  compressor  and  sales  pipeline
maintenance and operational  changes;  and (3) the  non-availability  of capital
funds needed to restore  production in certain wells with  down-hole  mechanical
problems.

     Operating  Overhead  and  Other  Income.  Revenues  from  these  activities
decreased  17% from  $45,700  in 2003 to  $38,100 in 2004,  due  primarily  to a
decrease in sales volume in fields where we transport for other working interest
owners.

Costs and Expenses

     Lease  Operating  Expenses.  Lease  operating  expenses  decreased  4% from
$1,369,900 in 2003 to $1,314,300 in 2004 due to lower production taxes.

     Depreciation, Depletion and Amortization (DD and A). DD and A decreased 27%
from $603,900 in 2003 to $439,200 in 2004 due to lower sales volumes.

     General  and  Administrative  (G  and  A)  Expenses.  Our G and A  expenses
decreased 3% from $414,000 in 2003 to $401,200 in 2004.

     Interest  Expense.  Interest expense increased 21% from $760,900 in 2003 to
$920,200 in 2004,  primarily due to penalty interest charged in January 2004, by
our largest debt holder.

     Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

Revenues

     Oil and Gas Sales.  Our  operating  revenues from the sale of crude oil and
natural gas increased by 4% from  $10,447,000  in 2002 to  $10,844,000  in 2003.
This  increase  was due to higher  sales prices but offset by normal oil and gas
production  declines.  We were unable to offset the production  declines through
development efforts because of limited development capital.
                                       18


     Well  Servicing  Revenues.  There were no revenues from our well  servicing
operations in 2003 compared to $39,000 in 2002 since we ceased  performing  work
for other operators and concentrated on our own properties.

     Operating  Overhead  and  Other  Income.  Revenues  from  these  activities
decreased  53% from  $354,000 in 2002 to $166,000 in 2003,  primarily due to (1)
the loss of an oil and gas  marketing  contract and (2) lower  pipeline  volumes
resulting in less transportation revenue.

Costs and Expenses

     Lease  Operating  Expenses.  Lease  operating  expenses  increased  2% from
$5,430,000  in 2002 to  $5,528,000  in 2003 due to increased  vendor  prices and
increased production taxes.

     Cost of Well Servicing Operations. There were no well servicing expenses in
2003 compared to $56,000 in 2002 since we did not work for other operators.

     Depreciation, Depletion and Amortization (DD and A). DD and A decreased 17%
from  $2,698,000  in  2002 to  $2,226,000  in  2003,  principally  due to  lower
production  volumes.  We  also  recorded  income  of  $262,000  related  to  the
cumulative effect of adopting SFAS 143.

     Accretion Expense.  We recorded accretion expense of $77,000 as a result of
adopting SFAS 143 "Asset Retirement Obligation", effective January 1, 2003.

     General and  Administrative (G and A) Expenses.  G and A expenses increased
31% from  $1,728,000 in 2002 to  $2,262,000  in 2003 due to expenses  associated
with financing efforts that were not culminated.

     Interest Income and Expense.  Interest expense increased 6% from $3,159,000
in 2002 to  $3,363,000  in 2003  due to  penalty  interest  paid to our  largest
lender.

     Other  Financing  Costs.  In 2003,  we recorded an expense of $1,000,000 to
account for the issuance of 2,000 shares of our  preferred  stock to our largest
lender under a financial agreement.

     Unrealized Gain (Loss) on Derivative Instruments. The estimated future fair
value of derivative  instruments  at December 31, 2003 resulted in an unrealized
gain of $537,000 in 2003 compared to an unrealized loss of $1,597,000 in 2002.

     Dry Holes,  Abandoned  Property and Impaired Assets.  The cost of abandoned
property in 2003 was $359,000  because the lack of capital to complete  projects
resulted in the loss of leases.  This  compared to combined  costs of dry holes,
abandoned property and impaired assets of $617,000 in 2002.

     Dividends  on Preferred  Stock.  In 2003,  accrued and unpaid  dividends on
preferred stock due were $127,000. In 2002, dividends on preferred stock due and
paid were $112,000.

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Revenues

     Oil and Gas Sales.  Our  operating  revenues from the sale of crude oil and
natural gas decreased by 16% from  $12,426,000  in 2001 to  $10,447,000 in 2002.
This  decrease was due to normal oil and gas  production  declines of 6% and oil
and gas price declines of 10%.
                                       21

     Well  Servicing  Revenues.  Revenues  from  our well  servicing  operations
decreased by 77% from $169,000 in 2001 to $39,000 in 2002. This decrease was due
to  performing  less work for third  parties and the sale of one of our workover
rigs.

     Operating  Overhead  and  Other  Income.  Revenues  from  these  activities
decreased 10% from  $395,000 in 2001 to $354,000 in 2002,  primarily as a result
of the termination of a gas transportation sales contract with a local utility.

Costs and Expenses

     Lease  Operating  Expenses.  Lease  operating  expenses  increased  5% from
$5,155,000 in 2001 to  $5,430,000  in 2002 due to increased  vendor prices which
more than offset a decrease in production taxes.

     Cost of Well Servicing  Operations.  Well servicing  expenses decreased 69%
from  $182,000  in 2001 to $56,000 in 2002 due to less work  under  contract  to
third parties and the sale of one workover rig.

     Depreciation,  Depletion and Amortization (DD and A). DD and A increased 8%
from  $2,491,000  in 2001 to  $2,698,000  in 2002,  due to a reduction in proved
reserves at year end 2002.

     General  and  Administrative  (G and A)  Expenses.  G and A  expenses  were
essentially unchanged from $1,710,000 in 2001 to $1,728,000 in 2002.

     Interest Income and Expense. Interest expense increased 15% from $2,757,000
in 2001 to $3,159,000 in 2002 due to increased debt  associated with the funding
of acquisitions  in August,  2001,  capital used in our development  program and
issuance of warrants associated with working capital loans.

     Unrealized Gain (Loss) on Derivative Instruments. The estimated future fair
value of derivative  instruments  at December 31, 2002 resulted in an unrealized
loss of $1,597,000 in 2002 compared to an unrealized gain of $4,215,000 in 2001.
Also in 2001, an unrealized  loss of  $3,747,000,  resulting from the cumulative
effect of adopting SFAS No. 133 "Accounting for Derivative Instruments and Other
Hedging Activities," was recorded.

     Dry Holes, Abandoned Property,  Impaired Assets. The costs of a dry hole in
Louisiana of $339,000,  abandoned  property in Oklahoma of $222,000 and impaired
assets in  Mississippi of $55,000  totaled  $617,000 in 2002 compared to none in
2001.

     Dividends on Preferred Stock. In 2002, dividends on Preferred Stock due and
paid were $112,000.  Dividends on Preferred Stock due were $56,000 and paid were
$28,000 in 2001.

Financial Condition and Capital Resources

     At March 31, 2004, our current  liabilities  exceeded our current assets by
$43,066,002.  We had a loss available to common shareholders of $303,003 for the
quarter compared to an income of $120,659 for the period in 2003.

     During the first quarter of 2004,  our sales volumes were 45,184 barrels of
crude oil and 253,756 Mcf of natural gas compared to 61,209 barrels of crude oil
and 317,547 Mcf of natural gas in the first  quarter of 2003.  Revenue for crude
oil sales for the quarter was  $1,263,863 in 2004 compared to $1,501,723 in 2003
and for natural gas sales was $1,236,777 in 2004 compared to $1,703,140 in 2003.
                                       19


     In a  subsequent  event on April 27,  2004,  we  completed  an  $18,000,000
financing  package  with new  energy  lenders.  We used  $15,700,000  to  retire
existing debt of  $27,584,145,  resulting in forgiveness of debt of $11,884,145,
the cancellation of a hedging liability and the return of $1,000,000 in Series F
Preferred  Stock.  The  resulting  taxable  gain  will be  completely  offset by
available net  operating  loss  carryforwards.  The term of the note is eighteen
months and it bears  interest at the prime rate plus 11%. This rate increases by
..75% per month  beginning  in month ten. We paid the new lenders  $1,180,000  in
cash fees and also issued them  warrants  to  purchase  2,035,621  shares of our
common stock at an exercise price of $.01 per share, expiring in five years.

     The new $18,000,000  credit facility has a term of 18 months.  However,  if
the loan has not been repaid by the end of nine months the lender is entitled to
receive a 0.5% overriding  royalty interest on all of the oil and gas properties
in  GulfWest  Oil &  Gas  Company  for each month the loan  continues  to be
outstanding up until the 18th month.  In addition,  the lender may at its option
control  the  revenue  stream of the  Company  and any  resulting  disbursements
starting in month ten.  Further,  the lender will receive a fee of $270,000 upon
the repayment of the credit facility.

     Simultaneously with the financing,  our wholly-owned  subsidiary,  GulfWest
Oil & Gas Company,  completed the initial phase of a private offering of its
Series A  Preferred  Stock  for  $4,000,000.  The  Series A  Preferred  Stock is
exchangeable  into our common  stock  based on a  liquidation  value of $500 per
share of Series A Preferred  Stock divided by $.35 per share of our common stock
or  11,428,571  shares.  As part of an advisory  fee, we issued  $500,000 of the
Series A Preferred Stock to a financial  advisor.  One of our directors acquired
$1,500,000 of the Series A Preferred Stock.

     Pursuant to an agreement with the financial  advisor who provided access to
the lender and raised $1,900,000 of the Series A Preferred Stock, we paid a cash
fee of $400,000, in addition to the $500,000 issued in Series A Preferred Stock.
The advisor contends that additional fees are due, however,  we disagree and, at
this time, do not know what the outcome of the disagreement will be.

     Of the $21,500,000  total cash raised,  we used $15,700,000 to pay existing
debt and  associated  obligations  and  $1,580,000 to pay fees and  commissions,
leaving $4,220,000 available for capital expenditures and working capital.

     Effective  December 1, 200l and amended August 16, 2002, we entered into an
Oil and Gas Property  Acquisition,  Exploration and  Development  Agreement (the
"Summit  Agreement") with Summit  Investment  Group-Texas,  L.L.C., an unrelated
party,  ("Summit").  Under  the  agreement,  Summit  provided  payments  in  the
aggregate of $1,200,000 in advanced funds for our use in the  acquisition of oil
and  gas  leases  and  other  mineral  and  royalty  interests,  and  production
activities, and was to recoup and recover those advanced funds.

     On March 5, 2004,  we entered into an Option  Agreement for the Purchase of
Oil and Gas Leases (the  "Addison  Agreement")  with W. L.  Addison  Investments
L.L.C., a private company owned by Mr. J. Virgil Waggoner and Mr. John E. Loehr,
two of our directors,  (`Addison").  Under the Addison Agreement, Addison agreed
to pay Summit,  on our behalf,  the non-recouped and outstanding  advanced funds
amounting  to   $1,200,000,   thereby   retiring  the  Summit   Agreement.   For
consideration  of such payment,  Addison acquired certain oil and gas leases and
wellbores from Summit but agreed to grant us a 180-day  redemption option (which
may be extended by mutual  consent) to purchase  the same for  $1,200,000,  plus
interest at the prime rate plus 2%. We tendered Addison a promissory note in the
amount of $600,000,  with interest at the prime rate plus 2%, to substitute  for
an account  payable to Summit,  pursuant  to the Summit  Agreement,  in the same
amount.  The note will be considered  paid in full if we exercise the redemption
option and pay the  $1,200,000,  plus  interest.  Summit  retained  the right to
participate  up to a 25% working  interest  in the  drilling of any wells on the
                                       20


leases  acquired by Addison.  In the event we exercise  the  redemption  option,
Addison  may, at its sole  option,  retain up to a 25%  working  interest in the
leases.

     We are  pursuing  the  consolidation  of all of our debt,  including  notes
payables and bridge loans.  Our goal is to simplify our financial  structure and
provide adequate capitalization for the development of our oil and gas assets.

Inflation and Changes in Prices

     While the general level of inflation  affects certain costs associated with
the petroleum  industry,  factors  unique to the industry  result in independent
price  fluctuations.  Such price  changes have had, and will  continue to have a
material   effect  on  our   operations;   however,   we  cannot  predict  these
fluctuations.

     The following  table indicates the average crude oil and natural gas prices
received over the last three years by quarter.  Average prices per barrel of oil
equivalent,   computed  by  converting  natural  gas  production  to  crude  oil
equivalents  at the rate of 6 Mcf per barrel,  indicate the composite  impact of
changes in crude oil and natural gas prices.


                                                               Average Prices
                                         ------------------------------------------------------------
                                            Crude Oil                                      Per
                                               And                 Natural             Equivalent
                                             Liquids                 Gas                 Barrel
                                         -----------------     ----------------      ----------------
                                            (per Bbl)             (per Mcf)

2003
- ----
First                                        $24.53                $5.36                $28.08
Second                                        23.53                 4.47                 25.04
Third                                         23.85                 4.32                 24.86
Fourth                                        24.99                 4.56                 25.02

2002
- ----
First                                        $19.40                $2.81                $18.31
Second                                        20.75                 3.16                 19.83
Third                                         22.04                 2.87                 19.67
Fourth                                        22.38                 3.56                 22.11

2001
- ----
First                                        $24.15                $5.27                $27.87
Second                                        24.14                 3.88                 23.71
Third                                         23.25                 3.08                 21.08
Fourth                                        19.94                 2.62                 17.96

Controls and Procedures

     Our principal executive officer and our principal financial officer,  based
on their  evaluation of our  disclosure  controls and  procedures (as defined in
Rules  13a-14(c) of the  Securities  Exchange Act of 1934) as of March 31, 2004,
have concluded that as of such date, our disclosure  controls and procedures are
adequate  to  ensure  material  information  and  other  information   requiring
disclosure is identified and communicated on a timely basis.
                                       21


     During the year ended  December  31, 2003 and the three  months ended March
31,  2004,  there were no  significant  changes  in our  internal  control  over
financial  reporting that have materially  affected or are reasonably  likely to
materially affect our internal control over financial reporting.

Qualitative and Quantitative Disclosures About Market Risk

     Information with respect to qualitative  disclosures about material risk is
contained in "Risk Factors".

     Information  with respect to quantitative  disclosures  about material risk
follow:

     All of our financial  instruments  are for purposes other than trading.  We
only enter derivative financial  instruments in conjunction with our oil and gas
hedging activities.

     Hypothetical  changes in interest rates and prices chosen for the following
stimulated   sensitivity  effects  are  considered  to  be  reasonably  possible
near-term changes generally based on consideration of past fluctuations for each
risk  category.  It is not  possible to  accurately  predict  future  changes in
interest rates and product prices.  Accordingly,  these hypothetical changes may
not be an indicator of probable future fluctuations.

Interest Rate Risk

     We are exposed to interest rate risk on debt with variable  interest rates.
At May 26, 2004, we carried  variable rate debt of  $28,875,565.  Assuming a one
percentage  point change at May 26, 2004 on our variable  rate debt,  the annual
pretax income (loss) would change by $288,756.

Commodity Price Risk

     In the past we have  entered  into and may in the future enter into certain
derivative  arrangements  with  respect to  portions  of our oil and natural gas
production to reduce our sensitivity to volatile commodity prices.  During 2003,
2002, and 2001, we entered into price swaps and put agreements.  We believe that
these derivative arrangements,  although not free of risk, allow us to achieve a
more  predictable  cash  flow and to  reduce  exposure  to  price  fluctuations.
However,  derivative  arrangements  limit the benefit to us of  increases in the
prices of crude oil and natural gas sales. Moreover, our derivative arrangements
apply  only to a portion  of our  production  and  provide  only  partial  price
protection against declines in price. Such arrangements may expose us to risk of
financial  loss in certain  circumstances.  We expect  that the daily  volume of
derivative  arrangements will vary from time to time. We continuously reevaluate
our derivative program in light of market conditions, commodity price forecasts,
capital  spending  and debt  service  requirements.  For  2004,  we have  hedged
approximately 70% of our projected oil production and gas production.

                   Crude Oil                                Daily Volume                      Price per Bbl
                   ---------                                ------------                      -------------
May 1, 2004 to October 31, 2005                               329 Bbls                            $32.00
November 1, 2005 to April 30, 2006 (1)                        231 Bbls                             $25.75 put
May 1, 2006 to October 31, 2006 (1)                           198 Bbls                             $25.75 put
November 1, 2006 to April 30, 2007 (1)                        165 Bbls                             $25.75 put
                  Natural Gas                               Daily Volume                     Price per MMBTU
                  -----------                               ------------                     ---------------
May 1, 2004 to October 31, 2005                              1,865 MMBTU                          $5.15
November 1, 2005 to April 30, 2006 (1)                       1,698 MMBTU                           $4.50 put
May 1, 2006 to October 31, 2006 (1)                          1,319 MMBTU                           $4.50 put
November 1, 2006 to April 30, 2007 (1)                        989 MMBTU                            $4.50 put
                                       22

(1) These are "put" derivative  instruments we purchased and we will receive the
difference  between the actual market price and the put price only if the actual
market price is below the put price.  If the actual  market price is equal to or
above the put price, we do not pay or receive any settlement amount.

     Oil and gas sales are adjusted for gains or losses related to the effective
portion of hedging  transactions  as the underlying  hedged  production is sold.
Changes in fair value of the  ineffective  portion of  designated  hedges or for
derivative  arrangements  that do not  qualify as hedges are  recognized  in the
consolidated  statement  of  income  as  derivative  gain or  loss.  None of our
derivative  instruments  at March 31, 2004 were  designated  as hedges under the
terms of SFAS No.  133,  "Accounting  for  Derivative  Instruments  and  Hedging
Activity." Adjustments to oil and gas sales from our hedging activities resulted
in a reduction in revenues of  $1,496,303,  $368,776 and $762,480 in 2003,  2002
and 2001, respectively.  In addition, we recognized a gain/(loss) on derivatives
of $537,526,  ($1,596,575) and $4,215,017 in 2003, 2002 and 2001,  respectively.
See Note 1 to our Consolidated  Financial  Statements  included in this Form S-1
for additional discussion on derivative instruments.

     Based on NYMEX futures prices,  the fair value of our hedging  arrangements
at March 31, 2004 was a net loss of $591,467. All hedges which were in existence
at March 31, 2004 were canceled as part of our debt  restructuring  on April 27,
2004.

     More  generally,  dramatic  price  volatility  in the  natural  gas and oil
markets has existed the past several  years.  In fact, the average quoted prices
for natural gas hovered  around the low levels of $2.10 per MCf in January 2002,
with  the  expectation  of  further   decreases.   However,   the  market  price
dramatically  reversed  in the  summer  months  of 2002  and have  continued  to
improve,  which lead natural gas to trade at an average NYMEX price of $5.44 per
MMBTU for 2003.

Financial Statements and Supplementary Data

     Information with respect to this our financial statements and supplementary
data is  contained  in our  financial  statements  beginning  on Page F-1 of the
financial section of this Prospectus.
                                       23

                             BUSINESS AND PROPERTIES

Our Business

     This summary highlights  selected  information  contained elsewhere in this
prospectus.  The following  summary does not contain all of the information that
may be important.  You should read the detailed information  appearing elsewhere
in this prospectus before making an investment  decision.  Certain terms that we
use in our  industry  are  italicized  and defined in the  "Glossary of Industry
Terms and Abbreviations" on page 44. Unless otherwise indicated,  all references
to "GulfWest", the "Company", "we", "us" and "our" refer to GulfWest Energy Inc.
and our subsidiaries.

     We are primarily engaged in the acquisition,  development, exploitation and
production of crude oil and natural gas. Our focus is on  increasing  production
from our existing  properties  through  further  exploitation,  development  and
exploration,  and on acquiring additional interests in crude oil and natural gas
properties.

     Since  we  made  our  first  significant   acquisition  in  1993,  we  have
substantially  increased our ownership in producing  properties and the value of
our crude oil and natural gas reserves through a combination of acquisitions and
the further  exploitation  and  development of our  properties.  At December 31,
2003, our part of the estimated  proved  reserves these  properties  contain was
approximately  5.0 million  barrels  (MBbl) of oil and 32.7  billion  cubic feet
(Bcf) of  natural  gas with a Present  Value  discounted  10%  (PV-10) of $114.4
million.  At  present,  all of our  properties  are  located  on land in  Texas,
Colorado,  Louisiana  and  Oklahoma,  except  for the  property  on Grand  Lake,
Louisiana.  In the future, we plan to expand by acquiring additional  properties
in those areas, and in similar  properties  located in other areas of the United
States.

     Our  operations are  considered to fall within a single  industry  segment,
which is the acquisition, development, production and servicing of crude oil and
natural gas properties.  See "Management's  Discussion and Analysis of Financial
Condition and Results of Operations."

Our Company

     We were formed as a corporation under the laws of the State of Utah in 1987
as  Gallup  Acquisitions,  Inc.,  and  subsequently  changed  our  name to First
Preference  Fund,  Inc.  and then to  GulfWest  Energy,  Inc.  We became a Texas
corporation by a merger effected in July 1992, in which our name became GulfWest
Oil Company. On May 21, 2001, we changed our name to GulfWest Energy Inc.

     Our  principal  office is located at 480 North Sam  Houston  Parkway  East,
Suite 300, Houston, Texas 77060 and our telephone number is (281) 820-1919.

     GulfWest Energy Inc. has six active and three inactive, direct or indirect,
wholly owned subsidiaries: The active subsidiaries are:

          1. GulfWest Oil and Gas Company,  a Texas  corporation,  was organized
     February 18, 1999 and is the owner of record of interests in certain  crude
     oil and natural gas properties  located in Colorado,  Texas, and Louisiana.
     It  has  one  wholly  owned  subsidiary,   GulfWest  Oil  and  Gas  Company
     (Louisiana) LLC, a Louisiana company,  that was formed July 31, 2001 and is
     the owner of record of  interests  in  certain  crude oil and  natural  gas
     properties in Louisiana.

          2.  SETEX Oil and Gas  Company,  a Texas  corporation,  was  organized
     August 11, 1998 and is the operator of crude oil and natural gas properties
     in which we own the majority working interest.
                                       24


          3. RigWest Well  Service,  Inc., a Texas  corporation,  was  organized
     September  5,  1996  and  operates  well  servicing  equipment  for our own
     account.

          4. DutchWest Oil Company, a Texas corporation,  was organized July 28,
     1997 and is the owner of  record  of  interests  in  certain  crude oil and
     natural gas properties located along the Gulf Coast of Texas.

          5. GulfWest  Development  Company, a Texas corporation,  was organized
     November 9, 2000 and is the owner of record of interests  in certain  crude
     oil and natural gas properties located in Texas, Oklahoma and Mississippi.

Our Business Strategy

     We have pursued a business strategy of acquiring interests in crude oil and
natural gas producing  properties where production and reserves can be increased
through exploitation activities. Such activities include workovers,  development
drilling, recompletions,  replacement or addition of equipment and waterflood or
other  secondary  recovery  techniques.  We have  expanded our business  plan to
include an  increased  but  controlled  emphasis  on  development  drilling  for
additional  crude oil and natural gas  reserves.  Key  elements of our  business
strategy include:

     Continued Acquisition Program. We acquired properties in four crude oil and
natural  gas  fields  in Texas  and  Louisiana  in the year  2001.  We intend to
continue to pursue interests in crude oil and natural gas properties (i) held by
small, under-capitalized operators and (ii) being divested by larger independent
and major oil and gas companies.

     Development  and  Exploitation  of  Existing  Properties.  Our intent is to
increase  crude oil and  natural gas  production  and  reserves of our  existing
assets through relatively low-risk  development  activities,  such as workovers,
recompletions, horizontal drilling from existing wellbores and infield drilling,
as well as the more efficient use of production  facilities and the expansion of
existing waterflood operations.

     Significant  Operating Control.  Currently,  we are the operator of all the
wells,  except two, in which we own working  interests.  This operating  control
enables us to better manage the nature,  timing and costs of development of such
wells, and marketing of the resulting production.
                                       25

     Ownership of Workover  Rigs. We currently own three  workover  service rigs
and one  swabbing  unit that we  operate  for our own  account.  By  owning  and
operating  this  equipment,  we are  better  able to control  costs,  quality of
operations and availability of equipment and services.

     Greater  Natural Gas  Ownership.  At December 31, 2003,  our reserves  were
comprised of 48% crude oil and 52% natural  gas. We will  continue to expand our
role in the domestic natural gas industry by (i) acquiring  additional interests
in natural gas  properties,  (ii)  increasing the production and reserve base of
our  existing  natural gas  properties,  and (iii)  acquiring  ownership of more
natural gas  gathering  systems and  pipelines.  We are  presently  focusing our
workover and  development  efforts on both crude oil and natural gas reserves to
take advantage of the higher prices of both commodities.  We are also seeking to
expand our ownership of gas gathering  systems and pipelines located in our main
field  areas.   Our  goal  is  to  have  greater  control  of  our  natural  gas
transportation  and  marketing,  and an expanded role in the  transportation  of
natural gas produced by other parties in our area of operations.

     Expanded  Exploration  and  Exploitation  Role.  Historically,  we have not
drilled  exploratory  wells due to the cost and risk  associated  with  drilling
prospective  locations.  However,  since  the  end of  1998,  we  have  acquired
producing  properties that have included significant acreage for prospective oil
and gas  exploration.  These  include  producing  wells and acreage in Crockett,
Grimes, Hardin, Jim Wells, Kimble, Madison, Palo Pinto, Refugio, Sutton, Wharton
and Zavala, Counties, Texas; Adams, Arapaho, Elbert and Weld Counties, Colorado;
Creek County, Oklahoma; and, Cameron Parish, Louisiana.  These acquisitions have
added  existing  natural gas and crude oil  production to our asset base and, as
importantly,  have provided us with immediate  geological databases for drilling
opportunities.  We have  expanded  our  evaluation  efforts in these  fields and
intend to increase our  development of reserves,  not only through  workovers of
existing wells, but by drilling additional wells.

Our Employees

     At December 31, 2003, we had 34 full time employees,  of whom 22 were field
personnel.

Our Properties

     At December  31, 2003,  we owned a total of 684 gross  wells,  of which 266
were producing,  351 were shut-in or temporarily abandoned and 67 were injection
or saltwater  wells.  We owned an average 94% working  interest in the 266 gross
(249.90 net) producing wells.  Gross wells are the total wells in which we own a
working interest.  Net wells are the sum of the fractional  working interests we
own in gross wells.  Our part of the estimated  proved reserves these properties
contain was  approximately  5.0 million  barrels  (MBbl) of oil and 32.7 billion
cubic feet (Bcf) of natural gas. Substantially all of our properties are located
in Texas, Colorado, Louisiana and Oklahoma.
                                       26

Proved Reserves

     The following  table reflects our estimated  proved reserves at December 31
for each of the preceding three years.



                                               2003           2002           2001
                                               ----           ----           ----

                        Crude Oil (MBbl)
                               Developed
                             Undeveloped     3,773          4,026          3,940

                                             1,265          1,496          1,932
                                           -------------  -------------  -------------

                                   Total
                                             5,038          5,522          5,872
                                           =============  =============  =============

                      Natural Gas (MMcf)
                               Developed
                             Undeveloped    24,642         25,374         21,204

                                            8,018          8,785          18,054
                                           -------------  -------------  -------------

                                   Total   32,660         34,159         39,258
                                           =============  =============  =============

                            Total (MBOE)   10,481         11,215         12,415
                                           =============  =============  =============

     (a)  Approximately  75% of our total proved  reserves  were  classified  as
proved developed at December 31, 2003.

     (b) Barrel of Oil Equivalent  (BOE) is based on a ratio of 6,000 cubic feet
of natural gas for each barrel of oil.

Standardized Measure of Discounted Future Net Cash Flows

     The following  table sets forth as of December 31 for each of the preceding
three years, the estimated future net cash flow from and standardized measure of
discounted future net cash flows of our proved reserves,  which were prepared in
accordance  with the  rules  and  regulations  of the  Securities  and  Exchange
Commission.  Future  net cash flow  represents  future  gross cash flow from the
production  and sale of  proved  reserves,  net of  crude  oil and  natural  gas
production  costs  (including  production  taxes, ad valorem taxes and operating
expenses) and future  development  costs. The  calculations  used to produce the
figures in this table are based on current cost and price factors at December 31
for each  year.  We  cannot  assure  you that the  proved  reserves  will all be
developed  within the periods used in the  calculations or that prices and costs
will remain constant.

                                                            2003                  2002                  2001
                                                     --------------------  --------------------  -------------------

Future cash inflows                                  $     336,795,385     $    308,381,837      $    199,162,921

Future production and development costs-
  Production                                               109,468,727          105,629,872            77,526,278
  Development                                               21,460,459           23,350,811            23,610,596
                                                     --------------------  --------------------  -------------------

Future net cash flows before income taxes                  205,866,199          179,401,154             98,026,047
Future income taxes                                        (46,885,360)         (38,611,577)           (13,281,358)
                                                     --------------------  --------------------  -------------------

Future net cash flows after income taxes                   158,980,839          140,789,577             84,744,689
10% annual discount for estimated timing
  of cash flows                                            (70,653,419)         (63,165,742)           (35,895,306)
                                                      --------------------  --------------------  ------------------

Standardized measure of discounted
 Future net cash flows(1)                            $       88,327,420    $      77,623,835     $      48,849,383
                                                     ====================  ====================  ===================

(1)  The average prices of our proved reserves were $29.51 per Bbl and $5.82 per
     Mcf,  $28.72  per Bbl and $4.43 per Mcf,  and  $17.67  and $2.43 per Mcf at
     December 31, 2003, 2002 and 2001 respectively.
                                       27

Significant Properties

     Summary  information  on our properties  with proved  reserves is set forth
below as of December 31, 2003.

                        Productive Wells                            Proved Reserves                            Present
                 --------------------------------------------------------------------------------------- ----------------
                     Gross             Net                                                                  Value (1)
                                                                                                            ---------
                 ProductiveWells   Productive         Crude               Natural
                                      Wells            Oil                  Gas             Total             Amount
                 --------------  ---------------------------------     --------------  ----------------   ---------------
                                                       (MBbl)               (MMcf)         (MBOE)              ($M)

Texas                 185           181.03             2,969                18,717          6,088          $    67,235
Colorado               35            23.62               355                 6,090          1,370               11,303
Oklahoma               28            28.00               150                   -              150                1,301
Louisiana              17            16.88             1,558                 7,853          2,867               34,484
Mississippi             1              .37                 6                   -                6                   73
                ------------------------------------------------- ------------------------------------   --------------
          Total       266           249.90             5,038                32,660         10,481        $     114,396
                ================================================= ====================================   ==============

(1)  The average prices of our proved reserves were $29.51 per Bbl and $5.82 per
     Mcf at December 31, 2003.

     All information set forth herein relating to our proved reserves, estimated
future  net cash flows and  present  values is taken from  reports  prepared  by
Pressler Petroleum Consultants,  independent petroleum engineers.  The estimates
of these  engineers  were based upon their review of  production  histories  and
other  geological,  economic,  ownership  and  engineering  data provided by and
relating  to us. No reports  on our  reserves  have been filed with any  federal
agency. In accordance with the Securities and Exchange Commission's  guidelines,
our estimates of proved  reserves and the future net revenues from which present
values  are  derived  are made using  year end crude oil and  natural  gas sales
prices held constant throughout the life of the properties (except to the extent
a contract specifically provides otherwise).  Operating costs, development costs
and certain  production-related  taxes were  deducted  in arriving at  estimated
future net  revenues,  but such costs do not include debt  service,  general and
administrative expenses and income taxes.

     There are  numerous  uncertainties  inherent  in  estimating  crude oil and
natural  gas  reserves  and their  values,  including  many  factors  beyond our
control.  The reserve  data set forth in this  report are based upon  estimates.
Reservoir  engineering is a subjective  process,  which involves  estimating the
sizes of underground  accumulations  of crude oil and natural gas that cannot be
measured in an exact manner.  The accuracy of any reserve estimate is a function
of the quality of available data,  engineering and geological  interpretation of
that  data,  and  judgment.  As a  result,  estimates  of  different  engineers,
including  those used by us, may vary.  In  addition,  estimates of reserves are
subject to revision based upon actual production, results of future development,
exploitation  and exploration  activities,  prevailing crude oil and natural gas
prices,  operating  costs and other  factors.  Such  revisions  may be material.
Accordingly,  reserve estimates are often different from the quantities of crude
oil and natural gas that are ultimately  recovered and are highly dependent upon
the accuracy of the assumptions  upon which they are based. We cannot assure you
that the  estimates  contained  in this report are accurate  predictions  of our
crude oil and natural gas reserves or their  values.  Estimates  with respect to
proved reserves that may be developed and produced in the future are often based
upon  volumetric  calculations  and upon  analogy to similar  types of  reserves
rather than upon actual production history. Estimates based on these methods are
generally  less  reliable  than  those  based  on  actual  production   history.
Subsequent  evaluation of the same reserves based upon  production  history will
result in potentially substantial variations in the estimated reserves.
                                       28

Production, Revenue and Price History

     The  following  table sets forth  information  (associated  with our proved
reserves)  regarding  production  volumes of crude oil and natural gas, revenues
and expenses  attributable  to such  production  (all net to our  interests) and
certain price and cost  information  for the years ended December 31, 2003, 2002
and 2001.

                                              2003                2002                2001
                                         ----------------    ----------------    ----------------

Production
    Oil (Bbl)                                 221,433             278,374             294,276
    Natural gas (Mcf)                       1,191,350            1,487,048          1,594,899
                                         ----------------    ----------------    ----------------
        Total (BOE)                           419,991              526,215            560,092

Revenue
    Oil production                       $  5,362,657        $   5,859,568       $  6,690,338
    Natural gas production                  5,481,803            4,587,601          5,735,765
                                         ----------------    ----------------    ----------------
         Total                           $ 10,844,460        $  10,447,169       $ 12,426,103

Operating Expenses                       $  5,527,841        $   5,430,205       $  5,155,500

Production Data
    Average sales price
        Per barrel of oil                $      24.22        $       21.05       $      22.73
        Per Mcf of natural gas                   4.60                 3.09               3.60
        Per BOE                                 25.82                19.85              22.19

    Average expenses per BOE
        Lease operating                         13.16                10.32               9.20
        Depreciation, depletion and
        amortization                             5.30                 5.13               4.45
        General and administrative       $       5.39         $       3.28        $      3.05

Productive Wells at December 31, 2003

     The  following  table  shows  the  number  of  productive  wells  we own by
location:

                       Gross            Net            Gross             Net
                     Oil Wells       Oil Wells       Gas Wells        Gas Wells
                    ------------    ------------    -------------    ------------

Texas                   109            108.81           76              72.22
Colorado                 22             14.37           13               9.25
Oklahoma                 28             28.00           -                 -
Louisiana                13             12.88            4               4.00
Mississippi               1               .37           -                 -
                    ------------    ------------    -------------    ------------
     Total              173            164.43           93              85.47
                    ============    ============    =============    ============
                                       29

Developed Acreage at December 31, 2003

     The following  table shows the developed  acreage that we own, by location,
which is acreage  spaced or assigned to  productive  wells.  Gross acres are the
total  acres in which we own a  working  interest.  Net acres are the sum of the
fractional working interests we own in gross acres.


                                              Gross Acres             Net Acres
        Texas                                    18,380                  14,255
        Colorado                                  5,000                   2,700
        Louisiana                                 1,695                   1,256
        Oklahoma                                    900                     684
                                              -------------        ------------
                        Total                    25,975                  18,895

Undeveloped Acreage at December 31, 2003

     The following table shows the undeveloped acreage that we own, by location.
Undeveloped acreage is acreage on which wells have not been drilled or completed
to a point that would permit the  production of  commercial  quantities of crude
oil and natural gas.


                                              Gross Acres             Net Acres
        Texas                                    18,070                  14,749
        Colorado                                 10,000                   6,000
        Louisiana                                    80                      55
        Oklahoma                                    900                     684
                                                  -------------    ------------
                        Total                    29,050                  21,488

Drilling Results

     We did not drill any wells in 2003.  In 2002,  we drilled  one  exploratory
well, in which we own 18% working interest,  that resulted in a dry hole and one
development well, in which we own 100% working interest, that is productive.  We
drilled  three  wells  in 2001,  all of which  were  development  wells  and are
currently productive.  These development wells included two horizontal wells, in
which we own 96% and 89% working interest, drilled by sidetracking from existing
wellbores in the Madisonville  Field,  Texas, and one well, in which we own 100%
working interest, that was deepened in our Leona River Field, Texas.

Legal Proceedings

     From time to time, we are involved in litigation relating to claims arising
out of our  operations  or from  disputes  with vendors in the normal  course of
business.  As of May 26, 2004, we were not engaged in any legal proceedings that
are  expected,  individually  or in the  aggregate,  to have a material  adverse
effect on us.
                                       30

                                   MANAGEMENT

     The following  table sets forth  information on our directors and executive
officers:

              Name                 Age                Position                 Year First Elected
                                                                               Director or Officer
J. Virgil Waggoner(1)(2)            76   Chairman of the Board                        1997


John E. Loehr                       58   Chief Executive Officer and                  1992
                                         Director
Thomas R. Kaetzer                   45   President, Chief Operating                   1998
                                         Officer and Director
Marshall A. Smith III(1)(2)         56   Director                                     1989
M. Scott Manolis(1)(2)              50   Director                                     2003
Richard L. Creel                    55   Vice President of Finance and                1998
                                         Controller
Jim C. Bigham                       68   Vice President and Secretary                 1991
         (1)      Member of the Audit Committee.
         (2)      Member of the Compensation Committee.

     J. Virgil  Waggoner has served as a director of GulfWest  since December 1,
1997 and was elected Chairman of the Board in May, 2002. Mr.  Waggoner's  career
in the  petrochemical  industry  began in 1950 and  included  senior  management
positions with Monsanto Company and El Paso Products Company,  the petrochemical
and plastics unit of El Paso Company. He served as president and chief executive
officer of Sterling Chemicals,  Inc. from the firm's inception in 1986 until its
sale and his retirement in 1996. He is currently chief executive  officer of JVW
Investments, Ltd., a private company.

     John E. Loehr was appointed Chief Executive Officer on May 12, 2004 and has
served as a director of  GulfWest  since  1992,  was  chairman of the board from
September 1, 1993 to July 8, 1998 and was chief financial  officer from November
22, 1996 to May 28, 1998. He is also currently president and sole shareholder of
ST Advisory  Corporation,  an investment company, and vice-president of Star-Tex
Trading  Company,  also an  investment  company.  He was  formerly  president of
Star-Tex Asset Management,  a commodity-trading  advisor, and a position he held
from 1988 until 1992 when he sold his ownership interest. Mr. Loehr is a CPA and
a member of the American Institute of Certified Public Accountants.

     Thomas R. Kaetzer was appointed  senior vice president and chief  operating
officer of  GulfWest  on  September  15,  1998 and on  December  21, 1998 became
president  and a director.  He was Chief  Executive  Officer from March 20, 2001
until  May12,  2004.  Prior  to  joining  GulfWest,  Mr.  Kaetzer  had 17  years
experience  in the oil and gas  industry,  including  14 years with Texaco Inc.,
which  involved  the  evaluation,  exploitation  and  management  of oil and gas
assets. He has both onshore and offshore experience in operations and production
management,  asset  acquisition,  development,  drilling  and  workovers  in the
continental U.S., Gulf of Mexico,  North Sea, Colombia,  Saudi Arabia, China and
West Africa.  Mr.  Kaetzer has a Masters  Degree in Petroleum  Engineering  from
Tulane University and a Bachelor of Science Degree in Civil Engineering from the
University of Illinois.

     Marshall A. Smith III founded  GulfWest and served as an officer in various
capacities,  including  president,  chief executive  officer and chairman of the
board,  from July 1989 until his resignation in May 2002. He is currently a paid
consultant and remains a director.

     M. Scott  Manolis is newly  nominated to the board.  He is the chairman and
chief  executive  officer  of  Intermarket   Management,   LLC  and  Intermarket
Brokerage,   LLC.  He  has  over  twenty  years  experience  in  commodity  risk
management, commodity finance and commodity-based investments. Prior to founding
Intermarket,  Mr. Manolis  concurrently served as managing director of Commodity
Strategies  for Refco Group,  LTD. and Managing  Director of Global  Derivatives
Strategies for  Forstmann-Leff  International  (an asset  management firm wholly
owned by Refco Group, LTD), where he directed commodity-based investments. Prior
to that, he served as a vice  president and director of the Commodity  Portfolio
Management  Group at Jefferies &  Company.  He received a B. S. in Economics
from the University of South Dakota in 1979.

     Richard L. Creel has served as controller of GulfWest since May 1, 1997 and
was  elected  vice  president  of  finance  on May 28,  1998.  Prior to  joining
GulfWest, Mr. Creel served as Branch Manager of the Nashville,  Tennessee office
of Management Reports and Services, Inc. He has also served as controller of TLO
Energy  Corp.  He has  extensive  experience  in general  accounting,  petroleum
accounting and financial consulting and income tax preparation.

     Jim  Bigham  has  served as  secretary  since  1991 and as  executive  vice
president of GulfWest since 1996. Prior to joining GulfWest,  he held management
and sales  positions in the real estate and printing  industries.  Mr. Bigham is
also a retired  United States Air Force Major.  During his military  career,  he
served  in  both  command  and  staff  officer  positions  in  the  operational,
intelligence and planning areas.
                                       31

     Directors  are  elected  annually  and hold  office  until the next  annual
meeting or until their successors are duly elected and qualified.

Code of Ethical Conduct

     The  Board  recently  adopted  a Code of  Ethical  Conduct  (the  "Code  of
Conduct"), which requires that all employees,  directors and officers, including
our Chief Executive Officer and Chief Financial  Officer,  adhere to the Code of
Conduct in addressing  legal and ethical issues  encountered in conducting their
work.  The Code of Conduct  requires that these  individuals  avoid  conflict of
interests,  comply with all laws and other legal requirements,  conduct business
in an honest and ethical manner and otherwise act with integrity and in our best
interest.  The  Code  of  Conduct  contains  additional  provisions  that  apply
specifically  to our Chief Financial  Officer and other financial  officers with
respect to full and accurate reporting.
Board Meetings and Committees

     Our  board  of  directors  has   established  an  audit   committee  and  a
compensation committee. The functions of these committees, their members and the
number of meetings held during 2003 are described below.

     The audit  committee  was  established  to review  and  appraise  the audit
efforts of our independent  auditors,  and monitor our accounts,  procedures and
internal controls.  The committee was comprised of Mr. John E. Loehr (Chairman),
Mr. J. Virgil  Waggoner,  and Mr. M. Scott  Manolis.  The committee met twice in
2003.  The Board of  Directors  had made a  determination  that Mr. Loehr was an
independent financial expert. When Mr. Loehr was elected Chief Executive Officer
on May 12, 2004, he resigned from the audit  committee.  Mr. Manolis was elected
Chair of the audit committee and Mr. Marshall A. Smith III has been appointed to
that  committee.  The Board of Directors has not had an  opportunity to conclude
whether the newly  constituted  audit  committee  has an  independent  financial
expert.

     The function of the  compensation  committee is to fix the annual  salaries
and other  compensation  for our officers and key  employees.  The committee was
comprised  of Mr. J. Virgil  Waggoner  (Chairman),  Mr. John E. Loehr and Mr. M.
Scott  Manolis.  The  committee met twice in 2003.  Mr. Loehr  resigned from the
committee on May 12, 2004 when he became Chief Executive Officer.

Compensation of Directors

     The  shareholders  approved an amended and restated  Employee  Stock Option
Plan on May 28, 1998,  which  included a provision for the payment of reasonable
fees in cash or stock to directors. No fees were paid to directors in 2003.
                                       32

                           EXECUTIVE COMPENSATION

Summary Compensation Table

     The following table sets forth information  regarding  compensation paid to
our  executive  officers  whose total  annual  compensation  is $100,000 or more
during each of the last three fiscal years.

                                                                                                Long Term
                                                                                             Compensation
                                              Annual Compensation                                Awards
                                             -----------------------------      -----------------------------
                                                                       Other                                All
                                                                       Annual      Restricted              Other
                                                     Year             Compen-        Stock                Compen-
Name and Principal Position       End         Salary($)   Bonus($)    sation($)   Awards($)  Options(#)  sation($)
- ---------------------------       ---        ----------   --------    ---------   ---------  ----------  ---------

Thomas R. Kaetzer (1)             2003         150,000         -         25,000         -         -          -
   President and                  2002         144,167         -         25,000         -      100,000       -
Chief                             2001         131,249         -         25,000         -      135,000       -
Executive  Officer
Marshall A. Smith III (2)         2001         150,000         -            -           -         -          -

(1)  Mr. Kaetzer joined us as chief  operating  officer in September,  1998, was
     elected  president in December,  1998 and chief executive  officer on March
     20, 2001. He receives a base annual salary $150,000,  plus a $25,000 annual
     contribution to a life insurance savings account paid monthly.  He was also
     awarded  5-year  options to purchase  300,000  shares of common stock to be
     issued 100,000 each year over a three year period.

(2)  Mr. Smith  served as chief  executive  officer  until March 20, 2001 and as
     chairman of the board until his resignation on May 11, 2002. As chairman of
     the board,  Mr. Smith devoted full time to the business.  Effective June 1,
     2002, he resigned as an executive  officer and became a paid  consultant at
     an annual fee of $150,000,  plus a $25,000  annual  contribution  to a life
     insurance  savings  account to be paid monthly.  His  consulting  agreement
     expires September 30, 2004.

Option Grants During 2003

     There were no options granted during 2003.

Option Exercises During 2003 and
Year End Option Values (1)

                                          Number of  Securities           Value of Unexercised
                                    Underlying Unexercised Options        In-the-Money Options
                                              at FY-End (#)                   at FY-End ($)
                                              Exercisable/                    Exercisable/
Name                                         Unexercisable                   Unexercisable
- ----------------------------        --------------------------------    --------------------------

Thomas R. Kaetzer                              335,000                            -0-

(1)  No shares were  acquired  or value  realized  upon the  exercise of options
     since no options were exercised by Mr. Kaetzer in 2003.
                                       33

Employment Agreements

     Effective October 1, 2001, we entered into an Employment Agreement with Mr.
Thomas R. Kaetzer,  president and chief executive  officer for a period of three
years. Under the Employment Agreement, Mr. Kaetzer receives a base annual salary
of $150,000,  plus a $25,000 annual  contribution  to a life  insurance  savings
account to be paid  monthly.  He was also  awarded  5-year  options to  purchase
300,000  shares of common stock to be issued 100,000 each year over a three year
period.

     In the event of a change of control,  Mr.  Kaetzer  will have the option to
continue as an employee under the terms of the Employment Agreement or receive a
lump-sum cash severance  payment equal to 200% of his annual base salary for the
year following the change of control.

     Effective  June 1, 2002,  we entered into a Consulting  Agreement  with Mr.
Marshall A. Smith III,  which expires  September  30, 2004 Under the  Consulting
Agreement,  Mr. Smith  receives an annual  consulting  fee of  $150,000,  plus a
$25,000  annual  contribution  to a life  insurance  savings  account to be paid
monthly.

     In the event of a change of  control,  Mr.  Smith  will have the  option to
continue as a consultant under the terms of the Consulting  Agreement or receive
a lump-sum cash severance payment equal to 200% of his annual consulting fee for
the year following the change of control.

Compensation Committee Interlocks and Insider Participation

     During fiscal year 2003, Messrs.  Waggoner, Loehr and Manolis served on the
Compensation Committee.  No interlocking  relationship exists between any member
of  the  Board  or  Compensation  Committee  and  any  member  of the  Board  or
Compensation  Committee  of any  other  company,  nor has any such  interlocking
relationship existed in the past.
                                       34

         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following  table sets forth  information  as of May 26 , 2004 regarding
the  beneficial  ownership  of common  stock by each  person  known to us to own
beneficially 5% or more of the outstanding common stock, each director,  certain
named executive  officers,  and the directors and executive officers as a group.
The  persons  named in the table  have sole  voting  and  investment  power with
respect to all shares of common stock owned by them, unless otherwise noted.

     Beneficial  ownership is  determined  in  accordance  with the rules of the
Securities and Exchange Commission. For the purpose of calculating the number of
shares beneficially owned by a shareholder and the percentage  ownership of that
shareholder,  shares of common  stock  subject  to  options  that are  currently
exercisable or exercisable within 60 days of the date of this prospectus by that
shareholder are deemed outstanding.

      Name and Address of             Amount and Nature of        Percent %
       Beneficial Owner               Beneficial Ownership        ---------
      ----------------                --------------------

      J. Virgil Waggoner1,2               16,157,543                64.5
      Thomas R. Kaetzer2,3                   633,852                 3.3
      Jim C. Bigham2,4                       245,985                 1.3
      Richard L. Creel2,5                    110,000                  .6
      John E. Loehr2,6                       417,491                 2.2
      Marshall A. Smith III2,7             1,055,759                 5.6
      M. Scott Manolis2,8                  1,428,751                 7.7
      All current directors and officers
         as a group (8 persons)9          18,370,630                69.9

1    Includes   4,285,714  shares  underlying   exchangeable   preferred  stock,
     2,250,000 shares underlying  convertible  preferred stock and 20,000 shares
     subject to currently exercisable options.

2    Shareholder's  address  is 480 N. Sam  Houston  Parkway  East,  Suite  300,
     Houston, Texas 77060.

3    Includes 196,226 shares owned directly,  2,626 shares owned by his wife and
     235,000 shares subject to currently exercisable warrants and options.

4    Includes  155,000  shares  subject to  currently  exercisable  warrants and
     options.

5    Includes 80,000 subject to currently exercisable options.

6    Includes 62,653 shares held directly; and 64,838 shares held by ST Advisory
     Corporation  and 290,000 shares subject to currently  exercisable  warrants
     and options.  Mr. Loehr is president  and sole  shareholder  of ST Advisory
     Corporation.

7    Includes 596,046 shares owned directly,  2,959 shares owned by his wife and
     456,754 shares subject to currently exercisable warrants and options.

8    Includes  1,428,751  shares held by  Intermarket  Management LLC subject to
     currently exchangeable preferred stock .

9    Includes  1,236,754  shares subject to currently  exercisable  warrants and
     options  and  6,535,714  shares  underlying   convertible  or  exchangeable
     preferred stock.
                                       35

                            CERTAIN RELATIONSHIPS AND
                              RELATED TRANSACTIONS

Transactions With Management and Others

     On October 23,  1995,  we sold  $25,000  each of 9%  promissory  notes in a
private offering to two trusts, the trustee of whom is John E. Loehr, an officer
and director. The balance of the notes was $50,000, plus accrued interest at May
26, 2004.

     In June,  1999,  we issued a promissory  note with  interest at 8.5% to Mr.
Marshall  A. Smith III,  an officer  and  director  at the time and  currently a
director,  in the amount of $124,083  for accrued  compensation.  The note has a
balance of $71,354 and is being paid in monthly  installments  of  approximately
$1,500 per month.

     On November 6, 2002, Mr. J. Virgil Waggoner, a director, provided us a loan
in the initial amount of $1,200,000, which was subsequently increased to a total
of $1,500,000,  which is  outstanding at May 26, 2004. We issued Mr.  Waggoner a
promissory  note with  interest  at the prime rate  (prime  rate 4.0% at May 26,
2004),  secured by common stock our of  wholly-owned  subsidiary,  DutchWest Oil
Company.  Mr. Waggoner also received  warrants to purchase 625,000 shares of our
Common Stock at an exercise price of $.75 per share. Those underlying shares are
included in this prospectus.

     On April 26, 2001, we obtained a line of credit of up to $2,500,000  from a
bank for which two directors,  Mr. J. Virgil Waggoner and Mr. Marshall A. Smith,
were guarantors. On April 3, 2002, the balance of the line of credit was retired
and a new line of  credit of up to  $3,000,000  was  obtained  from the bank for
which Mr. Waggoner and Mr. Smith were guarantors.

     On March 5, 2004,  we entered into an Option  Agreement for the Purchase of
Oil and Gas Leases (the  "Addison  Agreement")  with W. L.  Addison  Investments
L.L.C., a private company owned by Mr. J. Virgil Waggoner and Mr. John E. Loehr,
two of our directors,  (`Addison").  Under the Addison Agreement, Addison agreed
to pay Summit,  on our behalf,  the non-recouped and outstanding  advanced funds
amounting  to   $1,200,000,   thereby   retiring  the  Summit   Agreement.   For
consideration  of such payment,  Addison acquired certain oil and gas leases and
wellbores from Summit but agreed to grant us a 180-day  redemption option (which
may be extended by mutual  consent) to purchase  the same for  $1,200,000,  plus
interest at the prime rate plus 2%. We tendered Addison a promissory note in the
amount of $600,000,  with interest at the prime rate plus 2%, to substitute  for
an account  payable to Summit,  pursuant  to the Summit  Agreement,  in the same
amount.  The note will be considered  paid in full if we exercise the redemption
option and pay the  $1,200,000,  plus  interest.  Summit  retained  the right to
participate  up to a 25% working  interest  in the  drilling of any wells on the
leases  acquired by Addison.  In the event we exercise  the  redemption  option,
Addison  may, at its sole  option,  retain up to a 25%  working  interest in the
leases.

     As part of our recent  refinancing,  our former lender agreed to return all
shares of our Series F  Preferred  Stock held by it.  Rather  than  receive  the
shares as treasury shares (which would have meant cancellation of the series) at
our request the former lender  transferred one half of the shares to ST Advisory
Corp., an entity owned by John Loehr, our CEO and director,  and one half of the
shares to  Intermarket  Management  LLC, an entity  partially  owned by M. Scott
Manolis, one of our directors.  These transfers were to compensate Messrs. Loehr
and Manolis for service to the Company.
                                       36

                            DESCRIPTION OF SECURITIES

General

     The following  descriptions  are summaries of material  terms of our common
stock,  preferred stock,  articles of incorporation and bylaws.  This summary is
qualified  by  reference  to our  articles  of  incorporation,  bylaws  and  the
designations  of our  preferred  stock,  which  have  been  previously  filed as
exhibits to our public filings with the Securities and Exchange Commission,  and
by the provisions of applicable law.

     On July 8, 2004, at the Annual Meeting of  Shareholders,  our  shareholders
increased  the amount of shares we are  authorized  to issue from  40,000,000 to
80,000,000  shares of common  stock,  par value  $.001 per share.  As of May 26,
2004, there were 18,492,541 shares of our sole class of common stock, designated
Class A,  issued  and  outstanding,  and held by  approximately  580  beneficial
owners.  Our  common  stock is traded  over-the-counter  (OTC)  under the symbol
"GULF".  Fidelity Transfer Company,  1800 South West Temple,  Suite 301, Box 53,
Salt Lake City, Utah 84115,  (801) 484-7222 is the transfer agent for the common
stock.

Our Common Stock

     The holders of our common stock are entitled,  among other  things,  to one
vote per share on each matter  submitted to a vote of  shareholders  and, in the
event of liquidation,  to share ratably in the  distribution of assets remaining
after payment of liabilities (including  preferential  distribution and dividend
rights of holders of preferred  stock).  They have no cumulative  voting rights,
and,  accordingly,  the holders of a majority of the  outstanding  shares of the
common stock have the ability to elect all of the directors.

     Holders of common stock have no preemptive or other rights to subscribe for
shares.  Holders  of  common  stock are  entitled  to such  dividends  as may be
declared by the Board out of funds legally  available  therefore.  We have never
paid cash  dividends on the common stock and do not  anticipate  paying any cash
dividends in the foreseeable future.

Our Preferred Stock

     Our board of directors is authorized,  without further  shareholder action,
to issue  preferred  stock in one or more series and to  designate  the dividend
rate, voting rights and other rights,  preferences and restrictions of each such
series.

     As of May 26, 2004,  there was a total of 19,000 shares of preferred  stock
issued and  outstanding  in three  series,  including  8,000  shares of Series D
Preferred  Stock,  9,000 shares of Series E Preferred  Stock and 2,000 shares of
Series F Preferred Stock  (collectively,  Preferred Stock).  The 8,000 shares of
Series A Preferred Stock is held by multiple parties including 3,000 shares by a
director of the Company.  The 8,000 shares of Series D Preferred  Stock are held
by a former director, the 9,000 shares of Series E Preferred Stock are held by a
current  director  and the 2,000  shares  of Series F are held by two  companies
affiliated with two of our current  directors.  Our preferred stock is senior to
our common stock  regarding  liquidation.  The holders of the preferred stock do
not have voting rights or preemptive rights nor are they subject to the benefits
of any retirement or sinking fund.
                                       37


     The  Series D  Preferred  Stock is not  entitled  to  dividends,  nor is it
redeemable,  however it is convertible to common stock at any time.  None of the
8,000  outstanding  shares of Series D Preferred Stock has been converted.  On a
fully  converted  basis,  the 8,000  shares of Series D  Preferred  Stock  would
convert to 500,000 shares of common stock.

     The Series E Preferred  Stock is entitled to receive  dividends at the rate
of $12.50 per share per annum,  payable  quarterly,  as declared by the Board of
Directors,  until June 20, 2004 when the  dividend  rate shall be  increased  to
$30.00 per share per annum.  The Board of Directors  did not declare  payment of
dividends during 2003. The Series E Preferred Stock is redeemable in whole or in
part at any time,  at the  option of the  issuer,  at a price of $500 per share,
plus all accrued and undeclared or unpaid  dividends;  except that, prior to our
redemption  of the  remaining,  the  holders  of record  shall be given a 60-day
written notice of the issuer's  intent to redeem and the  opportunity to convert
the Series E  Preferred  Stock to common  stock.  The  conversion  price for the
Series E Preferred  Stock is based on $2.00 per share of common  stock.  None of
the 9,000  outstanding  shares of Series E Preferred  Stock has been redeemed or
converted.  On a fully converted  basis,  the 9,000 shares of Series E Preferred
Stock would convert to 2,250,000 shares of common stock.

     The Series F Preferred  Stock is entitled to receive  dividends at the rate
of $12.50 per share per annum,  payable  quarterly,  as declared by the Board of
Directors,  until May 30,  2006 when the  dividend  rate shall be  increased  to
$30.00 per share per annum.  The Series F Preferred Stock is redeemable in whole
or in part at any  time,  at the  option of the  issuer,  at a price of $500 per
share, plus all accrued and undeclared or unpaid  dividends;  except that, after
two years from the date of the  original  issuance,  June 1, 2003,  prior to our
redemption  of the  remaining  shares,  the  holders of record  shall be given a
60-day  written notice of the issuer's  intent to redeem and the  opportunity to
convert the Series F Preferred Stock to common stock.  The conversion  price for
the Series F Preferred  Stock is based on $1.00 per share of common stock.  None
of the 2,000 outstanding shares of Series F Preferred Stock has been redeemed or
converted.  On a fully converted  basis,  the 2,000 shares of Series F Preferred
Stock would convert to 1,000,000 shares of common stock.

Outstanding Options and Warrants

     At May 26, 2004, we had  outstanding  warrants and options for the purchase
of  5,102,621  shares of common  stock at prices  ranging from $.01 to $.875 per
share,  including  employee stock options to purchase 1,102,000 shares at prices
ranging  from  $.75 to $1.81  per  share.  If we issue  additional  shares,  the
existing  shareholders'  percentage  ownership  of the  Company  may be  further
diluted.

Anti-Takeover Effects of Texas Laws and Our Charter and Bylaws Provisions

     Articles of Incorporation and Bylaws. Certain provisions in our Articles of
Incorporation and Bylaws summarized below may be deemed to have an anti-takeover
effect and may delay, deter or prevent a tender offer or takeover attempt that a
shareholder might consider to be in its best interests,  including attempts that
might  result in a premium  being paid over the market price for the shares held
by shareholders.

     Our Articles of Incorporation and Bylaws contain provisions that:

     o    permit  us to  issue,  without  any  further  vote  or  action  by the
          shareholders,  additional  shares  of  preferred  stock in one or more
          series and,  with  respect to each such  series,  to fix the number of
          shares  constituting the series and the designation of the series, the
          voting  powers  (if  any)  of  the  shares  of  the  series,  and  the
          preferences  and relative,  participating,  optional and other special
          rights, if any, and any qualification, limitations or restrictions, of
          the shares of such series; and
                                       38


     o    Require  consent of  shareholders  owning over 50% of the  outstanding
          common stock to call special meetings.

     The foregoing  provisions of our Articles of Incorporation and Bylaws could
discourage potential  acquisition  proposals and could delay or prevent a change
in  control.  These  provisions  are  intended  to  enhance  the  likelihood  of
continuity and stability in the composition of the board of directors and in the
policies formulated by the board of directors and to discourage certain types of
transactions that may involve an actual or threatened  change of control.  These
provisions  are  designed  to  reduce  our   vulnerability   to  an  unsolicited
acquisition  proposal.  The provisions  also are intended to discourage  certain
tactics that may be used in proxy fights.  However,  such provisions  could have
the effect of discouraging  others from making tender offers for our shares and,
as a consequence,  they also may inhibit fluctuations in the market price of our
common stock that could result form actual or rumored  takeover  attempts.  Such
provisions also may have the effect of preventing changes in our management.

     Texas  Takeover  Statute.  We are  subject  to  Article  13.03 of the Texas
Business  Corporation  Act, which,  subject to certain  exceptions,  prohibits a
Texas corporation from engaging in any "business combination" (as defined below)
with any "affiliated shareholder" (as defined below) for a period of three years
following  the date that such  shareholder  became  an  affiliated  shareholder,
unless:  (i) prior to such  date,  the  board of  directors  of the  corporation
approved either the business combination or the transaction that resulted in the
shareholder becoming an affiliated shareholder; or (ii) not more than six months
subsequent to such date, the business combination is approved by the affirmative
vote of at least 66 2/3% of the  outstanding  voting  stock that is not owned by
the affiliated shareholder.

     The Texas  Business  Corporation  Act  defines  "business  combination"  to
include:  (i) any merger, share exchange or conversion involving the corporation
and the affiliated shareholder or an affiliate;  (ii) any sale, transfer, pledge
or other  disposition of 10% or more of the assets of the corporation  involving
the affiliated shareholder or an affiliate; (iii) subject to certain exceptions,
any  transaction  that results in the issuance or transfer of the corporation of
any stock of the corporation to the affiliated shareholder or an affiliate; (iv)
the adoption of a plan of  liquidation  or  dissolution  proposed by or under an
agreement with, the affiliated shareholder or an affiliate;  (v) any transaction
involving the  corporation  that has the effect of increasing the  proportionate
share of the stock of any class or series of the corporation  beneficially owned
by the affiliated shareholder; or (vi) the receipt by the affiliated shareholder
of the benefit of any loans,  advances,  guarantees,  pledges or other financial
benefits  provided by or through the  corporation.  In general,  an  "affiliated
stockholder"  is any  entity or person  beneficially  owning  20% or more of the
outstanding voting stock of the corporation.

Limitation on Liability of Directors

     Our articles of  incorporation  and bylaws  indemnify  our directors to the
fullest extent permitted by the Texas Business  Corporation Act. Article 2.01 of
the Texas Business  Corporation  Act provides that a corporation may indemnify a
person who was, is, or is threatened to be made a named  defendant or respondent
in a proceeding because the person is or was a director only if it is determined
that the person:

     (1)  conducted himself in good faith;

     (2)  reasonably believed:

          (a)  in the case of conduct in his official  capacity as a director of
               the corporation,  that his conduct was in the corporation's  best
               interests; and
                                       39

          (b)  in all other cases,  that his conduct was at least not opposed to
               the corporation's best interests; and

     (3)  in the case of any criminal  proceeding,  had no  reasonable  cause to
          believe his conduct was unlawful.

     Except to a limited extent, a director may not be indemnified in respect of
a proceeding:

     (1)  in which the person is found liable on the basis that personal benefit
          was improperly  received by him,  whether or not the benefit  resulted
          from an action taken in the person's official capacity; or

     (2)  in which the person is found liable to the corporation.

     Additionally, our Articles of Incorporation limit a director's liability to
the company to the fullest extent  permitted by the Texas  Business  Corporation
Act.  The Texas laws permit a  corporation  to limit or  eliminate a  director's
personal  liability to the  corporation  or the holders of its capital stock for
breach of duty.  This  limitation  is  generally  unavailable  to the extent the
director is found liable for: (1) a breach of the director's  duty of loyalty to
the corporation or its  shareholders  or members;  (2) an act or omission not in
good faith that  constitutes a breach of duty of the director to the corporation
or an  act  or  omission  that  involves  intentional  misconduct  or a  knowing
violation of the law;  (3) a  transaction  from which the  director  received an
improper  benefit,  whether or not the  benefit  resulted  from an action  taken
within the scope of the director's  office;  or (4) an act or omission for which
the liability of a director is expressly provided by an applicable statute.  The
Texas laws also prohibit limitations on director liability for acts or omissions
which  resulted  in  a  violation  of a  statute  prohibiting  certain  dividend
declarations  and  certain  payments  after  dissolution.  The  effect  of these
provisions  is to  eliminate  the  rights of our  company  and our  shareholders
(through  shareholders'  derivative  suits on behalf of our  company) to recover
monetary  damages  against a director for breach of fiduciary duty as a director
excepting the situations  described  above.  These provisions will not limit the
liability of directors under the federal securities laws of the United States.
                                       40

                  GLOSSARY OF INDUSTRY TERMS AND ABBREVIATIONS

     The following are definitions of certain  industry terms and  abbreviations
used in this report:

Bbl. Barrel.

BOE. Barrel of oil  equivalent,  based on a ratio of 6,000 cubic feet of natural
gas for each barrel of oil.

GrossAcres  or Gross  Wells.  The total  acres or wells,  as the case may be, in
which a working interests is owned.

Horizontal Drilling. High angle directional drilling with lateral penetration of
one or more productive reservoirs.

Mcf. One thousand cubic feet.

Net Acres or Net Wells.  The sum of the fractional  working  interests  owned in
gross acres or gross wells.

Overriding  Royalty  Interest.  The right to receive a share of the  proceeds of
production  from a well, free of all costs and expenses,  except  transportation
and severance taxes.

Present Value. The pre-tax present value,  discounted at 10%, of future net cash
flows  from  estimated  proved  reserves,  calculated  holding  prices and costs
constant at amounts in effect on the date of the report  (unless  such prices or
costs are subject to change pursuant to contractual provisions) and otherwise in
accordance  with the  Commission's  rules for  inclusion  of oil and gas reserve
information in financial statements filed with the Commission.

Proceeds of Production.  Money received  (usually  monthly) from the sale of oil
and gas produced from producing properties.

Producing Properties. Properties that contain one or more productive wells.

Productive  Well.  A well that is  producing  oil or gas or that is  capable  of
production.

Prospect.  A lease or group of leases containing  possible reserves,  capable of
producing  crude  oil,  natural  gas,  or  natural  gas  liquids  in  commercial
quantities,  either at the time of acquisition,  or after vertical or horizontal
drilling, completion of workovers, recompletions, or operational modifications.

Proved Reserves. 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 conditions; i.e., prices and costs as of the date the estimate is made.
Reservoirs  are  considered  proved if either actual  production or a conclusive
formation test supports economic production.

     The area of a reservoir considered proved includes:

     a.   That  portion  delineated  by  drilling  and  defining  by  gas-oil or
          oil-water contacts, if any; and

     b.   The  immediately  adjoining  portions not yet drilled but which can be
          reasonably judged as economically productive on the basis of available
          geological  and  engineering  data. In the absence of  information  on
          fluid contacts, the lowest known structural occurrence of hydrocarbons
          controls the lower proved limit of the reservoir.
                                       41

     Reserves which can be produced economically through application of improved
recovery  techniques  (such as fluid  injection)  are  included in the  "proved"
classification  when successful testing by a pilot project,  or the operation of
an installed  program in the  reservoir,  provides  support for the  engineering
analysis on which the project or program was based.

     Proved Reserves do not include:

     a.   Oil that may become  available from known reservoirs but is classified
          separately as "indicated additional reserves";

     b.   Crude oil, natural gas, and natural gas liquids, the recovery of which
          is subject to reasonable  doubt because of  uncertainty as to geology,
          reservoir characteristics, or economic factors;

     c.   Crude oil,  natural  gas,  and natural  gas liquids  that may occur in
          undrilled prospects; and

     d.   Crude oil,  natural gas, and natural gas liquids that may be recovered
          from oil shales and other sources.

Proved Developed Reserves. Reserves that can be expected to be recovered through
existing wells with existing equipment and operating methods. Additional oil and
gas expected to be obtained  through the application of fluid injection or other
improved recovery techniques for supplementing the natural forces and mechanisms
of primary recovery should be included as proved developed only after testing by
a pilot project or after operation of an installed program has confirmed through
production response that increased recovery will be achieved.

Proved Undeveloped Reserves. 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. Reserves on undrilled acreage shall be
limited to those drilling units offsetting  productive units that are reasonably
certain of production  when drilled.  Proved  reserves for other units that have
not been drilled can be claimed only where it can be demonstrated with certainty
that there is continuity of production from the existing  productive  formation.
Under no  circumstances  should  estimates  for proved  undeveloped  reserves be
attributable to any acreage for which an application of fluid injection or other
improved  recovery  technique is contemplated,  unless such techniques have been
proven effective by actual tests in the area and in the same reservoir.

Recompletion.  The completion for production of an existing  wellbore in another
formation from that in which the well has previously been completed.

Reservoir.  A porous and permeable  underground  formation  containing a natural
accumulation  of producible oil or gas that is confined by  impermeable  rock or
water barriers and is individual and separate from other reservoirs.

Royalty.  The right to a share of production  from a well, free of all costs and
expenses, except transportation.

Royalty Interest.  An interest in an oil and gas property entitling the owner to
a share of oil and natural gas production free of costs of production.
                                       42

Standardized  Measure. The present value,  discounted at 10%, of future net cash
flows from estimated proved  reserves,  after income taxes,  calculated  holding
prices and costs constant at amounts in effect on the date of the report (unless
such prices or costs are subject to change  pursuant to contractual  provisions)
and otherwise in accordance with the Commission's rules for inclusion of oil and
gas reserve information in financial statements filed with the Commission.

Waterflood.  An engineered,  planned effort to inject water into an existing oil
reservoir  with the intent of  increasing  oil reserve  recovery and  production
rates.

Working Interest.  The operating  interest under a lease, the owner of which has
the right to explore for and produce oil and gas covered by such lease. The full
working  interest  bears 100 percent of the costs of  exploration,  development,
production,  and operation, and is entitled to the portion of gross revenue from
the proceeds of production which remains after proceeds allocable to royalty and
overriding royalty interests or other lease burdens have been deducted.

Workover.  Rig work  performed  to restore an  existing  well to  production  or
improve its production from the current existing reservoir.

                                  LEGAL MATTERS

     The validity of the securities  offered by this  prospectus  will be passed
upon for us by Jackson Walker L.L.P., Dallas, Texas.

                                     EXPERTS

     The  consolidated   financial   statements  of  GulfWest  Energy  Inc.  and
subsidiaries  have been included herein and in the registration  statement filed
in  connection  with this  offering  in  reliance  upon the report of Weaver and
Tidwell, L.L.P.,  independent certified public accountants,  appearing elsewhere
herein  and upon  the  authority  of said  firm as  experts  in  accounting  and
auditing.

     Our oil and gas  reserves  have been  reviewed by our  independent  reserve
engineers,  Pressler Petroleum  Consultants.  Our disclosures of our oil and gas
reserves  included in this  prospectus  have been presented in reliance upon the
authority of such firm as experts in petroleum engineering.

                                       43

                          INDEX TO FINANCIAL STATEMENTS

                                                                           Page
                                                                           ----
INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL
STATEMENTS.................................................................F-2
FINANCIAL STATEMENTS
     Consolidated balance sheets...........................................F-3
     Consolidated statements of operations.................................F-5
     Consolidated statements of shareholders' equity.......................F-6
     Consolidated statements of cash flows.................................F-8
     Notes to consolidated financial statements............................F-9
INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENT SCHEDULE...........F-36
FINANCIAL STATEMENT SCHEDULE...............................................F-37

     Schedule  II -  Valuation  and  Qualifying  Accounts

     All other Financial Statement Schedules have been omitted because they are
    either inapplicable or the information  required is included in the
    financial statements or the notes thereto.


                                      F-1

                          INDEPENDENT AUDITOR'S REPORT

To the Shareholders and
   Board of Directors
GULFWEST ENERGY INC.

We have audited the accompanying  consolidated balance sheets of GulfWest Energy
Inc. (a Texas  Corporation)  and  Subsidiaries as of December 31, 2003 and 2002,
and the related consolidated statements of operations,  shareholders' equity and
cash flows for each of the three years in the period  ended  December  31, 2003.
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 auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain reasonable  assurance about whether the consolidated
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  consolidated  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
GulfWest Energy Inc. and  Subsidiaries as of December 31, 2003 and 2002, and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended December 31, 2003, 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 shown in the consolidated
financial  statements,  the Company incurred a net loss of $3,151,509 during the
year ended  December  31,  2003,  and,  as of that date,  had a working  capital
deficiency of $42,876,963.  Those conditions raise  substantial  doubt about the
Company's ability to continue as a going concern.  Management's  plans regarding
those  matters  described in Note 2,  "Operations  and  Management  Plans".  The
consolidated  financial  statements  do not include any  adjustments  that might
result from the outcome of this uncertainty.

As explained in Note 1 to the Financial  Statements,  effective January 1, 2003,
the Company changed its accounting method for Asset Retirement Obligations.

                                                  \s\WEAVER AND TIDWELL, L.L.P
                                                  ----------------------------
                                                     WEAVER AND TIDWELL, L.L.P.
                                                     Dallas, Texas
                                                     March 19, 2004

                                      F-2

                           CONSOLIDATED BALANCE SHEETS

                           DECEMBER 31, 2003 AND 2002


                                     ASSETS


                                                                                ----------------      ----------------
                                                                                     2003                  2002
                                                                                ----------------      ----------------
CURRENT ASSETS
     Cash and cash equivalents                                                 $      483,618         $       687,694
     Accounts receivable - trade, net of allowance
          for doubtful accounts of $-0- in 2003 and 2002                            1,099,802               1,361,446
     Prepaid expenses                                                                 159,269                 303,906
                                                                                ----------------      ----------------
               Total current assets                                                 1,742,689               2,353,046
                                                                                ----------------      ----------------

OIL AND GAS PROPERTIES,
     using the successful efforts method of accounting                             58,472,886              56,786,043


OTHER PROPERTY AND EQUIPMENT                                                        2,132,220               2,121,410
     Less accumulated depreciation, depletion and amortization                    (10,017,931)             (8,498,497)
                                                                                ----------------      ----------------

     Net oil and gas properties and other property and equipment                   50,587,175              50,408,956
                                                                                ----------------      ----------------


OTHER ASSETS
     Deposits                                                                          20,142                  37,442
     Debt issue cost, net                                                              78,768                 289,497
                                                                                ----------------      ----------------
               Total other assets                                                      98,910                 326,939
                                                                                ----------------      ----------------

TOTAL ASSETS                                                                    $  52,428,774         $    53,088,941
                                                                                ================      ================








The Notes to Consolidated Financial Statements are an integral part of  these statements.
                                       F-3

                      LIABILITIES AND SHAREHOLDERS' EQUITY


                                                                                   ----------------      -----------------
                                                                                        2003                   2002
                                                                                   ----------------      -----------------
CURRENT LIABILITIES
   Notes payable                                                                       $8,182,165           $ 4,936,088
   Notes payable - related parties                                                      1,465,000             1,290,000
   Current portion of long-term debt                                                   29,396,092            33,128,447
   Current portion of long-term debt - related parties                                    130,152               256,967
   Accounts payable - trade                                                             5,002,675             3,928,477
   Accrued expenses                                                                       443,568               458,587
                                                                                  ----------------      ----------------
       Total current liabilities                                                       44,619,652            43,998,566
                                                                                  ----------------      ----------------

NONCURRENT LIABILITIES
   Long-term debt, net of current portion                                                  35,801               126,552
   Long-term debt - related parties                                                          -                   11,256
   Asset retirement obligations                                                         1,357,206                 -
                                                                                  ----------------      ----------------
       Total noncurrent liabilities                                                     1,393,007               137,808
                                                                                  ----------------      ----------------

OTHER LIABILITIES
   Derivative instruments                                                                 591,467             1,128,993
                                                                                  ----------------      ----------------

       Total Liabilities                                                               46,604,126            45,265,367
                                                                                  ----------------      ----------------
COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY
   Preferred stock                                                                            190                   170
   Common stock                                                                            18,493                18,493
   Additional paid-in capital                                                          29,283,692            28,258,212
   Retained deficit                                                                  (23,477,727)          (20,453,301)
                                                                                  ----------------      ----------------
       Total shareholders' equity                                                       5,824,648             7,823,574
                                                                                  ----------------      ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                        $    52,428,774       $    53,088,941
                                                                                   ================      =================








The Notes to Consolidated Financial Statements are an integral part of  these statements.
                                      F-4

                      GULFWEST ENERGY INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001


                                                                         2003                 2002                 2001
                                                                    ----------------     ----------------    -----------------

OPERATING REVENUES
    Oil and gas sales                                                  $10,844,460          $10,447,169        $ 12,426,103
    Well servicing revenues
                                                                                 -               39,116             169,167
    Operating overhead and other income
                                                                           166,263              353,512             395,311
                                                                   ----------------     ----------------    ----------------
           Total Operating Revenues                                     11,010,723           10,839,797          12,990,581
                                                                   ----------------     ----------------    ----------------

OPERATING EXPENSES
    Lease operating expenses
                                                                         5,527,841            5,430,205           5,155,500
    Cost of well servicing operations                                            -               56,295             182,180
    Depreciation, depletion and amortization                             2,226,123            2,697,784           2,491,385
    Accretion expense                                                       76,823                    -                   -
    General and administrative                                           2,262,425            1,727,858           1,709,641
                                                                   ----------------     ----------------    ----------------
           Total Operating Expenses                                     10,093,212            9,912,142           9,538,706
                                                                   ----------------     ----------------    ----------------

INCOME FROM OPERATIONS                                                      917,511             927,655           3,451,875
                                                                    ----------------     ----------------    -----------------
OTHER INCOME AND EXPENSE
    Interest expense                                                     (3,363,330)         (3,159,381)         (2,756,912)
    Other financing costs                                                (1,000,000)
    Gain (Loss) on sale of assets                                           (19,848)            (56,647)           (118,254)
    Unrealized gain (loss) on derivative instruments                        537,526          (1,596,575)          4,215,017
    Dry holes, abandoned property and impaired assets                      (358,737)           (617,365)              -
                                                                   ----------------     ----------------    ----------------
           Total Other Income and (Expense)                              (4,204,389)          (5,429,968)         2,339,851
                                                                   ----------------     ----------------    ----------------
INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLES                                       (3,286,878)          (4,502,313)         4,791,726
INCOME TAXES
                                                                    ----------------     ----------------    -----------------
INCOME (LOSS) BEFORE CUMULATIVE
     EFFECT OF CHANGE IN ACCOUNTING
     PRINCIPLES                                                         (3,286,878)           (4,502,313)          4,791,726
CUMULATIVE EFFECT OF CHANGE IN
     ACCOUNTING PRINCIPLES, NET OF INCOME
     TAXES                                                                 262,452                                (3,747,435)
                                                                    ----------------     ----------------    -----------------
NET INCOME (LOSS)                                                   $   (3,024,426)      $    (4,502,313)    $     1,044,291
DIVIDENDS ON PREFERRED STOCK
     (PAID 2003-$-0-; 2002-$112,500; 2001-$28,125)                        (127,083)             (112,500)            (56,250)
                                                                    ----------------     ----------------    -----------------
NET INCOME (LOSS) AVAILABLE TO COMMON
     SHAREHOLDERS                                                   $   (3,151,509)      $    (4,614,813)    $       988,041
                                                                    ================     ================    =================
NET INCOME (LOSS) PER SHARE, BASIC
     BEFORE CUMULATIVE EFFECT OF CHANGE
      IN ACCOUNTING PRINCIPLES                                      $         (.18)      $          (.25)    $           .25
CUMULATIVE EFFECT OF CHANGE IN
     ACCOUNTING PRINCIPLES                                                     .01                     -                (.20)
                                                                    ----------------     ----------------    -----------------
NET INCOME (LOSS) PER SHARE BASIC                                   $         (.17)      $          (.25)    $           .05
                                                                    ================     ================    =================
NET INCOME (LOSS) PER SHARE, DILUTED BEFORE
     CUMULATIVE EFFECT OF CHANGE IN
     ACCOUNTING PRINCIPLES                                          $         (.18)      $          (.25)    $           .23
CUMULATIVE EFFECT OF CHANGE IN
     ACCOUNTING PRINCIPLES                                                     .01                     -                (.18)
                                                                    ----------------     ----------------    -----------------
NET INCOME (LOSS) PER SHARE, DILUTED                                $         (.17)      $          (.25)    $           .05
                                                                    ================     ================    =================

                                                                         F-5

                                                        GULFWEST ENERGY INC. AND SUBSIDIARIES
                                                   CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                                 FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001


                                                                               ------------------------------
                                                                                     Number of Shares
                                                                               ------------------------------
                                                                               Preferred          Common
                                                                                 Stock            Stock
                                                                               -----------    ---------------

BALANCE, December 31, 2000                                                          8,000         18,445,041
     Issuance of 9,000 shares of Series E preferred stock for the
       acquisition of assets                                                        9,000
     Issuance of 47,500 shares of common stock for the acquisition of
          assets                                                                                     47,500
     Issuance of warrants for the acquisition of assets
     Net income
     Dividends paid on preferred stock

BALANCE, December 31, 2001                                                         17,000         18,492,541

     Issuance of warrants for additional financing
     Net loss

     Dividends paid on preferred stock


BALANCE, December 31, 2002                                                         17,000         18,492,541

     Issuance of warrants for additional financing

     Issuance of preferred stock related to current financing                       2,000

     Net loss


BALANCE, December 31, 2003                                                         19,000         18,492,541









The Notes to Consolidated Financials are an integral part of these statements.
                                       F-6

        Preferred                                                 Additional                     Retained
                                       Common
          Stock                                                 Paid-In Capital                  Deficit
                                        Stock
- --------------------------  ------------------------     ------------------------    ---------------------------
$           80              $             18,445         $           23,537,900      $          (16,854,654)


            90                                                        4,499,910


                                                                         35,402
                                                                         91,500

                                                                                                  1,044,291

                                                                                                    (28,125)
- --------------------------  ------------------------     ------------------------    ---------------------------

$          170              $             18,493         $           28,164,712      $          (15,838,488)
==========================  ========================     ========================    ===========================
                                                                         93,500
                                                                                                 (4,502,313)
                                                                                                   (112,500)
- --------------------------  ------------------------     ------------------------    ---------------------------
$          170              $             18,493         $           28,258,212      $          (20,453,301)
==========================  ========================     ========================    ===========================
                                                                         25,500
            20                                                          999,980
                                                                                                 (3,024,426)

- --------------------------  ------------------------     ------------------------    ---------------------------
$          190              $             18,493         $           29,283,692      $          (23,477,727)
==========================  ========================     ========================    ===========================








The Notes to Consolidated Financials are an integral part of these statements.
                                       F-7

                      GULFWEST ENERGY INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001


                                                                             2003               2002                2001
                                                                        ---------------    ----------------    ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income (loss)                                                   $ (3,024,426)     $   (4,502,313)        $ 1,044,291
     Adjustments to reconcile net income (loss) to net cash
          Provided by operating activities:
               Depreciation, depletion and amortization                      2,226,123           2,697,784          2,491,385
               Accretion expense                                                76,823                   -                  -
               Common  stock and  warrants  issued and  charged to
operations                                                                      25,500              93,500                  -
               Other financing costs                                         1,000,000                   -                  -
               Loss on sale of assets                                           19,848              56,647            118,254
               Dry holes, abandoned property, impaired assets                  358,737             617,365                  -
               Unrealized (gain) loss on derivative instruments              (537,526)           1,596,575        (4,215,017)
               Cumulative effect of accounting change                        (262,452)                   -          3,747,435
               Provision for bad debts                                          29,201                   -                  -
               (Increase)   decrease  in  accounts   receivable  -
trade, net                                                                     232,443            (109,437)            765,939
               (Increase) decrease in prepaid expenses                         144,637            (179,825)           (40,730)
               Increase   (decrease)   in  accounts   payable  and
accrued expenses                                                             1,235,503           1,043,994            797,800
                                                                        ---------------    ----------------    ---------------
                         Net   cash    provided    by    operating           1,524,411           1,314,290          4,709,357
activities
                                                                        ---------------    ----------------    ---------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Deposits                                                                        -                   -            (9,804)
     Proceeds from sale of property and equipment                               38,561             675,440            394,423
     Purchase of property and equipment                                     (1,067,924)         (5,861,969)        (6,962,650)
                                                                        ---------------    ----------------    ---------------
                         Net cash used in investing activities              (1,029,363)         (5,186,529)        (6,578,031)
                                                                        ---------------    ----------------    ---------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Payments on debt                                                       (1,672,288)         (3,410,778)        (6,577,928)
     Proceeds from debt issuance                                               973,164           7,394,181          8,530,269
     Debt issue cost                                                                 -                   -           (29,544)
     Dividends paid                                                                  -            (112,500)           (28,125)
                                                                        ---------------    ----------------    ---------------
                         Net cash  provided by (used in) financing            (699,124)          3,870,903          1,894,672
activities
                                                                        ---------------    ----------------    ---------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                              (204,076)             (1,336)             25,998

CASH AND CASH EQUIVALENTS,
     Beginning of year                                                         687,694             689,030            663,032
                                                                        ---------------    ----------------    ---------------

CASH AND CASH EQUIVALENTS,
     End of year                                                        $      483,618     $       687,694     $      689,030
                                                                        ===============    ================    ===============

CASH PAID FOR INTEREST                                                  $    3,216,034     $     3,004,015     $    2,811,677
                                                                        ===============    ================    ===============





The Notes to Consolidated Financial Statements are an integral part of these statements.
                                       F-8

                      GULFWEST ENERGY INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.   Summary of Significant Accounting Policies

          The  following  is a summary of the  significant  accounting  policies
          consistently   applied  by  management  in  the   preparation  of  the
          accompanying consolidated financial statements.

          Organization/Concentration of Credit Risk

                    GulfWest Energy Inc. and our  subsidiaries  intend to pursue
               the  acquisition  of quality  oil and gas  prospects,  which have
               proved developed and undeveloped reserves, and the development of
               prospects with third party industry partners.

                    The accompanying  consolidated  financial statements include
               our company and its wholly-owned  subsidiaries:  (1) RigWest Well
               Service,  Inc.  ("RigWest");  (2) GulfWest Texas Company ("GWT"),
               both formed in 1996;  (3) DutchWest  Oil Company  formed in 1997;
               (4) SETEX Oil and Gas Company  ("SETEX")  formed August 11, 1998;
               (5)  Southeast  Texas Oil and Gas Company,  L.L.C.  ("Setex LLC")
               acquired  September  1, 1998;  (6)  GulfWest  Oil and Gas Company
               formed  February 18, 1999;  (7) LTW Pipeline Co. formed April 19,
               1999; (8) GulfWest Development Company ("GWD") formed November 9,
               2000 and (9) GulfWest Oil and Gas Company (Louisiana) LLC, formed
               July  31,  2001.  All  material  intercompany   transactions  and
               balances are eliminated upon consolidation.

                    We  grant  credit  to  independent  and  major  oil  and gas
               companies for the sale of crude oil and natural gas. In addition,
               we grant credit to joint owners of oil and gas properties,  which
               we,  through our  subsidiary,  SETEX,  operate.  Such amounts are
               secured by the underlying  ownership interests in the properties.
               We also grant credit to various third parties through RigWest for
               well servicing operations.

                    We  maintain  cash  on  deposit  in   non-interest   bearing
               accounts,  which, at times,  exceed federally  insured limits. We
               have not  experienced  any losses on such accounts and believe we
               are not  exposed  to any  significant  credit  risk  on cash  and
               equivalents.

          Statement of Cash Flows

                    We  consider  all  highly  liquid   investment   instruments
               purchased with remaining maturities of three months or less to be
               cash equivalents for purposes of the  consolidated  statements of
               cash flows.

                  Non-Cash Investing and Financing Activities:

                    During the twelve month period ended  December 31, 2003,  we
               adopted Statement of Financial Accounting Standard No. 143 "Asset
               Retirement  Obligations" (SFAS 143). As a result of adopting SFAS
               143,  effective  January 1, 2003, we recorded an asset retirement
               obligation  liability of $1,280,383,  an increase in the carrying
               value of our oil and gas properties of $1,058,445, a reduction in
               accumulated  depletion  of $484,390  and an  adjustment  to prior
               income of $262,452.  This liability was increased  during 2003 by
               recognizing $76,823 in accretion expense.  Also, we decreased the
               current  portion of long term  debt-related  parties by  applying
               $17,300  in  deposits  and  reclassified  $176,320  from  accrued
               expenses to current portion of long term debt.

                    During the twelve month period ended  December 31, 2002,  we
               acquired $74,653 in property and equipment  through notes payable
               to  financial  institutions.  We also  acquired  $182,742  of oil
               producing  properties in exchange of accounts  receivable  from a
               related party. In addition, we sold property and equipment, which
               included an account  receivable of $42,000.  This  receivable was
               collected in January 2003.
                                      F-9

                      GULFWEST ENERGY INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.   Summary of Significant Accounting Policies (continued)

          Statement of Cash Flows - Non-cash Investing and Financing  Activities
            - continued

               During the twelve  month  period  ended  December  31,  2001,  we
          acquired  $15,068,774 in property and equipment through $10,441,824 in
          notes  payable to  financial  institutions  and  related  parties,  by
          issuing  9,000 shares of  preferred  stock  valued at  $4,500,000,  by
          issuing 47,500 shares of common stock valued at $35,450 and by issuing
          150,000  warrants valued at $91,500.  Also, debt issue costs increased
          $170,000 in notes payable.

          Use of Estimates in the Preparation of Financial Statements

               The   preparation  of   consolidated   financial   statements  in
          conformity  with generally  accepted  accounting  principles  requires
          management to make estimates and assumptions  that affect the reported
          amounts of assets and liabilities and disclosure of contingent  assets
          and liabilities at the date of the consolidated  financial  statements
          and the reported amounts of revenues and expenses during the reporting
          period. Actual results could differ from those estimates.

          Oil and Gas Properties

               We use 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  to  drill  and  equip  development  wells  are
          capitalized.  Costs to drill exploratory wells that do not find proved
          reserves, and geological and geophysical costs are expensed.

               As we acquire  significant oil and gas  properties,  any unproved
          property that is considered  individually  significant is periodically
          assessed for impairment of value, and a loss is recognized at the time
          of impairment by providing an impairment allowance.  Capitalized costs
          of  producing  oil and gas  properties  and support  equipment,  after
          considering   estimated   dismantlement   and  abandonment  costs  and
          estimated  salvage  values,   are  depreciated  and  depleted  by  the
          unit-of-production method.

               On the sale of an entire interest in an unproved  property,  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.  On the sale of an entire or partial interest in a
          proved  property,  gain or loss is  recognized,  based  upon  the fair
          values of the interests sold and retained.


Other Property and Equipment

               The following  tables set forth certain  information with respect
          to our other property and equipment.  We provide for  depreciation and
          amortization  using  the  straight-line   method  over  the  following
          estimated useful lives of the respective assets:

                Assets                                      Years
                ---------------------------------        -------------
                  Automobiles                               3-5
                  Office equipment                            7
                  Gathering system                           10
                  Well servicing equipment                   10

                                      F-10

                      GULFWEST ENERGY INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.   Summary of Significant Accounting Policies - continued

          Other Property and Equipment - continued

                  Capitalized costs relating to other properties and equipment:

                                                                  2003                   2002
                                                           --------------------   --------------------
                      Automobiles                                 $    420,776           $    420,776
                      Office equipment                                 148,172                137,362
                      Gathering system                                 529,486                529,486
                      Well servicing equipment                       1,033,786              1,033,786
                                                           --------------------   --------------------
                                                                     2,132,220              2,121,410

                      Less accumulated depreciation                (1,268,330)            (1,037,076)
                                                           --------------------   --------------------

                      Net capitalized cost                        $    863,890          $   1,084,334
                                                           ====================   ====================

          Revenue Recognition

                    We recognize oil and gas revenues on the sales method as oil
               and  gas  production  is  sold.  Differences  between  sales  and
               production  volumes  during the years ended  December  31,  2003,
               2002, and 2001 were not significant.  Well servicing revenues are
               recognized  as the  related  services  are  performed.  Operating
               overhead  income is  recognized  based upon  monthly  contractual
               amounts for lease  operations  and other income is  recognized as
               earned.

          Trade Accounts Receivable

                    Trade accounts  receivable are reported in the  consolidated
               balance  sheet  at the  outstanding  principal  adjusted  for any
               chargeoffs.  An allocation for doubtful accounts is recognized by
               management  based upon a review of  specific  customer  balances,
               historical losses and general economic conditions.

          Fair Value of Financial Instruments

                    At December  31, 2003 and 2002,  our  financial  instruments
               consist of notes  payable  and  long-term  debt.  Interest  rates
               currently  available to us for notes payable and  long-term  debt
               with similar terms and remaining  maturities are used to estimate
               fair  value  of  such  financial  instruments.  Accordingly,  the
               carrying amounts are a reasonable estimate of fair value.

          Debt Issue Costs

                    Debt issue costs incurred are capitalized  and  subsequently
               amortized  over the term of the related  debt on a  straight-line
               basis.

          Earnings (Loss) Per Share

                    Earnings  (loss)  per share are  calculated  based  upon the
               weighted-average  number of outstanding  common  shares.  Diluted
               earnings   (loss)  per  share  are  calculated   based  upon  the
               weighted-average  number of outstanding  common shares,  plus the
               effect of dilutive stock options, warrants, convertible preferred
               stock and convertible debentures.
                                              F-11

                      GULFWEST ENERGY INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.   Summary of Significant Accounting Policies - continued

          Earnings (Loss) Per Share - continued

                    We have adopted Statement of Financial  Accounting Standards
               (SFAS) No. 128  "Earnings  Per Share",  which  requires that both
               basic earnings  (loss) per share and diluted  earnings (loss) per
               share be  presented on the face of the  statement of  operations.
               Basic earnings (loss) per share are based on the weighted-average
               number of outstanding  common  shares.  Diluted  earnings  (loss)
               per-share are based on the weighted-average number of outstanding
               common shares and the effect of all  potentially  diluted  common
               shares.

          Impairments

                    Impairments,   measured   using  fair  market   value,   are
               recognized  whenever events or changes in circumstances  indicate
               that  the  carrying  amount  of  long-lived  assets  (other  than
               unproved  oil  and gas  properties  discussed  above)  may not be
               recoverable and the future  undiscounted cash flows  attributable
               to the asset are less than its carrying value.

          Stock Based Compensation

                    In October 1995, SFAS No. 123,  "Stock Based  Compensation,"
               (SFAS 123) was issued.  This  statement  requires  that we choose
               between two different methods of accounting for stock options and
               warrants.  The  statement  defines a  fair-value-based  method of
               accounting for stock options and warrants but allows an entity to
               continue  to  measure  compensation  cost for stock  options  and
               warrants  using the  accounting  prescribed by APB Opinion No. 25
               (APB 25),  "Accounting for Stock Issued to Employees." Use of the
               APB 25 accounting  method results in no  compensation  cost being
               recognized  if options are  granted at an  exercise  price at the
               current market value of the stock or higher.  We will continue to
               use the  intrinsic  value method under APB 25 but are required by
               SFAS 123 to make pro forma  disclosures  of net income (loss) and
               earnings  (loss) per share as if the fair  value  method had been
               applied in its 2003, 2002 and 2001 financial statements.

                    During 2003,  2002 and 2001, we issued  options and warrants
               totaling:  2003 - 35,000 (all  exercisable);  2002 - 405,000 (all
               exercisable); and 2001 - 184,000 (all exercisable), respectively,
               to employees  and directors as  compensation.  If we had used the
               fair value method required by SFAS 123, our net income (loss) and
               per share information would approximate the following amounts:

                                          2003                           2002                         2001
                               ---------------------------    ---------------------------    ------------------------

                               As Reported      ProForma      As Reported      ProForma      As            ProForma
                                                                                             Reported
                               ------------    -----------    ------------    -----------    ----------    ----------
         SFAS 123
         compensation cost     $               $       7,350  $               $      38,300   $            $   99,360
         APB 25
         compensation cost     $               $              $               $               $            $
         Net income (loss)     $ (3,151,509)   $  (3,158,859) $  (4,614,813)  $  (4,653,113)  $  988,041   $    888,681
         Income (loss) per
         common share-basic    $       (.17)   $        (.17) $        (.25)  $        (.25)  $      .05   $        .05
         Income (loss) per
         common share-diluted  $       (.17)   $        (.17) $        (.25)  $        (.25)  $      .05   $        .04
                                      F-12


                      GULFWEST ENERGY INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies - continued

        Stock Based Compensation - continued


                    The effects of applying SFAS 123 as disclosed  above are not
               indicative of future  amounts.  We anticipate  making  additional
               stock based employee compensation awards in the future.

                    We use the Black-Sholes option-pricing model to estimate the
               fair  value  of  the  options  and   warrants  (to  employee  and
               non-employees) on the grant date. Significant assumptions include
               (1) risk  free  interest  rate 2003 - 3.0%;  2002 - 3.0%;  2001 -
               4.5%; (2) weighted  average expected life 2003 - 3.4; 2002 - 3.6;
               2001 - 5.0;  (3)  expected  volatility  of 2003 - 147.43;  2002 -
               101.73%; 2001 - 103.27%; and (4) no expected dividends.

        Implementation of New Financial Accounting Standards

                    Effective   January  1,  2001,   we  adopted  SFAS  No.  133
               "Accounting   for  Derivative   Instruments   and  Other  Hedging
               Activities",  as amended by SFAS No. 137 and No. 138. As a result
               of a financing  agreement with an energy lender, we were required
               to enter into an oil and gas hedging  agreement  with the lender.
               It has been  determined  this  agreement  meets the definition of
               SFAS 133  "Accounting  for  Derivative  Instruments  and  Hedging
               Activities" and is accounted for as a derivative instrument.

                    The  estimated  change in fair value of the  derivatives  is
               reported in Other Income and Expense as unrealized (gain) loss on
               derivative   instruments.   The  estimated   fair  value  of  the
               derivatives is reported in Other Assets (or Other Liabilities) as
               derivative instruments.

                    The estimated  fair value of the  derivative  instruments at
               January 1, 2001, the date of initial  application of SFAS 133, of
               $3,747,435  is reported in the  Statement  of  Operations  as the
               cumulative effect of a change in accounting principle.

                    In June, 2001, SFAS No. 141 "Business Combinations" and SFAS
               No. 142 "Goodwill  and Other  Intangible  Assets were issued.  We
               presently have no goodwill or intangible  assets and are thus not
               affected by SFAS No. 142.

                    Effective   January  1,  2002,  we  adopted  SFAS  No.  144,
               "Accounting for the Impairment or Disposal of Long-Lived Assets."
               This  statement  requires the following  three-step  approach for
               assessing and  recognizing  the impairment of long-lived  assets:
               (1) consider  whether  indicators  of  impairment  of  long-lived
               assets are present;  (2) if indicators of impairment are present,
               determine  whether the sum of the estimated  undiscounted  future
               cash flows  attributable  to the assets in  question is less than
               their carrying amount;  and (3) if less,  recognize an impairment
               loss  based on the  excess of the  carrying  amount of the assets
               over their  respective  fair values.  In  addition,  SFAS No. 144
               provides more guidance on estimating cash flows when performing a
               recoverability  test,  requires  that a  long-lived  asset  to be
               disposed of other than by sale (such as  abandoned) be classified
               as "held and used" until it is disposed of, and establishes  more
               restrictive criteria to classify an asset as "held for sale". The
               adoption  of SFAS No. 144 did not have a  material  impact on our
               financial statements since it retained the fundamental provisions
               of SFAS No. 121,  "Accounting  for the  Impairment or Disposal of
               Long-Lived  Assets and for Long-Lived  Assets to be Disposed Of,"
               related to the  recognition  and measurement of the impairment of
               long-lived assets to be "held and used".
                                      F-13

                      GULFWEST ENERGY INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies - continued

        Implementation of New Financial Accounting Standards - continued

                    In June 2002, the FASB issued SFAS No. 146,  "Accounting for
               Costs Associated with Exit or Disposal  Activities." SFAS No. 146
               addresses financial accounting and reporting for costs associated
               with exit or disposal  activities  and  nullifies  EITF Issue No.
               94-3,  "Liability  Recognition for Certain  Employee  Termination
               Benefits and Other Costs to Exit an Activity  (including  Certain
               Costs Incurred in a Restructuring)." SFAS No. 146 requires that a
               liability for a cost associated with an exit or disposal activity
               be recognized  when the  liability is incurred.  Under EITF Issue
               No. 94-3, a liability for an exit cost as defined was  recognized
               at the date of an entity's  commitment to an exit plan.  SFAS No.
               146 also establishes that the fair value is the objective for the
               initial  measurement of the liability.  SFAS No. 146 is effective
               for  exit  and  disposal  activities  that  are  initiated  after
               December 31, 2002.  This  statement will impact the timing of our
               recognition  of  liabilities  for costs  associated  with exit or
               disposal activities.

                    Beginning  in  2003,   Statement  of  Financial   Accounting
               Standards No. 143, "Asset  Retirement  Obligations"  ("SFAS 143")
               requires us to recognize an estimated  liability for the plugging
               and abandonment of our oil and gas wells and associated pipelines
               and equipment. Consistent with industry practice, historically we
               had assumed the cost of plugging and abandonment  would be offset
               by salvage value received. This statement requires us to record a
               liability in the period in which our asset retirement  obligation
               ("ARO") is incurred.  After initial recognition of the liability,
               we must  capitalize an additional  asset cost equal to the amount
               of the liability. In addition to any obligation that arises after
               the  effective  date of SFAS 143,  upon initial  adoption we must
               recognize (1) a liability for any existing ARO's, (2) capitalized
               cost related to the liability, and (3) accumulated  depreciation,
               depletion and amortization on that capitalized cost adjusting for
               the salvage value of related equipment.

                    The estimated liability is based on historical experience in
               plugging and abandoning wells, estimated remaining lives of those
               wells  based  on  reserves   estimates   and  federal  and  state
               regulatory  requirements.  The liability is  discounted  using an
               assumed credit-adjusted  risk-free rate of 7.5%. Revisions to the
               liability could occur due to changes in estimates of plugging and
               abandonment  costs,  changes in the  risk-free  rate or remaining
               lives of the wells, or if federal or state  regulators  enact new
               plugging   and   abandonment   requirements.   At  the   time  of
               abandonment,  we will be required to  recognize a gain or loss on
               abandonment if the actual costs do not equal the estimated costs.

                    The  adoption  of SFAS 143  resulted  in a  January  1, 2003
               cumulative effect adjustment to record (i) a $1,058,445  increase
               in the  carrying  value of  proved  properties,  (ii) a  $484,390
               decrease in accumulated depreciation, depletion and amortization,
               (iii) a $1,280,383 increase in noncurrent liabilities, and (iv) a
               $262,452 gain, net of tax.

Note 2. Operations and Management Plans

     At December 31, 2003, our current  liabilities  exceeded our current assets
by  $42,876,963.  We had a loss available to common  shareholders  of $3,151,509
compared to a loss  available to common  shareholders  of $4,614,813 at December
31, 2002.  This loss included  non-cash items of $537,526 for unrealized gain on
derivative  instruments,  a loss of $358,737 for abandonment of properties and a
$262,452 gain from the recording of Asset Retirement Obligations  ("ARO's"),  as
required by SFAS 143, at January 1, 2003.

     In 2004, we will continue the  recapitalization  of debt and funding of our
capital  development  program that we began in 2003.  Following are the steps we
are taking and plan to take to achieve that purpose:
                                      F-14


                      GULFWEST ENERGY INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2. Operations and Management Plans - continued

     (a) The first step is to close the refinancing of our largest debt of $27.8
million  held  by  Concert  Capital  Resources  LP  ("CCR")  and  loaned  to our
wholly-owned subsidiary, GulfWest Oil & Gas Company. We have entered into an
agreement  with a new lending source that,  subject to due diligence,  will fund
approximately  $14  million to purchase  the $27.8  million  note.  The new debt
financing will also provide for the payment of closing costs.  CCR has agreed to
sell the note to our new  financier  for a $14  million  cash  payment  and a $4
million subordinated note from us.

     (b) Secondly, we are continuing to work with our financial advisor to raise
an additional $4 to $5 million through the sale of our preferred stock. Proceeds
from  this  equity  sale  will be used  for  working  capital  and  fund our new
development projects. The refinancing of the CCR debt and sale of new equity are
both currently scheduled to close in April, 2004.

     (c) Effective December 1, 200l and amended August 16, 2002, we entered into
an Oil and Gas Property Acquisition,  Exploration and Development Agreement (the
"Summit  Agreement") with Summit  Investment  Group-Texas,  L.L.C., an unrelated
party,  ("Summit").  Under  the  agreement,  Summit  provided  payments  in  the
aggregate of $1,200,000 in advanced funds for our use in the  acquisition of oil
and  gas  leases  and  other  mineral  and  royalty  interests,  and  production
activities, and was to recoup and recover those advanced funds.

     In a subsequent event on March 5, 2004, we entered into an Option Agreement
for the  Purchase of Oil and Gas Leases  (the  "Addison  Agreement")  with W. L.
Addison  Investments  L.L.C.,  a private company owned by Mr. J. Virgil Waggoner
and Mr.  John E. Loehr,  two of our  directors,  (`Addison").  Under the Addison
Agreement,  Addison agreed to pay Summit,  on our behalf,  the  non-recouped and
outstanding advanced funds amounting to $1,200,000,  thereby retiring the Summit
Agreement.  For consideration of such payment,  Addison acquired certain oil and
gas leases and wellbores from Summit but agreed to grant us a 180-day redemption
option  (which may be  extended  by mutual  consent)  to  purchase  the same for
$1,200,000,  plus  interest  at the prime  rate plus 2%. We  tendered  Addison a
promissory note in the amount of $600,000,  with interest at the prime rate plus
2%, to  substitute  for an account  payable to  Summit,  pursuant  to the Summit
Agreement,  in the same amount.  The note will be considered  paid in full if we
exercise the redemption  option and pay the  $1,200,000,  plus interest.  Summit
retained the right to participate  up to a 25% working  interest in the drilling
of any wells on the leases  acquired  by Addison.  In the event we exercise  the
redemption option,  Addison may, at its sole option,  retain up to a 25% working
interest in the leases.

     (d) Finally,  after completing the above, we will pursue the  consolidation
of all of our debt,  including  other  asset and  bridge  loans.  Our goal is to
simplify our financial  structure and provide  adequate  capitalization  for the
development of our oil and gas assets.
                                      F-15

                      GULFWEST ENERGY INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3. Cost of Oil and Gas Properties

     The following tables set forth certain  information with respect to our oil
and gas producing activities for the periods presented:

     Capitalized Costs Relating to Oil and Gas Producing Activities:

                                                                          2003                      2002
                                                                     ----------------          ----------------
              Unproved oil and gas properties                             $  261,650                $  439,926
              Proved oil and gas properties                               54,669,482                52,847,625
              Support equipment and facilities                             3,541,754                 3,498,492
                                                                     ----------------          ----------------
                                                                          58,472,886                56,786,043
              Less accumulated depreciation, depletion and
              Amortization                                               (8,749,601)               (7,461,421)
                                                                     ----------------          ----------------
              Net capitalized costs                                      $49,723,285               $49,324,622
                                                                     ================          ================

     Results of Operations for Oil and Gas Producing Activities:


                                                                      2003                2002               2001
                                                                  ---------------    ----------------    ---------------
                          Oil and gas sales                           $10,844,466         $10,447,169       $ 12,426,103
              Production costs                                        (5,527,841)         (5,430,205)        (5,155,500)
              Depreciation, depletion and amortization                (1,527,727)         (2,187,036)        (2,018,890)
              Accretion expense                                        (76,823)
                                                                  ---------------    ----------------    ---------------
              Income tax expense                                              -                   -                  _
                                                                  ---------------    ----------------    ---------------
              Results of operations for oil and gas                                                          $ 5,251,713
                   producing activities - income                      $ 3,712,075         $ 2,829,928
                                                                  ===============    ================    ===============

              Costs Incurred in Oil and Gas Producing Activities:
                                                                      2003                2002               2001
                                                                  ---------------    ----------------    ---------------
              Property Acquisitions

                    Proved                                        $                 $      562,760      $  15,236,808
                    Unproved                                            110,119              14,401            154,076
              Development Costs                                       2,024,663           5,141,075          6,317,527
                                                                  ---------------    ----------------    ---------------
                                                                    $ 2,134,782         $ 5,718,236       $ 21,708,411
                                                                  ===============    ================    ===============
                                      F-16

                      GULFWEST ENERGY INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 3. Cost of Oil and Gas Properties - continued

          Effective  July  1,  2001,  we  acquired  interests  in  oil  and  gas
     properties  located in Texas and Louisiana from an unrelated  party,  Grand
     Goldking L.L.C. The acquisition  cost was $15,077,358,  consisting of 9,000
     shares of Series E preferred  stock valued at $4,500,000 and $10,000,000 in
     debt. In addition,  we paid $545,300 in commissions  to unrelated  parties.
     The  commissions  were paid by issuing 10,000 shares of common stock valued
     at $8,800,  150,000  warrants  valued at $91,500 and  $445,000 in cash.  We
     incurred  additional cash costs of $33,058 related to the  acquisition.  On
     the same date, we transferred its ownership interest in these properties to
     our wholly owned subsidiary, GulfWest Oil and Gas Company.

          Supplemental  unaudited  pro forma  information  (under  the  purchase
     method of  accounting)  presenting  the results of operations  for the year
     ended December 31, 2001, as if the Grand Goldking  acquisition had occurred
     as of January 1, 2001:

                                                                 Year Ended
                                                                December 31,
                                                                    2001
                                                               ----------------
                 Operating revenues                               $ 15,649,329
                 Operating expenses                                 10,652,222
                                                               ----------------
                 Income from operations                              4,997,107
                 Other income and expense                          (3,325,166)
                 Income taxes
                                                               ----------------
                 Net income                                          1,671,941
                 Preferred dividends                                 (112,500)
                                                               ----------------
                 Net income to common shareholders                 $ 1,559,441
                                                               ================
                 Earnings per share
                      Basic                                          $    0.08
                                                               ================
                      Diluted                                        $    0.07
                                                               ================

          Effective January 1, 2002, we acquired oil and gas properties  located
     in Louisiana from a related party for $182,742.  The acquisition  price was
     the amount of accounts receivable due us.

Note 4. Accrued Expenses

          Accrued expenses consisted of the following:

                                                  December 31,               December 31,
                                                      2003                       2002
                                                 ----------------          -----------------
                 Payroll and payroll taxes       $         5,833           $          1,863
                 Interest                                395,735                    414,724
                 Professional fees                        42,000                     42,000
                                                 ----------------          -----------------
                                                 $       443,568           $        458,587
                                                 ================          =================
                                      F-17



                                                        GULFWEST ENERGY INC. AND SUBSIDIARIES
                                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5. Notes Payable and Long-Term Debt

        Notes payable is as follows:
                                                                                     2003                2002
                                                                                 -------------     ------------------
         Non-interest  bearing note payable to an unrelated party;  payable out  $     40,300      $          40,300
         of 50% of the net  transportation  revenues from a certain natural gas
         pipeline; no due date.

         Promissory  note  payable to a former  director at 8%; due May,  2001;
         unsecured.                                                                    40,000                 40,000

         Promissory note payable to an unrelated party at 10%; payable on
              demand; unsecured.                                                       45,000                 45,000

         Line of  credit  (up to  $2,500,000)  to a bank;  due  October,  2002;
         secured by  guaranty  of a  director;  interest  greater of prime rate
         less .25% or 5.25%,  (prime rate 4.0% at December 31,  2003).  Line of
         credit increased to $3,000,000 and due date extended to April, 2004.       2,995,488              2,995,488

         Note payable to a bank; due March,  2003;  interest at prime rate plus
         1% (prime rate 4.0% at December 31, 2003); secured by guaranty of
         three of our directors; retired September 2003.                                                     500,000

         Promissory  note  payable to an  unrelated  party;  payable on demand;
         interest at 8%; interest  increased to 12% on January 1, 2003; secured
         by certain oil and gas properties.                                           300,000                300,000

         Note  payable to a bank;  due July,  2004;  secured by  guaranty  of a
         director;  interest at prime rate  (prime  rate 4.0% at  December  31,
         2003 with a floor of 4.75% and a ceiling of 8.0%.                            948,400              1,000,000

         Promissory  note  payable  to  unrelated  party;  interest  at 6%; due
         June,  2003.                                                                  55,300                 55,300

         Promissory  note payable to one of our directors;  interest at 8%; due
         on demand; unsecured.                                                         50,000                 50,000

         Promissory  note  payable to one of our  directors;  interest at prime
         rate  (prime  rate  4.0%  at  December  31,  2003);   due  May,  2003;
         secured by common  stock of DutchWest  Oil  Company,  our wholly owned
         subsidiary.                                                                1,375,000              1,200,000

         Promissory  note payable to an  unrelated  party at 8%; due June 2003;
         secured  by 4% of the  common  stock of  DutchWest  Oil  Company,  our
         wholly owned subsidiary                                                      100,000

         Promissory  note  payable to an  unrelated  party at 8%; due May 2003;
         secured  by 8% of the  common  stock of  DutchWest  Oil  Company,  our
         wholly owned subsidiary                                                      200,000

                                      F-18



                      GULFWEST ENERGY INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5. Notes Payable and Long-Term Debt

        Notes payable is as follows - continued:

                                                                                    2003                 2002
                                                                                --------------    -------------------
         Line of credit (up to $3,500,000)  to a bank; due June 2004;  secured      3,497,677
         by the  guaranty  of a  director;  interest at prime rate (prime rate
         4.0% at  December  31,  2003)  with a floor of 4.75% and a ceiling of
         8.0%
                                                                                --------------    -------------------
                                                                                $   9,647,165     $        6,226,088
                                                                                ==============    ===================

         The weighted  average  interest rate for notes payable at December 31,
         2003 and 2002 was 5.0% and 4.7%, respectively.

         Long-term debt is as follows:

                                                                                     2003                2002
                                                                                 -------------     ------------------
         Line  of  credit  (up  to  $3,000,000)  to a  bank;  due  July,  2003;  $                 $       2,999,515
         secured  by  the  guaranty  of a  director;  interest  at  prime  rate
         (prime rate 4.0% at December 31, 2003);  replaced by a short-term line
         of credit (up to $3,500,000) from the same bank.

         Subordinated  promissory notes to various individuals at 9.5% interest
         per annum; amounts include $50,000 due to related parties; past due.         150,000                150,000

         Notes  payable  to finance  vehicles,  payable  in  aggregate  monthly
         installments  of  approximately   $4,000,   including  interest  of.9%
         to  13%  per   annum;   secured   by  the   related   equipment;   due
         various      dates through 2007.                                              69,500                116,721

         Note  payable  to  related  party to finance  equipment  with  monthly
         installments  of  $5,200,  including  interest  at 13.76%  per  annum;
         final  payment  due  October,  2003;  secured  by  related  equipment;
         retired June, 2003.                                                                -                 48,850

         Promissory  note to a director;  interest at 8.5%;  due  December  31,
         2003.                                                                         78,941                 95,670

         Note  payable to a bank with  monthly  principal  payments  of $2,300;
         interest  at 9.5%;  due  May,  2003;  secured  by  related  equipment;
         retired May, 2003.                                                                 -                 11,630

         Note  payable  to an  energy  lender;  interest  at  prime  plus  3.5%
         (prime  rate  4.0%  at  December  31,  2003)  payable  monthly  out of
         90% net profits from  certain oil and gas  properties;  final  payment
         due May, 2004; secured by related oil and gas properties.                 27,574,769             27,907,509
                                      F-19


                      GULFWEST ENERGY INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5.  Notes Payable and Long-Term Debt

         Long-term debt is as follows - continued:

                                                                                       2003                   2002
                                                                                 ------------------     -----------------
         Note  payable  to  a  bank  with  monthly  principal  payments  of          1,564,000             1,996,000
         $36,000;  interest  at prime plus 1% (prime  rate 4.0% at December
         31,  2003) with a minimum  prime rate of 5.5%;  final  payment due
         November,  2003;  secured  by  related  oil  and  gas  properties;
         Extended to March, 2004.

         Note  payable to  unrelated  party to finance  saltwater  disposal
         well with monthly  installments of $4,540,  including  interest at
         10% per  annum;  final  payment  due  January,  2005;  secured  by
         related well.                                                                 123,624               123,624

         Note  payable  to  related   party  to  finance   equipment   with
         monthly  installments  of  $5,109,  including  interest  at 13.75%
         per annum;  final payment due February,  2004;  secured by related
         equipment; retired June, 2003.                                                      -                65,743

         Note  payable  to  related   party  to  finance   equipment   with
         monthly  installments  of  $608,  including  interest  at 11%  per
         annum;  final  payment  due  February,  2004;  secured  by related
         equipment.                                                                      1,211                 7,960
                                                                             ------------------     -----------------
                                                                                    29,562,045            33,523,222
         Less current portion
                                                                                   (29,526,244)          (33,385,414)
                                                                             ------------------     -----------------
         Total long-term debt                                                $          35,801      $        137,808
                                                                             ==================     =================

               Estimated annual maturities for long-term debt are as follows:

                   2004                                                      $      29,526,244
                   2005                                                                 27,292
                   2006                                                                  7,150
                   2007                                                                  1,359
                   2008
                                                                                ------------------
                                                                             $      29,562,045
                                                                                ==================
                                      F-20


                      GULFWEST ENERGY INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6. Shareholders' Equity

         Common Stock
         ------------

                                                                                    2003               2002
                                                                              -----------------    --------------
         Par  value  $.001;   40,000,000   shares   authorized;   18,492,541  $       18,493       $      18,493
         shares  issued and  outstanding  as of December  31, 2003 and 2002,
         respectively                                                         =================    ==============

         Preferred Stock
         ---------------

         Series D, par value $.01;  12,000 shares  authorized;  8,000 shares
         issued  and   outstanding  at  December  31,  2003  and  2002.  The
         Series  D  preferred  stock  does  not  pay  dividends  and  is not
         redeemable.   The  liquidation  value  is  $500  per  share.  After
         three years from the date of issue, and thereafter,  the shares are
         convertible  to common  stock based upon a value of $500 per Series
         D share divided by $8 per share of common stock.                                   80                80

         Series E, par value $.01;  9,000  shares  authorized;  9,000 shares
         issued and  outstanding  at December 31, 2003 and 2002.  The Series
         E preferred  stock pays dividends,  as declared,  at a rate of 2.5%
         per  annum,  has a  liquidation  value  of $500 per  share,  may be
         redeemed  at our option and, if not  redeemed  after two years,  is
         convertible  to common  stock based upon a value of $500 per Series
         E share divided by $2 per share of common stock.                                   90                90

         Series F, par value $.01;  2,000  shares  authorized;  2,000 shares
         issued  and   outstanding  at  December  31,  2003.  The  Series  F
         preferred  stock pays  dividends,  as  declared,  at a rate of 2.5%
         per  annum,  has a  liquidation  value  of $500 per  share,  may be
         redeemed  at our option and, if not  redeemed  after two years,  is
         convertible  to common  stock based upon a value of $500 per Series
         E share divided by $1 per share of common stock.                                   20
                                                                              -----------------    --------------                                                                                     $     190
                                                                                                             170
                                                                              =================    ==============

          All classes of preferred shareholders have liquidation preference over
     common  shareholders of $500 per preferred share,  plus accrued  dividends.
     Dividends in arrears at December  31, 2003 we $127,083  (Series E $112,500;
     Series F $14,583).

          Stock Options
          -------------

          We  maintain  a  Non-Qualified  Stock  Option  Plan  (as  amended  and
     restated,  the  "Plan"),  which  authorizes  the grant of  options of up to
     2,000,000 shares of common stock. Under the Plan, options may be granted to
     any of our key employees  (including  officers),  employee and  nonemployee
     directors, and advisors. A committee appointed by the Board administers the
     Plan. Prior to 1999,  options granted under the Plan had been granted at an
     option  price of $3.13  and  $1.81  per  share.  In July  1999,  the  Board
     authorized  that all then current  employee and director  options under the
     plan be reduced to a price of $.75 per share.  Following  is a schedule  by
     year of the activity related to stock options,  including  weighted-average
     ("WTD AVG") exercise prices of options in each category.
                                      F-21

                      GULFWEST ENERGY INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6. Shareholders' Equity - continued

                                               2003                            2002                          2001
                                    ---------------------------    -----------------------------    ------------------------
                                    Wtd Avg                         Wtd Avg                         Wtd Avg
                                    Prices          Number          Prices           Number          Prices        Number
                                    --------    ---------------    ----------    ---------------    ---------    -----------
                                    --------    ---------------    ----------    ---------------    ---------    -----------
         Balance, January 1         $   .90         1,067,000      $   1.03           1,097,000     $    .09        923,000
               Options issued       $   .75            35,000      $    .75              35,000     $    .83        184,000
               Options expired      $     -             -          $   3.00             (65,000)    $   3.00        (10,000
                                                ---------------                  ---------------                 -----------
         Balance, December 31       $   .90         1,102,000      $    .90           1,067,000     $   1.03      1,097,000
                                                ===============                  ===============                 ===========

          All options were  exercisable  at December  31,  2003.  Following is a
     schedule  by year and by  exercise  price of the  expiration  of our  stock
     options issued as of December 31, 2003:

                        2004           2005          2006          2007        Thereafter         Total
                      ----------    -----------    ----------    ----------    ------------     -----------
            $ .75       432,000                                     35,000         185,000         652,000
            $ .83                                    184,000                                       184,000
            $1.13                      100,000                                                     100,000
            $1.20                      106,000                                                     106,000
            $1.81                                                                   60,000          60,000
                      ----------    -----------    ----------    ----------    ------------     -----------
                        432,000        206,000       184,000        35,000         210,000       1,102,000
                      ==========    ===========    ==========    ==========    ============     ===========

          Stock Warrants
          --------------

          We have issued a significant number of stock warrants for a variety of
     reasons,  including  compensation to employees,  additional  inducements to
     purchase our common or preferred stock, inducements related to the issuance
     of debt and for payment of goods and  services.  Following is a schedule by
     year of the activity related to stock warrants,  including weighted-average
     exercise prices of warrants in each category:

                                               2003                          2002                           2001
                                     --------------------------    --------------------------    ---------------------------
                                     Wtd Avg                       Wtd Avg                       Wtd Avg
                                      Prices         Number         Prices         Number         Prices         Number
                                     ---------    -------------    ---------    -------------    ---------    --------------
         Balance, January 1            $ 1.24        2,181,754        $2.15        1,306,754       $ 2.31         1,392,254
             Warrants issued            $ .75          150,000        $ .75        1,145,000        $ .75           150,000
             Warrants exercised
                  or expired          $(3.61)        (366,754)        $3.57        (270,000)       $ 2.22         (235,500)
                                                  -------------                 -------------                 --------------

         Balance, December 31           $ .76        1,965,000        $1.24        2,181,754       $ 2.15         1,306,754
                                                  =============                 =============                 ==============


          Included in the  "warrants  issued" and  "warrants  exercised/expired"
          columns in 2002 were 270,000  warrants whose price was reduced in 2002
          to $.75.
                                      F-22


                                                        GULFWEST ENERGY INC. AND SUBSIDIARIES
                                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6. Shareholders' Equity - continued

               Following  is a  schedule  by year and by  exercise  price of the
          expiration of our stock warrants issued as of December 31, 2003:



                          2004          2005            2006            2007            2008            Total
                          ----          ----            ----            ----            ----            -----
         $  .75                       225,000         1,590,000                                      1,815,000
            .875                      150,000                                                          150,000
                        ----------    ----------    -------------    ------------    -----------     ------------
                            -         375,000         1,590,000            -              -          1,965,000
                        ==========    ==========    =============    ============    ===========     ============

               Warrants outstanding to our officers,  directors and employees at
          December 31, 2003 and 2002 were approximately 1,515,000 and 1,682,000,
          respectively. The exercise prices on these warrants range from $.75 to
          $.88 and expire various dates through 2006.

Note 7. Income (Loss) Per Common Share

               The  following  is  a   reconciliation   of  the  numerators  and
          denominators used in computing income (loss) per share:

                                                         2003                  2002                 2001
                                                   ------------------    -----------------    ------------------
         Net income (loss)                         $    (3,024,426)           (4,502,313)            1,044,291
         Preferred stock dividends                        (127,083)             (112,500)              (56,250)
                                                   ------------------    -----------------    ------------------
         Income (loss) available to common
         shareholders (numerator)                  $    (3,151,509)           (4,614,813)              988,041
                                                   ==================    =================    ==================
         Weighted-average number of shares
            of common stock - basic
            (denominator)                               18,492,541            18,492,541            18,464,343                                                   ------------------    -----------------    ------------------
         Income (loss) per share - basic           $          (.17)                 (.25)                  .05
                                                   ==================    =================    ==================

               Potential dilutive securities (stock options,  stock warrants and
          convertible preferred stock) in 2003 and 2002 have not been considered
          since we reported a net loss and, accordingly,  their effects would be
          antidilutive.  Potential  dilutive  securities  (stock options,  stock
          warrants and convertible  preferred stock) totaling 2,780,520 weighted
          average shares in 2001 have been  considered but there is no effect on
          income per common share.

Note 8. Related Party Transactions

               On December 1, 1992, Ray Holifield and Associates,  Inc. executed
          an unsecured  promissory  note to us for $118,645 with interest at 10%
          per annum,  due on October 1, 1993. At December 31, 1993, the note was
          still outstanding.  During 1994, we entered into an agreement with the
          Holifield  Trust in which Holifield will make payments on the past due
          note from future oil and gas revenue. During 1995, $10,995 of interest
          payments were received.  At December 31, 2001 the unsecured promissory
          note had been fully  reserved.  At December  31, 2002,  the  unsecured
          promissory note had been fully written off.

               On December 1, 1992,  Parkway Petroleum  Company, a Ray Holifield
          related  company,  executed  an  unsecured  promissory  note to us for
          $54,616 with  interest at 10% per annum,  due on October 1, 1993.  The
          note was issued for amounts  due from  contract  drilling  services we
          provided Parkway Petroleum
                                      F-23

                  GULFWEST ENERGY INC. AND SUBSIDIARIES NOTES
                      TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8. Related Party Transactions - continued

               Company.  At December 31, 1993,  the note was still  outstanding.
          During 1994, we entered into an agreement with the Holifield  Trust in
          which  Holifield  will make  payments on the past due note from future
          oil and gas revenue.

               During  1995,  $6,250 of  interest  payments  were  received.  At
          December  31,  2001,  the  unsecured  promissory  note had been  fully
          reserved. At December 31, 2002, the unsecured promissory note had been
          fully written off.

               On January 10, 1994, we entered into a consulting  agreement with
          Williams  Southwest  Drilling Company,  Inc.  ("Williams")  whereby we
          would provide management and accounting services for $25,000 per month
          for a period of one  year.  We  accrued  the  consulting  fees with an
          offset  to  deferred  income  until  payment  of the fees is  actually
          received. During 1994, $172,140 was recorded as consulting fee income.
          Beginning in the second quarter 1994, we began recognizing  consulting
          income  only as cash  payments  were  received.  Prior  to the  second
          quarter,  $75,000 in consulting  fee revenue was accrued.  We received
          $97,140 in  consulting  fee  payments.  As of December 31,  1994,  the
          receivable  from  Williams of $202,860  for  consulting  fees has been
          offset by deferred  income of $127,860  and a provision  for  doubtful
          accounts  of  $75,000.  Effective  January  1,  1995,  we  received  a
          promissory  note from  Williams  in the  amount of  $202,860,  bearing
          interest  at the  rate of 10% per  annum,  and  payable  in  quarterly
          installments of principal and interest of $15,538.87.  At December 31,
          2001,  the  unsecured  promissory  note had been  fully  reserved.  At
          December  31,  2002,  the  unsecured  promissory  note had been  fully
          written off.

               From  July 22 to August  13,  1998,  we  advanced  sums  totaling
          $102,000 to Gulf Coast  Exploration,  Inc. At December 31,  2001,  the
          debt had been fully reserved.  At December 31, 2002, the debt had been
          fully written off.

               On  October 1,  1998,  Toro Oil  Company  executed  an  unsecured
          promissory note to us for the purchase of 100% of WestCo for $150,000,
          with  interest at the prime rate per annum and due September 30, 1999.
          To date,  no principal  payments have been  received.  At December 31,
          2001, the  promissory  note had been fully  reserved.  At December 31,
          2002, the debt had been fully written off.

               In a subsequent event on March 5, 2004, we entered into an Option
          Agreement  for  the  Purchase  of Oil  and Gas  Leases  (the  "Addison
          Agreement") with W. L. Addison  Investments  L.L.C., a private company
          owned by Mr. J. Virgil  Waggoner  and Mr.  John E.  Loehr,  two of our
          directors, (`Addison").  Effective December 1, 200l and amended August
          16, 2002,  we had entered  into an Oil and Gas  Property  Acquisition,
          Exploration and Development  Agreement (the "Summit  Agreement")  with
          Summit Investment Group-Texas, L.L.C., an unrelated party, ("Summit").
          Under the  agreement,  Summit  provided  payments in the  aggregate of
          $1,200,000 in advanced funds for our use in the acquisition of oil and
          gas leases and other  mineral and royalty  interests,  and  production
          activities,  and was to recoup and recover those advanced funds. Under
          the Addison  Agreement,  Addison agreed to pay Summit,  on our behalf,
          the   non-recouped   and  outstanding   advanced  funds  amounting  to
          $1,200,000,  thereby retiring the Summit Agreement.  For consideration
          of such  payment,  Addison  acquired  certain  oil and gas  leases and
          wellbores  from  Summit  but  agreed to grant us a 180-day  redemption
          option (which may be extended by mutual  consent) to purchase the same
          for  $1,200,000,  plus interest at the prime rate plus 2%. We tendered
          Addison a promissory note in the amount of $600,000,  with interest at
          the prime rate plus 2%, to  substitute  for an account  payable due to
          Summit, pursuant to the Summit Agreement, in the same amount. The note
          will be considered  paid in full if we exercise the redemption  option
          and pay the  $1,200,000,  plus interest.  Summit retained the right to
          participate up to a 25% working  interest in the drilling of any wells
          on the  leases  acquired  by  Addison.  In the event we  exercise  the
          redemption option, Addison may, at its sole option, retain up to a 25%
          working interest in the leases.
                                      F-24

                      GULFWEST ENERGY INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8. Related Party Transactions - continued

          Interest  expensed  on  related  party  notes  totaled   approximately
          $76,000,  $53,000 and $128,000 for the years ended  December 31, 2003,
          2002 and 2001 respectively.

Note 9. Income Taxes

               The  components  of the net  deferred  federal  income tax assets
          (liabilities)  recognized in our  consolidated  balance sheets were as
          follows:

                                                                     December 31,          December 31,
                                                                         2003                  2002
                                                                         ----                  ----
         Deferred tax assets
             Net operating loss carryforwards                      $  6,352,507            $   5,236,485
             Oil and gas properties                                     610,381                  542,131
             Capital loss carryforwards                                   -                       93,211
             Derivative instruments                                     201,099                  383,858
             Accretion                                                   26,120
                                                                   -----------------    -------------------

         Net deferred tax assets before
             valuation allowance                                      7,190,107                6,255,685
         Valuation allowance                                         (7,190,107)              (6,255,685)
                                                                   -----------------    -------------------
         Net deferred tax assets (liabilities)                     $      -             $      -
                                                                   =================    ===================

               As of December 31, 2003 and 2002,  we did not believe it was more
          likely than not that the net  operating  loss  carryforwards  would be
          realizable  through  generation of future taxable  income;  therefore,
          they were fully reserved.

               The following table summarizes the difference  between the actual
          tax provision  and the amounts  obtained by applying the statutory tax
          rate of 34% to the income  (loss)  before  income  taxes for the years
          ended December 31, 2003, 2002 and 2001.

                                                                     2003                2002                2001
                                                               -----------------   -----------------    ----------------

         Tax (benefit) calculated at statutory rate            $   (1,028,305)     $   (1,530,786)      $      355,059

         Increase (reductions) in taxes due to:

             Effect on non-deductible expenses                       362,910               65,174               18,157
             Change in valuation allowance                           934,422            1,586,988             (345,754)
             Other                                                  (269,027)            (121,376)             (27,462)
                                                               -----------------   -----------------    ----------------

         Current federal income tax provision                  $      -             $       -             $       -
                                                               =================   =================    ================

               As of December 31, 2003 we had net operating  loss  carryforwards
          of  approximately  $18,700,000,  which are  available to reduce future
          taxable income and capital gains, respectively, and the related income
          tax liability.  The net operating loss carryforward expires at various
          dates through 2023.
                                      F-25

                     GULFWEST ENERGY INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10.  Commitments and Contingencies

          Oil and Gas Hedging Activities

               We entered into an agreement with an energy lender  commencing in
          May,  2000, to hedge a portion of our oil and gas sales for the period
          of May, 2000 through  April,  2004.  The agreement  called for initial
          volumes of 7,900  barrels  of oil and  52,400  Mmbtu of gas per month,
          declining monthly thereafter.  We entered into a second agreement with
          the energy lender, commencing September,  2001, to hedge an additional
          portion of our oil and gas sales for the  periods of  September,  2001
          through  July,  2004  and  September,   2001  through  December  2002,
          respectively.  The  agreement  called  for  initial  volumes of 15,000
          barrels of oil and

               50,000  Mmbtu of gas per  month,  declining  monthly  thereafter.
          Volumes at December 31, 2003 had declined to 6,400  barrels of oil and
          21,200  Mmbtu of gas. As a result of these  agreements,  we realized a
          reduction  in revenues of  $1,496,303,  $368,776  and $762,480 for the
          twelve-month   periods  ended  December  31,  2003,   2002  and  2001,
          respectively, which is included in oil and gas sales.

          Lease Obligations

               We lease  office space at one  location  under a sixty-four  (64)
          month lease,  which commenced December 1, 2001 and was amended May 30,
          2002 after expansion.  Annual  commitments under the lease are: 2004 -
          $130,050,  2005 - $132,979,  2006 - $135,323 and 2007 - $33,977. Total
          rent expense for the years ended December 31, 2003, 2002 and 2001 were
          approximately $134,500, $91,000 and $60,000, respectively.

          Litigation

               From time to time, we are involved in  litigation  arising out of
          our  operations  or from disputes with vendors in the normal course of
          business.  As of March  29,  2004,  we were not  engaged  in any legal
          proceedings  that are expected,  individually or in the aggregate,  to
          have a material effect on our consolidated financial statements.

               The  estimates  of proved oil and gas  reserves  utilized  in the
          preparation  of the financial  statements  are estimated in accordance
          with guidelines  established by the Securities and Exchange Commission
          and the  Financial  Accounting  Standards  Board,  which  require that
          reserve  estimates be prepared under  existing  economic and operating
          conditions  with no  provision  for  price and cost  escalations  over
          prices  and  costs   existing  at  year  end  except  by   contractual
          arrangements.

               We emphasize  that reserve  estimates are  inherently  imprecise.
          Accordingly,  the  estimates  are  expected to change as more  current
          information becomes available.  Our policy is to amortize  capitalized
          oil and gas costs on the unit of production  method,  based upon these
          reserve estimates.  It is reasonably possible that, because of changes
          in market  conditions  or the inherent  imprecision  of these  reserve
          estimates,  that the  estimates of future cash  inflows,  future gross
          revenues,  the amount of oil and gas reserves, the remaining estimated
          lives of the oil and gas  properties,  or any combination of the above
          may be increased or reduced in the near term. If reduced, the carrying
          amount of capitalized oil and gas properties may be reduced materially
          in the near term.
                                      F-26

                      GULFWEST ENERGY INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11. Oil and Gas Reserves Information (Unaudited)

               The  following  unaudited  table  sets  forth  proved oil and gas
          reserves,  all within the United States,  at December 31, 2003,  2002,
          and 2001, together with the changes therein.

                                                                                    Crude Oil          Natural Gas
                                                                                      (BBls)              (Mcf)
                                                                                  ---------------    ----------------
         QUANTITIES OF PROVED RESERVES:

              Balance December 31, 2000                                                4,575,179          24,811,919
                   Revisions                                                           (386,078)             238,595
                   Extensions, discoveries and additions                                   5,676             895,333
                   Purchase                                                            2,078,561          14,905,837
                   Sales                                                               (107,225)               1,122
                   Production                                                          (294,276)         (1,594,899)
                                                                                  ---------------    ----------------

              Balance December 31, 2001                                                5,871,837          39,257,907
                   Revisions                                                           (125,468)         (4,959,229)
                   Extensions, discoveries and additions                                  22,129           1,090,024
                   Purchase                                                               52,480           1,090,025
                   Sales                                                                (20,698)           (837,856)
                   Production                                                          (278,374)         (1,487,048)
                                                                                  ---------------    ----------------

              Balance December 31, 2002                                                5,521,906          34,158,823
                   Revisions                                                           (262,608)           (308,080)
                   Extensions, discoveries and additions                                  -                   -
                   Purchase                                                               -                   -
                   Sales                                                                  -                   -
                   Production                                                          (221,335)         (1,190,624)
                                                                                  ---------------    ----------------

              Balance December 31, 2003                                                5,037,963          32,660,119
                                                                                  ===============    ================

         PROVED DEVELOPED RESERVES:
              December 31, 2001                                                        3,939,593          21,203,989
                                                                                  ===============    ================
              December 31, 2002                                                        4,025,552          25,374,113
                                                                                  ===============    ================
              December 31, 2003                                                        3,772,926          24,642,407
                                                                                  ===============    ================
                                      F-27

                      GULFWEST ENERGY INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11. Oil and Gas Reserves Information (Unaudited) - continued

          STANDARDIZED MEASURE:

          Standardized  measure of discounted  future net cash flows relating to
          proved reserves:

                                                                  2003                  2002                 2001
                                                           -------------------    -----------------    -----------------

         Future cash inflows                               $       336,795,385    $   308,381,837      $   199,162,921

         Future production and development costs
            Production                                             109,468,727        105,629,872            77,526,278
            Development                                             21,460,459         23,350,811            23,610,596
                                                           -------------------    -----------------    -----------------

         Future cash flows before income taxes                     205,866,199        179,401,154            98,026,047
         Future income taxes                                       (46,885,360)       (38,611,577)          (13,281,358)
                                                           -------------------    -----------------    -----------------

         Future net cash flows after income taxes                 158,980,839         140,789,577           84,744,689
         10% annual discount for estimated
           timing of cash flows                                   (70,653,419)        (63,165,742)         (35,895,306)
                                                           -------------------    -----------------    -----------------

         Standardized measure of discounted
           future net cash flows                           $       88,327,420     $    77,623,835      $    48,849,383
                                                           ===================    =================    =================

          The following  reconciles  the change in the  standardized  measure of
          discounted future net cash flows:

         Beginning of year                                 $      77,623,835      $     48,849,383     $     90,381,127

         Changes from:
            Purchases                                                 -                  3,054,793           27,032,359
            Sales                                                     -                   (953,159)            (443,324)
            Extensions, discoveries and improved
             recovery, less related costs                             -                  2,002,176              427,192
            Sales of oil and gas produced net of
                production costs                                   (5,316,619)          (5,016,964)          (7,270,603)
            Revision of quantity estimates                         (3,751,921)          (9,974,557)          (1,783,276)
            Accretion of discount                                   9,889,881            5,649,945           12,414,073
            Change in income taxes                                 (4,793,281)         (13,624,917)          26,109,535
            Changes in estimated future
                development costs                                   2,003,801           (5,254,561)          (6,360,990)
           Development costs incurred that
                reduced future development costs                    2,024,663            5,569,881            5,945,369
           Change in sales and transfer prices,
                net of production costs                            16,470,113           46,903,282          (89,573,528)
           Changes in production rates (timing)
                and other                                          (5,823,052)             418,533           (8,028,551)
                                                           -------------------    -----------------    -----------------
          End of year                                      $       88,327,420     $     77,623,835     $     48,849,383
                                                           ===================    =================    =================
                                      F-28

                      GULFWEST ENERGY INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 12. Quarterly Results (Unaudited)

               Summary  data  relating  to the  results of  operations  for each
          quarter for the years ended December 31, 2003 and 2002 follows:

                                                                      Three Months Ended
                                          ---------------------------------------------------------------------------
                                             March 31             June 30         September 30         December 31
                                          ----------------    ----------------   ----------------    ----------------
     2003
          Net sales                       $     3,250,603     $     2,790,124    $     2,436,063     $    2,533,933
          Gross profit                            862,683             406,576             81,573           (433,321)
          Net income (loss)                       120,659         (1,231,883)          (399,457)         (1,640,828)
          Income (loss) per common
             share - basic and diluted    $           .01     $         (.07)    $         (.02)      $        (.09)

     2002
          Net sales                       $     2,648,873     $     2,951,798    $     2,641,626      $    2,597,500
          Gross profit                            239,912             450,255            100,527             136,961
          Net income (loss)                    (1,964,010)           (305,060)          (924,750)         (1,420,993)
          Income (loss) per common
             share - basic and diluted    $         (0.11)    $         (0.02)   $         (0.05)      $       (0.07)

                                      F-29


                          INDEPENDENT AUDITOR'S REPORT

Shareholders and Board of Directors
GULFWEST ENERGY INC.

Our report on the consolidated  financial statements of GulfWest Energy Inc. and
Subsidiaries as of December 31, 2003 and 2002 and for each of the three years in
the period ended December 31, 2003, is included on page F-2. In connection  with
our audit of such consolidated  financial  statements,  we have also audited the
related financial statement schedule for the years ended December 31, 2003, 2002
and 2001 on page F-31.

In our  opinion,  the  financial  statement  schedule  referred  to above,  when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information required to be
included therein.

                                                 \s\ WEAVER AND TIDWELL, L.L.P.
                                                 -----------------------------
                                                     WEAVER AND TIDWELL, L.L.P.

                                                     Dallas, Texas
                                                     March 19, 2004
                                                       F-30

                      GULFWEST ENERGY INC. AND SUBSIDIARIES
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
              FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

                                              BALANCE                                                     BALANCE
                                                AT                                                          AT
                                             BEGINNING         PROVISIONS/          RECOVERIES/             END
DESCRIPTION                                  OF PERIOD          ADDITIONS            DEDUCTIONS          OF PERIOD
- --------------------------------------    ----------------   -----------------    -----------------    --------------
For the year ended

     December 31, 2001

          Accounts and notes
            receivable related parties    $      740,478     $       -            $        -           $     740,478
                                          ================   =================    =================    ==============

          Valuation allowance for
               deferred tax assets        $    5,014,451     $       (345,754)    $        -           $   4,668,697
                                          ================   =================    =================    ==============

For the year ended

     December 31, 2002

          Accounts and notes
               Receivable related parties $      740,478     $        -           $       (740,478)    $      -
                                          ================   =================    =================    ==============

          Valuation allowance for
               deferred tax assets        $   4,668,697      $     1,586,988      $       -            $  6,255,685
                                          ================   =================    =================    ==============

For the year ended

     December 31, 2003

          Valuation allowance for
               deferred tax assets        $   6,255,685      $        934,422     $       -            $  7,190,107
                                          ================   =================    =================    ==============
                                      F-31

                              GULFWEST ENERGY, INC.



                                 [our logo here]



                                19,179,191 Shares



                              Class A Common Stock




                               ____________, 2004




                                      II-1
                                     PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. Other Expenses of Issuance and Distribution.

     The  following  table sets forth the  expenses to be paid by the Company in
connection  with the offering  described  in this  Registration  Statement.  All
amounts  are  estimates,   except  the   Securities   and  Exchange   Commission
Registration Fee.

                Securities and Exchange Commission Registration Fee: $    924
                Legal Fees and Expenses............................    40,000
                Accounting Fees and Expenses.......................    20,000
                Miscellaneous......................................     4,076
                                                                        -----
                              Total................................  $ 65,000

Item 14. Indemnification of Directors and Officers.

     Our articles of incorporation and bylaws provide that we will indemnify, to
the fullest extent permitted by the Texas Business  Corporation Act, any and all
persons who we have power to  indemnify  under that Act from and against any and
all of the expenses, liabilities or other matters referred to or covered by that
Act.  Additionally,  our Articles of Incorporation  provide that a director will
not be liable to the Company or its  shareholders  for an act or omission in the
director's  capacity as a director to the fullest extent  permitted  under Texas
law.

     Article  2.01  of  the  Texas  Business  Corporation  Act  provides  that a
corporation  may  indemnify a person who was, is, or is  threatened to be made a
named  defendant or  respondent  in a proceeding  because the person is or was a
director only if it is determined that the person:

     (1)  conducted himself in good faith;

     (2)  reasonably believed:

          (a)  in the case of conduct in his official  capacity as a director of
               the corporation,  that his conduct was in the corporation's  best
               interests; and

          (b)  in all other cases,  that his conduct was at least not opposed to
               the corporation's best interests; and

     (3)  in the case of any criminal  proceeding,  had no  reasonable  cause to
          believe his conduct was unlawful.

     Except to a limited extent, a director may not be indemnified in respect of
a proceeding:

     (1)  in which the person is found liable on the basis that personal benefit
          was improperly  received by him,  whether or not the benefit  resulted
          from an action taken in the person's official capacity; or

     (2)  in which the person is found liable to the corporation.
                                      II-1

Item 15. Recent Sales of Unregistered Securities.

     From July 15, 2002 to February 12, 2003, we issued  promissory notes to two
accredited  investors in the total amount of $300,000,  with  interest at 8% per
annum and warrants to purchase a total of 100,000  shares of our common stock at
$.75 per share; a promissory note to one accredited investor in the total amount
of  $300,000,  with an original  interest  rate of 8% that  increased  to 12% on
January 1, 2003 and warrants to purchase  150,000  shares of our common stock at
an exercise price of $.75 per share; and, a promissory note to a director in the
amount of  $1,200,000,  with interest at the prime rate and warrants to purchase
625,000  shares  of our  common  stock  at $.75  per  share.  The  common  stock
underlying the above warrants is included in this registration.

     On April 27, 2004, we completed an $18,000,000  financing  package with new
energy  lenders.  We used  $15,700,000 to retire  existing debt of  $27,584,145,
resulting in forgiveness of debt of  $11,884,145,  the  elimination of a hedging
liability  and the  return to the  Company of Series F  Preferred  Stock with an
aggregate  liquidation  preference of $1,000,000  (this preferred  stock, at the
request of the Company,  was  transferred to two companies  affiliated  with two
directors  of the  Company.  See  "Certain  Transactions.")  This  taxable  gain
resulting  from these  transactions  will be completely  offset by available net
operating  loss  carryforwards.  The term of the note is eighteen  months and it
bears interest at the prime rate plus 11%. This rate increases by .75% per month
beginning in month ten. We paid the new lenders $1,180,000 in cash fees and also
issued  them  warrants to purchase  2,035,621  shares of our common  stock at an
exercise  price of $.01 per share,  expiring in five  years.  The  warrants  are
subject  to  anti-dilution  provisions.  We are  required  by the  terms  of the
warrants to register the resale of the common stock underlying the warrants, and
those shares are offered by this prospectus.  See  "Management's  Discussion and
Analysis of Financial Condition and Results of Operations."

     Simultaneously,   our  wholly-owned  subsidiary,  GulfWest  Oil  &  Gas
Company,  completed  the  initial  phase of a private  offering  of its Series A
Preferred  Stock for  $4,000,000.  The Series A Preferred  Stock is exchangeable
into our common stock based on a liquidation value of $500 per share of Series A
Preferred  Stock  divided by $.35 per share of our Common  Stock,  or 11,428,571
shares. As part of an advisory fee, we issued $500,000 of the Series A Preferred
Stock to a financial advisor.  One of our directors  acquired  $1,500,000 of the
Series A Preferred  Stock. The resale of the shares of Common Stock to be issued
upon the exchange of the Preferred Stock is offered by this prospectus.

     The Series A Preferred  Stock is entitled to receive  dividends at the rate
of $45.00 per share per annum,  payable  quarterly,  as declared by the Board of
Directors. The Series A Preferred Stock is redeemable in whole or in part at any
time,  at the  option  of the  issuer,  at a price of $500 per  share,  plus all
accrued and undeclared  unpaid  dividends.  The conversion price of the Series A
Preferred  Stock is based  upon  $0.35 per share of  common  stock.  None of the
Series A Preferred Stock has been redeemed or converted.

     Pursuant to an agreement with the financial advisor, who provided access to
the lenders and raised  $1,900,000  of the Series A Preferred  Stock,  we paid a
cash fee of $400,000,  in addition to the $500,000  issued in Series A Preferred
Stock.  The advisor  contends that additional fees are due, however we disagree,
at this time, and do not know what the outcome of the disagreement will be.
                                      II-2

Item 16. Exhibits and Financial Statement Schedules.

                  Exhibits:

                  Number   Description
                  ------   -----------

                    3.1  Articles   of    Incorporation   of   the   Registrant.
                         (Previously  filed with our Registration  Statement (on
                         Form S-1, Reg. No. 33-53526), filed with the Commission
                         on October 21, 1992.)

                    3.2  Bylaws of the  Registrant.  (Previously  filed with our
                         Registration   Statement   (on  Form  S-1,   Reg.   No.
                         33-53526),  filed with the  Commission  on October  21,
                         1992.)

                    4.1  Statement of Resolution  Establishing and Designating a
                         Series of  Shares of  GulfWest  Oil &  Gas  Company
                         Series A Preferred  Stock,  as filed with the Secretary
                         of State of Texas on April 26, 2004.  (Previously filed
                         with our  Current  Report on Form 8-K  dated  April 29,
                         2004 and filed with the Commission on May 10, 2004.)

                    4.2  Statement of Resolution  Establishing and Designating a
                         Series of  Shares  of  GulfWest  Energy  Inc.  Series D
                         Preferred  Stock,  as filed with the Secretary of State
                         of Texas on June 11, 2000.

                    4.3  Statement of Resolution  Establishing and Designating a
                         Series of  Shares  of  GulfWest  Energy  Inc.  Series E
                         Preferred  Stock,  as filed with the Secretary of State
                         of Texas on August 14, 2001. (Previously filed with our
                         Current  Report on Form 8-K dated  August 16,  2001 and
                         filed Commission on August 31, 2001.)

                    4.4  Statement of Resolution  Establishing and Designating a
                         Series of  Shares  of  GulfWest  Energy  Inc.  Series F
                         Preferred  Stock,  as filed with the Secretary of State
                         of Texas on June 18, 2003.

                    4.5  Letter  Agreement by and among GulfWest  Energy Inc., a
                         Texas  corporation,  GulfWest Oil & Gas Company and
                         the  investors  listed on the  signature  page thereof,
                         dated  April  22,  2004.  (Previously  filed  with  our
                         Current  Report on Form 8-K,  dated  April 29, 2004 and
                         filed with the Commission on May 10, 2004.)

                    4.6  Warrant  Agreement made by and between  GulfWest Energy
                         Inc., and Highbridge/Zwirn  Special Opportunities FUND,
                         L.P., and  Drawbridge  Special  Opportunities  Fund LP,
                         Grantees,   dated  and   effective   April  29,   2004.
                         (Previously  filed with our Current  Report on Form 8-K
                         dated April 29, 2004 and filed with the  Commission  on
                         May 10, 2004.)

                    4.7  GulfWest Oil Company 1994 Stock Option and Compensation
                         Plan,  amended  and  restated  as of April 1,  2001 and
                         approved  by  the   shareholders   on  May  18,   2001.
                         Previously  filed with our Proxy  Statement on Form DEF
                         14A, filed with the Commission on April 16, 2001.
                                      II-3

                    *5.1 Opinion of Jackson Walker L.L.P.

                    10.1 Employment  Agreement  with  Thomas R.  Kaetzer,  dated
                         October 1, 2001

                    10.2 Consulting  Agreement with Marshall A. Smith III, dated
                         June 1, 2002

                    10.3 Oil  and  Gas  Property  Acquisition,  Exploration  and
                         Development    Agreement    with   Summit    Investment
                         Group-Texas, L.L.C. effective December 1, 2001.

                    10.4 Option Agreement for the Purchase of Oil and Gas Leases
                         with W.L.  Addison  Investments  L.L.C.  dated March 5,
                         2004

                    10.5 Credit  Facility  between  GulfWest  Energy,  Inc.  and
                         Highbridge/Zwirn  Special Opportunities FUND, L.P., and
                         Drawbridge  Special  Opportunities  Fund LP,  Grantees,
                         dated and effective April 29, 2004.

                    10.6 Credit Agreement between GulfWest  Development  Company
                         and Texas Capital Bank, dated November 30, 2000.

                    10.7 First  Amendent to Credit  Agreement  between  GulfWest
                         Development  Company  and  Texas  Capital  Bank,  dated
                         October 24, 2001

                    10.8 Revolving   Letter  Loan  Agreement   between  GulfWest
                         Energy,Inc. and Texas Capital Bank, N.A. dated April 3,
                         2002

                    10.9 Change in Terms Agreement between GulfWest Energy, Inc.
                         and Southwest Bank of Texas N.A. dated April 29, 2003.

                    22.1 Subsidiaries of the Registrant

                    23.1 Consent of Jackson  Walker  L.L.P.  (to be  included in
                         Exhibit 5.1)

                    23.2 Consent of Weaver and Tidwell, L.L.P.

                    23.3 Consent of Pressler Petroleum Consultants

                    25   Power of Attorney  (included on signature  page II-5 of
                         this Registration Statement.)
_________________________
                    *    To be filed by amendment.

Item 17. Undertakings.

     Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors,  officers and controlling  persons of the
registrant pursuant to the foregoing  provisions,  or otherwise,  the registrant
has been advised that in the opinion of the Securities  and Exchange  Commission
such  indemnification  is against public policy as expressed in the Act, and is,
therefore,  unenforceable. In the event that a claim for indemnification against
such liabilities  (other than the payment by the registrant of expenses incurred
                                      II-4

                                       2

or paid by a director,  officer or  controlling  person of the registrant in the
successful  defense of any  action,  suit or  proceeding)  is  asserted  by such
director,  officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been  settled by  controlling  precedent,  submit to a court of  appropriate
jurisdiction the question whether such  indemnification  by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

     The undersigned registrant hereby undertakes:

     1.   To file,  during any period in which offers or sales are being made, a
          post-effective amendment to this registration statement:

          (i)  To include any  prospectus  required  by section  10(a)(3) of the
               Securities Act of 1933, as amended.

          (ii) To reflect in the  prospectus  any facts or events  arising after
               the  effective  date of the  registration  statement (or the most
               recent post-effective  amendment thereof) which,  individually or
               in  the  aggregate,   represent  a  fundamental   change  in  the
               information   set   forth   in   the   registration    statement.
               Notwithstanding the foregoing, any increase or decrease in volume
               of  securities  offered (if the total dollar value of  securities
               offered  would not  exceed  that  which was  registered)  and any
               deviation  from  the low or  high  end of the  estimated  maximum
               offering  range may be reflected in the form of prospectus  filed
               with the  Commission  pursuant to Rule  424(b) of the  Securities
               Act,  if, in the  aggregate,  the  changes  in  volume  and price
               represent  not more than a 20%  change in the  maximum  aggregate
               offering price set forth in the "Calculation of Registration Fee"
               table in the effective registration statement.

          (iii)To include any material  information  with respect to the plan of
               distribution   not  previously   disclosed  in  the  registration
               statement  or any  material  change  to such  information  in the
               registration statement.

          2.  That for the  purpose  of  determining  any  liability  under  the
     Securities Act, each such post-effective  amendment shall be deemed to be a
     new registration  statement relating to the securities offered therein, and
     the  offering  of such  securities  at that time  shall be deemed to be the
     initial bona fide offering thereof.

          3. To remove from registration by means of a post-effective  amendment
     any  of  the  securities  being  registered  which  remain  unsold  at  the
     termination of the offering.


                                      II-5

                                       3

                               S I G N A T U R E S

     Pursuant to the  requirements of the Securities Act of 1933, the registrant
has duly  caused  this  report to be signed  on its  behalf by the  undersigned,
thereunto  duly  authorized,  in the City of Houston,  State of Texas on May 27,
2004.

                                          GULFWEST ENERGY INC.


                                          By       \s\ John E. Loehr
                                         -----------------------------------
                                         John E. Loehr, Chief Executive Officer

                                POWER OF ATTORNEY

     Know all men by these presents,  that each person whose  signature  appears
below  constitutes  and  appoints  John E. Loehr,  Thomas R. Kaetzer and each of
them,  as his true and lawful  attorney-in-fact  and  agent,  with full power of
substitution,  for  him  and in his  name,  place,  and  stead,  in any  and all
capacities to sign any and all amendments or  supplements  to this  Registration
Statement on Form S-1, and to file the same,  and with all exhibits  thereto and
other  documents  in  connection  therewith,  with the  Securities  and Exchange
Commission,  granting unto said  attorneys-in-fact and agents, and each of them,
or either of them, full power and authority to do and perform each and every act
and  thing  requisite  and  necessary  to be done as  fully to all  intents  and
purposes as he might or could do in person,  hereby ratifying and confirming all
that said  attorneys-in-fact  and agents or his, or either of them substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

     Pursuant to the requirements of the Securities Act of 1933, this report has
been signed below by the following persons, on behalf of the registrant,  and in
the capacities and on the dates indicated.

             Signature                                      Title                                 Date
- -------------------------------------------- -----------------------------------------  -------------------------

\s\ J. Virgil Waggoner                       Chairman of the Board                            May 27, 2004
- ----------------------
J. Virgil Waggoner

\s\ Thomas R. Kaetzer                        President, Chief Operating Officer               May 27, 2004
- ---------------------
Thomas R. Kaetzer                            and Director

\s\ Jim C. Bigham                            Executive Vice President and Secretary           May 27, 2004
- -----------------
Jim C. Bigham

\s\ Richard L. Creel                         Vice President of Finance, Controller            May 27, 2004
- --------------------
Richard L. Creel

\s\ Marshall A. Smith III                    Director                                         May 27, 2004
- -------------------------
Marshall A. Smith III

\s\ John E. Loehr                            Chief Executive Officer and Director             May 27, 2004
- -----------------
John E. Loehr

\s\ M. Scott Manolis                         Director                                         May 27, 2004
- --------------------
M. Scott Manolis

                                      II-6

                                       4

                                  EXHIBIT INDEX

                  Number   Description
                  ------   -----------

                    3.1  Articles   of    Incorporation   of   the   Registrant.
                         (Previously  filed with our Registration  Statement (on
                         Form S-1, Reg. No. 33-53526), filed with the Commission
                         on October 21, 1992.)

                    3.2  Bylaws of the  Registrant.  (Previously  filed with our
                         Registration   Statement   (on  Form  S-1,   Reg.   No.
                         33-53526),  filed with the  Commission  on October  21,
                         1992.)

                    4.1  Statement of Resolution  Establishing and Designating a
                         Series of  Shares of  GulfWest  Oil &  Gas  Company
                         Series A Preferred  Stock,  as filed with the Secretary
                         of State of Texas on April 26, 2004.  (Previously filed
                         with our  Current  Report on Form 8-K  dated  April 29,
                         2004 and filed with the Commission on May 10, 2004.)

                    4.2  Statement of Resolution  Establishing and Designating a
                         Series of  Shares  of  GulfWest  Energy  Inc.  Series D
                         Preferred  Stock,  as filed with the Secretary of State
                         of Texas on June 11, 2000.

                    4.3  Statement of Resolution  Establishing and Designating a
                         Series of  Shares  of  GulfWest  Energy  Inc.  Series E
                         Preferred  Stock,  as filed with the Secretary of State
                         of Texas on August 14, 2001. (Previously filed with our
                         Current  Report on Form 8-K dated  August 16,  2001 and
                         filed Commission on August 31, 2001.)

                    4.4  Statement of Resolution  Establishing and Designating a
                         Series of  Shares  of  GulfWest  Energy  Inc.  Series F
                         Preferred  Stock,  as filed with the Secretary of State
                         of Texas on June 18, 2003.

                    4.5  Letter  Agreement by and among GulfWest  Energy Inc., a
                         Texas  corporation,  GulfWest Oil & Gas Company and
                         the  investors  listed on the  signature  page thereof,
                         dated  April  22,  2004.  (Previously  filed  with  our
                         Current  Report on Form 8-K,  dated  April 29, 2004 and
                         filed with the Commission on May 10, 2004.)

                    4.6  Warrant  Agreement made by and between  GulfWest Energy
                         Inc., and Highbridge/Zwirn  Special Opportunities FUND,
                         L.P., and  Drawbridge  Special  Opportunities  Fund LP,
                         Grantees,   dated  and   effective   April  29,   2004.
                         (Previously  filed with our Current  Report on Form 8-K
                         dated April 29, 2004 and filed with the  Commission  on
                         May 10, 2004.)

                    4.7  GulfWest Oil Company 1994 Stock Option and Compensation
                         Plan,  amended  and  restated  as of April 1,  2001 and
                         approved  by  the   shareholders   on  May  18,   2001.
                         Previously  filed with our Proxy  Statement on Form DEF
                         14A, filed with the Commission on April 16, 2001.

                    *5.1 Opinion of Jackson Walker L.L.P.

                                      II-7

                                       5

                    10.1 Employment  Agreement  with  Thomas R.  Kaetzer,  dated
                         October 1, 2001

                    10.2 Consulting  Agreement with Marshall A. Smith III, dated
                         June 1, 2002

                    10.3 Oil  and  Gas  Property  Acquisition,  Exploration  and
                         Development    Agreement    with   Summit    Investment
                         Group-Texas, L.L.C. effective December 1, 2001.

                    10.4 Option Agreement for the Purchase of Oil and Gas Leases
                         with W.L.  Addison  Investments  L.L.C.  dated March 5,
                         2004

                    10.5 Credit  Facility  between  GulfWest  Energy,  Inc.  and
                         Highbridge/Zwirn  Special Opportunities FUND, L.P., and
                         Drawbridge  Special  Opportunities  Fund LP,  Grantees,
                         dated and effective April 29, 2004.

                    10.6 Credit Agreement between GulfWest  Development  Company
                         and Texas Capital Bank, dated November 30, 2000.

                    10.7 First  Amendent to Credit  Agreement  between  GulfWest
                         Development  Company  and  Texas  Capital  Bank,  dated
                         October 24, 2001

                    10.8 Revolving   Letter  Loan  Agreement   between  GulfWest
                         Energy,Inc. and Texas Capital Bank, N.A. dated April 3,
                         2002

                    10.9 Change in Terms Agreement between GulfWest Energy, Inc.
                         and Southwest Bank of Texas N.A. dated April 29, 2003.

                    22.2 Subsidiaries of the Registrant

                    23.1 Consent of Jackson  Walker  L.L.P.  (to be  included in
                         Exhibit 5.1)

                    23.2 Consent of Weaver and Tidwell, L.L.P.

                    23.3 Consent of Pressler Petroleum Consultants

                    25   Power of Attorney  (included on signature  page II-5 of
                         this Registration Statement.)


                  *        To be filed by amendment.

                                      II-8

EX-23

                         CONSENT OF INDEPENDENT AUDITORS

     We consent to the reference to our firm under the caption  "Experts" and to
the use of our report dated March 19, 2004, in the Registration  Statement (Form
S-1) and related  Prospectus  of GulfWest  Energy Inc. for the  registration  of
19,179,191 shares of its common stock.

                                            /s/ Weaver and Tidwell, L.L.P.
                                          --------------------------------------
Dallas, Texas

May 28, 2004

EX-23

                         CONSENT OF INDEPENDENT AUDITORS

     We consent to the reference to our firm under the caption  "Experts" and to
the use of our report dated March 19, 2004, in the Registration  Statement (Form
S-1) and related  Prospectus  of GulfWest  Energy Inc. for the  registration  of
19,179,192 shares of its common stock.

                                               /s/ Weaver and Tidwell, L.L.P.
                                               --------------------------------
Dallas, Texas

May 28, 2004

EX-4

                            STATEMENT OF RESOLUTION
                 ESTABLISHING AND DESIGNATING A SERIES OF SHARES
                                       OF
                              GULFWEST OIL COMPANY

               Series D Preferred Stock, par value $.01 per share

     Pursuant  to  the   provisions  of  Article  2.13  of  the  Texas  Business
Corporation  Act, and pursuant to Article 4.1 of its Articles of  Incorporation,
the  undersigned,  GulfWest  Oil  Company  (the  "Issuer"),  hereby  submits the
following statement for the purposes of establishing and designating a series of
shares and fixing and determining the relative rights and preferences thereof:

     I. The name of the Issuer is GulfWest Oil Company.

     II. The  following  resolution  establishing  and  designating  a series of
shares and fixing and determining  the relative  rights and preferences  thereof
was duly adopted by the Board of Directors of the Issuer on January 6, 2000:

     RESOLVED,  by the Board of Directors (the "Board") of GulfWest Oil Company,
a Texas corporation (the "Issuer"), that pursuant to authority expressly granted
to and vested in the Board by the provisions of the Articles of Incorporation of
the Issuer,  as amended  (the  "Articles  of  Incorporation"),  the Board hereby
creates a series of the class of authorized  Preferred Stock, par value $.01 per
share,  of the Issuer (the  "Preferred  Stock"),  and  authorizes  the  issuance
thereof,  and hereby  fixes the  designation  and amount  thereof and the voting
powers,  preferences  and  relative,  participating,  optional and other special
rights of the shares of such  series,  and the  qualifications,  limitations  or
restrictions thereof, as follows:

     SECTION 1.  Designation  of  Series.  The  shares of such  series  shall be
designated  "Series D Preferred Stock"  (hereinafter  called "Series D Preferred
Stock").

     SECTION  2.  Number of Shares.  The number of shares of Series D  Preferred
Stock shall be 12,000, of which number the Board may decrease (but not below the
number of shares of the series then outstanding).

     SECTION 3.  Dividends.  No dividends will be paid on the Series D Preferred
Stock.

     SECTION  4.  Redemption  Rights.  The  Series  D  Preferred  Stock  is  not
redeemable.

     SECTION  5. No Sinking  Fund.  The Series D  Preferred  Stock  shall not be
entitled to the benefits of any retirement or sinking fund.
                                       1

     SECTION 6. Liquidation.  The holders of the Series D Preferred Stock shall,
in case of voluntary or  involuntary  liquidation,  dissolution or winding up of
the affairs of the  Issuer,  be entitled to receive in full out of the assets of
the  Issuer,  including  its  capital,  before  any  amount  shall  be  paid  or
distributed among the holders of the Issuer's common stock (the "Common Stock"),
the amount of $500 per share of Series D Preferred Stock.

     SECTION 7. Voting Rights.  Except as otherwise  expressly  required by law,
the holders of the Series D Preferred Stock shall not be entitled to vote on any
matters.  SECTION 8. Conversion to Common Stock. The Series D Preferred Stock is
convertible  to Common Stock at anytime  following the third  anniversary of the
date of issuance.  Thereafter, the Holder may by written notice (the "Conversion
Notice")  to the  Issuer  convert  any or all of  the  shares  of the  Series  D
Preferred  Stock to Common Stock.  The number of shares of Common Stock issuable
with  respect to each  share of Series D  Preferred  Stock upon such  conversion
shall be $500 per share of Series D Preferred  Stock  divided by $8.00 per share
of Common Stock (the "Conversion  Ratio"). Any resulting fractional shares shall
be rounded  up to the next whole  share.  Following  the date of the  Conversion
Notice,  all shares of Series D  Preferred  Stock  specified  in the  Conversion
Notice shall thereafter cease to exist except to the extent that they evidence a
right to receive  the  shares of Common  Stock  upon  conversion.  The shares of
Common Stock  issuable  upon  conversion  shall be issued by the Issuer once the
Holder  tenders the  certificates  evidencing  such shares of Series D Preferred
Stock to the Issuer for cancellation.  SECTION 9. Antidilution.  In case (i) the
outstanding shares of the Common Stock shall be subdivided into a greater number
of shares,  (ii) a dividend  in Common  Stock shall be paid in respect of Common
Stock, or (iii) the outstanding  shares of Common Stock shall be combined into a
smaller number of shares  thereof,  the Conversion  Ratio in effect  immediately
prior to such  subdivision or combination or at the record date of such dividend
or distribution shall, simultaneously with the effectiveness of such subdivision
or  combination  or  immediately  after  the  record  date of such  dividend  or
distribution,  be  proportionately  adjusted  to equal the  product  obtained by
multiplying  the Conversion  Ratio by a fraction,  the numerator of which is the
number  of  outstanding  shares  of  Common  Stock  prior  to such  combination,
subdivision  or  dividend,  and the  denominator  of  which  is that  number  of
outstanding  shares of Common  Stock after  giving  effect to such  combination,
subdivision or dividend. Any dividend paid or distributed on the Common Stock in
stock or any other  securities  convertible into shares of Common Stock shall be
treated as a dividend  paid in Common  Stock to the extent that shares of Common
Stock are issuable upon the conversion thereof. SECTION 10. Registration Rights.
The holders of the Series D  Preferred  Stock will have no  registration  rights
with respect to the Series D Preferred  Stock or the  underlying  Common  Stock.
SECTION 11. Preemptive  Rights. The holders of the Series D Preferred Stock will
have no preemptive rights whatsoever.  SECTION 12. Action by Consent. Any action
required or  permitted to be taken at any meeting of the holders of the Series D
Preferred  Stock may be taken without such a meeting if a consent or consents in
writing,  setting  forth the  actions  so taken,  is  signed by the  holders  of
two-thirds of the outstanding  shares of Series D Preferred  Stock.
                                       2

     IN WITNESS  WHEREOF,  this Statement of Resolution is executed on behalf of
the  Issuer  by its  Executive  Vice  President  and  Secretary  this 6th day of
January, 2000. GULFWEST OIL COMPANY



                                          By:
                                          --------------------------------------
                                          Jim C. Bigham
                                          Executive Vice President and Secretary

EX-4

                             STATEMENT OF RESOLUTION

                 ESTABLISHING AND DESIGNATING A SERIES OF SHARES

                                       OF

                              GULFWEST ENERGY INC.

               Series F Preferred Stock, par value $.01 per share

     Pursuant  to  the   provisions  of  Article  2.13  of  the  Texas  Business
Corporation  Act, and pursuant to Article 4.1 of its Articles of  Incorporation,
as amended,  the  undersigned,  GulfWest  Energy,  Inc. (the  "Company")  hereby
submits the following statement for the purposes of establishing and designating
a  series  of  shares  and  fixing  and  determining  the  relative  rights  and
preferences  thereof:  FIRST:  The name of the Company is  GulfWest  Energy Inc.
SECOND: The following resolution establishing and designating a series of shares
and fixing and determining the relative rights and preferences  thereof was duly
adopted by the Board of Directors of the Company on June 12, 2003: "RESOLVED, by
the Board of Directors (the "Board") of the Company,  that pursuant to authority
expressly  granted to and vested in the Board by the  provisions of the Articles
of Incorporation of the Company,  as amended (the "Articles of  Incorporation"),
the Board hereby  creates a series of the class of authorized  Preferred  Stock,
par value $.01 per share, of the Company (the "Preferred Stock"), and authorizes
the issuance  thereof,  and hereby fixes the  designation and amount thereof and
the voting powers, preferences and relative,  participating,  optional and other
special rights of the shares of such series, and the qualifications, limitations
or restrictions of such series, as set forth below; and, RESOLVED FURTHER,  that
such  provisions  supercede any prior  certificate of  designation  filed by the
Company  with the  Secretary of State of the State of Texas with respect to such
series of the class of Preferred Stock authorized  hereby.

     1. Designation. The designation of the Series of Preferred Stock authorized
hereby shall be "Cumulative  Convertible  Preferred Stock,  Series F" ("Series F
Preferred Stock") with a par value of $.01 per share.

     2. Number of Shares. The number of shares of Series F Preferred Stock shall
be  2,000.

     3.  Dividends.  The dividend  rate for each share of the Series F Preferred
Stock  shall be $12.50  per share  per annum  from June 1, 2003 (the  "Effective
Issue Date") until May 30,  2006,  when the dividend  rate shall be increased to
$30.00  per share per annum and  continue  so long as any shares of the Series F
Preferred  Stock  remains  outstanding.  Cash  dividends  at such rates shall be
accrued  and  payable  with the  first  payment  due on  December  31,  2003 and
thereafter,  in quarterly installments,  on each March 31, June 30, September 30
and December 31 (a "Dividend Payment Date") to holders of record of the Series F
Preferred  Stock as they  appear on the  Company's  stock  records as of the day
immediately  prior  to the  Dividend  Payment  Date.  Such  dividends  shall  be
cumulative.  In addition,  the Company shall pay on such Dividend  Payment Dates
all accrued and  undeclared or unpaid  dividends on shares of Series F Preferred
Stock that were  redeemed in the quarter  ending on such  Dividend  Payment Date
pursuant to Section 8 hereof (provided  however that such dividends shall accrue
only  through the date of  redemption  of such  shares).  The Series F Preferred
Stock  shall rank as to  dividends  (i) senior to the Common  Stock (as  defined
herein) and any other class or series of capital stock that by its express terms
provides that it ranks junior to the Series F Preferred Stock as to dividends or
that does not  expressly  provide  for any ranking as to  dividends  and (ii) on
parity with any other class or series of capital stock that by its express terms
provides  its ranks on a parity  with other  classes of  preferred  stock of the
Company as to payments of dividends ("Parity Securities").  Such dividends shall
first be payable to the  holders of the Series F Preferred  Stock in  preference
and priority of any payment of any cash dividend on any stock ranking  junior to
the Series F Preferred  Stock,  including  without  limitation  the share of the
Company's Common Stock, par value $.001 per share (the "Common Stock").

     4.  Preference.  The  rights of the Series F  Preferred  Stock are of equal
preference to all other  outstanding  preferred  stock of the Company  regarding
payment of dividends and liquidation. As long as the Series F Preferred Stock is
outstanding,  the Company will not issue additional preferred stock with greater
preference regarding payment of dividends or liquidation.  No distribution shall
be  declared  or paid or set  apart for  payment  on any  stock  ranking,  as to
dividends,  junior to the Series F Preferred Stock, including without limitation
the shares of the Common Stock, for any period unless full cumulative  dividends
have been or  contemporaneously  are declared and paid on the Series F Preferred
Stock for all dividend  payment  periods  terminating on or prior to the date of
payment of the  distribution  on such junior stock;  provided that the foregoing
restriction shall not be applicable to dividends payable in additional shares of
Common Stock to the holders of Common Stock in connection with any stock split.

     5. Retirement of Shares.  Shares of Series F Preferred Stock that have been
issued and have been  redeemed,  repurchased  or reacquired in any manner by the
Company  shall be  retired  and not  reissued  and shall  resume  the  status of
authorized  but unissued  and  non-designated  shares of preferred  stock of the
Company.

     6.  Voting.  The holders of Series F  Preferred  Stock shall have no voting
rights except as otherwise expressly required by Texas law.  Notwithstanding the
foregoing, if at any time after the initial payment on December 31, 2003 (i) two
or more  quarterly  dividends,  whether  or not  consecutive,  on the  Series  F
Preferred  Stock are in  default,  in whole or in part;  or (ii) the Company (a)
files a voluntary petition in bankruptcy,  (b) is adjudicated as a bankrupt, (c)
files any  petition  or other  pleading  in any action  seeking  reorganization,
rearrangement, adjustment, or composition of, or in respect of the Company under
the United  States  Bankruptcy  Code or any other  similar  state or federal law
dealing with creditors'  rights  generally,  unless within sixty (60) days after
such filing such  proceeding is  discharged,  or (d) has a receiver,  trustee or
other similar official  appointed for the Company;  then the number of directors
then constituting the Company's Board of Directors shall be increased by one (1)
and the  holders of shares of Series F  Preferred  Stock  shall be  entitled  to
appoint the  additional  director to serve on the Board of  Directors by written
consent  executed by the holders of Series F Preferred  Stock in accordance with
Section 11 hereof or by special  meeting of holders of Series F Preferred  Stock
called as hereinafter provided. Whenever all arrears in accrued dividends on the
Series F  Preferred  Stock shall have been paid or, as  applicable,  the default
specified  in clause (ii) of the  foregoing  sentence  has been cured,  then the
right of the holders of the Series F Preferred  Stock to appoint such additional
director shall cease (but subject always to the same  provisions for the vesting
of such voting  rights in the case of any future  defaults  specified in clauses
(i) and (ii) of the second sentence of this Section),  and the term of office of
any person  appointed  as a director  by the  holders of the Series F  Preferred
Stock shall immediately terminate and the number of the Board of Directors shall
be reduced  accordingly.  At any time after such voting  rights  shall have been
vested in the  holders of the Series F Preferred  Stock,  the  Secretary  of the
Company may, and upon the written  request of the record holders of at least 10%
of the outstanding  Series F Preferred Stock  (addressed to the Secretary at the
principal office of the Company) shall, call a special meeting of the holders of
the Series F Preferred  Stock for the election of the additional  director to be
appointed by them as herein provided,  such call to be made by notice similar to
that  provided  in the  bylaws  of the  Company  for a  special  meeting  of the
shareholders.  If any such special  meeting to be called as above provided shall
not be called by the Secretary within 20 days after receipt of any such request,
then the record  holders of at least 10% of the  outstanding  Series F Preferred
Stock may in writing designate one among them to call the meeting,  and for that
purpose  shall  have  access to the stock  books  and  shareholder  lists of the
Company. If such office shall not have previously  terminated as above provided,
the director  previously  elected at any such special  meeting of the holders of
the Series F Preferred Stock shall continue to hold office until the next annual
meeting of the  shareholders or special  meeting held in lieu thereof,  at which
meeting the holders of the Series F Preferred Stock shall be entitled to reelect
the same  director or to elect a new  director as provided  hereunder.

     7. Other  Rights  and  Amendments.  Except as  otherwise  provided  by law,
without the written  consent of the Series F Preferred  Stock,  the Company will
not (i) create,  authorize  or issue any capital  stock that ranks senior to the
Series F Preferred Stock as to dividends or liquidation payments;  (ii) increase
the authorized number of shares of Series F Preferred Stock; (iii) amend, alter,
repeal or waive any provision of the bylaws,  the Articles of  Incorporation  or
this  Certificate  of  Designation  so as to adversely  affect the  preferences,
rights and powers of the Series F Preferred  Stock;  or (iv) increase the number
of  directors,  excluding  the  additional  directorship  positions  that may be
elected by the Series F Preferred  Stockholders pursuant to Section 6 hereof and
the Series E  Preferred  Stockholders,  to a number  greater  than nine (9).

     8. Redemption  Rights.  The Series F Preferred Stock is redeemable in whole
or in part at any time,  at the  option of the  Company,  at a price of $500 per
share, plus all accrued and undeclared or unpaid  dividends;  except that, after
two  years  from the date of the  original  issuance  of the  shares of Series F
Preferred Stock (the "Original Issue Date"), prior to redemption by the Company,
the holders of record shall be given a 60-day  written  notice of the  Company's
intent to redeem and the  opportunity to convert the Series F Preferred Stock to
Common Stock,  in accordance  with Section 10 hereof,  during the 60-day period.
The shares to be redeemed  hereunder  shall be redeemed  from the holders of the
Series F Preferred Stock on a pro rata basis by the Company.  The written notice
(the  "Redemption  Notice") for any such call of redemption by the Company shall
specify the effective date of such redemption (the "Redemption Effective Date"),
which  effective  date  shall be no less than 3 days  following  the  Redemption
Notice  and no more than 60 days  following  the  Redemption  Notice;  provided,
however,  that for any  redemption  made at  anytime  after two  years  from the
Original Issue Date, the Redemption Effective Date shall be no less than 60 days
and no  more  than  90 days  following  the  Redemption  Notice.  Following  the
Redemption  Effective  Date, all shares called for redemption  shall  thereafter
cease to exist  except to the  extent  that they  evidence a right of the record
holder  as of the  date of the  Redemption  Notice  to  receive  the  redemption
proceeds for such shares.

     9. Liquidation.  The holders of the Series F Preferred Stock shall, in case
of  voluntary  or  involuntary  liquidation,  dissolution  or  winding up of the
affairs of the Company,  be entitled to receive in full out of the assets of the
Company,  including its capital,  before any amount shall be paid or distributed
among  the  holders  of the  Company's  Common  Stock  or  other  capital  stock
designated  as  junior  to  the  Series  F  Preferred   Stock  with  respect  to
liquidation,  the amount of $500 per share of Series F Preferred  Stock plus all
accrued  and  undeclared  or  unpaid   dividends.   If,  upon  any  liquidation,
dissolution or winding up of the Company, the assets of the Company, or proceeds
thereof, distributed among the holders of shares of Series F Preferred Stock and
the holder of all Parity  Securities  shall be  insufficient  to pay in full the
respective  preferential  amounts on shares of Series F Preferred  Stock and all
Parity  Securities,  then  such  assets,  or  the  proceeds  thereof,  shall  be
distributed  among the  holder of Series F  Preferred  Stock and the  holders of
Parity Securities  ratably in accordance with the respective  amounts that would
be payable on such  shares if all  amounts  payable  thereon  were paid in full.
After  payment of the full  amount of the  liquidation  preference  to which the
holders of Series F  Preferred  Stock are  entitled,  such  holders  will not be
entitled  to any  further  participation  in any  distribution  of assets of the
Company.  For the purpose of this Section 9, none of the merger or consolidation
of the Company into or with another corporation,  or the merger or consolidation
of any other  corporation into or with the Company,  or the sale,  transfer,  or
other disposition of all or substantially all of the assets of the Company shall
be  deemed  to  be a  voluntary  or  involuntary  liquidation,  dissolution,  or
winding-up  of the  Company.

     10. Conversion to Common Stock. The Series F Preferred Stock is convertible
to Common  Stock at any time upon the earlier of (i) the second  anniversary  of
the  Original  Issue  Date or (ii) upon the date of a  "change  of  control"  as
defined in Section  10.6  hereof.  At any time  thereafter,  the holder  may, by
written notice (the "Conversion  Notice") to the Company,  convert any or all of
the shares of the Series F Preferred Stock to Common Stock. The shares of Common
Stock issuable upon conversion shall be issued by the Company once the holder of
the converted Series F Preferred Stock tenders the certificates  evidencing such
shares  of  Series F  Preferred  Stock to the  Company  for  cancellation.

          10.1 Conversion Price. Each share of Series F Preferred Stock shall be
     convertible in accordance with this Section 10 into the number of shares of
     Common Stock that results from dividing the liquidation value per share for
     Series F Preferred Stock  (including the stated $500 per share  liquidation
     preference plus all accrued but unpaid  dividends) by the conversion  price
     for Series F  Preferred  Stock that is in effect at the time of  conversion
     (the  "Conversion  Price").  The initial  Conversion Price for the Series F
     Preferred  Stock  shall be $1.00 per  share.  The  Conversion  Price of the
     Series F Preferred  Stock shall be subject to adjustment  from time to time
     as provided below.

          10.2  Adjustment  Upon Common  Stock  Event.  Upon the  happening of a
     Common Stock Event (as hereinafter  defined),  the Conversion  Price of the
     Series F Preferred Stock shall,  simultaneously  with the happening of such
     Common Stock Event,  be adjusted by  multiplying  the  Conversion  Price of
     Series F Preferred Stock in effect  immediately  prior to such Common Stock
     Event by a  fraction,  (a) the  numerator  of which  shall be the number of
     shares of Common Stock  issued and  outstanding  immediately  prior to such
     Common Stock Event, and (b) the denominator of which shall be the number of
     shares of Common Stock issued and outstanding immediately after such Common
     Stock Event, and the product so obtained shall thereafter be the Conversion
     Price for  Series F  Preferred  Stock.  The  Conversion  Price for Series F
     Preferred  Stock shall be adjusted in the same manner upon the happening of
     each subsequent Common Stock Event. As used herein,  the term "Common Stock
     Event"  means (i) the issue by the Company of  additional  shares of Common
     Stock as a dividend or other distribution on outstanding Common Stock, (ii)
     a  subdivision  of the  outstanding  shares of Common  Stock into a greater
     number of shares of Common Stock or (iii) a combination of the  outstanding
     shares of Common Stock into a smaller number of shares of Common Stock.

          10.3 Adjustment for Other Dividends and Distributions.  If at any time
     or from time to time  after the  Original  Issue  Date the  Company  pays a
     dividend or makes any other distribution to the holders of the Common Stock
     payable in  securities  of the Company  other than shares of Common  Stock,
     then in each such event  provision shall be made so that the holders of the
     Series F Preferred Stock shall receive upon conversion thereof, in addition
     to the number of shares of Common Stock receivable upon conversion thereof,
     the amount of  securities  of the Company that they would have received had
     their Series F Preferred Stock been converted into Common Stock on the date
     of such event (or such record date, as applicable) and had they thereafter,
     during the  period  from the date of such event (or such  record  date,  as
     applicable) to and including the conversion date,  retained such securities
     receivable  by them as aforesaid  during such period,  subject to all other
     adjustments  called  for during  such  period  under  this  Section 10 with
     respect to the rights of the  holders  of the Series F  Preferred  Stock or
     with respect to such other securities by their terms.

          10.4 Adjustment for Reclassification, Exchange and Substitution. If at
     any time or from time to time after the  Original  Issue  Date,  the Common
     Stock  issuable  upon the  conversion  of the Series F  Preferred  Stock is
     changed  into the same or a  different  number  of  shares  of any class or
     classes  of  stock,  whether  by   recapitalization,   reclassification  or
     otherwise  (other  than  by a  Common  Stock  Event  or a  stock  dividend,
     reorganization,  merger,  consolidation  or sale  of  assets  provided  for
     elsewhere in this Section 10), then in any such event each holder of Series
     F Preferred Stock shall have the right  thereafter to convert such Series F
     Preferred Stock into the kind and amount of stock and other  securities and
     property receivable upon such  recapitalization,  reclassification or other
     change by holders  of the number of shares of Common  Stock into which such
     shares of Series F Preferred could have been converted immediately prior to
     such  recapitalization,  reclassification or change, all subject to further
     adjustment as provided  herein or with respect to such other  securities or
     property by the terms thereof. The Company shall give each holder of Series
     F  Preferred  Stock at least 30 days  prior  written  notice  of any  event
     requiring adjustment pursuant to this Section 10.4.

          10.5   Certificate  of  Adjustment.   In  case  of  an  adjustment  or
     readjustment  of the  Conversion  Price for Series F Preferred  Stock,  the
     Company, at its expense, shall cause its Chief Financial Officer to compute
     such adjustment or  readjustment  in accordance with the provisions  hereof
     and prepare a  certificate  showing such  adjustment or  readjustment,  and
     shall mail such certificate,  by first class mail, postage prepaid, to each
     registered  holder of the Series F Preferred Stock at the holder's  address
     as shown in the Company's books.

          10.6  Change of  Control  of  Company.  In the  event of a "change  of
     control" of the Company,  each holder of the Series F Preferred Stock shall
     have the right,  at the  holder's  option,  to convert its shares to Common
     Stock in accordance with Section 10 hereof,  or cause the Company to redeem
     the shares at a price of $500 per share, plus all accrued and undeclared or
     unpaid  dividends.  A "change of control" is defined as: (i) an acquisition
     by an  individual,  entity or a group  subject to a voting trust  agreement
     (excluding  J.  Virgil  Waggoner  and his  affiliates,  the Company and its
     subsidiaries,  a related  employee benefit plan or a corporation the voting
     stock of which is beneficially owned following such acquisition 50% or more
     by the Company's  stockholders  in  substantially  the same  proportions as
     their  holdings in the Company prior to such  acquisition)  of ownership of
     more  than  50%  of  the  Company's  outstanding  voting  stock;  (ii)  the
     occurrence of a transaction or an event that results in J. Virgil Waggoner,
     Marshall A. Smith III,  Thomas R.  Kaetzer and their  affiliates  no longer
     owning 35% or more of the Company's  outstanding  voting  stock;  (iii) the
     approval by the stockholders of a  reorganization,  merger or consolidation
     (other  than a  reorganization,  merger  or  consolidation  in which all or
     substantially all of the stockholders of the Company receive 50% or more of
     the voting stock of the surviving company);  or (iv) a complete liquidation
     or dissolution of the Company or the sale of all, or substantially  all, of
     its assets.  As used in this Section 10.6,  the term  "affiliate"  shall be
     given the meaning  attributed  to it under Rule 144  promulgated  under the
     Securities Act of 1933, as amended.

          10.7  Dilution or  Impairments.  The Company will not, by amendment of
     its certificate or articles of incorporation or through any reorganization,
     transfer of assets,  consolidation,  merger, dissolution,  issue or sale of
     securities or any other voluntary  action,  intentionally  avoid or seek to
     avoid the observance or performance of any of the terms hereunder, but will
     at all times in good faith assist in the carrying out of all such terms and
     in the  taking  of all  such  action  as may be  necessary  or  appropriate
     hereunder.  Without limiting the generality of the foregoing,  the Company:
     (a) shall at all times reserve and keep available,  solely for issuance and
     delivery upon the conversion of the Series F Preferred Stock, all shares of
     the Common Stock from time to time issuable upon such  conversion;  and (b)
     will take all such action as may be necessary or  appropriate in order that
     the  Company may  validly  and  legally  issue fully paid and  nonassesable
     shares of Common Stock upon the conversion of the Series F Preferred  Stock
     from time to time outstanding.

          10.8 Fractional  Shares. No fractional shares of Common Stock shall be
     issued upon any  conversion  of Series F  Preferred  Stock.  Any  resulting
     fractional  shares shall be rounded up to the next whole share.  11. Action
     by Consent.  Any action required or permitted to be taken at any meeting of
     the holders of the Series F  Preferred  Stock may be taken  without  such a
     meeting if a consent or consents in writing,  setting  forth the actions so
     taken, is signed by the holders of two-thirds of the outstanding  shares of
     Series F Preferred Stock."

     IN WITNESS  WHEREOF,  the Company has caused this Statement to be signed by
its duly authorized  officer as of the 12th day of June, 2003.  GULFWEST ENERGY,
INC.

                              GULFWEST ENERGY INC.

                              By:  \S\  Jim C. Bigham
                              --------------------------------------------------
                              Its:  Executive Vice President and Secretary

EX-10

                              EMPLOYMENT AGREEMENT
                              --------------------


     AGREEMENT effective as of the 1st of October, 2001, by and between GulfWest
Energy Inc.,  hereinafter called the Employer, and Thomas R. Kaetzer hereinafter
called the Employee.

     1. Employment. Employer hereby employs the Employee and the Employee hereby
accepts employment upon the terms and conditions hereinafter set forth.

     2. Term. Subject to the provisions for termination as hereinafter provided,
the term of this  Agreement  shall be for a period  commencing on the 1st day of
October, 2001 and ending on the 30th day of September, 2004.

     3.  Compensation.  For all  services  rendered by the  Employee  under this
Agreement,  the  Employer  shall pay the  Employee  a base  salary  of  $150,000
increasing as deemed appropriate by the Employer's compensation committee. Also,
the Employee  will  receive  $25,000  annual  contribution  to a life  insurance
savings account and this will be paid monthly.

     4. Stock  Options/Warrants.  The Employee shall be awarded 300,000 warrants
issued over time as follows:

          a. 100,000  warrants  issued April 30, 2002, with an exercise price of
     $.75 per share and an  expiration  date of October  31,  2006.

     b. 100,000 warrants issued October 31, 2002, with an exercise price of $.75
per share and an expiration date of October 31, 2007.

     c. 100,000 warrants issued October 31, 2003, with an exercise price of $.75
per share and an expiration date of October 31, 2008.

     5. Medical  Insurance.  The Employee shall be entitled to coverage pursuant
to the terms and  provisions  of  Employer's  Medical/Hospitalization  insurance
coverage and such other prerequisites as are generally available to employees of
the Employer.

     6.  Duties.  The  Employee  is engaged in an  executive  capacity  with the
Employer and shall be assigned to  supervise  and direct the  activities  of the
Employer  as well as to  maintain  the  public  relations  and good  will of the
Employer.  The precise services of the Employee may be specified or changed from
time to time at the direction of the Board of Directors of Employer.

     7.  Extent of  Services.  The  Employee  shall  devote as much of his time,
attention  and energies to the business of the Employer as shall be necessary in
the reasonable determination of the Board of Directors of Employer, to carry out
the duties and responsibilities  delegated to Employee by Employer, but Employee
shall not be precluded  from  engaging in other  business  activities so long as
such additional business  activities do not, in the reasonable  determination of
the Board of  Directors of Employer,  conflict  with the  interests of Employer,
whether  or not such  business  activity  is pursued  for gain,  profit or other
pecuniary advantages.

     8. Disclosure of Information. Employee will make no unauthorized disclosure
of any Employer's trade secrets or confidential  information,  the disclosure of
which would be detrimental  to Employer.  In the event of a breach or threatened
breach by the Employee of the provisions of this  paragraph,  the Employer shall
be entitled to an  injunction  restraining  the Employee  from  disclosing  such
information,  in whole or in part, or from rendering any services to any person,
firm,  corporation,  association  or other entity to whom such  information,  in
whole or in part, has been  disclosed or is threatened to be disclosed.  Nothing
herein shall be construed as  prohibiting  the Employer  from pursuing any other
remedies  available  to the  Employer  for such  breach  or  threatened  breach,
including the recovery of damages from the Employee.

     9. Expenses.  The Employee is authorized to incur  reasonable  expenses for
promoting  the business of the  Employer,  including  expenses  for  automobile,
entertainment,  travel and  similar  items.  The  Employer  will  reimburse  the
Employee for all such expenses upon the presentation by the Employee,  from time
to time,  of an  itemized  account  of such  expenditures  and  approval  by the
Employer.

     10.  Vacations.  The Employee  shall be entitled each year to a vacation of
three (3) weeks during which time his compensation shall be paid in full.

     11. Disability. If the Employee is unable to perform his services by reason
of illness or incapacity for a continuous period of more than three months,  the
compensation otherwise payable to him shall cease during the continued period of
such illness or incapacity. The Employee's full compensation shall be reinstated
upon his return to employment  and the  discharge of his full duties  hereunder.
Notwithstanding anything herein to the contrary, the Employer may terminate this
Agreement  at any time after the Employee  shall be absent from his  employment,
for whatever cause, for a continuous  period of more than three months,  and all
obligation of the Employer hereunder shall cease upon any such termination.

     12. Death During  Employment.  If the Employee  dies during the term of his
employment,   the  Employer  shall  pay  to  the  estate  of  the  Employee  the
compensation  which would  otherwise be payable to the Employee up to the end of
the month in which the Employee's death occurs.

     13.  Restrictive  Covenant.  If the  Employee is  terminated  with cause or
leaves the employ of the Employer for any reason,  then for a period of one year
following such  termination by the Employer,  the Employee will not,  within any
geographical  area wherein  Employer  conducts its business,  engage directly or
indirectly,  own, manage,  operate,  control, be employed by, participate in, or
engage in any manner with the ownership,  management,  operation,  or control of
any business  entity whose primary  activity  includes the  exploration  for oil
and/or gas, or engaging  in any other  similar  business  which would in any way
compete  with  the  business  conducted  by the  Employer,  at the  time  of the
termination of said Employee.

     14. Notices. Any notice of termination of the Agreement shall be sufficient
if in writing, and if sent by certified mail to his residence in the case of the
Employee, or to its principal offices in the case of the Employer.

     15.  Termination.  The  Employer  shall  have the  right to  terminate  the
employment of Employee at any time for cause.  As used herein,  the term "Cause"
is defined to mean (a)  willful  action  intended by the  Employee to  adversely
impact the Employer or (b) the  conviction  of Employee of a felony or any other
offense involving moral turpitude.  Employee may terminate this agreement at any
time by the giving of ninety (90) days' prior  written  notice to  Employer,  in
which case Employer shall be obligated to pay Employee all compensation  accrued
through the effective  date of the  termination of the  employment,  after which
neither party shall have any further rights or obligations except the obligation
of Employee described in paragraph 7 and 13 hereof.

     16.  Waiver  of  Breach.  The  waiver  by the  Employer  of a breach of any
provision of this Agreement by the Employee shall not operate or be construed as
a waiver of any subsequent breach by the Employee.

     17.  Assignment.  The rights and  obligations  of the  Employee  under this
Agreement  shall not be  assignable  without  the prior  written  consent of the
Employer, which consent may be withheld at the discretion of the Employer.

     18.  Attorney's  Fees.  If either  party  hereto is  required to retain the
services of legal counsel to enforce its rights hereunder,  the party prevailing
in any such  proceeding  shall be entitled to  reimbursement  of its  reasonable
legal expenses incurred.

     19.  Additional  Compensation  to  Employee  in the Event of the  Change of
Control  of the  Board of  Directors  of  Employer.  In the event of a change of
control,  the  Employee  will have the option to  continue as an employee of the
Company under the terms of the  Agreement or receive a lump-sum  cash  severance
payment  equal to 200% of his  annual  base  salary for the year  following  the
change of control,  it being  understood  by Employer  that  Employee  would not
otherwise  commit  to  provide  his  services  to  Employer  upon the  Terms and
conditions  set forth  herein.  Such  additional  sums shall be paid to Employee
within fifteen (15) business days from the written demand  therefor by Employee.
Any stock  options or warrants  held by the Employee  will become  vested in the
Event of a Change of Control and will remain valid for their duration.

     A "change of control" is defined  as: (i) an  acquisition  (other than from
the Company) by an individual,  entity or a group  (excluding  the Company,  its
subsidiaries,  a related employee benefit plan or a corporation the voting stock
of which is  beneficially  owned  following such  acquisition 50% or more by the
Company's  stockholders in substantially  the same proportions as their holdings
in the Company prior to such acquisition) of beneficial ownership of 50% or more
of the  Company's  voting  stock;  (ii) a change in a  majority  of the Board of
Directors  (excluding  any persons  approved by a vote of at least a majority of
the incumbent Board other than in connection  with a proxy  contest);  (iii) the
approval by the stockholders of a reorganization, merger or consolidation (other
than a reorganization, merger or consolidation in which all or substantially all
of the  stockholders  of the Company  receive 50% or more of the voting stock of
the surviving  company);  or (iv) a complete  liquidation  or dissolution of the
Company or the sale of all, or substantially all, of its assets.

     20. Entire Agreement.  This instrument contains the entire agreement of the
parties. It may not be changed orally but only by an agreement in writing signed
by the party against whom  enforcement or any waiver,  change,  modification  or
discharge is sought.

     IN WITNESS  WHEREOF,  the parties have executed this Agreement the 30th day
of May, 2002, but effective the 1st day of October, 2001.

                                    EMPLOYER:

                              GULFWEST ENERGY INC.



                                    By: \S\  John E. Loehr
                                    --------------------------------------------
                                    John E. Loehr
                                    On behalf of the  Compensation  Committee of
                                    the Board of Directors
                                                                                             -

                              GULFWEST ENERGY INC.



                                    By:
                                    --------------------------------------------
                                    Jim C. Bigham
                                    Title: Executive Vice President


                                    EMPLOYEE:



                                    By:
                                    --------------------------------------------
                                    Thomas R. Kaetzer

EX-10

                              CONSULTING AGREEMENT
                              --------------------


     AGREEMENT  effective as of the 1st of June,  2002, by and between  GulfWest
Energy  Inc.,  hereinafter  called  the  Employer,  and  Marshall  A. Smith III,
hereinafter called the Consultant.

     1.  Employment.  Employer  hereby employs the Consultant and the Consultant
hereby accepts employment upon the terms and conditions hereinafter set forth.

     2. Term. Subject to the provisions for termination as hereinafter provided,
the term of this  Agreement  shall be for a period  commencing on the 1st day of
June, 2002 and ending the 30th day of September, 2004.

     3.  Compensation.  For all services  rendered by the Consultant  under this
Agreement,  the Employer shall pay the Consultant $150,000 annually,  increasing
as deemed  appropriate  by the  Employer's  compensation  committee.  Also,  the
Consultant will receive $25,000 annual  contribution to a life insurance account
and this will be paid monthly, beginning June 1, 2002.

     4.  Stock   Options/Warrants.   The   Consultant   will  be  awarded  stock
options/warrants  based upon performance and with the approval of the Employer's
Board of Directors.

     5. Medical Insurance. The Consultant shall be entitled to coverage pursuant
to the terms and  provisions  of  Employer's  Medical/Hospitalization  insurance
coverage and such other prerequisites as are generally available to Employees of
the Employer.

     6.  Duties.  The  Consultant  is engaged  by the  Employer  to provide  the
following services:

          a. Acquisitions:  Contact professionals in the oil and gas business on
     behalf  of  Employer,   seeking  oil  and  gas   properties   and  drilling
     opportunities for Employer to acquire.

          b.   Negotiations:   Under  terms  approved  by  Employer,   negotiate
     acquisitions as required in order to define terms of a pending acquisition,
     without committing the Employer to any deal, fee or other commitment of any
     kind  without  first  obtaining  the  approval of the  Employer's  Board of
     Directors.

          c. Financial  Consulting:  Work with  Employer's  representatives  and
     Board of Directors to review debt and equity financing proposals; negotiate
     with  Employer  on terms of  specific,  potential  financing;  and,  advise
     Employer on such financial arrangements, as Employer deems appropriate.

          d. The precise  services of the Consultant may be specified or changed
     from time to time at the direction of the Board of Directors of Employer.

     7. Extent of  Services.  The  Consultant  shall devote as much of his time,
attention  and energies to the business of the Employer as shall be necessary in
the reasonable determination of the Board of Directors of Employer, to carry out
the duties  and  responsibilities  delegated  to  Consultant  by  Employer,  but
Consultant shall not be precluded from engaging in other business  activities so
long  as  such  additional   business  activities  do  not,  in  the  reasonable
determination of the Board of Directors of Employer, conflict with the interests
of Employer,  whether or not such business  activity is pursued for gain, profit
or other pecuniary advantages.

     8.  Disclosure  of  Information.   Consultant  will  make  no  unauthorized
disclosure of any  Employer's  trade secrets or  confidential  information,  the
disclosure of which would be detrimental  to Employer.  In the event of a breach
or threatened breach by the Consultant of the provisions of this paragraph,  the
Employer  shall be entitled to an injunction  restraining  the  Consultant  from
disclosing such information, in whole or in part, or from rendering any services
to any  person,  firm,  corporation,  association  or other  entity to whom such
information,  in whole or in part,  has been  disclosed or is  threatened  to be
disclosed.  Nothing herein shall be construed as  prohibiting  the Employer from
pursuing  any  other  remedies  available  to the  Employer  for such  breach or
threatened breach, including the recovery of damages from the Consultant.

     9. Expenses.  The Consultant is authorized to incur reasonable expenses for
promoting  the  business of the  Employer,  including an  automobile  allowance,
entertainment,  travel and  similar  items.  The  Employer  will  reimburse  the
Consultant for all such expenses upon the  presentation by the Consultant,  from
time to time, of an itemized  account of such  expenditures  and its approval by
the Employer.

          10. Vacations. Not applicable.

     11.  Disability.  If the  Consultant  is unable to perform his  services by
reason of  illness  or  incapacity  for a  continuous  period of more than three
months,  the  compensation  otherwise  payable  to him shall  cease  during  the
continued  period  of  such  illness  or  incapacity.   The  Consultant's   full
compensation  shall be reinstated  upon his return and the discharge of his full
duties hereunder.  Notwithstanding anything herein to the contrary, the Employer
may terminate this  Agreement at any time after the  Consultant  shall be absent
from his employment,  for whatever cause,  for a continuous  period of more than
three months,  and all obligation of the Employer hereunder shall cease upon any
such termination.

     12. Death During Employment.  If the Consultant dies during the term of his
employment,  the  Employer  shall  pay  to the  estate  of  the  Consultant  the
compensation which would otherwise be payable to the Consultant up to the end of
the month in which the Consultant's death occurs.

     13. Notices. Any notice of termination of the Agreement shall be sufficient
if in writing, and if sent by certified mail to his residence in the case of the
Consultant, or to its principal offices in the case of the Employer.

     14.  Termination.  The  Employer  shall  have the  right to  terminate  the
employment of Consultant at any time for cause. As used herein, the term "Cause"
is defined to mean (a) willful  action  intended by the  Consultant to adversely
impact the Employer or (b) the conviction of Consultant of a felony.  Consultant
may  terminate  this  agreement  at any time by the giving of ninety  (90) days'
prior written  notice to Employer,  in which case Employer shall be obligated to
pay  Consultant  all  compensation  accrued  through the  effective  date of the
termination of the employment,  after which neither party shall have any further
rights or obligations except the obligation of Consultant described in paragraph
7 and 13 hereof.

     15.  Waiver  of  Breach.  The  waiver  by the  Employer  of a breach of any
provision of this Agreement by the Consultant  shall not operate or be construed
as a waiver of any subsequent breach by the Consultant.

     16.  Assignment.  The rights and  obligations of the Consultant  under this
Agreement  shall not be  assignable  without  the prior  written  consent of the
Employer, which consent may be withheld at the discretion of the Employer.

     17.  Attorney's  Fees.  If either  party  hereto is  required to retain the
services of legal counsel to enforce its rights hereunder,  the party prevailing
in any such  proceeding  shall be entitled to  reimbursement  of its  reasonable
legal expenses incurred.

     18.  Additional  Compensation  to  Consultant in the Event of the Change of
Control  of the  Board of  Directors  of  Employer.  In the event of a change of
control,  the Consultant will have the option to continue as a Consultant of the
Company under the terms of the  Agreement or receive a lump-sum  cash  severance
payment  equal to 200% of his  annual fee for the year  following  the change of
control,  it being  understood by Employer that  Consultant  would not otherwise
commit to provide his  services to Employer  upon the Terms and  conditions  set
forth herein.  Such additional  sums shall be paid to Consultant  within fifteen
(15) business days from the written  demand  therefor by  Consultant.  Any stock
options or warrants held by the Consultant  will become vested in the Event of a
Change of Control and will remain valid for their duration.

     A "change of control" is defined  as: (i) an  acquisition  (other than from
the Company) by an individual,  entity or a group  (excluding  the Company,  its
subsidiaries,  a related  Consultant  benefit plan or a  corporation  the voting
stock of which is beneficially  owned following such  acquisition 50% or more by
the  Company's  stockholders  in  substantially  the same  proportions  as their
holdings in the Company prior to such  acquisition)  of beneficial  ownership of
50% or more of the Company's  voting  stock;  (ii) a change in a majority of the
Board of  Directors  (excluding  any  persons  approved  by a vote of at least a
majority of the incumbent  Board other than in connection with a proxy contest);
(iii)  the  approval  by  the  stockholders  of  a  reorganization,   merger  or
consolidation (other than a reorganization, merger or consolidation in which all
or  substantially  all of the stockholders of the Company receive 50% or more of
the voting stock of the surviving  company);  or (iv) a complete  liquidation or
dissolution  of the  Company or the sale of all,  or  substantially  all, of its
assets.

     19. Entire Agreement.  This instrument contains the entire agreement of the
parties. It may not be changed orally but only by an agreement in writing signed
by the party against whom  enforcement or any waiver,  change,  modification  or
discharge is sought.

     IN WITNESS WHEREOF,  the parties have executed this Agreement the 30the day
of May, 2002, but effective the 1st day of June, 2002.

                                    EMPLOYER:

                              GULFWEST ENERGY INC.

                                   By: \s\  John E. Loehr
                                   ---------------------------------------------
                                   John E. Loehr
                                   On behalf of the  Compensation  Committee of
                                   the Board of Directors

                              GULFWEST ENERGY INC.


                                   By:  \s\ Thomas R.Kaetzer
                                   ------------------------------------------------
                                   Thomas R.Kaetzer
                                   President and Chief Executive Officer



                                   CONSULTANT:



                                  \s\  Marshall A. Smith III

EX-10

                        OIL AND GAS PROPERTY ACQUISITION,
                      EXPLORATION AND DEVELOPMENT AGREEMENT


     THIS AGREEMENT is by and between GulfWest Energy, Inc., a Texas corporation
("GulfWest"),  whose address is 480 North Sam Houston  Parkway East,  Suite 300,
Houston,  Texas 77060, and Summit Investment Group Texas L.L.C., a Texas limited
liability  company  ("Summit"),  whose address is 480 North Sam Houston  Parkway
East, Suite 300, Houston, Texas 77060.

                              W I T N E S S E T H:
                               -------------------

     WHEREAS,  GulfWest  intends  to  acquire  oil and gas  properties  which it
believes to be potentially  productive of oil or gas within  separate  prospects
which it has identified in the Iola Field in Grimes County,  Texas,  the Village
Mills Field in Hardin County,  Texas,  and the Cold Springs Field in San Jacinto
County,  Texas,  and  to  conduct  oil  and  gas  exploration,  development  and
production operations on such prospects;

     WHEREAS,  Summit  desires to  participate  with  GulfWest in the  aforesaid
endeavor to the extent set forth hereinbelow;

     NOW THEREFORE,  in  consideration  of the premises and the mutual covenants
and agreements set forth hereinafter, GulfWest and Summit agree as follows:

                                   ARTICLE I.

                                   Definitions
                                   -----------

     As used  hereinafter in this Agreement,  the following terms shall have the
following meanings:

     1.1 "Advanced  Funds" means $1,200,000 to be contributed by Summit pursuant
to this Agreement.

     1.2 "Cold  Springs  Field  Prospect"  is  considered  for  purposes of this
Agreement  to  part of the  Wilcox  (East  Texas)  Prospect,  and is more  fully
described on Exhibit "B" attached hereto and made a part hereof

     1.3 "Iola Field Prospects" means the eight separate  prospects  identified,
respectively,  as the Chesnik Prospect, the Bell Prospect, the Hassler Prospect,
the Warren Prospect,  the Snyder-McWhorter  Prospect, the Upchurch Prospect, the
Brunner Prospect and the Best Prospect on Exhibit "A" attached hereto and made a
part hereof.

     1.4 "Joint  Operating  Agreement"  means the Joint Operating  Agreement set
forth as Exhibit "G" attached hereto and made a Part hereof.

     1.5 "Lease Bank  Program"  means a program  pursuant to which a third party
provides or makes  available to GulfWest funds for its use in the acquisition of
oil and gas leases and other mineral and royalty  interests in order that it may
conduct specified oil and gas exploration and production activities.

     1.6 "Sourcing Fee" means  $100,000 to be paid to Kyle Williams  pursuant to
this Agreement.

     1.7  "Snyder-McWhorter   Prospect"  is  considered  for  purposes  of  this
Agreement to be part of the Iola Field Prospects, and is more fully described in
Exhibit "A" attached hereto and made a part hereof.

     1.8 "Net  Profits  Interest"  shall mean twenty five  percent  (25%) of the
monthly net sale proceeds of all oil and gas production  allocable to GulfWest's
interest in certain oil and gas properties, as more fully defined in Exhibit "D"
attached hereto Aand made a part hereof.

     1.9 "Oil or Gas" means oil, gas,  casinghead gas, gas  condensate,  sulphur
and all other liquid or gaseous  hydrocarbons  and other  marketable  substances
produced in association therewith.

     1.10 "Oil and Gas Properties"  means any leasehold  interest in Oil or Gas,
and any farm-out and farm-in agreements, licenses, options and other contractual
rights relating to the acquisition of leasehold  interests in Oil and Gas and/or
the  development,  exploration  or  production  of Oil or Gas  pursuant  to such
leasehold interests .

     1.11  "Subject  Area" means the Iola Field  Prospects  and the Wilcox (East
Texas) Field Prospects.

     1.12 "Summit  Expense  Amount" means $100,000 to be paid to Summit pursuant
to this Agreement.

     1.13  "Summit  ORI"  means,  with  respect to the  properties  covered by a
pertinent assignment document under this Agreement, an overriding royalty in the
amount of two and one-half  percent (21/2%) and upon the terms of the overriding
royalty  interest  set forth in  Exhibit  "C"  attached  hereto  and made a part
hereof.

1.14 "Wilcox  (East  Texas)  Prospects"  means  those  two  separate   prospects
     identified as the Village Mills Prospect, and the Cold Springs Prospect, as
     more fully described on Exhibit "B" attached hereto and made a part hereof.


     All other defined terms used in this  Agreement and not defined above shall
have the meanings ascribed thereto elsewhere in this Agreement.




                                   ARTICLE II.

                            Designation of Prospects
                            ------------------------

     GulfWest and Summit hereby  designate the fourteen (14) separate  prospects
within the Subject Area as separate  prospects  for purposes of this  Agreement.
The Prospect designations and descriptions are provided in Exhibits "A" and "B."


                                  ARTICLE III.

       Acquisition and Exploration Activities to be Conducted by GulfWest;
       -------------------------------------------------------------------
                          Drilling of Obligation Wells
                          ----------------------------

     3.1 GulfWest  agrees to use its best efforts,  consistent with the terms of
this  Agreement,  to  acquire  Oil and Gas  Properties  that it  believes  to be
potentially productive of Oil or Gas within the Subject Area. The nature of such
Oil and Gas Properties, and the terms upon which such properties may be acquired
by  GulfWest,  shall  be  determined  by  GulfWest  in  its  sole  and  absolute
discretion.  GulfWest shall have exclusive control of the acquisition of Oil and
Gas Properties  within the Subject Area and the  administration  and maintenance
thereof, and the drilling, completing,  equipping and reworking, or plugging and
abandoning,  of wells  within  the  Subject  Area  until  such time as the Joint
Operating Agreement becomes effective as provided in Section 8.2 below, at which
time the Joint  Operating  Agreement  shall  control  and govern the  activities
mentioned in this  Article III to the extent  there is any conflict  between the
Joint Operating Agreement and this Agreement.

     3.2  GulfWest  agrees  to  drill  four  (4)  wells  located  on Oil and Gas
Properties  acquired  under this  Agreement (as opposed to rework  operations on
wells or well bores in existence at the time of the  acquisition  by GulfWest of
the Oil and Gas  Properties  on which  such  existing  wells or well  bores  are
located). GulfWest agrees to spud such four (4) wells prior to the expiration of
two (2) years from the Effective Date of this Agreement (such four (4) wells are
herein  collectively  referred to as the "Obligation  Wells",  and  individually
referred to in this Agreement as an "Obligation Well").  GulfWest further agrees
to conduct  well  workover  operations  on certain  existing  wells  acquired by
GulfWest  which are located on lands  described in Exhibits "A" and B", all such
well workover operations to be completed within nine (9) months of the Effective
Date of this Agreement.

     3.3 Until such time as the Joint Operating Agreement becomes effective,  as
provided in Section 8.2 below, GulfWest may drill other new wells in addition to
the Obligation  Wells,  and rework other wells or well bores in existence at the
time of the  acquisition  by  GulfWest of Oil and Gas  Properties  on which such
existing  wells or well bores are located,  as GulfWest  shall  determine in its
sole and absolute discretion.

                                   ARTICLE IV.

                      Sourcing Fee; Summit Expense Account
                      ------------------------------------

     4.1 The Sourcing Fee shall be paid to Kyle Williams as compensation for his
services  rendered and to be rendered for and on behalf of Summit in  connection
with its entering into, and  performance  of, this  Agreement.  The Sourcing Fee
shall be paid by  GulfWest  from the  Advanced  Funds  pursuant  to Section  5.3
hereof, and shall be paid to Kyle Williams within five business days of GulfWest
receiving  verification  that the full  amount of the  Advanced  Funds have been
deposited in a mutually  agreed Federal  Deposit  Insurance  Corporation  (FDIC)
member banking  institution  and that such funds are available for withdrawal as
provided by this Agreement.

     4.2 The Summit  Expense  Amount  shall be paid to Summit to cover costs and
expenses   incurred  by  Summit  in  connection  with  its  entering  into,  and
performance  of, this  Agreement,  and any other costs and expenses  incurred by
Summit in connection  with this  Agreement.  The Summit  Expense Amount shall be
paid from the Advanced Funds as provided in Section 5.3 below, and shall be paid
within five (5) business days of GulfWest's receipt of a monthly expense invoice
submitted by Summit


                                   ARTICLE V.

                                 Advanced Funds
                                 --------------

     5.1 Promptly after execution of this Agreement,  Summit shall establish one
or more  accounts  with one or more banks that are members of the FDIC and shall
deposit  the  Advanced  Funds  therein.  In the event  more than one  account is
established,  the Advanced Funds may be allocated  between such accounts in such
proportions  as  determined  by Summit in its sole and absolute  discretion.  No
other funds  shall be  commingled  with the  Advanced  Funds in such  account or
accounts.  The account or accounts established  hereunder shall be maintained at
all times  until the  earlier to occur of (i) two (2) years  from the  Effective
Date,  or (ii) the point in time when Summit has  recouped  the  Advanced  Funds
pursuant to this Agreement.

     5.2 All checks drawn on, or withdrawals  made from, the account or accounts
referenced  above shall require the  signatures of both Summit and GulfWest.  In
connection with payments to be made from such account or accounts, GulfWest will
furnish Summit  sufficient  information prior to making such payments for Summit
to  determine  that  such  payments  should be made out of the  Advanced  Funds.
However,  Summit's  concurrence  with  GulfWest's  withdrawal  of funds from the
applicable accounts shall not be unreasonably withheld.

     5.3 The following  costs and expenses,  and none other,  shall be paid from
the Advanced Funds:

          (a) The costs and expenses incurred by GulfWest in the acquisition and
     maintenance of Oil and Gas Properties  within the Subject Area, which shall
     be deemed to include all lease  bonuses and  rentals,  brokerage  expenses,
     title  searches and opinions (as  required),  recording  fees,  seismic and
     other  geological  expenses  (including,  when necessary or desirable,  the
     retaining  of  independent  geologists  or  geophysicists)  and  any  other
     expenses  incurred  directly or indirectly  attributable to the acquisition
     and  maintenance of Oil and Gas Properties  within the Subject Area,  other
     than drilling or any other costs and expenses directly in connection with a
     well (except as provided in (b) below).

          (b)  The  costs  and  expenses  incurred  by  GulfWest  in  reworking,
     recompleting  and operating  wells or well bores on Oil and Gas  Properties
     acquired by GulfWest pursuant to this Agreement,  which wells or well bores
     were in existence at the time of such acquisition by GulfWest.

          (c) The Sourcing Fee.

          (d) The Summit Expense Amount.

     5.4 If all of the  Advanced  Funds  have not been paid from the  account or
accounts  referenced above at the expiration of two (2) years from the Effective
Date, then upon such  expiration the remaining  portion of the Advanced Funds in
such account or accounts shall be promptly paid to Summit.

     5.5 Notwithstanding  anything in this Agreement to the contrary,  costs and
expenses  incurred by GulfWest in connection with a well operations shall not be
paid from the Advanced Funds,  except as provided in Section 5.3(b) above. Also,
no salaries for GulfWest  employees  nor other  corporate  overhead  expenses of
GulfWest shall be paid from the Advanced Funds, and GulfWest shall  individually
bear and pay all  such  salaries  and  expenses  until  such  time as the  Joint
Operating  Agreement  becomes  effective,  at  which  time the  Joint  Operating
Agreement shall govern such matters.

     5.6 If GulfWest  incurs costs and expenses in reworking,  recompleting  and
operating  wells or well bores  referenced in Section  5.3(b) above after all of
the Advanced  Funds have expended and prior to the  effective  date of the Joint
Operating Agreement, such costs and expenses shall be borne and paid by GulfWest
until the Joint Operating Agreement becomes effective.


                                   ARTICLE VI.

    Title to Oil and Gas Properties; Summit ORI; Summit Net Profits Interest
    ------------------------------------------------------------------------

     6.1 Record title to Oil and Gas Properties acquired by GulfWest pursuant to
this Agreement within the Iola Field Prospects (except for the  Snyder-McWhorter
Prospect) and the Cold Springs Prospect [referenced herein as part of the Wilcox
(East Texas)  Prospects],  shall be taken in the name of Summit. At such time as
GulfWest pays Summit the $175,000  payment  provided for in Section 7.1(b) below
with respect to an Obligation  Well,  Summit shall assign the applicable Oil and
Gas Properties held in its name and attributable to the production unit for such
well.  The  assignment  from  Summit  to  GulfWest  shall  be in the form of the
"Assignment of Oil and Gas Properties" attached as Exhibit "C" hereto and made a
part  hereof,  and shall  reserve  therein  the  Summit ORI as set forth in said
Exhibit "C"."

     6.2 Record title to Oil and Gas Properties acquired by GulfWest pursuant to
this  Agreement that are part of the Wilcox (East Texas)  Prospects  (except the
Cold Springs Prospect) or the Snyder-McWhorter  Prospect,  shall be taken in the
name of GulfWest,  and promptly after such acquisition,  GulfWest shall assign a
Net Profits  Interest in such Oil and Gas  Properties to Summit (the "Summit Net
Profits Interest").  The assignment from GulfWest to Summit shall be in the form
of the  "Assignment  of Net Profits  Interest" " attached  hereto as Exhibit "D"
which is made a part hereof.

                                  ARTICLE VII.

     Recoupment of Advanced Funds ----------------------------

     7.1 The Advanced Funds shall be recouped by Summit in the following manner:

          (a) After Year One $500,000.00 shall be repaid out of an undivided 40%
     of the Summit Net Profits  Interest  (the  remaining  undivided  60% of the
     Summit  Net  Profits  Interest  shall be deemed to be revenue to Summit and
     shall not be credited against this $500,000.00 obligation).

          (b) GulfWest shall pay $175,000 in cash to Summit on the date GulfWest
     spuds each Obligation Well, or

          (c) by virtue of a lump sum production payment by GulfWest.

     7.2 If, at the expiration of two (2) years from the Effective Date,  Summit
has not completely  recouped the Advanced Funds from the payments referred to in
(a), (b) and (c) above,  then  Summit,  at its sole  election,  may require that
GulfWest  shall  issue  to it a  quantity  of  GulfWest  Class  A  Common  Stock
equivalent  to  the  quotient  of  the  outstanding   unrepaid   Advanced  Funds
(numerator)  and $2.00 per share  (denominator).  Upon issuance of such stock to
Summit,  Summit shall assign to GulfWest all  remaining  Oil and Gas  Properties
within the Subject Area held of the record in the name of Summit. The assignment
from Summit to GulfWest  shall be in the form of the  "Assignment of Oil and Gas
Properties"  attached  as Exhibit "C" hereto and made a part  hereof,  and shall
reserve therein the Summit ORI to Summit as set forth in said Exhibit "C."

     7.3 The Summit  ORI shall be deemed to be revenue to Summit,  and shall not
be credited against repayment of the Advanced Funds.

     7.4 At such time as the  Advanced  Funds have been  completely  recouped by
Summit in the manner  provided  in this  Article  VII,  the  Summit Net  Profits
Interests  shall  thereupon  terminate  and  Summit  shall  release  same  by an
appropriate instrument in recordable form and deliver such release instrument to
GulfWest,  and GulfWest  shall  simultaneously  execute and deliver to Summit an
"Assignment  of Oil and Gas  Properties"  in the form  attached  as Exhibit  "E"
hereto and made a part hereof, assigning to Summit an ----------- undivided 8.5%
working interest in the Oil and Gas Properties subject to the Summit Net Profits
Interest.

                                  ARTICLE VIII.

                             Well Costs and Expenses
                             -----------------------

     8.1 All costs and expenses in  connection  with the  drilling,  completing,
equipping and operating,  or plugging and  abandonment,  of new wells on Oil and
Gas Properties acquired under this Agreement within the Subject Area, including,
without  limitation,  the  Obligation  Wells,  shall be borne and paid solely by
GulfWest until such time as Summit has recouped the Advanced Funds in accordance
with the  provisions  of Article VII above.  At such time as Summit has recouped
the Advanced  Funds,  all costs and expenses in connection  with the Oil and Gas
Properties   acquired  within  the  Subject  Area  under  this  Agreement  shall
thereafter be borne by the parties hereto as follows: (a) as to such Oil and Gas
Properties   located   within  the  Iola   Field   Prospect   (except   for  the
Snyder-McWhorter  Prospect)  and the Wilcox (East Texas) Cold Springs  Prospect,
all such costs and  expenses  shall be borne and paid solely by  GulfWest,  with
Summit being entitled to the Summit ORI in such Oil and Gas Properties,  and (b)
as to such Oil and Gas Properties located within the Wilcox (East Texas) Village
Mills  Prospect or the  Snyder-McWhorter  Prospect,  all such costs and expenses
shall be borne and paid by such parties in proportion to their undivided working
interests therein (i.e., 91.5% held by GulfWest, and 8.5% held by Summit. 8.2 At
such time as  Summit  has  recouped  the  Advanced  Funds,  the Joint  Operating
Agreement shall  automatically  become effective between the parties hereto with
respect to all of the Oil and Gas  Properties  acquired  hereunder in the Wilcox
(East Texas)  Village Mills  Prospect and the  Snyder-McWhorter  Prospect,  with
GulfWest  designated  as the  operator,  without  further  action by the parties
hereto.

                                   ARTICLE IX.

                  Insurance; Records; Access; Duties; Standards
                  ---------------------------------------------

     9.1 In connection  with its  performance of this  Agreement,  GulfWest will
procure and maintain  insurance with  responsible  companies in such amounts and
covering (i) all operations on any well drilled or reworked hereunder,  and (ii)
such other risks as are  appropriate in its judgment,  provided,  however,  that
such insurance coverage shall at least meet the coverage  requirements set forth
in the Joint Operating Agreement. Such insurance coverage shall name the parties
hereto as  coinsureds,  and GulfWest  shall  furnish  Summit with a  certificate
evidencing insurance coverage meeting at least the above minimum requirements.

     9.2 In acquiring  Oil and Gas  Properties  under this  Agreement,  GulfWest
shall  cause to be done such title  checks or title  examinations  by landmen or
attorneys acceptable to GulfWest, and such title curative work as GulfWest deems
necessary.  No well shall be drilled or reworked  until  title to the  drillsite
shall have been examined and approved by attorneys  acceptable to GulfWest,  and
any unsatisfied title  requirements  waived by GulfWest.  GulfWest shall furnish
Summit with copies of all title opinions and title curative materials.

     9.3 GulfWest  agrees to devote the necessary  time, and at all times have a
staff adequate in number,  experience and competence,  to perform its duties and
obligations under this Agreement.

     9.4 GulfWest  shall maintain  complete and accurate  records of all Oil and
Gas Properties acquired under this Agreement, of the acquisition and disposition
of all equipment and other personal  property under this  Agreement,  and of all
correspondence,  statements,  bills  and other  written  materials  relating  to
operations conducted on wells under this Agreement.  Such records, together with
receipts,   vouchers  and  other  supporting   evidence  thereof  in  GulfWest's
possession and control,  will be available for inspection and audit by Summit or
its duly authorized  representatives during regular business hours at GulfWest's
offices.  GulfWest  will  also  make  available  for such  inspection  insurance
policies (or copies or certificates  thereof) in effect,  and copies of drilling
logs,  drillstem  tests,  core analyses and electrical  surveys,  and reports of
geologists  or  other  consultants  furnished  to  GulfWest  in  the  course  of
conducting its duties and obligations under this Agreement.

     9.5 GulfWest shall maintain adequate records and accounts of all operations
and  expenditures  under this  Agreement on a cash basis and in accordance  with
accounting  practices followed for Federal income tax reporting  purposes.  Such
records  will be  available  for  inspection  and  audit by  Summit  or its duly
authorized representatives during regular business hours at GulfWest's offices.

     9.6 Summit and its duly authorized representatives shall have access at all
reasonable  times,  at their  sole  expense  and risk,  to any well  drilled  or
reworked  under this  Agreement,  and they  shall have the right to inspect  all
materials  on hand and to  observe  any well  operations  conducted  under  this
Agreement.  GulfWest  will provide  Summit with notice of all  logging,  coring,
testing and other  evaluation  work  performed in sufficient  time for Summit to
have a representative present to observe such operations.

     9.7 GulfWest shall  exercise all  reasonable  care to pay currently as they
accrue all costs and  expenses it incurs  under this  Agreement,  and to prevent
liens and  encumbrances  in connection  therewith  from attaching to Oil and Gas
Properties acquired under this Agreement.

     9.8 GulfWest  shall  perform all of its duties and  obligations  under this
Agreement in good faith and in a good and workmanlike manner


                                   ARTICLE X.

                             Area of Mutual Interest
                             -----------------------

     10.1 An area of mutual  interest  ("AMI") is hereby  established  as to the
lands  identified  on the plat  attached  as Exhibit  "F" hereto and made a part
hereof.  In the event a party hereto acquires Oil and Gas Properties within such
area of mutual  interest  ---  during  the time  this  area of  mutual  interest
provision is in force,  the party  acquiring  such  interest  shall give written
notice of such  acquisition to the other party hereto,  identifying the interest
acquired  and  specifying  the cost and  terms of such  acquisition.  The  party
receiving  such notice  shall have the right,  by giving  written  notice to the
acquiring  party within thirty (30) calendar days after receipt of notice of its
election as to whether or not it will  purchase  its  undivided  interest in the
acquired interest (as such undivided  interest is set forth below). If the party
receiving the first notice elects to participate in such acquisition, such party
shall  pay its  proportionate  share of the  acquisition  costs of the  acquired
interest (as such  proportionate  part is set forth in Section  10.2 below).  If
both parties hereto participate in an acquisition, the acquired interest and the
entire AMI shall automatically  become subject to a joint operating agreement in
the form  attached  as Exhibit  "G" hereto  and made a part  hereof.  Such joint
operating  agreement shall be a separate and distinct joint operating  agreement
from the Joint Operating  Agreement  covering any portion of the AMI. Failure of
the party  receiving the first notice to notify the party  acquiring an interest
within said time period will be deemed an election  not to  participate  in such
acquisition.  If the party  receiving the first notice  elects,  or is deemed to
have elected,  not to participate in the acquisition of such interest,  then the
party who acquired such interest shall have no further  obligation to such party
with respect to such interest and such interest shall  thereafter not be subject
to this Agreement.  If the party receiving the first notice  participates in the
acquisition  of  an  acquired   interest,   such  party,  upon  payment  of  its
proportionate  share of the acquisition  costs,  shall be given an assignment in
recordable form of its undivided interest therein.

     10.2 With  respect to Oil and Gas  Properties  acquired  by a party  hereto
within  the AMI , the other  party  hereto may elect to  acquire  its  undivided
interest in such acquired  interest in accordance with the provisions of Section
10.1 above and,  in such  case,  such  parties  will be  obligated  to pay their
proportionate  share of the  acquisition  costs in return  for their  respective
undivided  interests therein,  such proportionate  parts and undivided interests
being as follows:  GulfWest 90%; Summit 10% of the ownership  interest  actually
acquired by the acquiring party.

     10.3 Any proceeds  received by Summit with respect to any interest which it
acquires within the AMI pursuant to this Article X shall be deemed to be revenue
to Summit, and shall not be credited against repayment of the Advanced Funds.

     10.4 This  Article X shall  continue in full force and effect until June 1,
2008; when the AMI shall  terminate and no longer be in force in effect;  unless
Summit and GulfWest mutually agree in writing to an extension of the term of the
AMI provisions of this Agreement.

     10.5 Notwithstanding  anything herein to the contrary,  the AMI established
hereunder shall not be applicable to any lands,  leaseholds,  mineral or royalty
interests  covered  by or  included  within  production  units  established  for
existing wells owned, wholly or in part, by GulfWest.

                                   ARTICLE XI

                        Right of Summit to Participate In
                  Additional Lease Bank Programs with GulfWest

     Commencing on the Effective Date of this  Agreement and continuing  through
December 1, 2008,  Summit shall have a Preferential  Right of First Refusal with
respect to its sole participation in any Lease Bank Program in which GulfWest is
a  participant.  In the event  GulfWest  desires to  participate in a Lease Bank
Program during the period this provision is in effect, it shall notify Summit of
such intent and Summit shall have fifteen (15) business  days,  from the date of
receipt  of  notice  from  GulfWest,  to  notify  GulfWest  of its  election  to
participate  in the specified  Lease Bank  Program.  Failure of Summit to notify
GulfWest of its  election to  participate  within such period shall be deemed an
affirmative  election by Summit not to participate  in the specified  Lease Bank
Program. In the event Summit elects to participate,  then the parties shall then
enter into a written  agreement in substantially the same form as this Agreement
setting forth the terms of the new Lease Bank Program.


                                   ARTICLE XII

                             Third Party Agreements
                             ----------------------

     12.1 Notwithstanding  anything to the contrary in this Agreement,  GulfWest
shall  have the right to enter  into  agreements  from  time to time with  other
persons and entities ("Other  Persons"),  pursuant to which agreements the Other
Persons shall acquire,  along with GulfWest,  Oil and Gas Properties  within the
Subject Area by agreeing to pay their portion of the acquisition  costs for such
Oil and Gas  Properties.  In any such case, the pertinent  interest of Summit in
such Oil and Gas Properties,  as determined by the provisions of this Agreement,
shall be carved from the interest of GulfWest in such Oil and Gas Properties.

     12.2 In addition to the agreements referred to Section 12.1 above, GulfWest
shall have the right to enter into  farm-out  agreements  or similar  agreements
with a third party or parties  ("Farmee"),  pursuant to which GulfWest agrees to
transfer to the Farmee all or any  undivided or  segregated  part of Oil and Gas
Properties  acquired  under  this  Agreement,  all or  substantially  all of the
consideration  for  which is the  Farmee's  agreement  to drill (as  opposed  to
rework) a well or wells on such Oil and Gas Properties. Any such agreement shall
provide that the Farmee shall bear and pay not less than the proportionate  part
of all costs and expenses of the well or wells  attributable  to the interest to
be  transferred  to the Farmee,  and the interest in the Oil and Gas  Properties
transferred to or earned by the Farmee shall reduce the prospective  interest of
the parties  hereto  proportionately.  Any promotion  received by GulfWest under
such  agreement,  and  any  overriding  royalty  interest,  production  payment,
leasehold or working  interest,  or any other  interest  which is reserved by or
acquired by GulfWest under such agreement  shall be shared by the parties hereto
in  accordance  with  their  respective   proportionate   interests  under  this
Agreement.

     12.3 In addition to the  agreements  referred to in Sections  12.1 and 12.2
above,  GulfWest  shall  have the  right to enter  into dry hole,  bottom  hole,
acreage  contribution or other similar  agreements  providing for the payment of
cash or the contribution of acreage in connection with the drilling or reworking
of a well within the  Subject  Area,  and any such cash or acreage  contribution
shall be owned and shared by the parties  hereto in the  following  proportions:
90% GulfWest and 10% Summit.


                                  ARTICLE XIII

                                   Indemnities
                                   -----------

     13.1 Except to the extent of the gross negligence or willful  misconduct of
Summit, its employees, agents, representatives,  successors or assigns, GulfWest
shall  protect,  indemnify and defend and save Summit,  its  employees,  agents,
representatives,  successors  or assigns,  harmless from and against all claims,
actions,  liabilities,  losses, demands, causes of action,  judgments, and costs
and expenses of any kind and character  (including,  without limitation,  courts
costs and reasonable  attorneys'  fees) arising in favor of or asserted by third
parties on account of personal injury, death or damage to property of such third
parties,  which  injury,  death or damage is the  result of a  negligent  act or
omission  or  willful   misconduct   of   GulfWest,   its   employees,   agents,
representatives, successors or assigns.

     13.2 Except to the extent of the gross negligence or willful  misconduct of
GulfWest, its employees, agents, representatives,  successors or assigns, Summit
shall protect,  indemnify and defend and save GulfWest,  its employees,  agents,
representatives,  successor  or assigns,  harmless  from and against all claims,
actions,  liabilities,  losses, demands, causes of action,  judgments, and costs
and expenses of any kind and character  (including,  without limitation,  courts
costs and reasonable  attorneys'  fees) arising in favor of or asserted by third
parties on account of personal injury, death or damage to property of such third
parties,  which  injury,  death or damage is the  result of a  negligent  act or
omission   or   willful   misconduct   of   Summit,   its   employees,   agents,
representatives, successors or assigns.


                                   ARTICLE XIV

                               Dispute Resolution
                               ------------------

     14.1  Summit and  GulfWest  shall  attempt  in good  faith to  resolve  any
controversy or claim arising out of or relating to this  Agreement.  If any such
controversy or claim should arise, the parties shall meet and attempt to resolve
the matter in good faith negotiation. Such negotiation shall be held between the
officers  of both  parties who have  authority  to settle the  dispute.  If such
controversy  or claim is not  resolved  by  negotiation,  the  dispute  shall be
settled by arbitration in Houston,  Texas.  Such  arbitration  proceeding  shall
utilize a single  arbitrator  in  accordance  with the  Commercial  Rules of the
American Arbitration Association. The decision of the arbitrator shall be final,
binding and  enforceable in any court of competent  jurisdiction  and Summit and
GulfWest  agree  there shall be no appeal from the  arbitrator's  decision.  The
parties agree the Federal  Arbitration  Act, 9 U.S.C.ss.1 et seq.  shall control
and apply to all arbitrations conducted hereunder, notwithstanding any state law
provisions to the contrary.


                                   ARTICLE XV

                             Relationship of Parties
                             -----------------------

     15.1 The liabilities,  covenants and undertakings of the parties hereto are
several,  not joint or  collective.  Under no  circumstances  shall any party be
considered  a  fiduciary  to the other  party,  nor shall there  otherwise  be a
confidential, special or other relationship of trust created between the parties
hereto under or by virtue of this Agreement.

     15.2 It is not the  intention  of the parties  hereto to create,  nor shall
this Agreement be deemed as creating,  a joint venture or a mining, tax or other
partnership  or  association  or to  otherwise  render  the  parties  liable  as
co-venturers  or partners.  However,  if for federal  income tax purposes,  this
Agreement and the operations hereunder are regarded as a partnership, each party
hereto elects to be excluded from the  application  of all of the  provisions of
Subchapter  "K," Chapter 1, Subtitle "A." of the Internal  Revenue Code of 1986,
as amended (hereinafter  referred to as the "Code"), as permitted and authorized
by Section 761 of the Code and the regulations  promulgated  thereunder.  Should
there be any  requirement  that each party hereto give further  evidence of this
election,  each such party shall  execute such  documents and furnish such other
evidence as may be required by the federal Internal Revenue Service or as may be
necessary to evidence this election.  Neither party hereto shall give any notice
or take any other action  inconsistent  with the election made hereby. In making
the foregoing election,  each party states that the income derived by such party
from operations  hereunder can be adequately  determined without the computation
of partnership taxable income.


                                   ARTICLE XVI

                               General Provisions
                               ------------------

     16.1 All notices  hereunder  shall be in  writing,  dated and signed by the
party giving the same.  Each notice  shall be either (i)  delivered in person to
the address of the party for whom it is intended at the address of such party as
shown below,  or (ii)  delivered to the United States Postal Service in a secure
and sealed envelope or other suitable wrapper addressed to the party for whom it
is  intended at the address of such party as  provided  below,  with  sufficient
postage affixed,  certified or registered  mail,  return receipt  requested,  or
(iii) sent by  telecopy  with a  confirmation  copy sent by  expedited  delivery
service.  If such notice is mailed,  the effective  date of such notice shall be
the date of delivery or attempted  delivery if the same is not  delivered and is
returned to the party attempting to give notice.  The address at which any party
hereto is to receive  notice  may be changed  from time to time by such party by
giving written notice of the new address to the other party hereto.


All notices to Summit shall be delivered to:

         Summit Investment Group L.L.C.
         480 North Sam Houston Parkway East, Suite 300
         Houston, Texas 77060
         Attn:  Kyle S. Williams


All notices to GulfWest shall be delivered to:

         GulfWest Energy, Inc.
         480 North Sam Houston Parkway, Suite 300
         Houston, Texas 77060
         Attn:  Thomas R. Kaetzer


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

     16.3 The  headings of the Articles of this  Agreement  are for guidance and
convenience of reference only and shall not limit or otherwise affect any of the
terms or provision of this Agreement.

     16.4 This  Agreement may be executed by the parties hereto in any number of
counterparts,  each of which shall be deemed an original instrument,  but all of
which together shall constitute but one and the same instrument.

     16.5 This Agreement shall be construed in accordance with, and governed by,
the laws of the State of Texas.

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

     16.7 Listing of Exhibits

     Exhibit "A" -  Description of the Iola Field Prospects
     Exhibit "B" -  Description of the Wilcox (East Texas) Prospects
     Exhibit "C" -  Assignment of Oil and Gas Properties from Summit to GulfWest
     Exhibit "D" -  Assignment of Net Profits Agreement
     Exhibit "D-1" -  Properties Subject to Net Profits Interests Agreement
     Exhibit "D-2" -  Release of Net Profits Interest Agreement
     Exhibit "E" -  Assignment of Oil and Gas Properties from GulfWest to Summit
     Exhibit "F" -  Area of Mutual Interest
     Exhibit "G" -  Joint Operating Agreement

     16.8 If a court of  competent  jurisdiction  determines  that any clause or
provision of this Agreement is void, illegal or unenforceable, the other clauses
and provisions of this  Agreement  shall remain in full force and effect and the
clauses and provisions that are determined to be void,  illegal or unenforceable
shall be limited so that they shall  remain in effect to the extent  permissible
by law.

     16.9 This Agreement shall be binding upon and shall inure to the benefit of
the  parties  hereto and their  respective  successors  and  assigns,  provided,
however,  neither party to this Agreement may assign its rights and  obligations
hereunder,  in whole or in part,  to a third  party  without  the prior  written
consent of the  non-assigning  party.  Nothing  contained in this Agreement,  or
implied  herefrom,  is intended  to confer  upon any other  person or entity any
benefits, rights or remedies.


     THIS  AGREEMENT has been executed this ____ day of December 2001, but is to
be effective December 1, 2001 ("Effective Date").




                                                SUMMIT INVESTMENT GROUP TEXAS L.L.C.

                                                \s\  Kyle S. Williams
                                                --------------------------
                                                Kyle S. Williams
                                                Title:  General Managing Partner





                                                GULFWEST ENERGY INC.

                                                \s\  Thomas R. Kaetzer
                                                ---------------------------------
                                                Thomas R. Kaetzer
                                                Title:  President

                                 Acknowledgments


State of Texas      ss.ss.
                    ss.ss.
County of Harris    ss.ss.

     BEFORE ME, the  undersigned  authority,  on this 1st day of December  2001,
personally  appeared  Kyle S.  Williams,  Managing  General  Partner  of  Summit
Investment  Group  Texas  L.L.C.,  known to me to be the  person  whose  name is
subscribed to the foregoing, and acknowledged tome that he executed the same for
the purposes  and  consideration  therein  expressed,  in the  capacity  therein
stated, and as the act and deed of said Limited Liability Company.


         [Personal Seal]             \s\  Carol Revia
                                     Notary Public in and for the State of Texas


State of Texas      ss.ss.
                    ss.ss.
County of Harris    ss.ss.

     BEFORE ME, the  undersigned  authority,  on this 1st day of December  2001,
personally appeared THOMAS R. KAETZER, President of GulfWest Energy, Inc., known
to me  to be  the  person  whose  name  is  subscribed  to  the  foregoing,  and
acknowledged  tome that he executed the same for the purposes and  consideration
therein  expressed,  in the capacity therein stated,  and as the act and deed of
said company.


         [Personal Seal]             \s\  Carol Revia
                                     Notary Public in and for the State of Texas

EX-10

                              OPTION AGREEMENT FOR
                         THE PURCHASE OIL AND GAS LEASES


     THIS  AGREEMENT  ("Agreement")  is by  and  between  GulfWest  Energy  Inc.
("GulfWest"),  a Texas corporation,  whose address is 480 N. Sam Houston Parkway
E., Suite 300, Houston,  Texas 77060; Setex Oil & Gas Company  ("Setex"),  a
Texas  corporation,  whose address is 480 N. Sam Houston  Parkway E., Suite 300,
Houston, Texas 77060 and W. L. Addison Investments L.L.C.  ("Addison"),  a Texas
limited  liability  company,  whose address is 16300  Addison  Road,  Suite 300,
Addison, Texas 75001;

                                   WITNESSETH:

     WHEREAS,  GulfWest  and Summit  Investment  Group-Texas  L.L.C.  ("Summit")
entered into an OIL AND GAS PROPERTY  ACQUISITION,  EXPLORATION  AND DEVELOPMENT
AGREEMENT,  dated December 17, 2001, as amended (hereinafter  referred to as the
"Lease Bank  Agreement")  pursuant to which GulfWest and Summit acquired certain
oil and gas leases (hereinafter referred to as the "Leases") in order to develop
and exploit oil and gas  properties  in the Iola Field,  Grimes  County,  Texas,
Village Mills Field,  Hardin County,  Texas and Cold Springs Field,  San Jacinto
County, Texas; and

     WHEREAS,  pursuant  to the Lease Bank  Agreement,  Summit was to recoup and
recover certain funds advanced to GulfWest covering the acquisition costs of the
Leases (such funds being hereinafter referred to as "Advanced Funds"); and

     WHEREAS,  Addison  has  agreed to pay  Summit on  behalf  of  GulfWest  the
non-recouped and outstanding Advanced Funds; and

     WHEREAS,   as  consideration   for  Addison's  payment  to  Summit  of  the
non-recouped and outstanding Advanced Funds,  GulfWest desires that Addison take
title to the Leases from Summit; and

     WHEREAS,  by  instrument  of conveyance  effective  March 1, 2004,  Addison
acquired  the Leases  from Summit and  GulfWest  has agreed to convey to Addison
certain wellbores located on lands covered by the Leases; and

     WHEREAS,  for the consideration  herein set forth, Addison desires to grant
GulfWest  the option to  purchase  such oil and gas leases  and  wellbores  from
Addison;

     NOW THEREFORE, in consideration of the premises and mutual covenants herein
below set forth, GulfWest and Addison agree as follows:



                                    Article I
                      Option To Purchase Oil and Gas Leases

     Addison  hereby  grants to GulfWest an Option To  Purchase  ("Option")  the
Leases  acquired  from  Summit  Investment  Group  Texas  L.L.C.  pursuant to an
instrument of assignment and conveyance, effective March 1, 2004, covering those
certain oil and gas leases situated in the Iola Field, Grimes County,  Texas and
which are more fully described on Exhibit "A" attached hereto. This Option shall
also  extend and apply to those  wellbores  conveyed  by GulfWest to Addison and
which are listed on the attached Exhibit "B".


                                   Article II
                                 Term of Option

     The Option may be  exercised  by GulfWest  on or before one hundred  eighty
(180) days from the date of this Agreement. The option period may be extended by
the mutual consent of Addison and GulfWest.


                                   Article III
                                  Consideration

     The  consideration  to be paid by GulfWest for this  Agreement  shall be as
follows:

(1)  Upon execution of this Agreement,  GulfWest will make and tender to Addison
     a promissory note in the original  principal amount of Six Hundred Thousand
     Dollars  ($600,000.00)  bearing  interest  at the  rate of  prime  plus two
     percent (2%),  hereinafter referred to as the "Option Note". The applicable
     prime rate shall be Wall Street Journal Prime Rate as published in the Wall
     Street Journal.

(2)  GulfWest shall be responsible for maintaining the Leases by paying,  at its
     sole cost and expense,  all lease bonuses,  delay rental  payments or other
     lease payments required to maintain and/or replace the Leases, as required,
     for the economic  development  of oil and gas  production in the Iola Field
     Prospect.

(3)  GulfWest's operating company subsidiary,  Setex Oil & Gas Company ("Setex")
     is currently  recognized by the Railroad Commission of Texas ("Commission")
     as operator of the wells transferred to Addison by GulfWest.  Setex assumes
     full operational responsibility such wells including the obligation to plug
     and abandon such wells as may be required by the Commission.

                                   Article IV
                                Option Redemption

     A. In the event,  GulfWest  elects to exercise this Option it will give ten
(10) days prior  written  notice to Addison.  The Option  shall be  exercised by
GulfWest by paying Addison the sum of One Million Two Hundred  Thousand  Dollars
($1,200,000.00)   plus  interest  at  the  prime  rate  plus  two  percent  (2%)
("Redemption  Price").  The prime  rate  charged  hereunder  is the Wall  Street
Journal Prime Rate as published in The Wall Street Journal. Interest will accrue
for the  period  commencing  with  the  effective  date of  this  Agreement  and
continuing through the date the Redemption Price is paid to Addison.

     B. Upon  payment  of the  Redemption  Price,  Addison  and  GulfWest  shall
consider the Option Note cancelled and paid in full.


                                    Article V
                        Working Interest Retention Rights

     In the event GulfWest  elects to exercise this Option,  Addison may, at its
sole election,  retain up to a twenty five percent (25%) working interest in the
Leases it conveys to GulfWest pursuant hereto.


     This Agreement has been executed as of the respective  acknowledgment dates
of the signatory parties but is to be effective March 1, 2004.


ADDISON INVESTMENTS, L.L.C.

\S\     John E. Loehr
- ----------------------------
By:    John E. Loehr
Its:   President


GULFWEST ENERGY INC.                              SETEX OIL & GAS COMPANY

\s\  Thomas R. Kaetzer                            \s\  Thomas R. Kaetzer
- -----------------------------                     ----------------------------
By:    Thomas R. Kaetzer                          By:    Thomas R. Kaetzer
Its:   President                                  Its:   President

                                 Acknowledgments


THE STATE OF TEXAS ss.ss.

COUNTY OF HARRIS ss.ss.

     This instrument was  acknowledged  before me this 5th day of March 2004 by
John E.  Loehr,  President  of  Addison  Investments  L.L.C.,  a  Texas  limited
liability company on behalf of said company.


          [Personal Seal]                 \s\  Carol Revia
                                          Notary Public for the State of Texas


THE STATE OF TEXAS ss.ss.

COUNTY OF HARRIS ss.ss.

     This instrument was  acknowledged  before me this 5th day of March 2004 by
Thomas R. Kaetzer,  President of GulfWest Energy Inc., a Texas  corporation,  on
behalf of said company.


          [Personal Seal]                   \s\  Carol Revia
                                           Notary Public for the State of Texas


THE STATE OF TEXAS ss.ss.

COUNTY OF HARRIS ss.ss.

     This instrument was  acknowledged  before me this ____ day of March 2004 by
Thomas R. Kaetzer, President of Setex Oil & Gas Company, a Texas corporation, on
behalf of said company.


          [Personal Seal]                   \s\  Carol Revia
                                            Notary Public for the State of Texas

EX-10

                     AMENDED AND RESTATED CREDIT AGREEMENT




                                  Dated as of




                                 APRIL 27, 2004


                                     among

                           GULFWEST OIL & GAS COMPANY

                                  as Borrower,


               HIGHBRIDGE/ZWIRN SPECIAL OPPORTUNITIES FUND, L.P.
                            as Administrative Agent,


                                      and




                            THE LENDERS PARTY HERETO




                               Sole Lead Arranger
                     PETROBRIDGE INVESTMENT MANAGEMENT LLC






TABLE OF CONTENTS

Page
- ----

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

Section 1.01 Terms Defined Above....................................................................1
- ------------ -------------------
Section 1.02 Certain Defined Terms..................................................................1
- ------------ ---------------------
Section 1.03 Terms Generally; Rules of Construction................................................17
- ------------ --------------------------------------
Section 1.04 Accounting Terms and Determinations; GAAP.............................................17
- ------------ -----------------------------------------

ARTICLE II The Credits...........................................................................................18
- ----------------------

Section 2.01 Commitments...........................................................................18
- ------------ -----------
Section 2.02 Loans and Borrowings..................................................................18
- ------------ --------------------
Section 2.03 Requests for Borrowings...............................................................18
- ------------ -----------------------
Section 2.04 Funding of Borrowings.................................................................18
- ------------ ---------------------
Section 2.05 Termination of Commitments............................................................19
- ------------ --------------------------

ARTICLE III Payments of Principal and Interest; Prepayments; Fees................................................19
- -----------------------------------------------------------------

Section 3.01 Repayment of Loans....................................................................19
- ------------ ------------------
Section 3.02 Interest..............................................................................19
- ------------ --------
Section 3.03 Prepayments...........................................................................19
- ------------ -----------
Section 3.04 Cash Sweep............................................................................20
- ------------ ----------
Section 3.05 Mandatory Repayments..................................................................20
- ------------ --------------------
Section 3.06 Fees..................................................................................20
- ------------ ----

ARTICLE IV Payments; Pro Rata Treatment; Sharing of Set-offs.....................................................20
- -------------------------------------------------------------

Section 4.01 Payments Generally; Pro Rata Treatment; Sharing of Set-offs...........................20
- ------------ -----------------------------------------------------------
Section 4.02 Presumption of Payment by the Borrower................................................22
- ------------ --------------------------------------
Section 4.03 Certain Deductions by the Administrative Agent........................................22
- ------------ ----------------------------------------------

ARTICLE V Increased Costs; Taxes.................................................................................22
- --------------------------------

Section 5.01 Increased Costs.......................................................................22
- ------------ ---------------
Section 5.02 Taxes.................................................................................22
- ------------ -----

ARTICLE VI Conditions Precedent..................................................................................23
- -------------------------------

Section 6.01 Effective Date........................................................................23
- ------------ --------------

ARTICLE VII Representations and Warranties.......................................................................27
- ------------------------------------------

Section 7.01 Organization; Powers..................................................................27
- ------------ --------------------
Section 7.02 Authority; Enforceability.............................................................27
- ------------ -------------------------
Section 7.03 Approvals; No Conflicts...............................................................27
- ------------ -----------------------
Section 7.04 Financial Condition; No Material Adverse Change.......................................28
- ------------ -----------------------------------------------
Section 7.05 Litigation............................................................................28
- ------------ ----------
Section 7.06 Environmental Matters.................................................................28
- ------------ ---------------------
Section 7.07 Compliance with the Laws and Agreements; No Defaults..................................29
- ------------ ----------------------------------------------------
Section 7.08 Investment Company Act................................................................30
- ------------ ----------------------
Section 7.09 Public Utility Holding Company Act....................................................30
- ------------ ----------------------------------
Section 7.10 Taxes.................................................................................30
- ------------ -----
Section 7.11 ERISA.................................................................................30
- ------------ -----
Section 7.12 Disclosure; No Material Misstatements.................................................31
- ------------ -------------------------------------
Section 7.13 Insurance.............................................................................32
- ------------ ---------
Section 7.14 Restriction on Liens..................................................................32
                                       i



Section 7.15 Subsidiaries..........................................................................32
- ------------ ------------
Section 7.16 Location of Business and Offices......................................................32
- ------------ --------------------------------
Section 7.17 Properties; Titles, Etc...............................................................33
- ------------ -----------------------
Section 7.18 Maintenance of Properties.............................................................33
- ------------ -------------------------
Section 7.19 Gas Imbalances, Prepayments...........................................................34
- ------------ ---------------------------
Section 7.20 Marketing of Production...............................................................34
- ------------ -----------------------
Section 7.21 Hedging Contracts.....................................................................35
- ------------ -----------------
Section 7.22 Use of Loans..........................................................................35
- ------------ ------------
Section 7.23 Solvency..............................................................................35
- ------------ --------
Section 7.24 Casualty Events.......................................................................35
- ------------ ---------------
Section 7.25 Material Agreements...................................................................36
- ------------ -------------------
Section 7.26 No Brokers............................................................................36
- ------------ ----------
Section 7.27 Investments and Guaranties............................................................36
- ------------ --------------------------
Section 7.28 Payments by Purchasers of Production..................................................36
- ------------ ------------------------------------
Section 7.29 Existing Accounts Payable.............................................................36
- ------------ -------------------------
Section 7.30 Reliance..............................................................................36
- ------------ --------

ARTICLE VIII Affirmative Covenants...............................................................................37
- ----------------------------------

Section 8.01 Financial Statements; Other Information...............................................37
- ------------ ---------------------------------------
Section 8.02 Notices of Material Events............................................................40
- ------------ --------------------------
Section 8.03 Existence; Conduct of Business........................................................41
- ------------ ------------------------------
Section 8.04 Payment of Obligations................................................................41
- ------------ ----------------------
Section 8.05 Performance of Obligations under Loan Documents.......................................41
- ------------ -----------------------------------------------
Section 8.06 Operation and Maintenance of Properties...............................................41
- ------------ ---------------------------------------
Section 8.07 Insurance.............................................................................43
- ------------ ---------
Section 8.08 Books and Records; Inspection Rights..................................................43
- ------------ ------------------------------------
Section 8.09 Compliance with Laws..................................................................43
- ------------ --------------------
Section 8.10 Environmental Matters.................................................................43
- ------------ ---------------------
Section 8.11 Further Assurances....................................................................44
- ------------ ------------------
Section 8.12 Reserve Reports.......................................................................45
- ------------ ---------------
Section 8.13 Title Information.....................................................................45
- ------------ -----------------
Section 8.14 Additional Collateral; Additional Guarantors..........................................46
- ------------ --------------------------------------------
Section 8.15 ERISA Compliance......................................................................47
- ------------ ----------------
Section 8.16 Hedging Contracts.....................................................................47
- ------------ -----------------
Section 8.17 Marketing of Production...............................................................47
- ------------ -----------------------
Section 8.18 Overriding Royalty Interests..........................................................47
- ------------ ----------------------------
Section 8.19 Right of First Refusal................................................................48
- ------------ ----------------------
Section 8.20 Contract Operating Agreement..........................................................48
- ------------ ----------------------------
Section 8.21 Separate Entity.......................................................................49
- ------------ ---------------

ARTICLE IX Negative Covenants....................................................................................49
- -----------------------------

Section 9.01 Financial Covenants...................................................................49
- ------------ -------------------
Section 9.02 Debt..................................................................................50
- ------------ ----
Section 9.03 Liens.................................................................................51
- ------------ -----
Section 9.04 Restricted Payments...................................................................51
- ------------ -------------------
Section 9.05 Investments, Loans and Advances.......................................................51
- ------------ -------------------------------
Section 9.06 Nature of Business....................................................................51
- ------------ ------------------
Section 9.07 Limitation on Leases..................................................................52
- ------------ --------------------
Section 9.08 Sale and Leasebacks...................................................................52
- ------------ -------------------
Section 9.09 Proceeds of Notes.....................................................................52
- ------------ -----------------
Section 9.10 ERISA Compliance......................................................................52
- ------------ ----------------
Section 9.11 Sale or Discount of Receivables.......................................................53
- ------------ -------------------------------
Section 9.12 Mergers, Etc..........................................................................53
- ------------ -------------
Section 9.13 Sale of Properties....................................................................54
                                       ii


Section 9.14 Environmental Matters.................................................................54
- ------------ ---------------------
Section 9.15 Transactions with Affiliates..........................................................54
- ------------ ----------------------------
Section 9.16 Capital Expenditures..................................................................54
- ------------ --------------------
Section 9.17 Material Agreements...................................................................54
- ------------ -------------------
Section 9.18 Subsidiaries..........................................................................54
- ------------ ------------
Section 9.19 Negative Pledge Agreements; Dividend Restrictions.....................................55
- ------------ -------------------------------------------------
Section 9.20 Gas Imbalances, Take-or-Pay or Other Prepayments......................................55
- ------------ ------------------------------------------------
Section 9.21 Hedging Contracts.....................................................................55
- ------------ -----------------
Section 9.22 Certain Activities....................................................................55
- ------------ ------------------
Section 9.23 G& A Costs.............................................................................56
- ------------ ---------
Section 9.24 Net Sales.............................................................................56
- ------------ ---------
Section 9.25 Press Release.........................................................................56
- ------------ -------------
Section 9.26 Not Abandon Wells; Participate in Operations..........................................56
- ------------ --------------------------------------------

ARTICLE X Events of Default; Remedies............................................................................56
- -------------------------------------

Section 10.01 Events of Default.....................................................................56
- ------------- -----------------
Section 10.02 Remedies..............................................................................59
- ------------- --------
Section 10.03 Disposition of Proceeds...............................................................59
- ------------- -----------------------

ARTICLE XI The Administrative Agent..............................................................................60
- -----------------------------------

Section 11.02 Duties and Obligations of Administrative Agent........................................60
- ------------- ----------------------------------------------
Section 11.03 Action by Administrative Agent........................................................60
- ------------- ------------------------------
Section 11.04 Reliance by Administrative Agent......................................................61
- ------------- --------------------------------
Section 11.05 Subagents.............................................................................61
- ------------- ---------
Section 11.06 Resignation or Removal of Administrative Agent........................................61
- ------------- ----------------------------------------------
Section 11.07 Agents as Lenders.....................................................................62
- ------------- -----------------
Section 11.08 No Reliance...........................................................................62
- ------------- -----------
Section 11.09 Authority of Administrative Agent to Release Collateral and Liens.....................63
- ------------- -----------------------------------------------------------------

ARTICLE XII Miscellaneous........................................................................................63
- -------------------------

Section 12.01 Notices...............................................................................63
- ------------- -------
Section 12.02 Waivers; Amendments...................................................................63
- ------------- -------------------
Section 12.03 Expenses, Indemnity; Damage Waiver....................................................64
- ------------- -----------------------------------
Section 12.04 Successors and Assigns................................................................66
- ------------- ----------------------
Section 12.05 Survival; Revival; Reinstatement......................................................69
- ------------- --------------------------------

Section 12.06 Counterparts; Integration; Effectiveness..............................................69
- ------------- ----------------------------------------
Section 12.07 Severability..........................................................................70
- ------------- ------------
Section 12.08 Right of Setoff.......................................................................70
- ------------- ---------------
Section 12.09 GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS............................70
- ------------- ----------------------------------------------------------
Section 12.10 Headings..............................................................................71
- ------------- --------
Section 12.11 Confidentiality.......................................................................72
- ------------- ---------------
Section 12.12 Interest Rate Limitation..............................................................72
- ------------- ------------------------
Section 12.13 EXCULPATION PROVISIONS................................................................73
- ------------- ----------------------
Section 12.14 No Third Party Beneficiaries..........................................................74
- ------------- ----------------------------
Section 12.15 Securitization........................................................................74
- ------------- --------------
                                      iii


                        Annexes, Exhibits and Schedules
                        -------------------------------


Annex I List of Maximum Credit Amounts

Exhibit A Form of Note
Exhibit B Form of Borrowing Request
Exhibit C Form of Conveyance of Overriding Royalty Interest
Exhibit D Form of Compliance Certificate
Exhibit E-1 Form of Legal Opinion of Fuqua & Keim, special counsel to the Borrower
Exhibit E-2 Form of Legal Opinion of Local Counsel
Exhibit F-1 Security Instruments
Exhibit F-2 Form of Guarantee and Collateral Agreement
Exhibit G Form of Assignment and Assumption
Exhibit H Form of Warrant
Exhibit I Form of Letter in Lieu

Schedule 1.02 Approved Counterparties
Schedule 7.05 Litigation
Schedule 7.06 Environmental Matters
Schedule 7.13 Insurance
Schedule 7.15 Subsidiaries and Partnerships
Schedule 7.17 Properties
Schedule 7.18 Wells to PA
Schedule 7.19 Gas Imbalances
Schedule 7.20 Marketing Contracts
Schedule 7.21 Hedging Contracts
Schedule 7.25 Material Agreements
Schedule 7.29 Accounts Payable
Schedule 8.02(e) Notice of Certain Events
Schedule 8.07 Parent's Insurance
Schedule 9.02 Debt
Schedule 9.03 Liens
Schedule 9.05 Investments
Schedule 9.23 Sales Volume Schedule
                                       iv


     This AMENDED AND RESTATED  CREDIT  AGREEMENT dated as of April 27, 2004, is
among:  GulfWest Oil  Gas Company, a corporation duly formed and existing under
the laws of the State of Texas, (the "Borrower");  each of the Lenders from time
to time party hereto; --------  Highbridge/Zwirn Special Opportunities Fund L.P.
(in its individual  capacity,  "Drawbridge"),  as  administrative  agent for the
Lenders  ----------  (in such  capacity,  together  with its  successors in such
capacity,  the  "Administrative  Agent").
                                 R E C I T A L S
                                 ---------------

               A. The Borrower  entered into that certain  Credit  Agreement (as
          heretofore  amended,  the  "Original  Credit  Agreement")  with Aquila
          Energy  Capital  Corporation  ("Aquila")  dated as of  April 5,  2000.
          ------

               B. Aquila  assigned  to the Second  Lenders  (defined  below) the
          Original  Credit  Agreement  and the notes and liens  related  thereto
          pursuant to the  Assignment  of Notes,  Liens and  Security  Interests
          dated as of December  19,  2002,  between  Aquila and Concert  Capital
          Resources A, L.P.,  Concert  Capital  Resources  B, L.P.,  and Concert
          Capital Resources C, L.P., ("Second Lenders").

               C. Second Lenders has assigned the Original Credit  Agreement and
          the  notes  and  Liens  thereunder  to  the  Lenders  pursuant  to the
          Assignment of Notes,  Liens and Security  Interests  dated as of April
          27, 2004, between. Second Lenders and Administrative Agent.

               D. The Borrower,  the Lenders and the Administrative Agent desire
          to amend and restate in its entirety the Original Credit  Agreement as
          set forth herein.

               E. In consideration of the mutual covenants and agreements herein
          contained  and of the  loans,  extensions  of credit  and  commitments
          hereinafter referred to, the parties hereto agree as follows:
                                   ARTICLE I
                       Definitions and Accounting Matters

     Section 1.01 Terms  Defined  Above.  As used in this  Agreement,  each term
defined above has the meaning indicated above. -------------------

     Section  1.02  Certain  Defined  Terms.  As  used in  this  Agreement,  the
following terms have the meanings specified below: ---------------------

     "Affiliate" means, with respect to a specified Person,  another Person that
directly, or indirectly through one or more ---------  intermediaries,  Controls
or is  Controlled  by or is under  common  Control  with the  Person  specified.

"Aggregate  Maximum  Credit  Amounts"  at any time  shall  equal  the sum of the
Maximum   Credit   Amounts  of  all  Lenders.   --------------------------------

"Agreement"  means this Credit  Agreement,  as the same may from time to time be
amended, modified, supplemented or restated. ---------
                                       1

     "Applicable  Percentage"  means, with respect to any Lender, the percentage
set forth on Annex I.

     "Applicable  Rate" means,  for any day, with respect to any Loan, until the
Maturity Date, the Reference Rate plus eleven percent (11%) per annum;  provided
that after the Target Date the Applicable  Rate shall  increase by  seventy-five
hundredths  percent  -------- (.75%) per annum per month on the 27th day of each
month  thereafter  until  the Loans  have been paid in full,  but in no event to
exceed the Highest Lawful Rate.

     "Approved  Counterparty" means (a) any Lender or any Affiliate of a Lender,
(b) any other  Person whose long term senior  unsecured  debt rating is A-/A3 by
SP or Moody's (or their  equivalent)  or higher,  or (c) with regard to Hedging
Contracts in respect of  commodities,  and subject to the  conditions  set forth
therein, any other Person listed on Schedule 1.02.

     "Approved  GA Costs"  means  General and  Administrative  Costs at a level
equal to or below those provided in Section 9.23. ------------------

     "Approved Petroleum Engineers" means Pressler Petroleum Consultants and any
other   independent   petroleum   engineers   reasonably   acceptable   to   the
Administrative Agent.

     "Arranger" means Petrobridge  Investment  Management LLC, in its capacities
as the sole lead arranger hereunder.

     "Assignment and Assumption" means an assignment and assumption entered into
by a Lender and an  assignee  (with the  consent of any party  whose  consent is
required by Section 12.04(b)),  and accepted by the Administrative Agent, in the
form of Exhibit G or any  ---------  other form  approved by the  Administrative
Agent.
     "Board" means the Board of Governors of the Federal  Reserve  System of the
United States of America or any successor Governmental Authority.

     "Borrowing" means Loans made on the same date.

     "Borrowing  Request"  means a request by the  Borrower  for a Borrowing  in
accordance with Section 2.03.

     "Business Day" means any day that is not a Saturday, Sunday or other day on
which  commercial  banks in New York City or Houston,  Texas are  authorized  or
required by law to remain closed.

     "Capital Expenditures" means, in respect of any Person, for any period, the
aggregate  (determined  without  duplication) of all exploration and development
expenditures  and costs that are  capital  in nature and any other  expenditures
that are  capitalized  on the balance  sheet of such Person in  accordance  with
GAAP.
     "Capital  Leases" means,  in respect of any Person,  all leases which shall
have been,  or should have been, in  accordance  with GAAP,  recorded as capital
leases  on the  balance  sheet  of the  Person  liable  (whether  contingent  or
otherwise) for the payment of rent thereunder.
                                       2


     "Cash Receipts" means all cash or cash equivalents received by or on behalf
of the Borrower and its Subsidiaries with respect to the following: (a) sales of
Hydrocarbons from the Oil and Gas Properties,  (b) cash  representing  operating
revenue  earned or to be earned by the  Borrower and its  Subsidiaries,  (c) any
insurance  proceeds  received  by the  Borrower  or its  Subsidiaries,  (d)  any
proceeds  from  Hedging  Contracts,  and (e) any other cash or cash  equivalents
received by the Borrower or its Subsidiaries from whatever source; provided that
advances under the Loan, shall not constitute "Cash Receipts".

     "Casualty  Event" means any loss,  casualty or other insured  damage to, or
any nationalization,  taking under power of eminent domain or by condemnation or
similar  proceeding of, any Property of the Borrower or any of its  Subsidiaries
having a fair market value in excess of $100,000.

     "Change  in  Control"  means the  acquisition  of  ownership,  directly  or
indirectly, beneficially or of record, by anyone other than Parent of any Equity
Interests  of  the  Borrower  or  the  acquisition  of  ownership,  directly  or
indirectly,  beneficiary  of record by anyone other than  Borrower of any Equity
Interest of GulfWest Louisiana or any other Subsidiary of Borrower.
     "Change in Law" means (a) the adoption of any law, rule or regulation after
the date of this Agreement,  (b) any change in any law, rule or regulation or in
the  interpretation or application  thereof by any Governmental  Authority after
the date of this  Agreement or (c) compliance by any Lender (or, for purposes of
Section  5.01(a)),  by any  lending  office of such  Lender or by such  Lender's
holding company,  if any) with any request,  guideline or directive  (whether or
not having the force of law) of any Governmental  Authority made or issued after
the date of this Agreement.

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

     "Collateral"  means all (a) Oil and Gas  Properties,  pipelines,  rights of
way,  and all other  rights  related to the  foregoing  of the  Borrower and its
Subsidiaries,  (b)  all  accounts  receivable,   equipment,  inventory,  general
intangibles   and  any  other  asset  or  property  of  the   Borrower  and  its
Subsidiaries,  (c) Equity  Interest of the  Borrower  and (d) any other asset or
property in which an interest is granted or pledged under a Security Instrument.

     "Commitment"  means,  with respect to each Lender,  the  commitment of such
Lender to make Loans hereunder,  expressed as an amount representing the maximum
aggregate amount of such Lender's Loan hereunder.  The amount  representing each
Lender's  Commitment  is set  forth  on Annex I.  The  aggregate  amount  of the
Commitments of the Lenders is $18,000,000.

     "Consolidated  Interest  Expense"  means,  for any period,  total  interest
expense and prepayment  charges  (including  that which is capitalized  and that
which is  attributable  to  capital  leases,  in  accordance  with  GAAP) of the
Borrower and its  Consolidated  Subsidiaries,  or of Parent and its Consolidated
Subsidiaries,  as  appropriate,  on a  consolidated  basis  with  respect to all
outstanding indebtedness of the Borrower and its Consolidated  Subsidiaries,  or
Parent,  as  appropriate,   including,   without  limitation,  all  commissions,
discounts and other fees and charges owed with respect to any letters of credit,
amortization of debt, discount, expense, other deferred financing costs.
                                       3


     "Consolidated  Net  Income"  means  with  respect to the  Borrower  and the
Consolidated  Subsidiaries,  or with  respect  to  Parent  and its  Consolidated
Subsidiaries,  as appropriate,  for any period,  the aggregate of the net income
(or loss) of the Borrower and the Consolidated Subsidiaries, or the aggregate of
the net  income  (or  loss) of  Parent  and its  Consolidated  Subsidiaries,  as
appropriate,  after  allowances  for  taxes  for  such  period  determined  on a
consolidated  basis in  accordance  with  GAAP;  provided  that  there  shall be
excluded  from such net income (to the extent  otherwise  included  therein) the
following:  (a) the net  income  of any  Person  in which  the  Borrower  or any
Consolidated Subsidiary or Parent has an interest (which interest does not cause
the net income of such other  Person to be  consolidated  with the net income of
the Borrower and the Consolidated  Subsidiaries or with the net income of Parent
and its  Consolidated  Subsidiaries,  as appropriate,  in accordance with GAAP),
except to the extent of the amount of dividends or  distributions  actually paid
in cash  during  such  period  by such  other  Person  to the  Borrower  or to a
Consolidated  Subsidiary  or to  Parent,  as the case may be; (b) the net income
(but not loss) during such period of any  Consolidated  Subsidiary to the extent
that the  declaration  or  payment of  dividends  or  similar  distributions  or
transfers or loans by that Consolidated  Subsidiary is not at the time permitted
by  operation  of the  terms of its  charter  or any  agreement,  instrument  or
Governmental  Requirement  applicable  to  such  Consolidated  Subsidiary  or is
otherwise  restricted or prohibited,  in each case determined in accordance with
GAAP;   (c)  the  net   income   (or  loss)  of  any   Person   acquired   in  a
pooling-of-interests  transaction  for  any  period  prior  to the  date of such
transaction;  (d) any extraordinary non-cash gains or losses during such period;
(e) any gains on collections from insurance policies or settlement;  and (f) any
gains or losses  attributable  to writeups or  writedowns  of assets,  including
ceiling  test  writedowns;  and  provided  further  that if the  Borrower or any
Consolidated  Subsidiary or Parent, as appropriate,  shall acquire or dispose of
any  Property  during  such  period,  then  Consolidated  Net  Income  shall  be
calculated after giving pro forma effect to such acquisition or disposition,  as
if such acquisition or disposition had occurred on the first day of such period

     "Consolidated  Subsidiaries" means each Subsidiary of the Borrower (whether
now existing or hereafter created or acquired) the financial statements of which
shall be (or should have been) consolidated with the financial statements of the
Borrower in accordance with GAAP.

     "Contract Operating Agreement" means that certain Operating Agreement dated
November 8, 2003 between Operator and Borrower.

     "Control"  means the  possession,  directly or indirectly,  of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ability to exercise voting power, by contract or otherwise.  For the
purposes  of  this  definition,  and  without  limiting  the  generality  of the
foregoing, any Person that owns directly or indirectly 10% or more of the Equity
Interests  having  ordinary  voting power for the  election of the  directors or
other  governing body of a Person (other than as a limited partner of such other
Person)  will be  deemed to  "control"  such  other  Person.  "Controlling"  and
"Controlled" have meanings correlative thereto.
                                       4


     "Debt"  means,  for  any  Person,   the  sum  of  the  following   (without
duplication): (a) all obligations of such Person for borrowed money or evidenced
by bonds, bankers' acceptances,  debentures, notes or other similar instruments;
(b) all obligations of such Person (whether  contingent or otherwise) in respect
of letters of credit,  surety or other  bonds and similar  instruments;  (c) all
accounts payable and all accrued  expenses,  liabilities or other obligations of
such Person to pay the deferred purchase price of Property or services;  (d) all
obligations  under Capital Leases;  (e) all obligations  under Synthetic Leases;
(f) all Debt (as  defined  in the other  clauses of this  definition)  of others
secured by a Lien on any  Property of such  Person,  whether or not such Debt is
assumed by such  Person;  (g) all Debt (as defined in the other  clauses of this
definition)  of  others  guaranteed  by such  Person  or in  which  such  Person
otherwise  assures a creditor against loss of the Debt (howsoever such assurance
shall be made) to the  extent of the  lesser of the  amount of such Debt and the
maximum  stated  amount of such  guarantee or assurance  against  loss;  (h) all
obligations or undertakings of such Person to maintain or cause to be maintained
the  financial  position  or  covenants  of  others or to  purchase  the Debt or
Property of others; (i) obligations to deliver  commodities,  goods or services,
including,  without  limitation,  Hydrocarbons,  in consideration of one or more
advance payments,  other than gas balancing  arrangements in the ordinary course
of business;  (j)  obligations to pay for goods or services  whether or not such
goods or services are actually received or utilized by such Person; (k) any Debt
of a  partnership  for  which  such  Person is liable  either by  agreement,  by
operation of law or by a Governmental Requirement but only to the extent of such
liability;  (l) Disqualified  Capital Stock; and (m) the undischarged balance of
any production  payment created by such Person or for the creation of which such
Person  directly or indirectly  received  payment.  The Debt of any Person shall
include all  obligations of such Person of the character  described above to the
extent such Person  remains  legally liable in respect  thereof  notwithstanding
that any such  obligation  is not  included as a liability  of such Person under
GAAP.

     "Default"  means  any  event or  condition  which  constitutes  an Event of
Default  or that  upon  notice,  lapse of time or both  would,  unless  cured or
waived, become an Event of Default.

     "Development  Plan"  means a plan of  development  for  Borrower's  and its
Subsidiaries'  Oil and Gas Properties that has been submitted to the Lenders and
approved by the Lenders in their sole discretion.

     "Disqualified  Capital Stock" means any Equity  Interest that, by its terms
(or by the terms of any security into which it is convertible or for which it is
exchangeable)  or upon the  happening  of any event,  matures or is  mandatorily
redeemable for any consideration  other than other Equity Interests (which would
not  constitute   Disqualified  Capital  Stock),  pursuant  to  a  sinking  fund
obligation  or  otherwise,  or  is  convertible  or  exchangeable  for  Debt  or
redeemable for any consideration  other than other Equity Interests (which would
not constitute  Disqualified Capital Stock) at the option of the holder thereof,
in whole or in part,  on or prior to the date that is one year after the earlier
of (a) the  Maturity  Date and (b) the date on which there are no Loans or other
obligations hereunder outstanding and all of the Commitments are terminated.

     "dollars" or "$" refers to lawful money of the United States of America.

     "EBITDA" means, for any period, the sum of Consolidated Net Income for such
period  plus the  following  expenses  or charges to the  extent  deducted  from
Consolidated Net Income in such period:  interest,  income taxes,  depreciation,
depletion,  amortization  and other similar noncash  charges,  minus all noncash
income added to Consolidated Net Income. Further, the Borrower shall exclude the
impact  of the  Hedging  Contracts  which  were in  place  immediately  prior to
entering into this  Agreement and that are being  terminated in connection  with
this Agreement.  Any amounts distributed to Parent by Borrower or any Subsidiary
will be included as general and administrative expense in calculating EBITDA.
                                       5



     "Effective  Date"  means  the date on which  the  conditions  specified  in
Section 6.01 are satisfied (or waived in accordance with Section 12.02).

     "Environmental Laws" means any and all Governmental Requirements pertaining
in any way to health,  safety the environment or the preservation or reclamation
of  natural  resources,  in  effect  in any and all  jurisdictions  in which the
Borrower or any Subsidiary is conducting or at any time has conducted  business,
or where any Property of the Borrower or any  Subsidiary  is located,  including
without limitation, the Oil Pollution Act of 1990 ("OPA"), as amended, the Clean
Air Act, as amended, the Comprehensive  Environmental,  Response,  Compensation,
and Liability Act of 1980  ("CERCLA"),  as amended,  the Federal Water Pollution
Control  Act, as amended,  the  Occupational  Safety and Health Act of 1970,  as
amended,  the Resource  Conservation and Recovery Act of 1976 ("RCRA"),  as ----
amended,  the Safe Drinking Water Act, as amended,  the Toxic Substances Control
Act, as amended,  the Superfund  Amendments and  Reauthorization Act of 1986, as
amended,  the  Hazardous  Materials  Transportation  Act, as amended,  and other
environmental  conservation or protection  Governmental  Requirements.  The term
"oil" shall have the meaning  specified in OPA, the terms "hazardous  substance"
and "release" (or "threatened  release") have the meanings
specified in CERCLA, the terms "solid waste" and "disposal" (or "disposed") have
the  meanings  specified in RCRA and the term "oil and gas waste" shall have the
meaning  specified  in  Section  91.1011  of the Texas  Natural  Resources  Code
("Section  91.1011");  provided,  however,  that (a) in the  event  either  OPA,
CERCLA,  RCRA or Section  91.1011 is amended so as to broaden the meaning of any
term  defined  thereby,  such  broader  meaning  shall apply  subsequent  to the
effective  date of such amendment and (b) to the extent the laws of the state or
other  jurisdiction  in which any Property of the Borrower or any  Subsidiary is
located establish a meaning for "oil," "hazardous  substance," "release," "solid
waste,"  "disposal" or "oil and gas waste" which is broader than that  specified
in either OPA,  CERCLA,  RCRA or Section  91.1011,  such broader  meaning  shall
apply.
     "Equity  Interests" means shares of capital stock,  partnership  interests,
membership  interests in a limited liability company,  beneficial interests in a
trust or other equity ownership interests in a Person, and any warrants, options
or other  rights  entitling  the holder  thereof to purchase or acquire any such
Equity Interest.
         "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute.


     "ERISA   Affiliate"   means  each  trade  or   business   (whether  or  not
incorporated)  which together with the Borrower or a Subsidiary  would be deemed
to be a "single  employer" within the meaning of section  4001(b)(1) of ERISA or
subsections (b), (c), (m) or (o) of section 414 of the Code.
                                       6

     "ERISA Event" means (a) a "Reportable  Event"  described in section 4043 of
ERISA and the regulations issued thereunder, (b) the withdrawal of the Borrower,
a Subsidiary or any ERISA  Affiliate  from a Plan during a plan year in which it
was a "substantial  employer" as defined in section 4001(a)(2) of ERISA, (c) the
filing  of a notice of intent to  terminate  a Plan or the  treatment  of a Plan
amendment as a termination  under section 4041 of ERISA,  (d) the institution of
proceedings  to  terminate  a Plan by the  PBGC,  (e)  receipt  of a  notice  of
withdrawal liability pursuant to Section 4202 of ERISA or (f) any other event or
condition  which might  constitute  grounds  under section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan.

     "Event of Default"  has the meaning  assigned  such term in Section  10.01.
"Excepted Liens" means: (a) Liens for Taxes,  assessments or other  governmental
charges or levies that are not yet due or that are being contested in good faith
by appropriate  action and for which adequate  reserves have been  maintained in
accordance with GAAP in an account controlled by Administrative Agent; (b) Liens
in connection with workers' compensation, unemployment insurance or other social
security,  old age pension or public liability  obligations that are not yet due
or that are being  contested in good faith by  appropriate  action and for which
adequate  reserves have been  maintained  in accordance  with GAAP in an account
controlled by Administrative Agent; (c) statutory landlord's liens,  operators',
vendors',  carriers',   warehousemen's,   repairmen's,  mechanics',  suppliers',
workers',  materialmen's,  construction or other like Liens arising by operation
of law in the  ordinary  course of  business  or  incident  to the  exploration,
development,  operation and  maintenance of Oil and Gas Properties each of which
is in respect of  obligations  that have not been  outstanding  for more than 60
days and are being  contested in good faith by appropriate  action and for which
adequate  reserves have been maintained in accordance with GAAP; (d) contractual
Liens which arise in the ordinary course of business under operating agreements,
joint  venture  agreements,  oil and  gas  partnership  agreements,  oil and gas
leases,   farm-out  agreements,   division  orders,   contracts  for  the  sale,
transportation  or  exchange  of oil and natural  gas,  unitization  and pooling
declarations  and  agreements,  area of mutual interest  agreements,  overriding
royalty agreements,  marketing agreements,  processing  agreements,  net profits
agreements,   development  agreements,  gas  balancing  or  deferred  production
agreements,  injection,  repressuring  and recycling  agreements,  salt water or
other disposal  agreements,  seismic or other geophysical permits or agreements,
and other  agreements  that are usual and  customary in the oil and gas business
and are for claims that have not been  outstanding for more than 60 days and are
being  contested  in good faith by  appropriate  action  and for which  adequate
reserves have been  maintained in accordance  with GAAP,  provided that any such
Lien  referred  to in this  clause  does not  materially  impair  the use of the
Property  covered by such Lien for the purposes for which such  Property is held
by the  Borrower  or any  Subsidiary  or  materially  impair  the  value of such
Property  subject thereto;  (e) easements,  restrictions,  servitudes,  permits,
conditions,  covenants,  exceptions  or  reservations  in  any  Property  of the
Borrower or any  Subsidiary  for the purpose of roads,  pipelines,  transmission
lines,  transportation  lines,  distribution  lines for the removal of gas, oil,
coal or other minerals or timber,  and other like purposes,  or for the joint or
common use of real estate, rights of way, facilities and equipment, which in the
aggregate do not materially  impair the use of such Property for the purposes of
which such  Property is held by the  Borrower or any  Subsidiary  or  materially
impair  the  value  of such  Property  subject  thereto;  (f)  Liens  on cash or
securities  pledged to secure  performance of tenders,  surety and appeal bonds,
government  contracts,  performance  and  return  of money  bonds,  bids,  trade
contracts,  leases,  statutory  obligations,  regulatory  obligations  and other
obligations of a like nature  incurred in the ordinary  course of business;  and
(g) Liens securing the  Obligations  of the Borrower to  [Macquarie]  related to
Hedging Contracts which Administrative Agent is serving as Collateral Agent with
respect thereto;  provided,  further that Liens described in clauses (a) through
(d) shall remain  "Excepted Liens" only for so long as no action to enforce such
Lien has been commenced and no intention to subordinate  the first priority Lien
granted  in favor of the  Administrative  Agent and the  Lenders is to be hereby
implied or expressed by the permitted existence of such Excepted Liens.
                                       7


     "Excluded  Taxes"  means,  with respect to the  Administrative  Agent,  any
Lender, or any other recipient of any payment to be made by or on account of any
obligation  of the Borrower or any  Guarantor  hereunder or under any other Loan
Document,  (a) income or  franchise  taxes  imposed on (or  measured by) its net
income by the United States of America or such other jurisdiction under the laws
of which such recipient is organized or in which its principal office is located
or,  in the case of any  Lender,  in which  its  applicable  lending  office  is
located,  and (b) any branch  profits  taxes  imposed  by the  United  States of
America  or any  similar  tax  imposed  by any other  jurisdiction  in which the
Borrower or any Guarantor is located.

     "Federal Funds  Effective  Rate" means,  for any day, the weighted  average
(rounded  upwards,  if  necessary,  to the  next  1/100  of 1%) of the  rates on
overnight Federal funds  transactions with members of the Federal Reserve System
arranged by Federal funds brokers,  as published on the next succeeding Business
Day by the  Federal  Reserve  Bank  of New  York,  or,  if  such  rate is not so
published for any day that is a Business Day, the average (rounded  upwards,  if
necessary,  to the  next  1/100 of 1%) of the  quotations  for such day for such
transactions  received  by the  Administrative  Agent from three  Federal  funds
brokers of recognized standing selected by it.

     "Financial  Officer" means,  for any Person,  the chief financial  officer,
principal  accounting  officer,  treasurer or controller of such Person.  Unless
otherwise  specified,  all  references  herein to a  Financial  Officer  means a
Financial Officer of the Borrower.

     "Financial  Statements" means the financial  statement or statements of the
Borrower and its Consolidated Subsidiaries referred to in Section 7.04(a).

     "GAAP" means generally accepted accounting  principles in the United States
of America as in effect  from time to time  subject to the terms and  conditions
set forth in Section 1.04.

     "General and Administrative  Costs" means normal and customary expenses and
costs that are classified as general and administrative costs, including salary,
rent, supplies, travel and entertainment,  shareholder and board member expense,
insurance,  accounting,  legal, engineering and broker related fees, required to
manage the affairs of the  Borrower and certain  overhead  charges of the Parent
(that are approved by the Lenders)  which relates to costs that would be General
and Administrative Costs if incurred by Borrower.

     "Governmental  Authority"  means the  government  of the  United  States of
America, any other nation or any political subdivision thereof, whether state or
local,  and any agency,  authority,  instrumentality,  regulatory  body,  court,
central  bank or  other  entity  exercising  executive,  legislative,  judicial,
taxing,  regulatory  or  administrative  powers or functions of or pertaining to
government  over the Borrower,  any  Subsidiary,  any of their  Properties,  the
Agent, or any Lender.
                                       8


     "Governmental Requirement" means any law, statute, code, ordinance,  order,
determination,   rule,  regulation,  judgment,  decree,  injunction,  franchise,
permit, certificate,  license,  authorization or other directive or requirement,
whether  now  or  hereinafter   in  effect,   including,   without   limitation,
Environmental  Laws,  energy  regulations  and  occupational,  safety and health
standards or controls, of any Governmental Authority.

     "Guarantor"  means:  (a) GulfWest Energy Inc. (b) GulfWest  Louisiana,  (c)
Borrower and (d) each  Subsidiary of Borrower  (other than  GulfWest  Louisiana)
that guarantees the Indebtedness pursuant to Section 8.14(b).

     "Guarantee and  Collateral  Agreement"  means an agreement  executed by the
Guarantors in substantially the form of Exhibit F-2 unconditionally  guarantying
on a joint and several basis,  payment of the  Indebtedness,  as the same may be
amended, modified or supplemented from time to time.

     "GulfWest  Louisiana"  means GulfWest Oil  Gas Company  (Louisiana) LLC, a
Louisiana limited liability company.

     "Hedging  Contract" means any agreement with respect to any swap,  forward,
future  or  derivative  transaction  or  option or  similar  agreement,  whether
exchange  traded,  "over-the-counter"  or  otherwise,  involving,  or settled by
reference  to,  one or  more  rates,  currencies,  commodities,  equity  or debt
instruments or securities, or economic, financial or pricing indices or measures
of economic,  financial or pricing risk or value or any similar  transaction  or
any combination of these  transactions;  provided that no -------- phantom stock
or similar plan  providing for payments only on account of services  provided by
current or former directors,  officers, employees or consultants of the Borrower
or the Subsidiaries shall be a Hedging Contract.

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

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

     "Hydrocarbons"  means oil,  gas,  casinghead  gas, drip  gasoline,  natural
gasoline, condensate,  distillate, liquid hydrocarbons, gaseous hydrocarbons and
all products refined or separated therefrom.
                                       9


     "Indebtedness"  means  any and all  amounts  owing  or to be  owing  by the
Borrower,  any Subsidiary or any Guarantor:  (a) to the Administrative  Agent or
any Lender  under any Loan  Document;  (b) to any Lender or any  Affiliate  of a
Lender under any Hedging  Contract  between the Borrower or any  Subsidiary  and
such Lender or  Affiliate  of a Lender  while such Person (or in the case of its
Affiliate,  the Person  affiliated  therewith) is a Lender hereunder and (c) all
renewals, extensions and/or rearrangements of any of the above.

     "Indemnified Taxes" means Taxes other than Excluded Taxes.

     "Indemnitee" has the meaning assigned such term in Section 12.03(b).

     "Intercreditor   and  Collateral   Agency  Agreement"  means  that  certain
Intercreditor and Collateral Agency Agreement among Borrower, GulfWest Oil  Gas
Company (Louisiana) LLC, [Macquarie] and Administrative Agent.

     "Information" has the meaning assigned to such term in Section 12.11.

     "Initial Reserve Report" means the report of Pressler Petroleum Consultants
dated as of March 29, 2004,  with respect to certain Oil and Gas  Properties  of
the Borrower and its Subsidiaries as of April 1, 2004.

     "Interest  Expense"  means,  for  any  period,  the  interest  expense  (as
determined  in  accordance  with  GAAP)  of the  Borrower  and the  Consolidated
Subsidiaries for such period.  For purposes of calculating  Interest Expense for
the second  quarter of 2004,  the  Interest  Expense  relating to the loans with
Concert Capital and its affiliates  that have been  refinanced  pursuant to this
Agreement  ("Concert Debt") will be excluded and in lieu thereof,  Borrower will
compute the pro-forma  Interest Expense that would have been incurred during the
period the Concert Debt was  outstanding  had this  Agreement  had been in place
rather than the Concert Debt.

     "Investment" means, for any Person: (a) the acquisition  (whether for cash,
Property,  services or securities or otherwise) of Equity Interests of any other
Person,  the  contribution  of capital to any other Person,  or any agreement to
make any such acquisition  (including,  without limitation,  any "short sale" or
any sale of any  securities at a time when such  securities are not owned by the
Person entering into such short sale) or capital contribution; (b) the making of
any deposit  with, or advance,  loan or other  extension of credit to, any other
Person  (including  the purchase of Property from another  Person  subject to an
understanding or agreement,  contingent or otherwise, to resell such Property to
such Person, but excluding any such advance,  loan or extension of credit having
a term not  exceeding  ninety  (90)  days  representing  the  purchase  price of
inventory or supplies sold by such Person in the ordinary course of business) or
(c) the  entering  into of any  guarantee  of,  or other  contingent  obligation
(including the deposit of any Equity Interests to be sold) with respect to, Debt
or other  liability  of any other Person and  (without  duplication)  any amount
committed to be advanced, lent or extended to such Person
..
     "Lenders"  means the Persons  listed on Annex I, any Person that shall have
become a party hereto pursuant to an Assignment and  Assumption,  other than any
such Person  that ceases to be a party  hereto  pursuant  to an  Assignment  and
Assumption.
     "Liabilities" has the meaning assigned such term in Section 12.15.
                                       10


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

     "Loan Documents" means this Agreement, the Notes, the Security Instruments,
the ORRI Conveyance and the Warrants.

     "Loans"  means the loans made by the  Lenders to the  Borrower  pursuant to
this Agreement.

     "Lockbox Account" has the meaning assigned such term in Section 3.04.

     "Lockbox  Disbursement"  means a payment  from the  Lockbox  Account by the
Administrative  Agent, which shall be made by such Person in the following order
of priority (to the extent funds remain available):

     (a) the amounts to the Borrower to (i) pay royalties and overriding royalty
interests   constituting   Excepted  Liens,  and  (ii)  to  remit  any  revenues
attributable  to the working  interests  of third  parties  that were paid to or
received by Borrower,  in each case,  as  indicated  in any operator  reports or
statement  provided  by the  Borrower  to the  Administrative  Agent and Lenders
pursuant to Section  8.01 (or if any such  operator  report or  statement is not
delivered in such month or the Administrative Agent determines in its good faith
discretion  that  any  such  report  or  statement  is  not  accurate,   as  the
Administrative  Agent  determines  is  reasonably  accurate  in its  good  faith
discretion) and any applicable severance tax or ad-valorem tax;

     (b) payment to any third party  (including any Lender or its Affiliates) of
any amounts due under any Hedging Contract of Borrower approved by the Lender;

     (c)  payment  of any  cash or cash  equivalents  representing  proceeds  of
insurance  policies with respect to any Casualty  Event,  but only to the extent
that such  amounts  are  required to restore or replace  the  Property  that was
subject to the Casualty Event;

     (d) payment of the Operating Costs as approved by the Administrative  Agent
and the Arranger;

     (e) payment of all fees owed to any Lender,  the  Administrative  Agent, or
the Arranger then due and unpaid under this Agreement;

     (f) payment of all interest then accrued and unpaid on the Loans;
                                       11


     (g) payment of Approved GA Costs;

     (h) payment to any Lender,  the  Administrative  Agent, and the Arranger of
any other  amounts due (other than  principal on the Loan) under this  Agreement
and any of the other Loan Documents;
     (j) payment of all principal then due under any Loan hereunder; and

     (i) the balance to the Borrower,  to an account  designated by the Borrower
in a written  notice  given by the  Borrower  to the bank at which  the  Lockbox
Account is held and to the Lender  from time to time,  not later than 11:00 a.m.
New York City  time on a day that is two  Business  Days  prior to the date such
Lockbox Disbursement shall become due.

     "Material  Adverse  Effect"  means a  material  adverse  effect  on (a) the
business, operations,  affairs, Properties,  condition (financial or otherwise),
management,  shareholders'  equity,  prospects,  or results of operations of the
Borrower and the Subsidiaries taken as a whole, (b) the ability of the Borrower,
any Subsidiary or any Guarantor to perform any of its obligations under any Loan
Document,  (c) the validity or  enforceability  of any Loan  Document or (d) the
rights and remedies of or benefits available to the Administrative  Agent or any
Lender under any Loan Document.

     "Material Agreements" has the meaning assigned such term in Section 7.25.

     "Material  Indebtedness"  means Debt (other than the Loans), or obligations
in respect of one or more Hedging Contracts, of any one or more of the Borrower,
Parent or their Subsidiaries.

     "Maturity  Date"  means the date that is  eighteen  (18)  months  after the
Effective Date.


     "Maximum  Credit  Amount"  means,  as to each Lender,  the amount set forth
opposite  such  Lender's  name on  Annex I under  the  caption  "Maximum  Credit
Amounts",  as the  same  may be  modified  from  time  to time  pursuant  to any
assignment permitted by Section 12.04(b).

     "Moody's" means Moody's Investors  Service,  Inc. and any successor thereto
that is a nationally recognized rating agency.

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

     "Multiemployer  Plan" means a Plan which is a multiemployer plan as defined
in section 3(37) or 4001 (a)(3) of ERISA.

     "Net Present  Value"  means,  in respect of either of the Proved  Developed
Producing Reserves and Total Proved Reserves,  respectively,  of the Oil and Gas
Properties, the present value of future cash flows (discounted at 10% per annum)
calculated by the Arranger in its sole and reasonable  judgment (including using
a price curve determined by Arranger) after having reviewed the information from
the most recent  Reserve  Report  delivered by the Borrower  pursuant to Section
6.01 or  Section  8.12 and  taking  into  account  all other  factors  which the
Collateral Agent deems material.
                                       12


     "Notes"  means the  promissory  notes of the Borrower  described in Section
2.02(c)  and being  substantially  in the form of Exhibit A,  together  with all
amendments, modifications, replacements, extensions and rearrangements thereof.

     "Oil  and  Gas  Properties"  means  (a)  Hydrocarbon  Interests;   (b)  the
Properties now or hereafter pooled or unitized with Hydrocarbon  Interests;  (c)
all  presently   existing  or  future   unitization,   pooling   agreements  and
declarations  of pooled units and the units created thereby  (including  without
limitation  all  units  created  under  orders,  regulations  and  rules  of any
Governmental  Authority)  which may affect all or any portion of the Hydrocarbon
Interests;  (d)  all  operating  agreements,  contracts  and  other  agreements,
including  production  sharing contracts and agreements,  which relate to any of
the  Hydrocarbon  Interests  or the  production,  sale,  purchase,  exchange  or
processing of Hydrocarbons  from or attributable to such Hydrocarbon  Interests;
(e) all  Hydrocarbons  in and  under  and  which  may be  produced  and saved or
attributable to the Hydrocarbon  Interests,  including all oil in tanks, and all
rents, issues, profits, proceeds,  products,  revenues and other incomes from or
attributable to the  Hydrocarbon  Interests;  (f) all tenements,  hereditaments,
appurtenances and Properties in any manner appertaining,  belonging,  affixed or
incidental to the Hydrocarbon Interests and (g) all Properties,  rights, titles,
interests  and estates  described  or referred to above,  including  any and all
Property, real or personal, now owned or hereinafter acquired and situated upon,
used,  held for use or useful  in  connection  with the  operating,  working  or
development of any of such Hydrocarbon Interests or Property (excluding drilling
rigs,  automotive  equipment,  rental equipment or other personal Property which
may be on such  premises for the purpose of drilling a well or for other similar
temporary uses) and including any and all oil wells, gas wells,  injection wells
or other  wells,  buildings,  structures,  fuel  separators,  liquid  extraction
plants, plant compressors,  pumps, pumping units, field gathering systems, tanks
and tank batteries,  fixtures,  valves, fittings,  machinery and parts, engines,
boilers, meters, apparatus,  equipment,  appliances, tools, implements,  cables,
wires, towers, casing, tubing and rods, surface leases, rights-of-way, easements
and  servitudes  together  with  all  additions,  substitutions,   replacements,
accessions and attachments to any and all of the foregoing.

     "OPA" has the meaning given such term in the  definition  of  Environmental
Laws.

     "Operating  Costs" means all costs (net to Borrower  and its  Subsidiaries)
associated with the direct exploration,  operation, or development of Borrower's
and its Subsidiaries' Oil and Gas Properties.

     "Operator" means Setex Oil  Gas Company, a Texas corporation.


     "ORRI Conveyance" means any Conveyance of Overriding  Royalty Interest from
the Borrower to each of the Lenders in the form of Exhibit C attached hereto.

     "Other  Taxes"  means any and all  present or future  stamp or  documentary
taxes or any other excise or Property  taxes,  charges or similar levies arising
from any payment made hereunder or from the  execution,  delivery or enforcement
of, or otherwise with respect to, this Agreement and any other Loan Document.

     "Parent" means GulfWest Energy Inc., a Texas corporation.
                                       13


     "Participant" has the meaning set forth in Section 12.04(c)(i).

     "PBGC" means the Pension  Benefit  Guaranty  Corporation,  or any successor
thereto.

     "Person" means any natural person, corporation,  limited liability company,
trust, joint venture, association, company, partnership,  Governmental Authority
or other entity.

     "Plan" means any employee  pension benefit plan, as defined in section 3(2)
of  ERISA,  which  (a)  is  currently  or  hereafter  sponsored,  maintained  or
contributed to by the Borrower, a Subsidiary or an ERISA Affiliate or (b) was at
any time during the six calendar  years  preceding  the date hereof,  sponsored,
maintained  or  contributed  to by the  Borrower  or a  Subsidiary  or an  ERISA
Affiliate.

     "Post  Default Rate" shall mean, in respect of the principal of any Loan or
any other amount  payable by the Borrower under this Agreement or any other Loan
Document,  a rate  per  annum  during  the  period  commencing  on the  date  of
occurrence  of an Event of  Default  until  such  amount  is paid in full or all
Events of Default  are cured or waived  equal to the  applicable  rate plus four
percent (4%) per annum, but in no event to exceed the Highest Lawful Rate.

     "Property"  means any  interest in any kind of  property or asset,  whether
real,  personal  or  mixed,  or  tangible  or  intangible,   including,  without
limitation, cash, securities, accounts and contract rights.

     "Proved  Developed  Producing  Reserves"  shall  be as  defined  in the SPE
definitions.

     "Rating Agencies" has the meaning assigned such term in Section 12.15.

     "Reference  Rate" means the rate of interest per annum  publicly  announced
from time to time by  JPMorgan  Chase  Bank as its  prime  rate in effect at its
principal  office in New York City;  each change in JPMorgan  Chase Bank's Prime
Rate shall be  effective  from and  including  the date such  change is publicly
announced as being effective.

     "Redemption"  means with respect to any Debt, the  repurchase,  redemption,
prepayment, repayment or defeasance (or the segregation of funds with respect to
any of the  foregoing)  of  such  Debt.  "Redeem"  has the  correlative  meaning
thereto.

     "Register"  has the  meaning  assigned  such term in Section  12.04(b)(iv).

     "Regulation D" means Regulation D of the Board, as the same may be amended,
supplemented or replaced from time to time.

     "Related  Parties"  means,  with  respect  to any  specified  Person,  such
Person's Affiliates and the respective directors,  officers,  employees,  agents
and advisors (including  attorneys,  accountants and experts) of such Person and
such Person's Affiliates.

     "Remedial Work" has the meaning assigned such term in Section 8.10(a).
                                       14


     "Reserve  Report"  means  a  report,  in  form  and  substance   reasonably
satisfactory to the Administrative  Agent, setting forth, as of each January 1st
and July 1st the oil and gas reserves attributable to the Oil and Gas Properties
of the Borrower and the Subsidiaries,  together with a projection of the rate of
production  and  future  net  income,  taxes,  operating  expenses  and  capital
expenditures  with  respect  thereto  as of such date,  based  upon the  pricing
assumptions provided by Lenders.

     "Residual  Balance" means the balance in the Lockbox Account on the date of
in which a Lockbox  Disbursement  is made,  after  the  payment  of the  Lockbox
Disbursements described in subparagraphs (a) through (h).

     "Responsible Officer" means, as to any Person, the Chief Executive Officer,
the  President,  any  Financial  Officer or any Vice  President  of such Person.
Unless otherwise specified, all references to a Responsible Officer herein shall
mean a Responsible Officer of the Borrower.

     "Restricted  Payment" means any dividend or other distribution  (whether in
cash,  securities or other Property) with respect to any Equity Interests in the
Borrower,  or any  payment  (whether  in cash,  securities  or other  Property),
including  any  sinking  fund or similar  deposit,  on account of the  purchase,
redemption,  retirement,  acquisition,  cancellation  or termination of any such
Equity  Interests  in the  Borrower  or any  option,  warrant or other  right to
acquire any such Equity Interests in the Borrower.

     "Sales Volume  Schedule" means Schedule 9.01 attached  hereto.

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

     "Securitization" has the meaning assigned such term in Section 12.15.

     "Securitization  Parties"  has the  meaning  assigned  such term in Section
12.15.

     "Security  Instruments"  means  the  Guarantee  and  Collateral  Agreement,
mortgages,  deeds of trust and other  agreements,  instruments  or  certificates
described  or  referred  to in Exhibit  F-1,  and any and all other  agreements,
guarantees,  instruments or certificates now or hereafter executed and delivered
by the  Borrower or any other  Person  (other than  Hedging  Contracts  with the
Lenders or any  Affiliate  of a Lender or  participation  or similar  agreements
between  any  Lender  and any  other  lender or  creditor  with  respect  to any
Indebtedness  pursuant to this Agreement) in connection with, or as security for
the payment or performance of the Indebtedness,  the Notes,  this Agreement,  as
such agreements may be amended, modified,  supplemented or restated from time to
time.

     "SP" means Standard  Poor's Ratings Group, a division of The  McGraw-Hill
Companies,  Inc.,  and any  successor  thereto that is a  nationally  recognized
rating agency.

     "SPE Definitions"  means, with respect to any term, the definition  thereof
adopted by the Board of Directors,  Society for Petroleum  Engineers (SPE) Inc.,
March 1997.
                                       15


     "Subsidiary"  means:  (a) any  Person of which at least a  majority  of the
outstanding  Equity  Interests having by the terms thereof ordinary voting power
to elect a majority of the board of directors,  manager or other  governing body
of such Person  (irrespective  of whether or not at the time Equity Interests of
any other class or classes of such Person  shall have or might have voting power
by  reason of the  happening  of any  contingency)  is at the time  directly  or
indirectly  owned  or  controlled  by  the  Borrower  or  one  or  more  of  its
Subsidiaries or by the Borrower and one or more of its  Subsidiaries and (b) any
partnership  of which  the  Borrower  or any of its  Subsidiaries  is a  general
partner.   Unless  otherwise  indicated  herein,  each  reference  to  the  term
"Subsidiary"shall mean a Subsidiary of the Borrower.

     "Synthetic  Leases" means, in respect of any Person, all leases which shall
have been, or should have been, in  accordance  with GAAP,  treated as operating
leases on the financial statements of the Person liable (whether contingently or
otherwise) for the payment of rent thereunder and which were properly treated as
indebtedness  for borrowed money for purposes of U.S.  federal income taxes,  if
the lessee in respect  thereof is obligated to either  purchase for an amount in
excess  of, or pay upon  early  termination  an amount in excess  of, 80% of the
residual value of the Property  subject to such operating  lease upon expiration
or early termination of such lease.

     "Target Date" means January 27, 2005.

     "Taxes" means any and all present or future taxes, levies, imposts, duties,
deductions, charges or withholdings imposed by any Governmental Authority.

     "Termination Date" means the earlier of the Maturity Date or the date of an
Event of Default that is continuing and not waived hereunder.

     "Total  Debt"  means,  at any  date,  all  Debt  of the  Borrower  and  the
Consolidated  Subsidiaries on a consolidated basis including, any Debt under any
Hedging  Contracts  (up to a  maximum  amount  of the  lesser of (i) the mark to
market  exposure with respect to such Hedging  Contracts or the (ii) the Maximum
Hedging  Exposure (as such term is defined in the  Intercreditor  and Collateral
Agency Agreement).  Notwithstanding the preceding,  Total Debt shall not include
any  accounts  payable of the  Borrower or any  consolidated  subsidiary  to the
extent that such  accounts  payable have not been  outstanding  for more than 60
days.

     "Total Proved Reserves" shall be as defined in the SPE definitions.

     "Transactions"  means,  with respect to (a) the  Borrower,  the  execution,
delivery and  performance  by the Borrower of this Agreement and each other Loan
Document to which it is a party, the borrowing of Loans, the use of the proceeds
thereof,  and the grant of Liens by the  Borrower on  Mortgaged  Properties  and
other  Properties  pursuant to the Security  Instruments and (b) each Guarantor,
the execution,  delivery and performance by such Guarantor of each Loan Document
to which it is a party,  the  guaranteeing  of the  Indebtedness  and the  other
obligations  under the Guarantee and Collateral  Agreement by such Guarantor and
such  Guarantor's  grant of the security  interests  and provision of collateral
thereunder, and the grant of Liens by such Guarantor on Mortgaged Properties and
other Properties pursuant to the Security Instruments.
                                       16


     "Warrant  Agreement"  means  that  certain  Warrant  Agreement  in the Form
attached  hereto as Exhibit H from the  Borrower  to each of the  Lenders as the
same may be amended, modified or supplemented from time to time.

     "Wholly-Owned  Subsidiary"  means  any  Subsidiary  of  which  all  of  the
outstanding  Equity  Interests  (other  than any  directors'  qualifying  shares
mandated by applicable law), on a fully-diluted basis, are owned by the Borrower
or one or more of the  Wholly-Owned  Subsidiaries  or by the Borrower and one or
more of the Wholly-Owned Subsidiaries.

     Section 1.03 Terms  Generally;  Rules of  Construction.  The definitions of
terms herein  shall apply  equally to the singular and plural forms of the terms
defined.  Whenever  the  context may  require,  any  pronoun  shall  include the
corresponding  masculine,  feminine  and  neuter  forms.  The  words  "include",
"includes" and "including" shall be deemed to be followed by the phrase "without
limitation".  The word "will"  shall be  construed  to have the same meaning and
effect as the word  "shall".  Unless  the  context  requires  otherwise  (a) any
definition of or reference to any agreement, instrument or other document herein
shall be construed as referring to such agreement,  instrument or other document
as from time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein),
(b) any reference  herein to any law shall be construed as referring to such law
as amended, modified,  codified or reenacted, in whole or in part, and in effect
from time to time, (c) any reference  herein to any Person shall be construed to
include  such  Person's  successors  and assigns  (subject  to the  restrictions
contained herein), (d) the words "herein",  "hereof" and "hereunder",  and words
of similar import, shall be construed to refer to this Agreement in its entirety
and  not  to  any  particular   provision  hereof,   (e)  with  respect  to  the
determination of any time period, the word "from" means "from and including" and
the word "to" means "to and including" and (f) any reference herein to Articles,
Sections,  Annexes,  Exhibits  and  Schedules  shall  be  construed  to refer to
Articles  and  Sections  of,  and  Annexes,  Exhibits  and  Schedules  to,  this
Agreement.  No provision of this  Agreement or any other Loan Document  shall be
interpreted  or construed  against any Person solely  because such Person or its
legal representative drafted such provision.

     Section 1.04 Accounting Terms and  Determinations;  GAAP.  Unless otherwise
specified  herein,  all accounting  terms used herein shall be interpreted,  all
determinations  with respect to accounting  matters hereunder shall be made, and
all financial  statements and certificates  and reports as to financial  matters
required to be furnished to the  Administrative  Agent or the Lenders  hereunder
shall be prepared,  in accordance with GAAP,  applied on a basis consistent with
the  Financial  Statements  except for changes in which  Borrower's  independent
certified  public  accountants  concur and that are disclosed to  Administrative
Agent  on the  next  date on  which  financial  statements  are  required  to be
delivered to the Lenders pursuant to Section 8.01(a);  provided that, unless the
Borrower and  -------- the Lenders  shall  otherwise  agree in writing,  no such
change shall modify or affect the manner in which  compliance with the covenants
contained herein is computed such that all such computations  shall be conducted
utilizing financial information presented consistently with prior periods.
                                       17


                                   ARTICLE II
                                   The Credits

     Section 2.01  Commitments.  Subject to the terms and  conditions  set forth
herein,  each Lender agrees to make a Loan to the Borrower on the Effective Date
in an aggregate principal amount equal to the Lender's Commitment; provided that
the  aggregate  amount of the Loans of all  Lenders  shall not exceed
$18,000,000. The Borrower may not reborrow any Loan.

     Section 2.02 Loans and Borrowings.

          (a)  Borrowings;  Several  Obligations.  The Loan shall be made by the
     Lenders ratably in accordance with their respective Applicable Percentages.
     The failure of any Lender to make its Loan  required to be made by it shall
     not relieve any other Lender of its  obligations  hereunder;  provided that
     the  Commitments  of the  Lenders  are  several  and  no  Lender  shall  be
     responsible for any other Lender's failure to make its Loan as required.

          (b) Minimum  Amount.  The Borrowing shall be in the full amount of the
     Commitment.

          (c) Notes. The Loan made by each Lender shall be evidenced by a single
     promissory  note of the  Borrower in  substantially  the form of Exhibit A,
     dated,  in the case of (i) any Lender  party  hereto as of the date of this
     Agreement,  as of the  date of this  Agreement,  or (ii)  any  Lender  that
     becomes a party hereto pursuant to an Assignment and Assumption,  as of the
     effective date of the Assignment  and  Assumption,  payable to the order of
     such Lender in a principal  amount equal to its Maximum Credit Amount as in
     effect on such date,  and otherwise duly  completed.  In the event that any
     Lender's  Maximum  Credit  Amount  increases  or  decreases  for any reason
     (whether  pursuant to Section  12.04(b) or  otherwise),  the Borrower shall
     deliver or cause to be delivered on the effective  date of such increase or
     decrease,  a new Note  payable to the order of such  Lender in a  principal
     amount  equal to its Maximum  Credit  Amount  after  giving  effect to such
     increase or decrease, and otherwise duly completed.

     Section 2.03 Requests for  Borrowings.  The Borrowing shall require advance
written  notice  to the  Administrative  Agent and the  Arranger  in the form of
Exhibit B which shall be  irrevocable,  from the  Borrower to be received by the
Administrative  Agent and the Arranger not later than 11:00 a.m. (EST)
at least two  Business  Days prior to the date of the  Borrowing.

     Section 2.04 Funding of Borrowings.

          (a) Funding by Lenders.  Each Lender shall make the Loan to be made by
     it hereunder on the proposed date thereof by wire - transfer of immediately
     available  funds by 1:00 p.m.,  New York City time,  to the  account of the
     Administrative  Agent most  recently  designated  by it for such purpose by
     notice to the  Lenders.  The  Administrative  Agent  will  make such  Loans
     available to the Borrower by promptly crediting the amounts so received, in
     like funds,  to an account  designated  by the  Borrower in the  applicable
     Borrowing Request.
                                       18


          (b) Presumption of Funding by the Lenders.  Unless the  Administrative
     Agent shall have  received  notice from a Lender prior to the proposed date
     of  the  Borrowing  that  such  Lender  will  not  make  available  to  the
     Administrative   Agent  such  Lender's   share  of  such   Borrowing,   the
     Administrative  Agent may  assume  that  such  Lender  has made such  share
     available  on such date in  accordance  with  Section  2.04(a)  and may, in
     reliance  upon  such   assumption,   make   available  to  the  Borrower  a
     corresponding  amount.  In such event, if a Lender has not in fact made its
     share of the applicable  Borrowing  available to the Administrative  Agent,
     then the applicable  Lender and the Borrower  severally agree to pay to the
     Administrative  Agent  forthwith on demand such  corresponding  amount with
     interest  thereon,  for each day from and including the date such amount is
     made  available to the Borrower to but excluding the date of payment to the
     Administrative Agent, at (i) in the case of such Lender, the greater of the
     Federal Funds  Effective Rate and a rate  determined by the  Administrative
     Agent in accordance with banking  industry rules on interbank  compensation
     or (ii) in the case of the Borrower,  the  Applicable  Rate. If such Lender
     pays such  amount to the  Administrative  Agent,  then  such  amount  shall
     constitute such Lender's Loan included in such Borrowing.

     Section 2.05  Termination  of  Commitments(a)  . The Lenders  shall have no
further Commitments on the Effective Date immediately after the Loan is advanced
to the Borrower.  ARTICLE III Payments of Principal  and Interest;  Prepayments;
Fees

     Section  3.01  Repayment  of Loans.  The  Borrower  hereby  unconditionally
promises to pay to the  Administrative  Agent for the account of each Lender the
then unpaid principal amount of each Loan on the Termination Date.

     Section 3.02 Interest.

          (a) Loans.  The Loans for the  Borrowing  shall bear  interest  at the
     Applicable  Rate,  but in no event to exceed the Highest  Lawful Rate.

          (b) Interest  Payment  Dates.  Accrued  interest on each Loan shall be
     payable  in  arrears  on the last  day of each  calendar  month  and on the
     Termination Date;  provided that (i) interest accrued after the Termination
     Date shall be payable on demand,  and (ii) in the event of any repayment or
     prepayment of any Loan,  accrued interest on the principal amount repaid or
     prepaid shall be payable on the date of such repayment or prepayment.

          (c)  Interest  Rate  Computations.  All  interest  hereunder  shall be
     computed on the basis of a year of 360 days,  unless such computation would
     exceed the Highest Lawful Rate, in which case interest shall be computed on
     the basis of a year of 365 days (or 366 days in a leap  year),  and in each
     case shall be payable for the actual number of days elapsed  (including the
     first day but excluding the last day).

     Section 3.03 Prepayments.

          (a) Optional  Prepayments.  The  Borrower  shall have the right at any
     time and from time to time to  prepay  any  Borrowing  in whole or in part,
     subject to prior notice in accordance with Section 3.03(b).

          (b) Notice and Terms of Optional Prepayment. Each prepayment permitted
     hereunder shall require not less than three (3) Business Day's prior notice
     to the  Administrative  Agent and the Arranger,  which notice shall specify
     the  prepayment  date (which shall be a Business Day) and the amount of the
     prepayment.  Each such notice shall be irrevocable  and effective only upon
     receipt by the Administrative Agent and the Arranger.  Each prepayment of a
     Borrowing  shall be applied  ratably to the Loans  included  in the prepaid
     Borrowing.  Prepayments  shall be  accompanied  by accrued  interest to the
     extent required by Section 3.02
                                       19


          (c) No Premium or Penalty.  Prepayments  permitted  under this Section
     3.03 shall be without premium or penalty.

     Section 3.04 Cash Sweep. If the  Indebtedness  has not been paid in full as
of the Target Date or any Event of Default  shall occur and be  continuing,  (i)
prior to the  Target  Date,  or upon the  date of an  occurrence  of an Event of
Default,  Borrower shall establish and maintain,  at the Borrower's  expense, an
account under the Administrative  Agent's control (the "Lockbox Account") with a
bank reasonably  acceptable to the Administrative Agent that has entered into an
account agreement satisfactory to the Administrative Agent pursuant to which all
Cash Receipts to be received by the Borrower  shall be deposited,  (ii) Borrower
shall  direct each payor of any Cash  Receipts  at such time to make  payment to
such Lockbox  Account,  and (iii) the Borrower shall pay principal  (through the
Administrative   Agent   directing   payment  of  such   amounts  as  a  Lockbox
Disbursement)  by an amount equal to 100% of the Residual Balance in the Lockbox
Account,  after the Maturity  Date or any Event of Default  that is  continuing.
Section  3.05  Mandatory   Repayments.   In  the  event  that  Borrower  or  its
Subsidiaries  sell,  assign  or  otherwise  dispose  of any of their Oil and Gas
Properties,  then the  Borrower  shall  prepay the Loan on the date such sale or
other disposition of the Oil and Gas Properties occur in an aggregate  principal
amount equal to the proceeds of such sale or disposition.

     Section 3.06 Fees.

          (a) Commitment Fee. The Borrower  agrees to pay to the  Administrative
     Agent for the account of each Lender on the Effective Date a commitment fee
     of $180,000.

          (b)   Administrative   Fee.  The   Borrower   agrees  to  pay  to  the
     Administrative Agent, for the account of each Lender a quarterly fee in the
     amount of  $25,000  payable on the  Effective  Date and on the first day of
     each fiscal quarter thereafter.

          (c) Termination  Fee. On the earlier of the Maturity Date or any other
     date in which the loans are paid in full, the Borrower agrees to pay to the
     Administrative  Agent,  for the account of each Lender a termination fee in
     the amount of $360,000 on such date.

               (d)   Origination   Fee.  The  Borrower  agrees  to  pay  to  the
          Administrative  Agent for the account of each Lender on the  Effective
          Date an origination fee of $1,000,000.
                                       20


                                   ARTICLE IV
               Payments; Pro Rata Treatment; Sharing of Set-offs.

     Section 4.01 Payments Generally; Pro Rata Treatment; Sharing of Set-offs.

          (a) Payments by the  Borrower.  The  Borrower  shall make each payment
     required to be made by it hereunder (whether of principal,  interest, fees,
     or of amounts payable under Section 5.01,  Section 5.02 or otherwise) prior
     to 12:00 noon,  New York City time,  on the date when due,  in  immediately
     available  funds,  without  defense,  deduction,   recoupment,  set-off  or
     counterclaim.   Fees,  once  paid,   shall  not  be  refundable  under  any
     circumstances. Any amounts received after such time on any date may, in the
     discretion of the Administrative  Agent, be deemed to have been received on
     the next  succeeding  Business  Day for  purposes of  calculating  interest
     thereon. All such payments shall be made to the Administrative Agent at its
     offices  specified  in Section  12.01,  except  that  payments  pursuant to
     Section 5.01,  Section 5.02 and Section 12.03 shall be made directly to the
     Persons entitled  thereto.  The  Administrative  Agent shall distribute any
     such  payments  received by it for the  account of any other  Person to the
     appropriate  recipient promptly  following receipt thereof.  If any payment
     hereunder  shall be due on a day that is not a Business  Day,  the date for
     payment shall be extended to the next succeeding  Business Day, and, in the
     case of any payment  accruing  interest,  interest thereon shall be payable
     for the period of such extension.  All payments  hereunder shall be made in
     dollars.

          (b) Application of Insufficient  Payments. If at any time insufficient
     funds are  received by and  available  to the  Administrative  Agent to pay
     fully all amounts of principal,  interest and fees then due hereunder, such
     funds shall be applied (i) first, towards payment of interest and fees then
     due  hereunder,  ratably among the parties  entitled  thereto in accordance
     with the amounts of interest  and fees then due to such  parties,  and (ii)
     second, towards payment of principal then due hereunder,  ratably among the
     parties  entitled  thereto in accordance with the amounts of principal then
     due to such parties.

          (c) Sharing of Payments by Lenders. If any Lender shall, by exercising
     any right of  set-off  or  counterclaim  or  otherwise,  obtain  payment in
     respect of any  principal  of or interest on any of its Loans  resulting in
     such Lender  receiving  payment of a greater  proportion  of the  aggregate
     amount  of its Loans  and  accrued  interest  thereon  than the  proportion
     received  by any other  Lender,  then the  Lender  receiving  such  greater
     proportion  shall purchase (for cash at face value)  participations  in the
     Loans of other  Lenders to the extent  necessary so that the benefit of all
     such payments shall be shared by the Lenders ratably in accordance with the
     aggregate  amount of principal of and accrued  interest on their respective
     Loans;  provided that (i) if any such  participations are purchased and all
     or any  portion of the  payment  giving  rise  thereto is  recovered,  such
     participations  shall be rescinded and the purchase  price  restored to the
     extent of such recovery,  without interest, and (ii) the provisions of this
     Section  4.01(c) shall not be construed to apply to any payment made by the
     Borrower  pursuant  to and in  accordance  with the  express  terms of this
     Agreement  or any  payment  obtained by a Lender as  consideration  for the
     assignment  of or  sale  of a  participation  in any of  its  Loans  to any
     assignee or  participant,  other than to the Borrower or any  Subsidiary or
     Affiliate thereof (as to which the provisions of this Section 4.01(c) shall
     apply). The Borrower consents to the foregoing and agrees, to the extent it
     may  effectively do so under  applicable  law, that any Lender  acquiring a
     participation  pursuant to the foregoing  arrangements may exercise against
     the  Borrower  rights of  set-off  and  counterclaim  with  respect to such
     participation  as fully as if such  Lender  were a direct  creditor  of the
     Borrower in the amount of such participation. 21


     Section  4.02   Presumption   of  Payment  by  the  Borrower.   Unless  the
Administrative  Agent shall have received  notice from the Borrower prior to the
date on which any payment is due to the Administrative  Agent for the account of
the Lenders that the Borrower  will not make such  payment,  the  Administrative
Agent  may  assume  that the  Borrower  has made  such  payment  on such date in
accordance herewith and may, in reliance upon such assumption, distribute to the
Lenders the amount due. In such event, if the Borrower has not in fact made such
payment,   then  each  of  the  Lenders   severally   agrees  to  repay  to  the
Administrative  Agent  forthwith  on demand  the amount so  distributed  to such
Lender with  interest  thereon,  for each day from and  including  the date such
amount  is  distributed  to it to but  excluding  the  date  of  payment  to the
Administrative  Agent,  at the greater of the Federal Funds Effective Rate and a
rate determined by the Administrative  Agent in accordance with banking industry
rules  on  interbank  compensation.  Section

     4.03 Certain  Deductions by the  Administrative  Agent. If any Lender shall
fail to make any payment  required to be made by it pursuant to Section  2.04(b)
or  Section  4.02  then  the   Administrative   Agent  may,  in  its  discretion
(notwithstanding  any contrary provision  hereof),  apply any amounts thereafter
received by the  Administrative  Agent for the account of such Lender to satisfy
such  Lender's  obligations  under  such  Sections  until  all such  unsatisfied
obligations are fully paid.
                                   ARTICLE V
                             Increased Costs; Taxes

     Section 5.01 Increased Costs.

          (a) Capital Requirements.  If any Lender determines that any Change in
     Law regarding capital requirements has or would have the effect of reducing
     the rate of return  on such  Lender's  capital  or on the  capital  of such
     Lender's holding company, if any, as a consequence of this Agreement or the
     Loans made by Lenders hereunder, to a level below that which such Lender or
     such  Lender's  holding  company could have achieved but for such Change in
     Law (taking into  consideration  such Lender's policies and the policies of
     such Lender's holding company with respect to capital adequacy),  then from
     time to time the Borrower will pay to such Lender, as the case may be, such
     additional  amount  or  amounts  as will  compensate  such  Lender  or such
     Lender's holding company for any such reduction suffered.

          (b)  Certificates.  A certificate of a Lender setting forth the amount
     or amounts  necessary to compensate such Lender or its holding company,  as
     the case may be, as specified in the immediately  preceding  subsection (a)
     shall be delivered to the Borrower and shall be conclusive  absent manifest
     error.  The  Borrower  shall pay such Lender the amount shown as due on any
     such certificate within 10 days after receipt thereof.

          (c) Effect of Failure or Delay in Requesting Compensation.  Failure or
     delay on the part of any  Lender to demand  compensation  pursuant  to this
     Section 5.01 shall not constitute a waiver of such Lender's right to demand
     such compensation.
                                       22


          Section 5.02 Taxes.


     (a)  Payments  Free of Taxes.  Any and all payments by or on account of any
obligation  of the Borrower or any Guarantor  under any Loan  Document  shall be
made free and clear of and without  deduction for any Indemnified Taxes or Other
Taxes;  provided  that if the  Borrower  or any  Guarantor  shall be required to
deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum
payable  shall be  increased  as  necessary  so that after  making all  required
deductions  (including  deductions  applicable to additional  sums payable under
this Section 5.02(a)),  the Administrative  Agent or Lender (as the case may be)
receives  an  amount  equal  to the  sum it  would  have  received  had no  such
deductions  been  made,  (ii) the  Borrower  or such  Guarantor  shall make such
deductions  and (iii) the Borrower or such  Guarantor  shall pay the full amount
deducted to the relevant  Governmental  Authority in accordance  with applicable
law.  (b) Payment of Other Taxes by the  Borrower.  The  Borrower  shall pay any
Other Taxes to the relevant Governmental Authority in accordance with applicable
law.
     (c)  Indemnification  by the  Borrower.  The Borrower  shall  indemnify the
Administrative  Agent  and each  Lender  within  10 days  after  written  demand
therefore,  for the full amount of any Indemnified  Taxes or Other Taxes paid by
the Administrative  Agent or such Lender, as the case may be, on or with respect
to any  payment by or on account of any  obligation  of the  Borrower  hereunder
(including   Indemnified  Taxes  or  Other  Taxes  imposed  or  asserted  on  or
attributable  to amounts  payable  under this Section  5.02) and any  penalties,
interest and  reasonable  expenses  arising  therefrom or with respect  thereto,
whether or not such  Indemnified  Taxes or Other Taxes were correctly or legally
imposed or asserted by the relevant Governmental Authority. A certificate of the
Administrative  Agent or a Lender as to the amount of such  payment or liability
under  this  Section  5.02  shall be  delivered  to the  Borrower  and  shall be
conclusive absent manifest error.

     (d)  Evidence  of  Payments.  As soon as  practicable  after any payment of
Indemnified  Taxes  or  Other  Taxes  by  the  Borrower  or  a  Guarantor  to  a
Governmental  Authority,  the Borrower shall deliver to the Administrative Agent
the  original  or a  certified  copy of a receipt  issued  by such  Governmental
Authority  evidencing such payment,  a copy of the return reporting such payment
or other evidence of such payment reasonably  satisfactory to the Administrative
Agent. ARTICLE VI Conditions Precedent

     Section 6.01 Effective  Date. The  obligations of the Lenders to make Loans
hereunder  shall  not  become  effective  until  the date on  which  each of the
following  conditions is satisfied (or waived in accordance with Section 12.02):

     (a) The  Administrative  Agent,  the  Arranger  and the Lenders  shall have
received all fees and other amounts due and payable on or prior to the Effective
Date,  including,  to the  extent  invoiced,  reimbursement  or  payment  of all
out-of-pocket  expenses  required  to be  reimbursed  or  paid  by the  Borrower
hereunder.
                                       23


          (b) The Administrative  Agent shall have received a certificate of the
     Secretary  or an Assistant  Secretary  of the  Borrower and each  Guarantor
     setting forth (i) resolutions of its board of directors,  members, managers
     (or  other  equivalent  body)  with  respect  to the  authorization  of the
     Borrower or such  Guarantor  to execute and deliver the Loan  Documents  to
     which it is a party  and to enter  into the  transactions  contemplated  in
     those  documents,  (ii) the  officers  or other  authorized  persons of the
     Borrower  or such  Guarantor  (y)  who are  authorized  to  sign  the  Loan
     Documents  to which the  Borrower or such  Guarantor is a party and (z) who
     will,  until  replaced by another  officer or officers or other  authorized
     persons duly authorized for that purpose, act as its representative for the
     purposes of signing  documents and giving notices and other  communications
     in connection with this Agreement and the transactions contemplated hereby,
     (iii) specimen  signatures of such authorized  officers or other authorized
     persons,   and  (iv)  the  articles  or  certificate  of  incorporation  or
     formations and bylaws,  regulations or operating  agreement (as applicable)
     of the Borrower and such  Guarantor,  certified as being true and complete.
     The  Administrative  Agent and the  Lenders may  conclusively  rely on such
     certificate until the Administrative  Agent receives notice in writing from
     the Borrower to the contrary.

          (c) The Administrative  Agent shall have received  certificates of the
     appropriate State agencies with respect to the existence, qualification and
     good standing of the Borrower and each Guarantor.

          (d)  The  Administrative   Agent  shall  have  received  a  compliance
     certificate which shall be substantially in the form of Exhibit D, duly and
     properly  executed  by a  Responsible  Officer  and dated as of the date of
     Effective Date.

          (e) The  Administrative  Agent  shall  have  received  from each party
     hereto   counterparts   (in  such  number  as  may  be   requested  by  the
     Administrative Agent) of this Agreement signed on behalf of such party.

          (f) The  Administrative  Agent shall have received duly executed Notes
     payable  to the order of each  Lender in a  principal  amount  equal to its
     Maximum Credit Amount dated as of the date hereof.

          (g) The Borrower  shall have delivered to the  Administrative  Agent a
     Borrowing Request in the amount of $18,000,000.

          (h) The  Administrative  Agent  shall have  received  from Parent duly
     executed counterparts of the Warrant Agreement for each Lender.

          (i) The  Administrative  Agent  shall  have  received  from each party
     thereto duly executed  counterparts  (in such number as may be requested by
     the  Administrative  Agent)  of the  Security  Instruments,  including  the
     Guarantee  and  Collateral  Agreement  and the other  Security  Instruments
     described on Exhibit F-1. In connection  with the execution and delivery of
     the Security Instruments, the Administrative Agent shall:

          (i) be reasonably satisfied that the Security Instruments create first
     priority,  perfected Liens on the Collateral, such Liens being subject only
     to Excepted  Liens  identified in clauses (a) through (e) of the definition
     thereof, but subject to the provisos at the end of such definition; and
                                       24


     (ii) have received certificates,  together with undated, blank stock powers
for each such certificate, representing all of the issued and outstanding Equity
Interests of each of the Borrower and each of its Subsidiaries.

          (j) The  Administrative  Agent  shall have  received an opinion of (i)
     Fuqua  Keim, L.L.P., special counsel to the Borrower, substantially in the
     form of Exhibit  E-1  hereto,  and local  counsel in each of the  following
     states: Louisiana and Colorado and any other jurisdictions requested by the
     Administrative Agent, substantially in the form of Exhibit E-2.

          (k) The  Administrative  Agent shall have  received a  certificate  of
     insurance coverage of the Borrower evidencing that the Borrower is carrying
     insurance in accordance with Section 7.13.

          (l) The Administrative  Agent shall have received title information as
     the  Administrative  Agent may require  satisfactory to the  Administrative
     Agent  setting  forth  the  status  of title to the Oil and Gas  Properties
     evaluated in the Initial Reserve Report.

          (m) The Administrative Agent shall be satisfied with the environmental
     condition  of  the  Oil  and  Gas   Properties  of  the  Borrower  and  its
     Subsidiaries  and have received a Phase I Environmental  Report in form and
     scope satisfactory to the Administrative Agent and the Lenders with respect
     to such Oil and Gas Properties.

          (n) The  Administrative  Agent shall have received a certificate  of a
     Responsible  Officer of the Borrower  certifying  that the Borrower and its
     Subsidiaries  has received all consents and  approvals  required by Section
     7.03.

          (o) The  Administrative  Agent shall have  received (i) the  financial
     statements referred to in Section 7.04(a),  (ii) the Initial Reserve Report
     accompanied  by a  certificate  covering  the matters  described in Section
     8.12(b),  (iii) copies of all material contracts or agreements,  including,
     but not  limited  to, all  operating  agreements  covering  the Oil and Gas
     Properties,  as  well  as all  marketing,  transportation,  and  processing
     agreements related to such Oil and Gas Properties.

          (p) The  Administrative  Agent  shall have  received  appropriate  UCC
     search  certificates  reflecting no prior Liens  encumbering the Properties
     the Borrower and the Subsidiaries for each of the following  jurisdictions:
     Texas,  Louisiana and Colorado and any other jurisdiction  requested by the
     Administrative Agent.

          (q) The  Administrative  Agent shall have  received  evidence that the
     Borrower and/or its Subsidiaries has purchased Hedging Contracts acceptable
     to  Administrative  Agent and the  Arranger  (i) with one or more  Approved
     Counterparties,  and (ii) that have aggregate  notional volumes of not less
     than 70% of the reasonably  estimated projected  Hydrocarbon  production of
     currently  producing wells of Borrower for a minimum of the first 18 months
     following the date hereof.

          (r) The  Administrative  Agent  shall be  satisfied  that there are no
     negative  price  deviations  in the oil and gas  prices  that  would have a
     Material   Adverse   Effect  on  the  value  of  the   Borrower's  and  its
     Subsidiaries' Oil and Gas Properties.
                                       25



          (s) The Administrative Agent shall be satisfied that there has been no
     Material Adverse Effect to the Borrower and its Subsidiaries since February
     1, 2004.

          (t) The  Administrative  Agent shall have received  Letters-in-Lieu in
     the  form  of  Exhibit  I  executed  in  blank  by  the  Borrower  and  its
     Subsidiaries,  in such quantity as the Administrative  Agent may reasonably
     request.

          (u) Since  February 1, 2004,  there shall not have been any disruption
     or adverse change in the financial or capital markets.

          (v)  Completion  by the  Administrative  Agent  and the  Lenders  of a
     satisfactory due diligence review, including, but not limited to the review
     of all engineering,  operations,  land, title,  environmental and financial
     data or information.

          (w)  Satisfactory  due  diligence  review  of the  Borrower's  and its
     Subsidiaries   material   agreements,   including,   but  not  limited  to,
     satisfactory review of the operating  agreements  governing the Oil and Gas
     Properties, marketing agreements,  transportation agreements and processing
     agreements.

          (x)  The  Borrower  and  the  Lenders   shall  have  agreed  upon  the
     Development Plan.

          (y) The  Administrative  Agent  shall have  received a letter  from Ct
     Corporation  evidencing  the  appointment  of CT  Corporation as authorized
     agent for service of process on each of the Borrower and each Guarantor (as
     defined in the Guarantee and Collateral Agreement) under each Loan Document
     to which it is a party.

          (z) The  Administrative  Agent and [Macquarie] shall have entered into
     an  Intercreditor  Agreement  satisfactory  to  Administrative  Agent  with
     respect to the Liens supporting the Hedging Contracts with [Macquarie].

          (aa) The  Administrative  Agent  shall  have  received  copies  of the
     Assignments  from  Dutch  West Oil  Gas to the  Borrower  with  respect to
     certain of its oil and gas properties in form and substance satisfactory to
     the Administrative Agent.

          (bb) The Administrative Agent shall have received such other documents
     as the Administrative  Agent or special counsel to the Administrative Agent
     may reasonably request.

     The  Administrative  Agent shall notify the Borrower and the Lenders of the
Effective Date, and such notice shall be conclusive and binding. Notwithstanding
the foregoing,  the obligations of the Lenders to make Loans hereunder shall not
become effective unless each of the foregoing conditions is satisfied (or waived
pursuant to Section  12.02) at or prior to 2:00 p.m., New York City time, on May
1, 2004 (and, in the event such  conditions are not so satisfied or waived,  the
Commitments shall terminate at such time).
                                       26



                                  ARTICLE VII
                         Representations and Warranties

     The  Borrower  represents  and warrants to the Lenders  that:

     Section  7.01   Organization;   Powers.   Each  of  the  Borrower  and  the
Subsidiaries is duly organized,  validly existing and in good standing under the
laws of the  jurisdiction  of its  organization,  has all  requisite  power  and
authority, and has all material governmental licenses, authorizations,  consents
and approvals  necessary,  to own its assets and to carry on its business as now
conducted, and is qualified to do business in, and is in good standing in, every
jurisdiction where such qualification is required,  except where failure to have
such  power,  authority,  licenses,  authorizations,   consents,  approvals  and
qualifications  could not  reasonably  be  expected  to have a Material  Adverse
Effect.

     Section 7.02 Authority;  Enforceability.  The  Transactions  are within the
Borrower's and each  Guarantor's  corporate or other  organizational  powers and
have been duly authorized by all necessary  corporate or company, as applicable,
and, if required,  stockholder  or  member/manager  action  (including,  without
limitation,  any action  required to be taken by any class of  directors  of the
Borrower,  whether  interested  or  disinterested,  in order to  ensure  the due
authorization of the Transactions). Each Loan Document to which the Borrower and
each  Guarantor is a party has been duly  executed and delivered by the Borrower
and such Guarantor and constitutes a legal,  valid and binding obligation of the
Borrower and such Guarantor,  as applicable,  enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization,  moratorium
or other laws  affecting  creditors'  rights  generally  and  subject to general
principles of equity, regardless of whether considered in a proceeding in equity
or at law.

     Section 7.03 Approvals;  No Conflicts.  The Transactions (a) do not require
any consent or approval of, registration or filing with, or any other action by,
any Governmental Authority or any other third Person (including  shareholders or
any class of directors,  whether interested or disinterested,  or members of the
Borrower or any other Person), nor is any such consent, approval,  registration,
filing or other action necessary for the validity or  enforceability of any Loan
Document or the consummation of the transactions  contemplated  thereby,  except
such as have been  obtained or made and are in full force and effect  other than
(i) the  recording  and filing of the Security  Instruments  as required by this
Agreement and (ii) those third party  approvals or consents that, if not made or
obtained, would not cause a Default hereunder,  could not reasonably be expected
to have a  Material  Adverse  Effect  or do not have an  adverse  effect  on the
enforceability of the Loan Documents, (b) will not violate any applicable law or
regulation  or the  charter,  by-laws or other  organizational  documents of the
Borrower or any Subsidiary or any order of any Governmental Authority,  (c) will
not  violate  or result in a default  under any  indenture,  agreement  or other
instrument  binding upon the Borrower or any  Subsidiary or its  Properties,  or
give  rise  to a right  thereunder  to  require  any  payment  to be made by the
Borrower  or  such  Subsidiary  and (d)  will  not  result  in the  creation  or
imposition of any Lien on any Property of the Borrower or any Subsidiary  (other
than the Liens created by the Loan Documents).
                                       27


     Section 7.04 Financial Condition; No Material Adverse Change.


          (a) The Borrower has heretofore  furnished to the Administrative Agent
     and the Arranger its  consolidated  balance sheet and statements of income,
     stockholders  equity and cash flows for the Borrower  and its  Consolidated
     Subsidiaries  (i) as of and for the fiscal year ended 2003,  reported on by
     Weaver and Tidwell,  L.L.P.,  independent public accountants,  certified by
     its chief financial officer.  Such financial  statements present fairly, in
     all material respects, the financial position and results of operations and
     cash flows of the Borrower  and its  Consolidated  Subsidiaries  as of such
     dates and for such  periods in  accordance  with GAAP,  subject to year-end
     audit adjustments and the absence of footnotes in the case of the unaudited
     quarterly financial statements.

          (b) Since December 31, 2003, (i) there has been no event,  development
     or  circumstance  that has had or could  reasonably  be  expected to have a
     Material  Adverse  Effect and (ii) the  business  of the  Borrower  and its
     Subsidiaries has been conducted only in the ordinary course consistent with
     past business practices.

          (c) Neither the Borrower nor any of its  Subsidiaries  has on the date
     hereof any material  Debt  (including  Disqualified  Capital  Stock) or any
     contingent  liabilities,  off-balance  sheet  liabilities or  partnerships,
     liabilities  for  taxes,  unusual  forward  or  long-term   commitments  or
     unrealized or anticipated losses from any unfavorable  commitments,  except
     as referred to or reflected or provided for in the Financial Statements.

     Section 7.05 Litigation.

          (a) Except as set forth on Schedule 7.05, there are no actions, suits,
     investigations  or proceedings by or before any arbitrator or  Governmental
     Authority pending against or, to the knowledge of the Borrower,  threatened
     against  or  affecting  the  Borrower  or any  Subsidiary  (i) is not fully
     covered by insurance (except for normal deductibles), (ii) that involve any
     Loan Document or the Transactions.

          (b)  Since  the date of this  Agreement,  there  has been no  negative
     change  in  the  status  of  the  matters   disclosed  in  Schedule   7.05.


     Section 7.06 Environmental Matters. Except as set forth on Schedule 7.06:


          (a) neither any  Property of the  Borrower or any  Subsidiary  nor the
     operations  conducted thereon violate any order or requirement of any court
     or Governmental Authority or any Environmental Laws.

          (b) no Property of the Borrower or any  Subsidiary  nor the operations
     currently  conducted  thereon or, to the knowledge of the Borrower,  by any
     prior owner or operator of such Property or operation,  are in violation of
     or  subject  to  any  existing,   pending  or  threatened   action,   suit,
     investigation, inquiry or proceeding by or before any court or Governmental
     Authority or to any remedial obligations under Environmental Laws.

          (c) all notices, permits, licenses,  exemptions,  approvals or similar
     authorizations, if any, required to be obtained or filed in connection with
     the  operation  or use of any and all  Property  of the  Borrower  and each
     Subsidiary,  including,  without  limitation,  past or  present  treatment,
     storage, disposal or release of a hazardous substance, oil and gas waste or
     solid waste into the environment, have been duly obtained or filed, and the
     Borrower  and  each  Subsidiary  are  in  compliance  with  the  terms  and
     conditions   of  all  such   notices,   permits,   licenses   and   similar
     authorizations.
                                       28


          (d) all hazardous  substances,  solid waste and oil and gas waste,  if
     any,  generated at any and all  Property of the Borrower or any  Subsidiary
     have in the past been  transported,  treated and disposed of in  accordance
     with  Environmental  Laws and so as not to pose an imminent and substantial
     endangerment  to public health or welfare or the  environment,  and, to the
     knowledge of the Borrower,  all such  transport  carriers and treatment and
     disposal  facilities  have  been  and  are  operating  in  compliance  with
     Environmental  Laws  and so as not to  pose  an  imminent  and  substantial
     endangerment  to public health or welfare or the  environment,  and are not
     the subject of any existing, pending or threatened action, investigation or
     inquiry by any Governmental  Authority in connection with any Environmental
     Laws.

          (e) the Borrower has taken all steps reasonably necessary to determine
     and has determined that no oil,  hazardous  substances,  solid waste or oil
     and gas waste,  have been  disposed of or otherwise  released and there has
     been no threatened release of any oil, hazardous substances, solid waste or
     oil and gas waste on or to any Property of the  Borrower or any  Subsidiary
     except  in  compliance  with  Environmental  Laws  and so as not to pose an
     imminent and  substantial  endangerment  to public health or welfare or the
     environment.

          (f) to the extent  applicable,  all  Property of the Borrower and each
     Subsidiary  currently  satisfies  all  design,   operation,  and  equipment
     requirements  imposed by the OPA, and the Borrower does not have any reason
     to believe that such  Property,  to the extent subject to the OPA, will not
     be able to maintain compliance with the OPA requirements during the term of
     this Agreement.

          (g) neither the Borrower nor any Subsidiary  has any known  contingent
     liability or Remedial  Work in  connection  with any release or  threatened
     release of any oil, hazardous  substance,  solid waste or oil and gas waste
     into the environment.

          (h) neither the Borrower's nor any Subsidiary's oil and gas operations
     on its  Oil  and  Gas  Properties  will  be  subject  to any  environmental
     assessment  requirements under the National Environmental Policy Act or any
     analogous  Governmental  Regulation  or any other  environmental  review or
     assessment  requirements in excess of  environmental  review and assessment
     requirements  required in  connection  with  Borrower and its  Subsidiaries
     obtaining any permits or other required in completing recent wells on their
     Oil and Gas Policies.

     Section 7.07 Compliance with the Laws and Agreements; No Defaults.


          (a) Each of the Borrower and each Subsidiary is in compliance with all
     Governmental  Requirements  applicable  to  it  or  its  Property  and  all
     agreements  and other  instruments  binding  upon it or its  Property,  and
     possesses  all licenses,  permits,  franchises,  exemptions,  approvals and
     other  governmental  authorizations  necessary  for  the  ownership  of its
     Property and the conduct of its business.
                                       29


          (b) Neither the Borrower nor any  Subsidiary is in default nor has any
     event  or  circumstance  occurred  that,  but  for  the  expiration  of any
     applicable grace period or the giving of notice,  or both, would constitute
     a default or would  require the Borrower or a Subsidiary  to Redeem or make
     any  offer to  Redeem  under  any  indenture,  note,  credit  agreement  or
     instrument pursuant to which any Material Indebtedness is outstanding or by
     which the Borrower or any Subsidiary or any of their Properties is bound.

          (c) No Default has occurred and is continuing.

     Section  7.08  Investment   Company  Act.  Neither  the  Borrower  nor  any
Subsidiary  is  an  "investment   company"  or  a  company  "controlled"  by  an
"investment company," within the meaning of, or subject to regulation under, the
Investment Company Act of 1940, as amended.

     Section 7.09 Public Utility Holding  Company Act.  Neither the Borrower nor
any Subsidiary is a "holding  company," or a "subsidiary  company" of a "holding
company," or an "affiliate" of a "holding company" or of a "subsidiary  company"
of a "holding  company," or a "public utility" within the meaning of, or subject
to regulation under, the Public Utility Holding Company Act of 1935, as amended.

     Section 7.10 Taxes.  Each of the Borrower and its  Subsidiaries  has timely
filed or caused to be filed all Tax returns  and  reports  required to have been
filed and has paid or caused to be paid all Taxes  required to have been paid by
it,  except  Taxes  that  are  being  contested  in good  faith  by  appropriate
proceedings and for which the Borrower or such  Subsidiary,  as applicable,  has
set aside on its books adequate  reserves in accordance  with GAAP in an account
controlled by  Administrative  Agent. The charges,  accruals and reserves on the
books of the  Borrower  and its  Subsidiaries  in  respect  of Taxes  and  other
governmental  charges are, in the reasonable opinion of the Borrower,  adequate.
No Tax Lien has been filed and, to the  knowledge of the  Borrower,  no claim is
being asserted with respect to any such Tax or other such governmental charge.

     Section 7.11 ERISA.


          (a) The  Borrower,  the  Subsidiaries  and each ERISA  Affiliate  have
     complied in all material  respects with ERISA and,  where  applicable,  the
     Code regarding each Plan.

          (b) Each Plan is, and has been,  maintained in substantial  compliance
     with ERISA and, where applicable, the Code.

          (c) No act, omission or transaction has occurred which could result in
     imposition on the Borrower,  any Subsidiary or any ERISA Affiliate (whether
     directly or indirectly) of (i) either a civil penalty assessed  pursuant to
     subsections  (c),  (i) or (l) of  section  502 of  ERISA  or a tax  imposed
     pursuant  to  Chapter  43 of  Subtitle  D of the  Code  or (ii)  breach  of
     fiduciary duty liability damages under section 409 of ERISA.

          (d) No Plan  (other  than a  defined  contribution  plan) or any trust
     created under any such Plan has been terminated since September 2, 1974. No
     liability to the PBGC (other than for the payment of current  premiums that
     are not past due) by the Borrower,  any  Subsidiary or any ERISA  Affiliate
     has been or is  expected  by the  Borrower,  any  Subsidiary  or any  ERISA
     Affiliate  to be  incurred  with  respect to any Plan.  No ERISA Event with
     respect to any Plan has occurred.
                                       30


          (e) Full  payment  when due has been  made of all  amounts  which  the
     Borrower,  the  Subsidiaries  or any ERISA  Affiliate is required under the
     terms of each Plan or applicable law to have paid as  contributions to such
     Plan as of the date  hereof,  and no  accumulated  funding  deficiency  (as
     defined in section 302 of ERISA and  section  412 of the Code),  whether or
     not waived, exists with respect to any Plan.

          (f) The actuarial present value of the benefit  liabilities under each
     Plan which is  subject to Title IV of ERISA does not,  as of the end of the
     Borrower's most recently ended fiscal year, exceed the current value of the
     assets (computed on a plan termination basis in accordance with Title IV of
     ERISA)  of such  Plan  allocable  to such  benefit  liabilities.  The  term
     "actuarial present value of the benefit liabilities" shall have the meaning
     specified in section 4041 of ERISA.

          (g) Neither the Borrower,  the  Subsidiaries  nor any ERISA  Affiliate
     sponsors, maintains, or contributes to an employee welfare benefit plan, as
     defined in section 3(1) of ERISA, including,  without limitation,  any such
     plan maintained to provide  benefits to former  employees of such entities,
     that may not be  terminated  by the  Borrower,  a  Subsidiary  or any ERISA
     Affiliate  in  its  sole  discretion  at  any  time  without  any  material
     liability.

          (h) Neither the Borrower,  the  Subsidiaries  nor any ERISA  Affiliate
     sponsors,  maintains or contributes  to, or has at any time in the six-year
     period preceding the date hereof  sponsored,  maintained or contributed to,
     any Multiemployer Plan.

          (i) Neither the Borrower,  the Subsidiaries nor any ERISA Affiliate is
     required to provide security under section  401(a)(29) of the Code due to a
     Plan  amendment  that results in an increase in current  liability  for the
     Plan.

     Section  7.12  Disclosure;  No Material  Misstatements.  The  Borrower  has
disclosed  to  the  Administrative  Agent,  the  Arranger,  or the  Lenders  all
agreements,  instruments and corporate or other  restrictions to which it or any
of its  Subsidiaries  is  subject,  and all  other  matters  known to it,  that,
individually  or in the aggregate,  could  reasonably be expected to result in a
Material  Adverse  Effect.  None of the  other  reports,  financial  statements,
certificates or other  information  furnished by or on behalf of the Borrower or
any  Subsidiary  to the  Administrative  Agent  or any of  their  Affiliates  in
connection  with the negotiation of this Agreement or any other Loan Document or
delivered   hereunder  or  under  any  other  Loan   Document  (as  modified  or
supplemented   by  other   information  so  furnished)   contains  any  material
misstatement  of fact or omits to state any material fact  necessary to make the
statements  therein,  in the light of the  circumstances  under  which they were
made,  not  misleading;  provided  that,  with  respect to  projected  financial
information,  the Borrower represents only that such information was prepared in
good faith based upon  assumptions  believed to be reasonable at the time. There
is no fact peculiar to the Borrower or any Subsidiary  which could reasonably be
expected to have a Material Adverse Effect or in the future is reasonably likely
to have a  Material  Adverse  Effect  and  which  has not been set forth in this
Agreement  or the  Loan  Documents  or the  other  documents,  certificates  and
statements furnished to the Administrative Agent or the Arranger by or on behalf
of the Borrower or any Subsidiary prior to, or on, the date hereof in connection
with  the  transactions   contemplated   hereby.  There  are  no  statements  or
conclusions  in any  Reserve  Report  that are based upon or include  misleading
information  or fail to take into account  material  information  regarding  the
matters reported therein. Section
                                       31


     7.13  Insurance.  Schedule  7.13 attached  hereto  contains an accurate and
complete  description  of all material  policies of fire,  liability,  workmen's
compensation and other forms of insurance that are owned or held by or on behalf
of the Borrower and its  Subsidiaries.  All such  policies are in full force and
effect,  all  premiums  with  respect  thereto  covering  all  periods up to and
including the date of the closing have been paid, and no notice of  cancellation
or termination has been received with respect to any such policy.  Such policies
are sufficient  for compliance  with all  Governmental  Requirements  and of all
agreements  to which the  Borrower or any of its  Subsidiaries  is a party;  are
valid, outstanding and enforceable policies; provide adequate insurance coverage
for the assets and operations of the Borrower and its  Subsidiaries  in at least
such amounts and against at least such risks (but  including in any event public
liability) as are usually  insured against in the same general area by companies
engaged in the same or a similar  business for the assets and  operations of the
Borrower;  will remain in full force and effect through the respective dates set
forth in Schedule 7.13 without the payment of additional premiums;  and will not
in any way be affected by, or terminate or lapse by reason of, the  transactions
contemplated by this Agreement and the Loan  Documents.  None of the Borrower or
any of its Subsidiaries  (and to Borrower's  knowledge no prior owner of the Oil
and Gas Properties) has been refused any insurance with respect to its assets or
operations,  nor has it been limited below usual and customary policy limits, by
an insurance  carrier to which it has applied for any insurance or with which it
has carried insurance during the last three years. The Administrative  Agent and
the Lenders have been named as additional  insureds in respect of such liability
insurance  policies  and the  Administrative  Agent has been named as loss payee
with respect to Property loss insurance.

     Section  7.14  Restriction  on Liens.  Neither the  Borrower nor any of the
Subsidiaries is a party to any material agreement or arrangement,  or subject to
any order,  judgment,  writ or decree,  that  either  restricts  or  purports to
restrict its ability to grant Liens to the Administrative  Agent and the Lenders
on or in respect of their  Properties  to secure the  Indebtedness  and the Loan
Documents.

     Section  7.15  Subsidiaries.  Except  as set  forth  on  Schedule  7.15 the
Borrower has no Subsidiaries and Borrower's Subsidiaries have no Subsidiaries.

     Section 7.16 Location of Business and Offices. The Borrower's  jurisdiction
of  organization  is Texas,  the name of the  Borrower  as listed in the  public
records of its  jurisdiction of organization is GulfWest Oil  Gas Company;  and
the organizational  identification number of the Borrower in its jurisdiction of
organization is 0152508500 (or, in each case, as set forth in a notice delivered
to the  Administrative  Agent  pursuant to Section  8.01(o) in  accordance  with
Section 12.01).  The Borrower's  principal place of business and chief executive
offices are located at the address  specified in Section  12.01 (or as set forth
in a notice delivered  pursuant to Section 8.01(o) and Section  12.01(c)).  Each
Subsidiary's jurisdiction of organization,  name as listed in the public records
of its jurisdiction of organization, organizational identification number in its
jurisdiction  of  organization,  and the  location  of its  principal  place  of
business and chief executive  office is stated on Schedule 7.15 (or as set forth
in a notice delivered pursuant to
Section 8.01(o)).
                                       32


     Section 7.17 Properties; Titles, Etc.


          (a) After giving full effect to the Excepted  Liens and except for the
     ORRI Conveyance,  the Borrower owns the working interests and net interests
     in production  attributable to the Oil and Gas Properties  reflected in the
     Initial  Reserve Report and set forth in Schedule 7.17 and the ownership of
     such Oil and Gas Properties  shall not in any material respect obligate the
     Borrower and its  Subsidiaries  to bear the costs and expenses  relating to
     the  maintenance,  development  and  operations of each such Property in an
     amount in excess of the working  interest of each Oil and Gas  Property set
     forth in Schedule  7.17.  All  information  contained in the most  recently
     delivered Reserve Report is true and correct in all material respects as of
     the date thereof.  No litigation  or claims are currently  pending,  or the
     best  knowledge  of the  Borrower,  threatened  which  would  question  the
     Borrower's or its Subsidiaries title to the Oil and Gas Properties. (b) All
     leases and agreements referenced in the Initial Reserve Report delivered in
     connection with the Initial Funding are valid and subsisting, in full force
     and effect and there exists no default or event or circumstance  which with
     the  giving of notice or the  passage  of time or both would give rise to a
     default under any such lease or leases,  which would affect in any material
     respect the conduct of the business of the Borrower.

          (c) The Property  presently owned,  leased or licensed by the Borrower
     and its  Subsidiaries  including,  without  limitation,  all  easements and
     rights of way, is all of the Property  necessary to permit the Borrower and
     its Subsidiaries to conduct their business in all material  respects in the
     manner contemplated by the Transaction Documents.

          (d) All fixtures,  improvements and personal  property included in the
     Properties  of  the  Borrower  and  its  Affiliates  which  are  reasonably
     necessary for the  operation of its business are in good working  condition
     and are maintained in accordance with prudent business standards.

          (e) The Borrower and each Subsidiary  owns, or is licensed to use, all
     trademarks, tradenames, copyrights, patents and other intellectual Property
     material  to its  business,  and the use thereof by the  Borrower  and such
     Subsidiary  does not  infringe  upon the  rights of any other  Person.  The
     Borrower and its  Subsidiaries  either own or have valid  licenses or other
     rights to use all databases, geological data, geophysical data, engineering
     data, seismic data, maps,  interpretations and other technical  information
     used in their businesses as presently conducted, subject to the limitations
     contained  in  the  agreements   governing  the  use  of  the  same,  which
     limitations  are  customary  for  companies  engaged in the business of the
     exploration and production of Hydrocarbons.
                                       33


     Section 7.18  Maintenance  of Properties.  The Oil and Gas Properties  (and
Properties unitized therewith) have been maintained, operated and developed in a
good and workmanlike  manner and in conformity with all Government  Requirements
and customary  industry  standards and in conformity  with the provisions of all
leases,  subleases  or  other  contracts  comprising  a part of the  Hydrocarbon
Interests and other  contracts and agreements  forming a part of the Oil and Gas
Properties.  Specifically  in  connection  with the foregoing (i) no Oil and Gas
Property is subject to having  allowable  production  reduced below the full and
regular allowable  (including the maximum permissible  tolerance) because of any
overproduction  (whether or not the same was  permissible  at the time) and (ii)
none of the wells comprising a part of the Oil and Gas Properties (or Properties
unitized  therewith)  is  deviated  from the  vertical  more  than  the  maximum
permitted  by  Government  Requirements,  and such wells are, in fact,  bottomed
under and are producing from, and the well bores are wholly within,  the Oil and
Gas  Properties  (or in  the  case  of  wells  located  on  Properties  unitized
therewith,  such unitized  Properties).  All  pipelines,  wells,  gas processing
plants, platforms and other material improvements,  fixtures and equipment owned
in  whole  or in  part  by the  Borrower  or any of its  Subsidiaries  that  are
necessary to conduct normal  operations are being maintained in a state adequate
to conduct normal  operations in accordance with customary  industry  standards,
and with respect to such of the  foregoing  that are operated by the Borrower or
any of its  Subsidiaries,  in a manner  consistent  with the  Borrower's  or its
Subsidiaries'  past practices (other than those the failure of which to maintain
in  accordance  with this Section 7.07 could not  reasonably be expect to have a
Material Adverse Effect). Except as set forth on Schedule 7.18, there are no dry
holes  -------------  or  otherwise  inactive  wells  located on the Oil and Gas
Properties or pooled or unitized therewith  (including any wells which would, if
located in Texas,  require compliance with Railroad  Commission Rule 3.14(b)(2))
except for wells that have been properly plugged and abandoned.

     Section 7.19 Gas Imbalances,  Prepayments. As of the date hereof, except as
set forth on Schedule 7.19, on a net basis there are no gas imbalances,  take or
pay  or  other  prepayments  that  would  require  the  Borrower  or  any of its
Subsidiaries to deliver Hydrocarbons produced from the Oil and Gas Properties at
some future time without then or  thereafter  receiving  full payment  therefor.
Except as set forth on Schedule 7.19, no material gas imbalances presently exist
with  respect to any of the Oil and Gas  Properties  of  Borrower  or any of its
Subsidiaries.  Except as set  forth in  Schedule  7.19,  none of the Oil and Gas
Properties of Borrower or any of its Subsidiaries are subject to any contractual
or other arrangement whereby payment for production  therefrom is to be deferred
for a  substantial  period of time after the month in which such  production  is
delivered  (i.e.,  in the case of oil, not in excess of 60 days, and in the case
of gas, not in excess of 90 days). Except as set forth on Schedule 7.19, none of
the Oil and Gas Properties of the Borrower or its  Subsidiaries  is subject to a
contractual  or other  arrangement  for the sale of oil or gas  production for a
fixed  price  which  cannot be  canceled  on 90 days (or  less)  notice or which
contains terms which are not customary in the industry.  None of the Oil and Gas
Properties  of  Borrower  or its  Subsidiaries  is  subject  at  present  to any
regulatory refund obligation and no facts exist which might cause the same to be
imposed.

     Section 7.20  Marketing of Production.  Except for contracts  listed and in
effect on the date hereof on Schedule 7.20, and thereafter  either  disclosed in
writing to the  Administrative  Agent or included in the most recently delivered
Reserve Report (with respect to all of which  contracts the Borrower  represents
that it or its  Subsidiaries  are  receiving  a price  for all  production  sold
thereunder  which is computed  substantially in accordance with the terms of the
relevant contract and are not having deliveries  curtailed  substantially  below
the subject Property's delivery capacity), no material agreements exist that are
not  cancelable  on 60 days notice or less without  penalty or detriment for the
sale  of  production  from  the  Borrower's  or its  Subsidiaries'  Hydrocarbons
(including,   without  limitation,   calls  on  or  other  rights  to  purchase,
production,  whether or not the same are  currently  being  exercised)  that (a)
pertain to the sale of  production  at a fixed  price and (b) have a maturity or
expiry  date of longer than six (6) months from the date  hereof.  All  proceeds
from the sale of the Borrower's and its Subsidiaries'  interests in Hydrocarbons
from its Oil and Gas Properties are currently being paid in full to the Borrower
or its Subsidiaries by the purchaser thereof on a timely basis, and none of such
proceeds  are  currently  being held in suspense by such  purchaser or any other
Person.
                                       34


     Section 7.21 Hedging  Contracts.  Schedule 7.21, as of the date hereof, and
after the date  hereof,  each report  required to be  delivered  by the Borrower
pursuant to Section 8.01(f), sets forth, a true and complete list of all Hedging
Contracts of the  Borrower  and each  Subsidiary,  the  material  terms  thereof
(including the type, term, effective date, termination date and notional amounts
or volumes), the net mark to market value thereof, all credit support agreements
relating   thereto   (including  any  margin   required  or  supplied)  and  the
counterparty to each such agreement.

     Section  7.22 Use of Loans.  The  proceeds  of the  Loans  shall be used to
provide working capital for exploration, development, and production operations,
for general corporate  purposes  approved by the Lenders,  reduce existing Debt,
pay the costs associated with projects provided for in the approved  Development
Plan, pay the commitment and  origination  fees  referenced in Section 3.06, and
pay the other costs of the transactions related to this Agreement.  The Borrower
and its  Subsidiaries  are not  engaged  principally,  or as one of its or their
important  activities,  in the  business of  extending  credit for the  purpose,
whether  immediate,  incidental or ultimate,  of buying or carrying margin stock
(within  the  meaning  of  Regulation  T, U or X of the  Board).  No part of the
proceeds of any Loan will be used for any purpose which  violates the provisions
of Regulations T, U or X of the Board.

     Section 7.23 Solvency. After giving effect to the transactions contemplated
hereby,  (a) the  aggregate  assets  (after  giving effect to amounts that could
reasonably be received by reason of indemnity,  offset, insurance or any similar
arrangement),  at a fair valuation, of the Borrower and the Guarantors, taken as
a whole,  will exceed the aggregate Debt of the Borrower and the Guarantors on a
consolidated  basis, as the Debt becomes  absolute and matures,  (b) each of the
Borrower and the  Guarantors  will not have  incurred or intended to incur,  and
will not believe  that it will  incur,  Debt beyond its ability to pay such Debt
(after taking into account the timing and amounts of cash to be received by each
of the  Borrower  and the  Guarantors  and the  amounts  to be  payable on or in
respect of its  liabilities,  and giving effect to amounts that could reasonably
be  received  by  reason  of  indemnity,   offset,   insurance  or  any  similar
arrangement)  as such Debt  becomes  absolute  and  matures  and (c) each of the
Borrower  and the  Guarantors  will not have (and will have no reason to believe
that it will have thereafter)  unreasonably small capital for the conduct of its
business.

     Section 7.24 Casualty Events. Since December 31, 2003, neither the business
nor any  Properties of the Borrower or any Subsidiary  have been  materially and
adversely  affected  as a result  of any  fire,  explosion,  earthquake,  flood,
drought,  windstorm,  accident,  strike  or other  labor  disturbance,  embargo,
requisition  or taking of  Property or  cancellation  of  contracts,  permits or
concessions by any domestic or foreign Governmental Authority,  riot, activities
or armed forces or acts of God or of any public enemy.
                                       35


     Section 7.25  Material  Agreements.  Set forth on Schedule 7.25 hereto is a
complete and correct list of all material  agreements  and other  instruments of
the Borrower or any Subsidiary  setting forth each  counterparty  thereto (other
than the Loan Documents)  relating to the purchase,  transportation by pipeline,
gas processing, marketing, sale and supply of Hydrocarbons, farmout arrangements
or other material  contract to which Borrower or any Subsidiary is a party or by
which its Properties is bound (collectively "Material Agreements") and copies of
such  documents  have  been  provided  to the  Administrative  Agent.  All  such
agreements are in full force and effect and neither  Borrower nor any Subsidiary
is in default  thereunder,  nor is there any  uncured  default by any  Affiliate
predecessor  in  interest  to  Borrower  or any  Subsidiary  or,  to  Borrower's
knowledge,  by any  predecessor in interest to Borrower (other than an Affiliate
predecessor)  or counterparty  thereto,  and none of the Borrower nor any of its
Subsidiaries has altered any material item of such agreements  without the prior
written consent of Lenders.

     Section 7.26 No Brokers. Other than the payment of $______________ to Petro
Capital Advisors,  LLC no Person is entitled to any brokerage fee or finders fee
or similar fee or commission in connection with arranging the Loans contemplated
by this Agreement.

     Section 7.27  Investments and  Guaranties.  The Borrower or such Subsidiary
has not made any investments in, advances to or guaranties of the obligations of
any Person, except as reflected in the financial statements described in Section
7.04(a).

     Section 7.28 Payments by Purchasers  of  Production.  All proceeds from the
sale of the Borrower's or any of its Subsidiary's interests in Hydrocarbons from
its Oil and Gas Properties  are currently  being paid in full to the Borrower or
such  Subsidiary  by the  purchaser  thereof on a timely basis and at prices and
terms comparable to market prices and terms generally available at the time such
prices and terms were negotiated for oil and gas production from producing areas
situated  near  such  Oil and Gas  Properties,  and  none of such  proceeds  are
currently being held in suspense by such purchaser or any other Person.

     Section 7.29 Existing Accounts  Payable.  Set forth on Schedule 7.29 hereto
is a complete and correct list of all existing  accounts payable of the Borrower
or any Subsidiary that are more than 30 days past due.

     Section  7.30  Reliance.  In  connection  with the  negotiation  of and the
entering into this Agreement, the Borrower acknowledges and represents that none
of the Lenders, the Administrative Agent, the Arranger, or any representative of
any of the foregoing is acting as a fiduciary or financial or investment advisor
for it; it is not relying upon any representations  (whether written or oral) of
such Persons it has  consulted  with its own legal,  regulatory,  tax,  business
investment,  financial  and  accounting  advisors  to the  extent it has  deemed
necessary,  and it has made its own investment,  hedging,  and trading decisions
based upon its own  judgment  and upon any advice  from such  advisors as it has
deemed   necessary  and  not  upon  any  view  expressed  by  any  Lender,   the
Administrative  Agent,  the  Arranger,  or  any  representative  of  any  of the
foregoing;  it has not been given by any Lender, the  Administrative  Agent, the
Arranger,  or any representative of any of the foregoing (directly or indirectly
through  any  other  Person)  any  advice,  counsel,  assurance,  guarantee,  or
representation   whatsoever   as  to  the   expected   or   projected   success,
profitability,  return,  performance,  result, effect,  consequence,  or benefit
(either legal,  regulatory,  tax, financial,  accounting,  or otherwise) of this
Agreement or the transactions  contemplated hereby; and it is entering into this
Agreement and the other Loan Documents with a full  understanding  of all of the
risks hereof and thereof (economic and otherwise), and it is capable of assuming
and willing to assume (financially and otherwise) those risks.
                                       36


                                  ARTICLE VIII
                              Affirmative Covenants

     Until the  principal  of and  interest  on each  Loan and all fees  payable
hereunder and all other amounts payable under the Loan Documents shall have been
paid in full, the Borrower covenants and agrees with the Lenders that:

     Section 8.01 Financial  Statements;  Other  Information.  The Borrower will
furnish to the Administrative Agent and the Arranger:

          (a) Annual  Financial  Statements.  As soon as  available,  but in any
     event in  accordance  with then  applicable  law and not later than 90 days
     after the end of each fiscal year of the Borrower, its audited consolidated
     balance sheet and related  statements of operations,  stockholders'  equity
     and cash  flows as of the end of and for such year,  setting  forth in each
     case in  comparative  form the figures for the previous  fiscal  year,  all
     reported  on by Weaver and  Tidwell,  L.L.P.  or other  independent  public
     accountants of recognized  national  standing (without a "going concern" or
     like  qualification or exception and without any qualification or exception
     as to the  scope  of such  audit)  to the  effect  that  such  consolidated
     financial  statements present fairly in all material respects the financial
     condition and results of  operations  of the Borrower and its  Consolidated
     Subsidiaries on a consolidated  basis in accordance with GAAP  consistently
     applied.

          (b) Quarterly Financial Statements.  As soon as available,  but in any
     event in  accordance  with then  applicable  law and not later than 45 days
     after the end of each of the first  three  fiscal  quarters  of each fiscal
     year of the Borrower, its consolidated balance sheet and related statements
     of operations, stockholders' equity and cash flows as of the end of and for
     such  fiscal  quarter  and the then  elapsed  portion of the  fiscal  year,
     setting  forth  in each  case  in  comparative  form  the  figures  for the
     corresponding  period or periods of (or, in the case of the balance  sheet,
     as of the end of) the  previous  fiscal year,  all  certified by one of its
     Financial  Officers  as  presenting  fairly in all  material  respects  the
     financial  condition  and results of  operations  of the  Borrower  and its
     Consolidated  Subsidiaries on a consolidated  basis in accordance with GAAP
     consistently applied,  subject to normal year-end audit adjustments and the
     absence of footnotes.

          (c) Certificate of Financial  Officer - Compliance.  Concurrently with
     any  delivery of  financial  statements  under  Section  8.01(a) or Section
     8.01(b),  a certificate of a Financial Officer in substantially the form of
     Exhibit D hereto (i)  certifying  as to whether a Default has occurred and,
     if a Default has occurred,  specifying  the details  thereof and any action
     taken or proposed to be taken with  respect  thereto,  (ii)  setting  forth
     reasonably  detailed  calculations  demonstrating  compliance  with Section
     8.13(b) and Section 9.01,  and (iii) stating  whether any change in GAAP or
     in the  application  thereof  has  occurred  since the date of the  audited
     financial  statements  referred to in Section  7.04 and, if any such change
     has  occurred,  specifying  the  effect  of such  change  on the  financial
     statements accompanying such certificate.
                                       37


          (d) Certificate of Accounting Firm - Defaults.  Concurrently  with any
     delivery of financial  statements under Section  8.01(a),  a certificate of
     the  accounting  firm that reported on such  financial  statements  stating
     whether they obtained  knowledge during the course of their  examination of
     such financial  statements of any Default (which certificate may be limited
     to the extent required by accounting rules or guidelines).

          (e) Certificate of Financial Officer - Consolidating Information.  If,
     at any time, all of the  Consolidated  Subsidiaries of the Borrower are not
     Consolidated Subsidiaries, then concurrently with any delivery of financial
     statements  under Section  8.01(a) or Section  8.01(b),  a certificate of a
     Financial  Officer setting forth  consolidating  spreadsheets that show all
     Consolidated  Subsidiaries  and the  eliminating  entries,  in such form as
     would be presentable to the auditors of the Borrower.

          (f) Certificate of Financial Officer - Hedging Contracts. Concurrently
     with any delivery of financial statements under Section 8.01(a) and Section
     8.01(b),  a  certificate  of a  Financial  Officer,  in form and  substance
     satisfactory  to the  Administrative  Agent,  setting  forth as of the last
     Business  Day of such fiscal  quarter or fiscal  year,  a true and complete
     list of all Hedging  Contracts  of the Borrower  and each  Subsidiary,  the
     material  terms  thereof   (including  the  type,  term,   effective  date,
     termination date and notional amounts or volumes),  the net  mark-to-market
     value  therefore,  any new credit support  agreements  relating thereto not
     listed on Schedule 7.20,  any margin  required or supplied under any credit
     support   document,   and  the   counterparty   to  each  such   agreement.

          (g) Certificate of Insurer - Insurance Coverage. Concurrently with any
     delivery of financial  statements under Section  8.01(a),  a certificate of
     insurance coverage from each insurer with respect to the insurance required
     by Section 8.07, in form and substance  satisfactory to the  Administrative
     Agent, and, if requested by the Administrative  Agent or the Arranger,  all
     copies of the applicable policies.

          (h) Other Accounting Reports. Promptly upon receipt thereof, a copy of
     each  other  report  or  letter  submitted  to the  Borrower  or any of its
     Subsidiaries  by  independent  accountants  in connection  with any annual,
     interim or special  audit made by them of the books of the  Borrower or any
     such  Subsidiary,  and a copy of any  response by the  Borrower or any such
     Subsidiary,  or the  Board  of  Directors  of  the  Borrower  or  any  such
     Subsidiary, to such letter or report.

          (i) Cash  Flow.  Promptly  after  the end of each  calendar  month,  a
     current  operating  forecast of the Borrower and its Subsidiaries as of the
     end of such calendar month and as of the fiscal year to date.

          (j) SEC and Other Filings; Reports to Shareholders. Promptly after the
     same become publicly  available,  copies of all periodic and other reports,
     proxy  statements and other materials  filed by Parent,  by the Borrower or
     any Subsidiary with the SEC, or with any national securities  exchange,  or
     distributed by the Borrower to its shareholders  generally, as the case may
     be.
                                       38


          (k) Notices Under Material Instruments.  Promptly after the furnishing
     thereof,  copies of any financial statement,  report or notice furnished to
     or by any Person pursuant to the terms of any preferred stock  designation,
     indenture,  loan or  credit or other  similar  agreement,  other  than this
     Agreement and not otherwise  required to be furnished to the Administrative
     Agent or the Arranger pursuant to any other provision of this Section 8.01.

          (l) Lists of Purchasers. Concurrently with the delivery of any Reserve
     Report to the Administrative  Agent pursuant to Section 8.12, a list of all
     Persons purchasing Hydrocarbons from the Borrower or any Subsidiary.

          (m)  Notice  of  Sales of Oil and Gas  Properties.  In the  event  the
     Borrower or any Subsidiary intends to sell,  transfer,  assign or otherwise
     dispose  of any  Oil or Gas  Properties  or  any  Equity  Interests  in any
     Subsidiary in accordance  with Section 9.13,  prior written  notice of such
     disposition, the price thereof and the anticipated date of closing.

          (n) Notice of  Litigation/Casualty  Events. Prompt written notice, and
     in any event within  three  Business  Days,  of the delivery of any demand,
     letter,  or the filing of any  lawsuit or  arbitration  proceeding  with an
     expected  potential  liability in excess of $250,000,  or the occurrence of
     any Casualty  Event or the  commencement  of any action or proceeding  that
     could  reasonably  be  expected  to  result  in a demand  notice,  lawsuit,
     arbitration  proceeding,  or Casualty Event with respect to Borrower or any
     of its Subsidiaries.

          (o)  Information  Regarding  Borrower and  Guarantors.  Prompt written
     notice (and in any event within ten (10) days prior  thereto) of any change
     (i) in the Borrower or any Guarantor's  corporate name or in any trade name
     used to  identify  such  Person in the  conduct of its  business  or in the
     ownership  of its  Properties,  (ii) in the location of the Borrower or any
     Guarantor's chief executive office or principal place of business, (iii) in
     the Borrower or any Guarantor's  identity or corporate  structure or in the
     jurisdiction in which such Person is  incorporated  or formed,  (iv) in the
     Borrower or any  Guarantor's  jurisdiction of organization or such Person's
     organizational  identification number in such jurisdiction of organization,
     and (v) in the Borrower or any Guarantor's federal taxpayer  identification
     number.

          (p) Production Report and Lease Operating  Statements.  Within 25 days
     after the end of each calendar month,  (i) a report setting forth, for such
     calendar  month,  the  volume  of  production  and  sales  attributable  to
     production  (and the prices at which such sales were made and the  revenues
     derived  from such  sales)  for such  calendar  month  from the Oil and Gas
     Properties,  and  setting  forth the  related  ad  valorem,  severance  and
     production  taxes and lease  operating  expenses  attributable  thereto and
     incurred for such calendar month, and (ii) a drilling  schedule for all Oil
     and Gas Properties in which the Borrower or any Subsidiary owns,  controls,
     or participates in.

          (q) Operating  Reports.  The Borrower shall prepare and provide to the
     Lenders and Administrative Agent the following reports:
                                       39


               (i) If the cash sweep provisions of Section 3.04 are in effect on
          a monthly basis by the 25th of each month a cumulative  report through
          the end of the prior month  setting  forth all amounts to be disbursed
          pursuant to Section 3.01 and the definition of "Lockbox Disbursements"
          including, a schedule identifying each category of payments identified
          as  subparagraphs  (a) through  (h),  with a detailed  schedule of all
          items in each such subparagraph.

               (ii) such other information as the Lenders may reasonably request
          with  respect to  drilling,  operation  or  property  status  matters,
          including  notice of any  material  changes with regard to oil and gas
          prices  received,  contracts  or  production  expenses or any material
          litigation  affecting the  operation of the Oil and Gas  Properties of
          the Borrower or any Subsidiary.

          (r) ORRI Payments.  Promptly,  but in any event within 5 days thereof,
     Borrower  shall  deliver to the Arranger a statement of all amounts paid to
     the  Lenders  under  any ORRI  Conveyance.  (s) Board  Materials.  Promptly
     following any request therefore, such materials and minutes for meetings of
     the Board of  ----------------  Directors of Parent and the Borrower (other
     than any materials or information  governed by a confidentiality  agreement
     prohibiting the sharing of such information with the  Administrative  Agent
     or the Lenders).

          (t) Notices of Certain Changes. Promptly, but in any event within five
     (5) Business Days after the  execution  thereof,  copies of any  amendment,
     modification or supplement to the certificate or articles of incorporation,
     certificate of formation, by-laws, limited liability company agreement, any
     preferred stock  designation or any other organic  document of the Borrower
     or any Subsidiary.

          (u)  Other  Requested  Information.  Promptly  following  any  request
     therefore,  such other information  regarding (i) the operations,  business
     affairs  and  financial   condition  of  the  Borrower  or  any  Subsidiary
     (including,  without  limitation,  any Plan or  Multiemployer  Plan and any
     reports or other  information  required to be filed under  ERISA),  or (ii)
     compliance with the terms of this Agreement or any other Loan Document,  in
     each case,  as the  Administrative  Agent or the  Arranger  may  reasonably
     request.

     Section 8.02 Notices of Material  Events.  The Borrower will furnish to the
Administrative Agent and the Arranger prompt written notice of the following:

          (a) the  occurrence of any Default or the occurrence of any event that
     with  notice  or lapse of time,  or both,  would  constitute  and  Event of
     Default;

          (b) the filing or  commencement  of, or the threat in writing  of, any
     action,  suit,  proceeding,  investigation  or arbitration by or before any
     arbitrator or Governmental  Authority  against or affecting the Borrower or
     any  Affiliate   thereof  not  previously   disclosed  in  writing  to  the
     Administrative Agent or the Arranger or any material adverse development in
     any action,  suit,  proceeding,  investigation  or  arbitration  previously
     disclosed to the  Administrative  Agent or the Arranger  that, if adversely
     determined,  could  reasonably be expected to result in a Material  Adverse
     Effect;
                                       40


          (c) the filing or commencement  of any action,  suit,  proceeding,  or
     arbitration  by or on  behalf  of the  Borrower  or  any of its  Affiliates
     claiming or asserting  damages in favor of the  Borrower of its  Affiliates
     valued in excess of $100,000;

          (d) the occurrence of any ERISA Event that, alone or together with any
     other ERISA  Events that have  occurred,  could  reasonably  be expected to
     result in liability of the  Borrower and its  Subsidiaries  in an aggregate
     amount exceeding $100,000;

          (e) the occurrence of any event described in Schedule 8.02(e);

          (f) any other  development  that  results in, or could  reasonably  be
     expected to result in, a Material  Adverse  Effect.

          Each notice  delivered under this Section 8.02 shall be accompanied by
     a statement of a Responsible Officer setting forth the details of the event
     or development requiring such notice and any action taken or proposed to be
     taken with respect thereto.

     Section 8.03  Existence;  Conduct of Business.  The Borrower will, and will
cause each Subsidiary and Parent to, do or cause to be done all things necessary
to preserve, renew and keep in full force and effect its legal existence and the
rights, licenses,  permits, privileges and franchises material to the conduct of
its business and maintain,  if necessary,  its  qualification  to do business in
each other  jurisdiction  in which its Oil and Gas  Properties is located or the
ownership of its  Properties  requires  such  qualification;  provided  that the
foregoing  shall  not  prohibit  any  merger,   consolidation,   liquidation  or
dissolution permitted under Section 9.12.

     Section 8.04 Payment of Obligations. The Borrower will, and will cause each
Subsidiary to, pay its  obligations  (including Tax  liabilities of the Borrower
and all of its  Subsidiaries  and any  agreement  material  to the  business  or
operations  of the  Borrower  or its  Affiliates)  before the same shall  become
delinquent or in default.

     Section 8.05 Performance of Obligations under Loan Documents.  The Borrower
will pay the Notes according to the reading,  tenor and effect thereof,  and the
Borrower will,  and will cause each  Subsidiary to, do and perform every act and
discharge all of the  obligations  to be performed and  discharged by them under
the Loan Documents,  including,  without limitation, this Agreement, at the time
or times and in the manner specified.

     Section 8.06 Operation and Maintenance of Properties.  The Borrower, at its
own expense, will, and will cause each Subsidiary to:

          (a) operate its Oil and Gas Properties  and other material  Properties
     or cause such Oil and Gas Properties  and other  material  Properties to be
     operated in a careful and efficient manner in accordance with the practices
     of the  industry  and in  compliance  with  all  applicable  contracts  and
     agreements and in compliance with all Governmental Requirements, including,
     without  limitation,  applicable pro ration  requirements and Environmental
     Laws,  and all  applicable  laws,  rules  and  regulations  of every  other
     Governmental  Authority  from  time to time  constituted  to  regulate  the
     development  and operation of its Oil and Gas Properties and the production
     and sale of Hydrocarbons and other minerals  therefrom.  (
                                       41


          b) keep,  preserve  and maintain  all Oil and Gas  Properties  and any
     other  Property  material  to the conduct of its  business in good  repair,
     working order and  condition,  ordinary  wear and tear  excepted  preserve,
     maintain and keep in good repair,  working order and  efficiency  (ordinary
     wear and tear  excepted)  all of its  material Oil and Gas  Properties  and
     other material Properties,  including,  without limitation,  all equipment,
     machinery and facilities.

          (c) promptly  pay and  discharge,  or make  reasonable  and  customary
     efforts to cause to be paid and discharged,  all delay rentals,  royalties,
     expenses and  indebtedness  accruing  under the leases or other  agreements
     affecting or pertaining to its Oil and Gas Properties and will do all other
     things  necessary to keep unimpaired  their rights with respect thereto and
     prevent any forfeiture thereof or default thereunder.

          (d) promptly perform or make reasonable and customary efforts to cause
     to be performed,  in accordance  with industry  standards,  the obligations
     required by each and all of the  assignments,  deeds,  leases,  sub-leases,
     contracts  and  agreements  affecting  its  interests  in its  Oil  and Gas
     Properties and other material Properties.

          (e) operate its Oil and Gas Properties  and other material  Properties
     or cause or make reasonable and customary efforts to cause such Oil and Gas
     Properties and other material  Properties to be operated in accordance with
     the  practices  of  the  industry  and  in  material  compliance  with  all
     applicable  contracts  and  agreements  and in  compliance  in all material
     respects with all Governmental Requirements.

          (f) to the extent the  Borrower is not the  operator of any  Property,
     the Borrower shall use  reasonable  efforts to cause the operator to comply
     with this Section 8.06
..
          (g) The Borrower and each  Subsidiary  will do or cause to be done, or
     shall participate in, such development work as may be reasonably  necessary
     to the prudent and  economical  operation of the Oil and Gas  Properties in
     accordance  with  the  approved  practices  of  prudent  operators  in  the
     industry,  including,  without  limitation,  all  to be  done  that  may be
     appropriate to protect from  diminution the productive  capacity of the Oil
     and Gas  Properties  and each  producing  well  thereon,  except  where the
     failure  to do so could  not  reasonably  be  expected  to have a  Material
     Adverse Effect.

          (h) Upon the request of the  Administrative  Agent,  and at reasonable
     times and  intervals,  the Borrower will and will cause each  Subsidiary to
     (a) permit the  Administrative  Agent and the Lenders,  as the case may be,
     and its respective designated representatives to enter upon any part of the
     Oil  and  Gas  Properties   under  the  control  of  the  Borrower  or  the
     Subsidiaries,  and (b)  cause the  operator  of any part of the Oil and Gas
     Properties  not under the control of the  Borrower or the  Subsidiaries  to
     permit the  Administrative  Agent or  Lenders,  as the case may be, and its
     designated  representatives  to enter  upon the  same  (to the  extent  and
     subject to the conditions  under which the Borrower or the Subsidiaries may
     so enter),  for the purposes of  inspecting  the  condition  and  operation
     thereof.

          (i) If the  Operator  breaches  the  Contract  Operating  Agreement by
     failing to perform any of the  covenants  or  obligations  imposed  upon it
     thereunder,  then the  Administrative  Agent or the Lenders  shall have the
     right to terminate the Contract Operating  Agreement upon written notice to
     the  Borrower and  Operator,  and the Contract  Operating  Agreement  shall
     terminate  after the expiration of 30 days after receipt by the Operator of
     such notice if the Operator  fails to remedy such default.  Borrower  shall
     cause the Operator to pay on or before the due date thereof all  royalties,
     burdens, lease operating expenses, insurance and other maintenance expenses
     payable by the Operator on any of the Oil and Gas Properties.
                                       42


     Section 8.07  Insurance.  The Borrower will, and will cause each Subsidiary
and  Parent  to,  maintain,  with  financially  sound  and  reputable  insurance
companies,  insurance in such amounts and against such risks as are  customarily
maintained by companies engaged in the same or similar  businesses  operating in
the same or similar locations but in any event it will maintain at a minimum the
types of insurance and in such amounts as reflected on Schedule  7.13.  The loss
payable clauses or provisions in said insurance policy or policies  insuring any
of the  collateral  for the Loans shall be endorsed in favor of and made payable
to the Administrative  Agent as its interests may appear and such policies shall
name the  Administrative  Agent and the  Lenders as  "additional  insureds"  and
provide that the insurer will  endeavor to give at least 30 days prior notice of
any cancellation to the Administrative Agent.

     Section 8.08 Books and Records;  Inspection  Rights. The Borrower will, and
will cause each  Subsidiary to, keep proper books of record and account in which
full,  true and correct  entries are made of all  dealings and  transactions  in
relation to its business and activities.  The Borrower will, and will cause each
Subsidiary to, permit any representatives designated by the Administrative Agent
or the  Arranger,  upon  reasonable  prior  notice,  to visit  and  inspect  its
Properties,  to examine and make extracts from its books and records,  undertake
appraisals  (at the expense of the Borrower) of such  Properties  and to discuss
its  affairs,   finances  and  condition  with  its  officers  and   independent
accountants, all at such reasonable times and as often as reasonably requested.

     Section 8.09  Compliance  with Laws. The Borrower will, and will cause each
Subsidiary  to,  comply  with all laws,  rules,  regulations  and  orders of any
Governmental  Authority  applicable  to it or its  Property,  except  where  the
failure to do so,  individually  or in the  aggregate,  could not  reasonably be
expected to result in a Material Adverse Effect.

     Section 8.10 Environmental Matters.


          (a) The  Borrower  shall at its sole  expense:  (i) comply,  and shall
     cause  its  Properties   and  operations  and  each   Subsidiary  and  each
     Subsidiary's  Properties  and  operations  to comply,  with all  applicable
     Environmental  Laws;  (ii) not dispose of or otherwise  release,  and shall
     cause each Subsidiary not to dispose of or otherwise release,  any oil, oil
     and gas waste, hazardous substance, or solid waste on, under, about or from
     any of the Borrower's or its Subsidiaries' Properties or any other Property
     to the  extent  caused  by  the  Borrower's  or  any  of its  Subsidiaries'
     operations except in compliance with applicable  Environmental  Laws; (iii)
     timely obtain or file, and shall cause each  Subsidiary to timely obtain or
     file, all notices, permits, licenses, exemptions, approvals,  registrations
     or other  authorizations,  if any, required under applicable  Environmental
     Laws to be obtained or filed in connection with the operation or use of the
     Borrower's or its Subsidiaries' Properties, which failure to obtain or file
     could  reasonably  be  expected  to have a Material  Adverse  Effect;  (iv)
     promptly commence and diligently  prosecute to completion,  and shall cause
     each   Subsidiary  to  promptly   commence  and  diligently   prosecute  to
     completion,   any  assessment,   evaluation,   investigation,   monitoring,
     containment,  cleanup, removal, repair,  restoration,  remediation or other
     remedial obligations  (collectively,  the "Remedial Work") in the event any
     Remedial  Work  is  required  or  reasonably   necessary  under  applicable
     Environmental Laws because of or in connection with the actual or suspected
     past,  present or future  disposal or other release of any oil, oil and gas
     waste,  hazardous  substance or solid waste on, under, about or from any of
     the Borrower's or its Subsidiaries'  Properties,  which failure to commence
     and diligently  prosecute to  completion;  and (v) establish and implement,
     and shall cause each Subsidiary to establish and implement, such procedures
     as  may  be  necessary  to  continuously  determine  and  assure  that  the
     Borrower's and its Subsidiaries' obligations under this Section 8.10(a) are
     timely and fully satisfied.
                                       43


          (b) The Borrower will  promptly,  but in no event later than five days
     of the occurrence of a triggering event,  notify the  Administrative  Agent
     and the  Arranger in writing of any  threatened  action,  investigation  or
     inquiry by any Governmental  Authority or any threatened  demand or lawsuit
     by  any  landowner  or  other  third  party  against  the  Borrower  or its
     Subsidiaries  or their  Properties  of which the Borrower has  knowledge in
     connection  with any  Environmental  Laws  (excluding  routine  testing and
     corrective action) if the Borrower reasonably  anticipates that such action
     will result in liability  (whether  individually  or in the  aggregate)  in
     excess of  $500,000,  not fully  covered  by  insurance,  subject to normal
     deductibles.

          (c) The Borrower  will,  and will cause each  Subsidiary  to,  provide
     environmental  audits  and tests in  accordance  with  American  Society of
     Testing Materials  standards upon request by the  Administrative  Agent and
     the  Arranger and no more than once per year in the absence of any Event of
     Default (or as  otherwise  required  to be  obtained by the  Administrative
     Agent or the Arranger by any  Governmental  Authority),  in connection with
     any future acquisitions of Oil and Gas Properties or other Properties.

     Section 8.11 Further Assurances.


          (a) The Borrower at its expense will,  and will cause each  Subsidiary
     to, promptly execute and deliver to the Administrative Agent all such other
     documents,   agreements  and  instruments   reasonably   requested  by  the
     Administrative  Agent to comply with,  cure any defects or  accomplish  the
     conditions  precedent,  covenants  and  agreements  of the  Borrower or any
     Subsidiary, as the case may be, in the Loan Documents, including the Notes,
     or to further  evidence and more fully describe the collateral  intended as
     security  for  the  Indebtedness,  or to  correct  any  omissions  in  this
     Agreement  or  the  Security  Instruments,  or  to  state  more  fully  the
     obligations secured therein,  or to perfect,  protect or preserve any Liens
     created  pursuant to this  Agreement or any of the Security  Instruments or
     the priority thereof, or to make any recordings, file any notices or obtain
     any consents,  all as may be reasonably  necessary or  appropriate,  in the
     sole discretion of the Administrative Agent, in connection  therewith.

          (b) The Borrower hereby  authorizes the  Administrative  Agent to file
     one or more financing or continuation  statements,  and amendments thereto,
     relative to all or any part of the Mortgaged Property without the signature
     of the Borrower or any other  Guarantor  where  permitted by law. A carbon,
     photographic  or other  reproduction  of the  Security  Instruments  or any
     financing  statement  covering the  Mortgaged  Property or any part thereof
     shall be sufficient as a financing statement where permitted by law.
                                       44


     Section 8.12 Reserve Reports

          (a) On or before each February 15th and August 15th the Borrower shall
     furnish  to the  Administrative  Agent and the  Arranger  a Reserve  Report
     effective as the  previous  January 1st and July 1st, as  applicable.  Each
     such  Reserve  Report shall be prepared by one or more  Approved  Petroleum
     Engineers.

          (b) With the  delivery of each  Reserve  Report,  the  Borrower  shall
     provide to the  Administrative  Agent and the Arranger a certificate from a
     Responsible  Officer  certifying  that in all  material  respects:  (i) the
     information  contained  in the  Reserve  Report  and any other  information
     delivered in connection therewith is true and correct, (ii) the Borrower or
     its  Subsidiaries  owns  good  and  defensible  title  to the  Oil  and Gas
     Properties evaluated in such Reserve Report and such Properties are free of
     all Liens except for Liens  permitted by Section 9.03,  (iii) except as set
     forth on an exhibit  to the  certificate,  on a net basis  there are no gas
     imbalances,  take or pay or  other  prepayments  in  excess  of the  volume
     specified  in  Section  7.19  with  respect  to its Oil and Gas  Properties
     evaluated  in such Reserve  Report which would  require the Borrower or any
     Subsidiary to deliver  Hydrocarbons  either generally or produced from such
     Oil and Gas  Properties  at some future  time  without  then or  thereafter
     receiving full payment therefore, (iv) none of their Oil and Gas Properties
     have been sold  since the date of the  previous  Reserve  Report  delivered
     except as set forth on an exhibit  to the  certificate,  which  certificate
     shall  list all of its Oil and Gas  Properties  sold and in such  detail as
     reasonably  required  by the  Administrative  Agent,  (v)  attached  to the
     certificate is a list of all marketing  agreements  entered into subsequent
     to the later of the date  hereof  or the most  recently  delivered  Reserve
     Report  which  the  Borrower  could  reasonably  be  expected  to have been
     obligated to list on Schedule 7.20 had such agreement been in effect on the
     date hereof and all of the Oil and Gas Properties evaluated by such Reserve
     Report are Mortgaged Properties.

          (c) In  connection  with the  delivery  of the  Reserve  Reports to be
     delivered in Section 8.12(a) above,  the Borrower shall also furnish to the
     Administrative  Agent and the Arranger a reserve report with respect to the
     Oil  and Gas  Properties  conveyed  to the  Lenders  as  part  of any  ORRI
     Conveyance provided to the Lenders under this Agreement.

     Section 8.13 Title Information.


          (a) On or before  the  delivery  to the  Administrative  Agent and the
     Arranger of each Reserve Report required by Section  8.12(a),  the Borrower
     will deliver  title  information  in form and  substance  acceptable to the
     Administrative  Agent  covering  enough  of  the  Oil  and  Gas  Properties
     evaluated by such Reserve Report that were not included in the  immediately
     preceding  Reserve  Report,  so that the  Administrative  Agent  shall have
     received  together  with  title  information  previously  delivered  to the
     Administrative Agent,  satisfactory title information on all of the Oil and
     Gas Properties  evaluated by such Reserve  Report.
                                       45


          (b) If the Borrower  has provided  title  information  for  additional
     Properties  under Section  8.13(a),  the Borrower shall,  within 60 days of
     notice from the Administrative Agent that title defects or exceptions exist
     with respect to such additional Properties,  either (i) cure any such title
     defects or exceptions (including defects or exceptions as to priority) that
     are  not  permitted  by  Section  9.03  raised  by such  information,  (ii)
     substitute  acceptable  Mortgaged  Properties  with  no  title  defects  or
     exceptions  except for Excepted Liens (other than Excepted Liens  described
     in clauses (e), (g) and (h) of such definition)  having an equivalent value
     or (iii) deliver title information in form and substance  acceptable to the
     Administrative  Agent so that the Administrative Agent shall have received,
     together with title information  previously delivered to the Administrative
     Agent,  satisfactory  title  information on all of the value of the Oil and
     Gas Properties evaluated by such Reserve Report.

     Section 8.14 Additional Collateral; Additional Guarantors.


          (a) Promptly  after the end of each month,  the Borrower  shall review
     the  current  Mortgaged  Properties  to  ascertain  whether all Oil and Gas
     Properties  are Mortgaged  Properties.  If the Mortgaged  Properties do not
     represent all such Properties, then the Borrower shall, and shall cause its
     Subsidiaries  to,  grant to the  Administrative  Agent as security  for the
     Indebtedness a senior Lien interest  (subject only to Excepted Liens of the
     type described in clauses (a) to (e) of the definition thereof, but subject
     to the provisos at the end of such  definition)  on additional  Oil and Gas
     Properties not already subject to a Lien of the Security  Instruments  such
     that after giving effect thereto,  the Mortgaged  Properties will represent
     all such Properties. All such Liens will be created and perfected by and in
     accordance with the provisions of deeds of trust,  security  agreements and
     financing  statements  or  other  Security  Instruments,  all in  form  and
     substance  reasonably  satisfactory  to  the  Administrative  Agent  and in
     sufficient  executed  (and  acknowledged  where  necessary or  appropriate)
     counterparts for recording purposes. In order to comply with the foregoing,
     if any  Subsidiary  places  a Lien on its Oil and Gas  Properties  and such
     Subsidiary is not a Guarantor,  then it shall become a Guarantor and comply
     with Section 8.14(b).

          (b) The Borrower shall promptly cause each Subsidiary to guarantee the
     Indebtedness  pursuant  to  the  Guarantee  and  Collateral  Agreement.  In
     connection with any such guaranty,  the Borrower shall, or shall cause such
     Subsidiary  to: (A) execute  and  deliver  such  Guarantee  and  Collateral
     Agreement,  (B)  pledge  all of the  Equity  Interests  of such  Subsidiary
     (including, without limitation,  delivery of original stock or other equity
     certificates  evidencing the Equity Interests of such Subsidiary,  together
     with an appropriate  undated stock power for each certificate duly executed
     in blank by the registered  owner thereof),  (C) grant a lien in and to all
     of the Properties of such Subsidiary  (including,  without limitation,  the
     Oil and Gas  Properties of such  Subsidiary)  pursuant to the Guarantee and
     Collateral Agreement and such other deeds of trust,  mortgages,  agreements
     and instruments,  in form and substance  satisfactory to the Administrative
     Agent, as the Administrative  Agent may request and (D) execute and deliver
     such other additional closing documents, certificates and legal opinions as
     shall reasonably be requested by the Administrative Agent.

          (c) The Borrower will at all times cause the other  material  tangible
     and intangible  assets of the Borrower and each Subsidiary to be subject to
     a Lien of the Security Instruments.

          (d) (i) all of the  issued and  outstanding  Equity  Interests  of the
     Borrower shall at all times be pledged to the Administrative Agent pursuant
     to the Guarantee and Collateral  Agreement (other than any Equity Interests
     that may be issued  pursuant to the Warrant  Agreement)  and (ii)all of the
     issued and outstanding Equity Interests of Borrower's Subsidiaries shall at
     all times be pledged to the Administrative  Agent pursuant to the Guarantee
     and Collateral Agreement.
                                       46


     Section 8.15 ERISA Compliance.  The Borrower will promptly furnish and will
cause the  Subsidiaries  and any ERISA  Affiliate  to  promptly  furnish  to the
Administrative  Agent (i)  promptly  after the  filing  thereof  with the United
States Secretary of Labor,  the Internal Revenue Service or the PBGC,  copies of
each  annual and other  report  with  respect to each Plan or any trust  created
thereunder,  (ii) immediately upon becoming aware of the occurrence of any ERISA
Event or of any "prohibited  transaction,"  as described in section 406 of ERISA
or in section 4975 of the Code, in connection with any Plan or any trust created
thereunder,  a written notice signed by the President or the principal Financial
Officer,  the Subsidiary or the ERISA Affiliate,  as the case may be, specifying
the nature  thereof,  what  action the  Borrower,  the  Subsidiary  or the ERISA
Affiliate is taking or proposes to take with respect  thereto,  and, when known,
any action taken or proposed by the Internal Revenue Service,  the Department of
Labor or the PBGC with  respect  thereto,  and (iii)  immediately  upon  receipt
thereof,  copies of any notice of the PBGC's intention to terminate or to have a
trustee  appointed to administer any Plan. With respect to each Plan (other than
a  Multiemployer  Plan),  the Borrower will, and will cause each  Subsidiary and
ERISA  Affiliate  to,  (i)  satisfy  in full  and in a  timely  manner,  without
incurring any late payment or underpayment  charge or penalty and without giving
rise to any lien, all of the  contribution  and funding  requirements of section
412 of the Code (determined  without regard to subsections (d), (e), (f) and (k)
thereof) and of section 302 of ERISA (determined without regard to sections 303,
304 and 306 of  ERISA),  and (ii)  pay,  or  cause to be paid,  to the PBGC in a
timely  manner,  without  incurring any late payment or  underpayment  charge or
penalty,  all  premiums  required  pursuant to sections  4006 and 4007 of ERISA.

     Section 8.16 Hedging  Contracts.  The Borrower  shall  maintain,  and shall
cause its  Subsidiaries  to maintain,  the hedged  position  established  by the
Hedging  Contracts  required under Section  6.01(q) during the period  specified
therein and shall neither assign, terminate or unwind any such Hedging Contracts
nor sell any Hedging Contracts if the effect of such action (when taken together
with any other Hedging Contracts executed  contemporaneously  with the taking of
such action) would have the effect of canceling its positions under such Hedging
Contracts  required hereby. The Borrower and/or its Subsidiaries shall from time
to time enter into  Hedging  Contracts  in  respect of  commodities  so that the
notional volumes of all Hedging Contracts,  in the aggregate,  are more than 70%
of the  reasonably  anticipated  projected  production  from  Borrower's and its
Subsidiaries' Proved Developed Producing Reserves for each month during the term
of this Agreement.  Notwithstanding  anything to the contrary in this Agreement,
the  Borrower  shall  not,  and shall  cause its  Subsidiaries  to not,  assign,
terminate or unwind any Hedging Contract entered into on or before the Effective
Date.

     Section 8.17 Marketing of Production.  All  Hydrocarbons  produced from the
Oil and Gas Properties  shall be marketed on an  arms-length  basis using one or
more Persons that are not Affiliates of the Borrower, as reasonably satisfactory
to the Arranger.

     Section 8.18 Overriding Royalty Interests.


          (a) As  additional  consideration  for the  making of the Loans by the
     Lenders,  in the event that any Loans remain  outstanding  after the Target
     Date,  the Borrower  agrees to convey to the Lenders,  in undivided  shares
     proportionate to their respective Commitments,  on the Target Date and each
     month  thereafter  on the  monthly  anniversary  date of the Target Date an
     overriding  royalty interest in the aggregate amount specified below in and
     to the Oil and Gas Properties  referred to below.  The  overriding  royalty
     shall be conveyed  with respect to all of the Oil and Gas  Properties  then
     currently owned by the Borrower.
                                       47


          (b) The  overriding  royalty  interest  in any  Oil  and Gas  Property
     required  to be  conveyed  with  respect  to any  well  shall  equal  fifty
     hundredths  percent (.50%) of 8/8ths  (proportionately  reduced) in the Oil
     and Gas Properties of the Borrower. The overriding royalty shall be subject
     to the terms and conditions set forth in the form of the ORRI Conveyance.

          (c) An overriding  royalty  required to be conveyed  hereby:  (i) with
     respect to any well now in existence shall be effective as of the first day
     of the calendar  month in which this Agreement is executed and with respect
     to any  future  well the  first  day of the  calendar  month  in which  the
     relevant well was completed,  and (ii) shall survive any termination of the
     Credit Agreement.

          (d) If, prior to  finalization  of the  division  order  process,  the
     Borrower  receives proceeds of production from a well with respect to which
     the Borrower is required to convey an overriding royalty under this Section
     8.18,  the Borrower  shall  estimate the amount of such revenue  payable on
     account of the overriding  royalty and shall pay such estimated proceeds to
     the Lenders;  provided  that,  upon the  completion  of the division  order
     process,  if any amounts are  determined to have been overpaid or underpaid
     to  the  Lenders,   the  Borrower  and  the  Lenders  shall  promptly  make
     appropriate  adjustments  among  themselves  to give  effect to the correct
     division of interests, retroactive to the effective date of such overriding
     royalty.

          (e) Within twenty days (20) after the end of each fiscal quarter,  the
     Borrower will prepare a summary of all wells  spudded  during the preceding
     fiscal  quarter.  Such  summary  shall  indicate  the  date  each  well was
     completed (or  anticipated  to be  completed)  and those wells for which an
     Override  pursuant to (c) above has been recorded in the  appropriate  land
     records and delivered to the Lenders. For those wells where no override has
     been filed of record, an approximate date of when the Borrower expects such
     override to be recorded.

     Section 8.19 Right of First Refusal. If at any time during the term of this
Agreement,  Borrower desires to develop any development project or other project
for  which  there is  insufficient  funding  available  from  Borrower's  equity
capital,  Borrower  shall  present to  Arranger  a  financing  request  for such
projects,  including,  without limitation,  all financial data that Borrower has
developed  with respect to such projects and such other  documentation  required
under this Agreement with respect to a development  project that is to be funded
under this Agreement,  and any other  information  which Arranger may reasonably
request so as to enable  Arranger to evaluate  and  determine  whether  Arranger
shall offer to finance such proposed  project  through this Agreement or another
facility agented by the Administrative Agent and with the Lenders as the lenders
thereunder.

     Section  8.20  Contract  Operating  Agreement.  Borrower  will  not  amend,
restate,  modify or waive  any  material  provision  of the  Contract  Operating
Agreement without the consent of the Lenders.
                                       48


     Section 8.21 Separate Entity.  Borrower and its Subsidiaries will, (a) take
all necessary  steps to maintain its separate  entity and records,  (b) will not
commingle any assets or business  functions with any other Person,  (c) maintain
separate  financial   statements,   (d)  not  assume  or  guarantee  the  debts,
liabilities  or  obligations  of others,  (e) hold  itself out to the public and
creditors as an entity separate from others,  (f) not commit any fraud or misuse
of the separate  entity legal status or any other  injustice or unfairness,  (g)
not  maintain its assets in such a manner that it will be costly or difficult to
segregate ascertain or identify its individual assets from those of its partners
or Affiliates,  (h) not take any action that might cause it to become insolvent,
(i) not fail to hold appropriate  meetings (or act by unanimous written consent)
to authorize all appropriate  actions,  or fail in authorizing such actions,  to
observe all formalities  required by the Texas Business Corporation Act, or fail
to observe all formalities  required by its  organizational  documents,  (j) not
hold itself out to be  responsible  for the debts of another  Person and (k) not
share  any  common  logo  with  or  hold  itself  out as or be  considered  as a
department  or division of its partners,  an  Affiliate,  or any other person or
entity.

                                   ARTICLE IX
                               Negative Covenants

     Until the  principal  of and  interest  on each  Loan and all fees  payable
hereunder and all other amounts  payable under the Loan Documents have been paid
in full, the Borrower covenants and agrees with the Lenders that:

     Section 9.01 Financial Covenants.

          (a) Ratio of Total Debt to EBITDA. The Borrower will not, at any time,
     (i)from and after the Effective Date,  permit its ratio of Total Debt as of
     such time to annualized EBITDA as of the time periods set forth below to be
     greater than the ratio established for such time period as set forth below:
- -------------------------------------------------------------------------------
                                DEBT/EBITDA
                    Time Period              Ratio
                    Second Quarter 2004      6.00:1.00
                    Third Quarter 2004       4.50:1.00
                    Fourth Quarter 2004      2.10:1.00
                    and thereafter



     The foregoing ratios shall be annualized by multiplying EBITDA by four.

          (b) Ratio of EBITDA to  Interest  and Rents.  The  Borrower,  will not
     permit  on the last day of any  fiscal  quarter,  its  ratio of  EBITDA  to
     Consolidated  Interest Expense as of the time periods set forth below to be
     less than the ratio  established  for such time period as set forth  below:
                                       49


     --------------------------------------------------------------------------
                         EBITDA/INTEREST
     --------------------------------------------------------------------------
            Time Period                                            Ratio
     Second   Quarter   2004                                     1.25:1.00
     Third   Quarter   2004                                      1.75:1.00
     Fourth  Quarter 2004 and
       thereafter                                                3.10:1.00

          (c) Current Ratio. The Borrower will not permit, as of the last day of
     any fiscal  quarter,  from and after the Effective  Date,  its ratio of (i)
     consolidated  current  assets  (including  the  unused  amount of the total
     Commitments,  as appropriate,  but excluding non-cash assets under FAS 133)
     to  (ii)   consolidated   current   liabilities   (excluding  (A)  non-cash
     obligations  under FAS 133,  (B) mark to market  hedges and (C) the current
     portion of any Debt under this Agreement), to be less than 1.00:1.00.

          (d) Reserve Ratios of Total Proved Developed  Producing to Total Debt.
     The  Borrower  will not permit,  as of the last day of any fiscal  quarter,
     from and after the Effective  Date,  (i) its ratio of the Net Present Value
     of  Proved  Developed  Producing  Reserves,  to Total  Debt to be less than
     1.00:1.00,  and (ii) its  ratio of the Net  Present  Value of Total  Proved
     Reserves  divided by Total Debt to be less than  2:00:1.00.  The  foregoing
     ratios shall be determined by reference to the most recent Reserve  Report,
     based on a price curve determined by Arranger.

     Section  9.02  Debt.  The  Borrower  will  not,  and  will not  permit  any
Subsidiary  or Parent  to,  incur,  create,  assume or suffer to exist any Debt,
except:

          (a) the Notes or other  Indebtedness  arising under the Loan Documents
     or any  guaranty  of or  suretyship  arrangement  for the  Notes  or  other
     Indebtedness arising under the Loan Documents.

          (b) Debt of the Parent,  Borrower and its Subsidiaries existing on the
     date  hereof  that  is  reflected  in the  Financial  Statements  (and  any
     refinancing or rearrangement  of such Debt,  provided that the total amount
     of Debt outstanding is not increased from the amount currently reflected on
     the Financial Statements for such Debt).

          (c)  accounts  payable  and  accrued  expenses,  liabilities  or other
     obligations  to pay the  deferred  purchase  price of Property or services,
     from time to time incurred in the ordinary  course of business that are not
     greater  than  thirty (30) days past the date of invoice or  delinquent  or
     that are being contested in good faith by appropriate  action and for which
     adequate reserves have been maintained in accordance with GAAP.

          (d) Debt  associated  with  bonds or surety  obligations  required  by
     Governmental  Requirements  in connection with the operation of the Oil and
     Gas Properties.

          (e) Debt as set forth on Schedule 9.02.

          (f)  Debt  arising  under  Hedging  Contracts   permitted  under  this
     Agreement.

     Section 9.03 Liens. Except as set forth on Schedule 9.03, the Borrower will
not, and will not permit any Subsidiary or Parent to, create,  incur,  assume or
permit  to  exist  any Lien on any of its  Properties  (now  owned or  hereafter
acquired), except:

          (a) Liens securing the payment of any Indebtedness.

          (b) Excepted Liens.

     Section  9.04  Restricted  Payments.  The  Borrower  will not, and will not
permit any of its Subsidiaries or Parent to, declare or make, or agree to pay or
make, directly or indirectly,  any Restricted Payment, return any capital to its
stockholders  or make any  distribution  of its Property to its Equity  Interest
holders.  Provided,  however,  the preceding  will not prevent any Subsidiary of
Borrower from making Restricted Payments to the Borrower.

     Section 9.05  Investments,  Loans and Advances.  The Borrower will not, and
will  not  permit  any  Subsidiary  or  Parent  to,  make or  permit  to  remain
outstanding  any  Investments  in or to any Person,  except  that the  foregoing
restriction shall not apply to:

          (a)  Investments  reflected in the  Financial  Statements  or that are
     disclosed to the Administrative Agent or the Arranger in Schedule 9.05.

          (b) accounts receivable arising in the ordinary course of business.

          (c) direct obligations of the United States or any agency thereof,  or
     obligations  guaranteed by the United States or any agency thereof, in each
     case maturing within one year from the date of creation thereof.

          (d)  commercial  paper  maturing  within  one  year  from  the date of
     creation thereof rated in the highest grade by SP or Moody's.

          (e)  deposits  maturing  within  one year  from  the date of  creation
     thereof with,  including  certificates  of deposit issued by, any Lender or
     any office  located in the United States of any other bank or trust company
     which  is  organized  under  the laws of the  United  States  or any  state
     thereof,  has capital,  surplus and undivided profits  aggregating at least
     $100,000,000  (as of the date of such bank or trust  company's  most recent
     financial  reports) and has a short term deposit rating of no lower than A2
     or P2, as such  rating is set forth from time to time,  by SP or  Moody's,
     respectively.

          (f)  deposits  in  money  market  funds   investing   exclusively   in
     Investments  described  in  Section  9.05(c),  Section  9.05(d)  or Section
     9.05(e).

     Section 9.06 Nature of Business.  None of the  Borrower,  the Parent or any
Subsidiary  will allow any  material  change to be made in the  character of its
business as an independent oil and gas exploration and production company.  From
and after the date hereof, the Borrower and its Subsidiaries will not acquire or
make any other  expenditure  (whether such expenditure is capital,  operating or
otherwise) in or related to, any Oil and Gas  Properties  not located within the
geographical boundaries of the United States.

     Section 9.07 Limitation on Leases.  Neither the Borrower nor any Subsidiary
will create,  incur, assume or suffer to exist any obligation for the payment of
rent or hire of Property of any kind whatsoever  (real or personal but excluding
Capital  Leases  and leases of  Hydrocarbon  Interests),  under  leases or lease
agreements  which would cause the  aggregate  amount of all payments made by the
Borrower and the Subsidiaries  pursuant to all such leases or lease  agreements,
including, without limitation, any residual payments at the end of any lease, to
exceed $25,000 in any period of twelve  consecutive  calendar  months during the
life of such leases without the approval of the Lenders.

     Section 9.08 Sale and  Leasebacks.  None of the Borrower or any  Subsidiary
will enter into any arrangement, directly or indirectly, with any Person whereby
such Person  shall sell or transfer  any of its  Property,  whether now owned or
hereafter  acquired,  and whereby such Person shall then or  thereafter  rent or
lease such  Property  or any part  thereof or other  Property  that such  Person
intends to use for  substantially  the same  purpose or purposes as the Property
sold or transferred.

     Section 9.09  Proceeds of Notes.  The Borrower will not permit the proceeds
of the Notes to be used for any purpose  other than those  permitted  by Section
7.22.  Neither the Borrower nor any Person  acting on behalf of the Borrower has
taken or will take any action  which  might cause any of the Loan  Documents  to
violate Regulations T, U or X or any other regulation of the Board or to violate
Section  7 of the  Securities  Exchange  Act of 1934 or any  rule or  regulation
thereunder,  in each case as now in effect or as the same may  hereinafter be in
effect. If requested by the  Administrative  Agent, the Borrower will furnish to
the Administrative  Agent and each Lender a statement to the foregoing effect in
conformity  with the  requirements of FR Form U-1 or such other form referred to
in Regulation U, Regulation T or Regulation X of the Board, as the case may be.

     Section 9.10 ERISA  Compliance.  The Borrower and the Subsidiaries will not
at any time:

          (a)  engage  in,  or permit  any ERISA  Affiliate  to engage  in,  any
     transaction  in  connection  with which the  Borrower,  a Subsidiary or any
     ERISA  Affiliate  could be  subjected  to either a civil  penalty  assessed
     pursuant to  subsections  (c),  (i) or (l) of section 502 of ERISA or a tax
     imposed by Chapter 43 of Subtitle D of the Code.

          (b) terminate, or permit any ERISA Affiliate to terminate, any Plan in
     a manner,  or take any other action with  respect to any Plan,  which could
     result  in any  liability  of  the  Borrower,  a  Subsidiary  or any  ERISA
     Affiliate to the PBGC.

          (c) fail to make, or permit any ERISA  Affiliate to fail to make, full
     payment when due of all amounts  which,  under the  provisions of any Plan,
     agreement relating thereto or applicable law, the Borrower, a Subsidiary or
     any ERISA Affiliate is required to pay as contributions thereto.

          (d) permit to exist,  or allow any ERISA Affiliate to permit to exist,
     any  accumulated  funding  deficiency  within the meaning of section 302 of
     ERISA or section 412 of the Code,  whether or not waived,  with  respect to
     any Plan.

          (e) permit,  or allow any ERISA  Affiliate  to permit,  the  actuarial
     present value of the benefit  liabilities  under any Plan maintained by the
     Borrower,  a Subsidiary  or any ERISA  Affiliate  which is regulated  under
     Title IV of ERISA to exceed the current value of the assets  (computed on a
     plan  termination  basis in accordance with Title IV of ERISA) of such Plan
     allocable to such benefit liabilities. The term "actuarial present value of
     the benefit  liabilities"  shall have the meaning specified in section 4041
     of ERISA.

          (f)  contribute to or assume an obligation to contribute to, or permit
     any ERISA  Affiliate to contribute to or assume an obligation to contribute
     to, any Multiemployer Plan.

          (g) acquire,  or permit any ERISA Affiliate to acquire, an interest in
     any  Person  that  causes  such  Person to become an ERISA  Affiliate  with
     respect  to the  Borrower  or a  Subsidiary  or with  respect  to any ERISA
     Affiliate  of  the  Borrower  or a  Subsidiary  if  such  Person  sponsors,
     maintains  or  contributes  to,  or at  any  time  in the  six-year  period
     preceding such  acquisition has sponsored,  maintained,  or contributed to,
     (1) any Multiemployer  Plan, or (2) any other Plan that is subject to Title
     IV of  ERISA  under  which  the  actuarial  present  value  of the  benefit
     liabilities  under  such  Plan  exceeds  the  current  value of the  assets
     (computed on a plan termination basis in accordance with Title IV of ERISA)
     of such Plan allocable to such benefit liabilities.

          (h) incur,  or permit any ERISA  Affiliate to incur, a liability to or
     on account of a Plan under sections 515, 4062,  4063, 4064, 4201 or 4204 of
     ERISA.

          (i)  contribute to or assume an obligation to contribute to, or permit
     any ERISA  Affiliate to contribute to or assume an obligation to contribute
     to, any employee welfare benefit plan, as defined in section 3(1) of ERISA,
     including, without limitation, any such plan maintained to provide benefits
     to former  employees of such  entities,  that may not be terminated by such
     entities  in  their  sole  discretion  at any  time  without  any  material
     liability.

          (j) amend, or permit any ERISA Affiliate to amend, a Plan resulting in
     an increase in current  liability  such that the Borrower,  a Subsidiary or
     any ERISA  Affiliate  is  required  to provide  security to such Plan under
     section 401(a)(29) of the Code.

     Section  9.11 Sale or  Discount  of  Receivables.  Except  for  receivables
obtained  by the  Borrower  or any  Subsidiary  out of the  ordinary  course  of
business or the  settlement of joint interest  billing  accounts in the ordinary
course of  business  or  discounts  granted  to settle  collection  of  accounts
receivable or the sale of defaulted  accounts  arising in the ordinary course of
business in connection  with the  compromise  or  collection  thereof and not in
connection  with  any  financing  transaction,  neither  the  Borrower  nor  any
Subsidiary  will  discount or sell (with or without  recourse)  any of its notes
receivable or accounts receivable.

     Section 9.12  Mergers,  Etc.  Neither the Borrower  nor any  Subsidiary  or
Parent will merge into or with or  consolidate  with any other Person,  or sell,
lease or  otherwise  dispose of  (whether in one  transaction  or in a series of
transactions)  all or substantially all of its Property to any other Person (any
such transaction, a "consolidation").

     Section 9.13 Sale of Properties. The Borrower will not, and will not permit
any  Subsidiary  to,  sell,  assign,  farm-out,  convey  or  otherwise  transfer
(including  through  the sale of a  Production  Payment  or  overriding  royalty
interest) any Property  except for (a) the sale of  Hydrocarbons in the ordinary
course of  business;  (b) the sale or  transfer of  equipment  that is no longer
necessary for the business of the Borrower or such  Subsidiary or is replaced by
equipment of at least comparable value and use; and (c) the sale or transfer any
Property  that,  taken  together with the sale of any other  Properties,  in the
aggregate,  during  any  calendar  year,  has a fair  market  value of less than
$50,000.

     Section 9.14  Environmental  Matters.  The Borrower  will not, and will not
permit any Subsidiary to, cause or permit any of its Property to be in violation
of, or do  anything or permit  anything  to be done which will  subject any such
Property to any Remedial Work under any Environmental  Laws, assuming disclosure
to the applicable  Governmental Authority of all relevant facts,  conditions and
circumstances,  if any,  pertaining  to such Property  where such  violations or
remedial  obligations  could  reasonably be expected to have a Material  Adverse
Effect.

     Section 9.15 Transactions with Affiliates.  The Borrower will not, and will
not permit any Subsidiary  to, enter into any  transaction,  including,  without
limitation,  any purchase,  sale, lease or exchange of Property or the rendering
of any service,  with any Affiliate  (other than the Guarantors  (except Parent)
and  Wholly-Owned  Subsidiaries of the Borrower)  unless such  transactions  are
otherwise  permitted under this Agreement are in the ordinary course of business
of Borrower or such  Subsidiary and are upon fair and  reasonable  terms no less
favorable to it than it would obtain in a  comparable  arm's length  transaction
with a Person not an Affiliate.

     Section  9.16  Capital   Expenditures.   Except  as  provided  for  in  the
Development Plan or as expressly approved in writing by the Lender, the Borrower
will not,  and will not  permit any of its  Subsidiaries  to,  make any  Capital
Expenditures  or incur costs  associated with the exploration and development of
Borrower's and its Subsidiaries' Oil and Gas Properties  (excluding normal lease
operating  expenses)  except for Capital  Expenditures  together  with all other
costs totaling  $50,000 or less in the aggregate  during any consecutive  twelve
month period.

     Section  9.17  Material  Agreements.  The  Borrower  will not, and will not
permit any  Subsidiary to, enter into any contract or agreement that involves an
individual  commitment from such Person of more than $15,000 in the aggregate in
any  consecutive  twelve month period  (except for such contracts and agreements
that relate to the projects contemplated in the Development Plan).

     Section 9.18  Subsidiaries.  The Borrower will not, and will not permit any
Subsidiary to, create or acquire any additional  Subsidiary  unless the Borrower
gives written notice to the Administrative Agent of such creation or acquisition
and complies with Section 8.14(b).  The Borrower shall not, and shall not permit
any Subsidiary to, sell,  assign or otherwise dispose of any Equity Interests in
any  Subsidiary.  Neither  the  Borrower  nor  any  Subsidiary  shall  have  any
Subsidiaries  that are organized  under the laws other than the United States of
America or any state thereof or the District of Columbia.

     Section  9.19  Negative  Pledge  Agreements;   Dividend  Restrictions.  The
Borrower will not, and will not permit any Subsidiary to, create,  incur, assume
or suffer to exist any  contract,  agreement or  understanding  (other than this
Agreement and the Security  Instruments)  that in any way prohibits or restricts
the  granting,  conveying,  creation  or  imposition  of any  Lien on any of its
Property in favor of the  Administrative  Agent and the Lenders or restricts any
Subsidiary from paying dividends or making  distributions to the Borrower or any
Guarantor,  or which  requires  the  consent  of or notice to other  Persons  in
connection therewith.

     Section 9.20 Gas Imbalances, Take-or-Pay or Other Prepayments. The Borrower
will not allow gas imbalances,  take-or-pay or other prepayments with respect to
the Oil and Gas Properties of the Borrower or any Subsidiary  that would require
the  Borrower or such  Subsidiary  to deliver  Hydrocarbons  at some future time
without then or thereafter  receiving full payment  therefore to exceed 200 mmcf
(on an mmcf equivalent basis) in the aggregate.

     Section 9.21 Hedging Contracts.  The Borrower will not, and will not permit
any Subsidiary  to, enter into any Hedging  Contracts with any Person other than
(a)  Hedging   Contracts  in  respect  of  commodities   (i)  with  an  Approved
Counterparty and (ii) the notional volumes for which (when aggregated with other
commodity Hedging Contracts then in effect other than basis  differential  swaps
on  volumes  already  hedged  pursuant  to  other  Hedging  Contracts),  in  the
aggregate,  do not exceed 85% of the reasonably anticipated projected production
from Proved Developed Producing Reserves for each month during the period during
which such  Hedging  Contract(s)  is in effect for each of crude oil and natural
gas,  calculated  separately;  and (b) Hedging  Contracts in respect of interest
rates  with  an  Approved  Counterparty,   as  follows:  (i)  Hedging  Contracts
effectively  converting  interest  rates from fixed to  floating,  the  notional
amounts  of which  (when  aggregated  with all other  Hedging  Contracts  of the
Borrower and its Subsidiaries  then in effect  effectively  converting  interest
rates  from  fixed  to  floating)  do not  exceed  50% of the  then  outstanding
principal  amount of the Borrower's Debt for borrowed money which bears interest
at a fixed rate and (ii) Hedging Contracts effectively converting interest rates
from floating to fixed,  the notional amounts of which (when aggregated with all
other  Hedging  Contracts of the Borrower  and its  Subsidiaries  then in effect
effectively  converting interest rates from floating to fixed) do not exceed 75%
of the then  outstanding  principal  amount of the Borrower's  Debt for borrowed
money  which  bears  interest  at a floating  rate,  and (c)  Hedging  Contracts
required under Section  6.01(q).  Except as approved by the Lenders,  no Hedging
Contract shall contain any  requirement,  agreement or covenant for the Borrower
or any Subsidiary to post collateral or margin to secure their obligations under
such Hedging Contract or to cover market exposures.

     Section 9.22  Certain  Activities.  The  Borrower  shall not, and shall not
permit any Subsidiary to, without the written  consent of each Lender,  (a) take
any action not in the ordinary  course of the  business of the Borrower  (unless
such action could not reasonably be expected to have a Material Adverse Effect),
(b) file or settle any litigation or arbitral proceedings, or release claim, for
amount in excess of $100,000  in the  aggregate,  (c) either  singly or jointly,
directly  or  indirectly,  commence,  join any other  Person in  commencing,  or
authorize a trustee or other Person  acting on its behalf or on behalf of others
to commence, any voluntary bankruptcy, reorganization,  arrangement, insolvency,
liquidation,  or  receivership  under the laws of the United States or any state
thereof, or (d) make a general assignment for the benefit of its creditors.

     Section 9.23 GA Costs.  From the  Effective  Date through the Target Date,
the Borrower  shall not and shall not permit any Subsidiary to incur General and
Administrative  Costs on an monthly basis in excess of $183,333.  From and after
the Target Date the Borrower  shall not and shall not permit any  Subsidiary  to
incur General and Administrative Costs on an monthly basis in excess of $80,000.

     Section 9.24 Net Sales.  The Borrower shall not permit the net sales volume
of Hydrocarbons from the Borrower's and its Subsidiaries' Oil and Gas Properties
for the periods  indicated on Schedule  9.23 to be less than the amount for such
period as set forth in Column 2 of Schedule 9.23.

     Section 9.25 Press Release.  Without the prior consent of the Lenders, such
consent not to be unreasonably withheld, neither the Borrower nor any Subsidiary
shall  issue any  press  release  or make any  public  announcement  of the this
Agreement or the credit facility being provided in connection therewith.

     Section 9.26 Not Abandon Wells; Participate in Operations. Except as may be
required by applicable Governmental  Requirements,  neither the Borrower nor any
Subsidiary  will,  without prior  written  consent of the Lenders,  abandon,  or
consent  to the  abandonment  of,  any  well  producing  from  the  Oil  and Gas
Properties  (or properties  unitized  therewith) so long as such well is capable
(or is  subject to being  made  capable  through  drilling,  reworking  or other
operations  which it would be  commercially  feasible to  conduct) of  producing
Hydrocarbons or other minerals in commercial  quantities (as determined  without
considering  the effect of this  Instrument).  If an Event of Default shall have
occurred and be continuing,  then neither the Borrower nor any Subsidiary  will,
without  prior written  consent of the Lenders,  elect not to  participate  in a
proposed operation on any of the Oil and Gas Properties where the effect of such
election would be the forfeiture either temporarily (i.e. until a certain sum of
money is received out of the forfeited  interest) or permanently of any material
interest in the Oil and Gas Properties.

                                   ARTICLE X
                           Events of Default; Remedies

     Section 10.01 Events of Default.  One or more of the following events shall
constitute an "Event of Default":

          (a) the Borrower  shall fail to pay any principal of any Loan when and
     as the same shall become due and  payable,  whether at the due date thereof
     or at a date fixed for prepayment thereof or otherwise.

          (b) the Borrower shall fail to pay any interest on any Loan or any fee
     or any other amount (other than an amount referred to in Section  10.01(a))
     payable under any Loan Document,  when and as the same shall become due and
     payable, and such failure shall continue unremedied for one Business Day.

          (c) any representation or warranty made or deemed made by or on behalf
     of the Borrower or any of its Affiliates in or in connection  with any Loan
     Document or any  amendment or  modification  of any Loan Document or waiver
     under  such  Loan  Document,  or  in  any  report,  certificate,  financial
     statement or other document furnished pursuant to or in connection with any
     Loan  Document  or  any  amendment  or   modification   thereof  or  waiver
     thereunder, shall prove to have been incorrect when made or deemed made.

          (d) the  Borrower or any  Subsidiary  shall fail to observe or perform
     any covenant,  condition or agreement contained in Section 8.01(k), Section
     8.01(o),  Section  8.02,  Section 8.03,  Section  8.07,  Section 8.15 or in
     ARTICLE IX.

          (e) the  Borrower  or any of its  Affiliates  shall fail to observe or
     perform any covenant,  condition or agreement  contained in this  Agreement
     (other  than those  specified  in Section  10.01(a),  Section  10.01(b)  or
     Section  10.01(d))  or any other  Loan  Document,  and such  failure  shall
     continue  unremedied  for a period of 15 days after the earlier to occur of
     (A) notice  thereof from the  Administrative  Agent to the Borrower  (which
     notice  will be given at the  request of any  Lender) or (B) a  Responsible
     Officer of the Borrower or such Affiliate  otherwise becoming aware of such
     default.

          (f) the  Borrower  or any  Subsidiary  shall fail to make any  payment
     (whether of principal or interest and  regardless  of amount) in respect of
     any  Material  Indebtedness,  when and as the  same  shall  become  due and
     payable.

          (g) any  event  or  condition  occurs  that  results  in any  Material
     Indebtedness  becoming due prior to its scheduled  maturity or that enables
     or  permits  (with or without  the  giving of notice,  the lapse of time or
     both) the holder or holders of any Material  Indebtedness or any trustee or
     agent on its or their behalf to cause any Material  Indebtedness  to become
     due, or to require the Redemption thereof or any offer to Redeem to be made
     in  respect  thereof,  prior  to its  scheduled  maturity  or any  event of
     condition  requires  the  Borrower  or any  Subsidiary  to make an offer in
     respect thereof.

          (h) an  involuntary  proceeding  shall be commenced or an  involuntary
     petition shall be filed seeking (i)  liquidation,  reorganization  or other
     relief in respect of the Borrower or any of its Affiliates or its debts, or
     of a substantial  part of its assets,  under any Federal,  state or foreign
     bankruptcy,  insolvency,  receivership  or similar law now or  hereafter in
     effect  or  (ii)  the  appointment  of  a  receiver,   trustee,  custodian,
     sequestrator,  conservator  or similar  official for the Borrower or any of
     its  Affiliates or for a substantial  part of its assets,  and, in any such
     case, such proceeding or petition shall continue undismissed for 30 days or
     an order or decree  approving  or ordering  any of the  foregoing  shall be
     entered.

          (i)  the  Borrower  or any of its  Affiliates  shall  (i)  voluntarily
     commence  any  proceeding  or  file  any  petition   seeking   liquidation,
     reorganization  or  other  relief  under  any  Federal,  state  or  foreign
     bankruptcy,  insolvency,  receivership  or similar law now or  hereafter in
     effect,  (ii) consent to the institution of, or fail to contest in a timely
     and  appropriate  manner,  any proceeding or petition  described in Section
     10.01(h),  (iii)  apply for or consent to the  appointment  of a  receiver,
     trustee, custodian,  sequestrator,  conservator or similar official for the
     Borrower or any of its Affiliates or for a substantial  part of its assets,
     (iv) file an answer admitting the material  allegations of a petition filed
     against it in any such  proceeding,  (v) make a general  assignment for the
     benefit of  creditors  or (vi) take any action for the purpose of effecting
     any of the foregoing.

          (j) the Borrower or any of its Affiliates  shall become unable,  admit
     in writing its inability or fail  generally to pay its debts as they become
     due.

          (k) one or more  judgments  for the  payment of money in an  aggregate
     amount in excess of $100,000  shall be rendered  against the Borrower,  any
     Subsidiary   or  any   combination   thereof  and  the  same  shall  remain
     undischarged  for a period of 30  consecutive  days during which  execution
     shall not be effectively  stayed, or any action shall be legally taken by a
     judgment  creditor to attach or levy upon any assets of the Borrower or any
     Subsidiary to enforce any such judgment.

          (l) the Loan Documents  after  delivery  thereof shall for any reason,
     except to the extent  permitted by the terms  thereof,  cease to be in full
     force and effect and valid,  binding and  enforceable  in  accordance  with
     their terms  against the Borrower or a Guarantor  party thereto or shall be
     repudiated by any of them, or cease to create a valid and perfected Lien of
     the  priority  required  thereby on any of the  collateral  purported to be
     covered  thereby,  except  to the  extent  permitted  by the  terms of this
     Agreement,  or the Borrower or any  Subsidiary  or any of their  Affiliates
     shall so state in writing.

          (m) an ERISA Event  shall have  occurred  that,  in the opinion of the
     Lenders,  when  taken  together  with all  other  ERISA  Events  that  have
     occurred,  could  reasonably  be expected  to result in a Material  Adverse
     Effect.

          (n) a Change in Control shall occur.

          (o) Operator shall default under the Contract  Operating  Agreement or
     Borrower defaults under the Contract  Operating  Agreement and Operator has
     not waived such default.

Section 10.02     Remedies.

          (a) In the case of an Event of Default  other than those  described in
     Section  10.01(h),  Section  10.01(i)  or  Section  10.01(j),  at any  time
     thereafter   during  the   continuance  of  such  Event  of  Default,   the
     Administrative  Agent may,  and at the request of the  Lenders,  shall,  by
     notice to the Borrower, declare the Notes and the Loans then outstanding to
     be due and payable in whole (or in part, in which case any principal not so
     declared  to be due and payable  may  thereafter  be declared to be due and
     payable),  and  thereupon  the principal of the Loans so declared to be due
     and payable,  together with accrued interest thereon and all fees and other
     obligations of the Borrower and the Guarantors  accrued hereunder and under
     the  Notes and the other  Loan  Documents,  shall  become  due and  payable
     immediately,  without  presentment,  demand,  protest,  notice of intent to
     accelerate,  notice of  acceleration  or other  notice of any kind,  all of
     which are hereby waived by the Borrower and each Guarantor;  and in case of
     an Event of Default  described  in Section  10.01(h),  Section  10.01(i) or
     Section   10.01(j),   the  Notes  and  the  principal  of  the  Loans  then
     outstanding,  together with accrued  interest  thereon and all fees and the
     other obligations of the Borrower and the Guarantors  accrued hereunder and
     under the Notes and the other Loan Documents,  shall  automatically  become
     due and payable,  without presentment,  demand,  protest or other notice of
     any  kind,  all of  which  are  hereby  waived  by the  Borrower  and  each
     Guarantor.

          (b)  In the  case  of the  occurrence  of an  Event  of  Default,  the
     Administrative  Agent is  authorized  to complete the  Letters-in-Lieu  and
     deliver same,  and the  Administrative  Agent and the Lenders will have all
     other rights and remedies available at law and equity.

          (c) All proceeds realized from the liquidation or other disposition of
     collateral or otherwise  received after  maturity of the Notes,  whether by
     acceleration or otherwise,  shall be applied:  first, to  reimbursement  of
     expenses and  indemnities  provided for in this  Agreement and the Security
     Instruments;  second,  to accrued  interest on the Notes;  third,  to fees;
     fourth,  pro rata to principal  outstanding  on the Notes and  Indebtedness
     referred to in clause (b) of the  definition of  "Indebtedness"  owing to a
     Lender or an  Affiliate  of a Lender;  and any excess  shall be paid to the
     Borrower or as otherwise required by any Governmental Requirement.

          (d) From and after the existence of any Event of Default,  Agent shall
     have the right to terminate the Contract  Operating  Agreement  without any
     liability or  obligation  of the Lenders,  the Agent or the Borrower to the
     Operator with respect to such termination or otherwise, upon written notice
     delivered  by the Lenders or the  Collateral  Agent to the Borrower and the
     Operator,  and upon  delivery  of such  notice  such  termination  shall be
     effective 30 days thereafter with no right of the Operator to cure.

     Section 10.03 Disposition of Proceeds.  The Security Instruments contain an
assignment  by the  Borrower  and/or  the  Guarantors  unto  and in favor of the
Administrative  Agent for the benefit of the Lenders of all of the Borrower's or
each  Guarantor's  interest in and to production  and all proceeds  attributable
thereto which may be produced from or allocated to the Mortgaged  Property.  The
Security  Instruments  further  provide in general for the  application  of such
proceeds to the satisfaction of the Indebtedness and other obligations described
therein and secured thereby.  Notwithstanding  the assignment  contained in such
Security  Instruments,  until the  occurrence  of an Event of  Default,  (a) the
Administrative  Agent and the Lenders  agree that they will  neither  notify the
purchaser or  purchasers of such  production  nor take any other action to cause
such proceeds to be remitted to the Administrative Agent or the Lenders, but the
Lenders  will  instead  permit such  proceeds to be paid to the Borrower and its
Subsidiaries  and (b) the Lenders hereby authorize the  Administrative  Agent to
take such actions as may be  necessary to cause such  proceeds to be paid to the
Borrower and/or such Subsidiaries.

                                   ARTICLE XI
                            The Administrative Agent

          (a)  Appointment;  Powers.  Each  of the  Lenders  hereby  irrevocably
     appoints  the  Administrative   Agent  as  its  agent  and  authorizes  the
     Administrative  Agent to take such  actions on its  behalf and to  exercise
     such  powers  as are  delegated  to the  Administrative  Agent by the terms
     hereof and the other Loan Documents,  together with such actions and powers
     as are reasonably incidental thereto.

     Section  11.02  Duties  and  Obligations  of   Administrative   Agent.  The
Administrative  Agent  shall not have any  duties or  obligations  except  those
expressly set forth in the Loan  Documents.  Without  limiting the generality of
the  foregoing,  (a)  the  Administrative  Agent  shall  not be  subject  to any
fiduciary or other implied duties,  regardless of whether a Default has occurred
and is continuing,  (b) the Administrative Agent shall not have any duty to take
any  discretionary  action  or  exercise  any  discretionary  powers,  except as
provided in Section  11.03,  and (c) except as expressly set forth  herein,  the
Administrative  Agent  shall  not have any duty to  disclose,  and  shall not be
liable for the failure to disclose,  any information relating to the Borrower or
any of its Subsidiaries  that is communicated to or obtained by the bank serving
as  Administrative  Agent  or  any  of  its  Affiliates  in  any  capacity.  The
Administrative Agent shall be deemed not to have knowledge of any Default unless
and until written  notice  thereof is given to the  Administrative  Agent by the
Borrower  or a  Lender,  and shall  not be  responsible  for or have any duty to
ascertain or inquire into (i) any statement,  warranty or representation made in
or in  connection  with this  Agreement  or any other  Loan  Document,  (ii) the
contents of any  certificate,  report or other document  delivered  hereunder or
under any other Loan Document or in connection herewith or therewith,  (iii) the
performance or observance of any of the covenants,  agreements or other terms or
conditions  set forth herein or in any other Loan  Document,  (iv) the validity,
enforceability,  effectiveness or genuineness of this Agreement,  any other Loan
Document or any other agreement, instrument or document, (v) the satisfaction of
any condition set forth in ARTICLE VI or elsewhere herein, other than to confirm
receipt of items expressly required to be delivered to the Administrative  Agent
or  as  to  those  conditions   precedent   expressly  required  to  be  to  the
Administrative Agent's satisfaction,  (vi) the existence,  value,  perfection or
priority of any collateral  security or the financial or other  condition of the
Borrower and its  Subsidiaries  or any other obligor or guarantor,  or (vii) any
failure by the Borrower or any other  Person  (other than itself) to perform any
of its obligations hereunder or under any other Loan Document or the performance
or observance  of any  covenants,  agreements  or other terms or conditions  set
forth herein or therein.

     Section 11.03 Action by  Administrative  Agent.  The  Administrative  Agent
shall  not have  any  duty to take any  discretionary  action  or  exercise  any
discretionary   powers,   except   discretionary  rights  and  powers  expressly
contemplated  hereby  that the  Administrative  Agent is required to exercise in
writing as directed by the  Lenders  and in all cases the  Administrative  Agent
shall be fully  justified  in failing or refusing to act  hereunder or under any
other Loan Documents unless it shall (a) receive written  instructions  from the
Lenders  specifying  the  action  to be  taken  and  (b) be  indemnified  to its
satisfaction by the Lenders against any and all liability and expenses which may
be incurred by it by reason of taking or continuing to take any such action. The
instructions  as  aforesaid  and any action  taken or  failure  to act  pursuant
thereto by the Administrative Agent shall be binding on all of the Lenders. If a
Default has occurred and is continuing, then the Administrative Agent shall take
such action with  respect to such Default as shall be directed by the Lenders in
the written  instructions  (with  indemnities)  described in this Section 11.03,
provided  that,  unless and until the  Administrative  Agent shall have received
such directions,  the  Administrative  Agent may (but shall not be obligated to)
take such  action,  or refrain  from taking such  action,  with  respect to such
Default as it shall deem advisable in the best  interests of the Lenders.  In no
event,  however,  shall the Administrative  Agent be required to take any action
which  exposes  the  Administrative  Agent  to  personal  liability  or which is
contrary  to  this  Agreement,   the  Loan  Documents  or  applicable  law.  The
Administrative Agent shall not be liable for any action taken or not taken by it
with  the  consent  or  at  the  request  of  the  Lenders,  and  otherwise  the
Administrative Agent shall not be liable for any action taken or not taken by it
hereunder  or under any other  Loan  Document  or under  any other  document  or
instrument  referred  to or  provided  for herein or  therein  or in  connection
herewith or therewith INCLUDING ITS OWN ORDINARY NEGLIGENCE,  except for its own
gross negligence or willful misconduct.

     Section 11.04 Reliance by Administrative  Agent. The  Administrative  Agent
shall be entitled to rely upon,  and shall not incur any  liability  for relying
upon, any notice, request, certificate, consent, statement, instrument, document
or other writing believed by it to be genuine and to have been signed or sent by
the proper  Person.  The  Administrative  Agent also may rely upon any statement
made to it orally or by  telephone  and  believed by it to be made by the proper
Person,  and shall not incur any liability  for relying  thereon and each of the
Borrower and the Lenders  hereby waives the right to dispute the  Administrative
Agent's  record of such  statement,  except in the case of gross  negligence  or
willful  misconduct by the Administrative  Agent. The  Administrative  Agent may
consult with legal  counsel (who may be counsel for the  Borrower),  independent
accountants  and other  experts  selected by it, and shall not be liable for any
action  taken or not  taken by it in  accordance  with  the  advice  of any such
counsel, accountants or experts. The Administrative Agent may deem and treat the
payee of any Note as the holder thereof for all purposes hereof unless and until
a written notice of the assignment or transfer thereof permitted hereunder shall
have been filed with the Administrative Agent.

     Section 11.05 Subagents.  The Administrative  Agent may perform any and all
its duties  and  exercise  its  rights and powers by or through  any one or more
sub-agents  appointed by the Administrative  Agent. The Administrative Agent and
any such  sub-agent  may perform any and all its duties and  exercise its rights
and powers through their respective Related Parties. The exculpatory  provisions
of the preceding  Sections of this ARTICLE XI shall apply to any such  sub-agent
and to the Related Parties of the  Administrative  Agent and any such sub-agent,
and  shall  apply  to  their  respective   activities  in  connection  with  the
syndication of the credit  facilities  provided for herein as well as activities
as Administrative Agent.

     Section 11.06  Resignation or Removal of Administrative  Agent.  Subject to
the appointment and acceptance of a successor  Administrative  Agent as provided
in this  Section  11.06,  the  Administrative  Agent  may  resign at any time by
notifying  the Lenders and the  Borrower,  and the  Administrative  Agent may be
removed at any time with or without  cause by all of the Lenders.  Upon any such
resignation or removal,  the Lenders shall have the right, in consultation  with
the  Borrower,  to  appoint a  successor.  If no  successor  shall  have been so
appointed by the Lenders and shall have accepted such appointment within 30 days
after the  retiring  Administrative  Agent gives  notice of its  resignation  or
removal of the retiring  Administrative Agent, then the retiring  Administrative
Agent may, on behalf of the Lenders,  appoint a successor  Administrative Agent.
Upon the acceptance of its appointment as the Administrative  Agent hereunder by
a successor,  such  successor  shall  succeed to and become  vested with all the
rights, powers,  privileges and duties of the retiring Administrative Agent, and
the  retiring  Administrative  Agent  shall be  discharged  from its  duties and
obligations  hereunder.  The  fees  payable  by  the  Borrower  to  a  successor
Administrative  Agent  shall  be the same as those  payable  to its  predecessor
unless  otherwise  agreed  between the  Borrower and such  successor.  After the
Administrative Agent's resignation hereunder,  the provisions of this ARTICLE XI
and  Section  12.03 shall  continue  in effect for the benefit of such  retiring
Administrative  Agent,  its sub-agents and their  respective  Related Parties in
respect of any actions  taken or omitted to be taken by any of them while it was
acting as Administrative Agent.

     Section 11.07 Agents as Lenders.  The party  serving as the  Administrative
Agent  hereunder  shall have the same  rights and  powers in its  capacity  as a
Lender as any other  Lender and may  exercise the same as though it were not the
Administrative  Agent,  and such party and its  Affiliates  may accept  deposits
from,  lend  money to and  generally  engage  in any kind of  business  with the
Borrower  or any  Subsidiary  or other  Affiliate  thereof as if it were not the
Administrative Agent hereunder.

     Section  11.08  No  Reliance.   Each  Lender   acknowledges  that  it  has,
independently  and without reliance upon the  Administrative  Agent or any other
Lender and based on such documents and information as it has deemed appropriate,
made its own credit  analysis and decision to enter into this Agreement and each
other Loan Document to which it is a party.  Each Lender also  acknowledges that
it will, independently and without reliance upon the Administrative Agent or any
other Lender and based on such  documents and  information as it shall from time
to time deem  appropriate,  continue to make its own  decisions in taking or not
taking action under or based upon this Agreement,  any other Loan Document,  any
related  agreement  or any  document  furnished  hereunder  or  thereunder.  The
Administrative  Agent shall not be  required  to keep itself  informed as to the
performance  or  observance by the Borrower or any of its  Subsidiaries  of this
Agreement,  the Loan Documents or any other document referred to or provided for
herein  or  to  inspect  the   Properties  or  books  of  the  Borrower  or  its
Subsidiaries.  Except for notices,  reports and other  documents and information
expressly  required to be furnished to the Lenders by the  Administrative  Agent
hereunder, neither the Administrative Agent nor the Arranger shall have any duty
or  responsibility  to provide any Lender  with any credit or other  information
concerning the affairs,  financial condition or business of the Borrower (or any
of its  Affiliates)  which may come into the  possession of such Agent or any of
its Affiliates.  In this regard,  each Lender  acknowledges that Vinson  Elkins
L.L.P. is acting in this  transaction as special  counsel to the  Administrative
Agent only, except to the extent otherwise expressly stated in any legal opinion
or any Loan  Document.  Each other party  hereto will consult with its own legal
counsel  to the  extent  that it deems  necessary  in  connection  with the Loan
Documents and the matters contemplated therein.

     Section 11.09 Authority of Administrative  Agent to Release  Collateral and
Liens.  Each Lender hereby  authorizes the  Administrative  Agent to release any
collateral that is permitted to be sold or released pursuant to the terms of the
Loan  Documents.  Each Lender  hereby  authorizes  the  Administrative  Agent to
execute and deliver to the Borrower,  at the  Borrower's  sole cost and expense,
any and all  releases of Liens,  termination  statements,  assignments  or other
documents  reasonably  requested by the Borrower in connection  with any sale or
other  disposition  of Property to the extent such sale or other  disposition is
permitted by the terms of Section 9.13 or is otherwise  authorized  by the terms
of the Loan Documents.

                                  ARTICLE XII
                                  Miscellaneous

     Section 12.01 Notices.

          (a) Except in the case of notices and other  communications  expressly
     permitted to be given by telephone (and subject to Section  12.01(b)),  all
     notices and other  communications  provided  for herein shall be in writing
     and shall be  delivered  by hand or overnight  courier  service,  mailed by
     certified or registered mail or sent by telecopy, as follows:

               (i) if to the Borrower,  to it at 4801 N. Sam Houston  Pkwy.  E.,
          Suite 300, Houston, Texas 77060, Attention of Thomas Kaetzer (Telecopy
          No. 281-260-8488);

               (ii) if to the  Administrative  Agent, to it at  Highbridge/Zwirn
          Special  Opportunities  Fund,  L.P., 745 5th Avenue,  18th Floor,  New
          York, New York 10151,  Attention:  Morris Macleod  (Telecopy No. (646)
          344-4676).

               (iii)  if  to  the  Arranger,  to it  at  Petrobridge  Investment
          Management  LLC, 1600 Smith  Street,  Suite 4250,  Houston,  TX 77002,
          Attention of Mike Keener (Telecopy No. (713) 490-3867);

               (iv) if to any other  Lender,  to it at its address (or  telecopy
          number) set forth on its applicable signature page.

          (b) Notices and other  communications  to the Lenders hereunder may be
     delivered or furnished by electronic  communications pursuant to procedures
     approved by the Administrative Agent; provided that the foregoing shall not
     apply to  notices  pursuant  to ARTICLE  II,  ARTICLE  III,  ARTICLE IV and
     ARTICLE  V unless  otherwise  agreed  by the  Administrative  Agent and the
     applicable  Lender.  The  Administrative  Agent or the Borrower may, in its
     discretion,  agree  to  accept  notices  and  other  communications  to  it
     hereunder by electronic  communications  pursuant to procedures approved by
     it;  provided that approval of such procedures may be limited to particular
     notices or communications.

          (c) Any party  hereto may change its  address or  telecopy  number for
     notices and other  communications  hereunder by notice to the other parties
     hereto. All notices and other  communications  given to any party hereto in
     accordance  with the provisions of this  Agreement  shall be deemed to have
     been given on the date of receipt.

     Section 12.02 Waivers; Amendments.

          (a) No failure on the part of the Administrative Agent, any Lender, or
     the  Arranger  to  exercise  and no delay in  exercising,  and no course of
     dealing with respect to, any right, power or privilege,  or any abandonment
     or discontinuance of steps to enforce such right, power or privilege, under
     any of the Loan Documents shall operate as a waiver thereof,  nor shall any
     single or partial  exercise of any right,  power or privilege  under any of
     the Loan Documents  preclude any other or further  exercise  thereof or the
     exercise of any other right, power or privilege. The rights and remedies of
     the Administrative Agent and the Lenders hereunder and under the other Loan
     Documents  are  cumulative  and are not exclusive of any rights or remedies
     that  they  would  otherwise  have.  No  waiver  of any  provision  of this
     Agreement  or any other Loan  Document or consent to any  departure  by the
     Borrower therefrom shall in any event be effective unless the same shall be
     permitted  by Section  12.02(b),  and then such waiver or consent  shall be
     effective  only in the  specific  instance  and for the  purpose  for which
     given.  Without  limiting the generality of the foregoing,  the making of a
     Loan  shall not be  construed  as a waiver of any  Default,  regardless  of
     whether  the  Administrative  Agent or any  Lender  may have had  notice or
     knowledge of such Default at the time.

          (b) Neither this  Agreement nor any provision  hereof nor any Security
     Instrument  nor any  provision  thereof may be waived,  amended or modified
     except  pursuant to an agreement or agreements  in writing  entered into by
     the  Borrower  and the Lenders or by the  Borrower  and the  Administrative
     Agent with the consent of all of the Lenders.

     Section 12.03 Expenses, Indemnity; Damage Waiver.

          (a) The Borrower shall pay (i) all reasonable  out-of-pocket  expenses
     incurred by the Administrative Agent and its Affiliates, including, without
     limitation,  the reasonable fees,  charges and disbursements of counsel and
     other outside  consultants  for the  Administrative  Agent,  the reasonable
     travel, photocopy,  mailing, courier, telephone and other similar expenses,
     and the  cost of  environmental  audits  and  surveys  and  appraisals,  in
     connection  with the  ongoing  enforcement  and  performance  of the credit
     facilities  provided for herein as Administrative  Agent deems appropriate,
     the preparation,  negotiation, execution, delivery and administration (both
     before and after the execution  hereof and  including  advice of counsel to
     the Administrative  Agent as to the rights and duties of the Administrative
     Agent and the Lenders with respect thereto) of this Agreement and the other
     Loan Documents and any amendments,  modifications or waivers of or consents
     related  to  the  provisions   hereof  or  thereof   (whether  or  not  the
     transactions contemplated hereby or thereby shall be consummated), (ii) all
     costs,  expenses,  Taxes,  assessments  and other  charges  incurred by the
     Administrative   Agent  or  any  Lender  in  connection  with  any  filing,
     registration, recording or perfection of any security interest contemplated
     by this Agreement or any Security Instrument or any other document referred
     to therein, (iii) all out-of-pocket expenses incurred by the Administrative
     Agent or any Lender,  including the fees,  charges and disbursements of any
     counsel for any the Administrative  Agent or any Lender, in connection with
     the  enforcement  or  protection  of its  rights  in  connection  with this
     Agreement  or any other Loan  Document,  including  its  rights  under this
     Section  12.03,  including,  without  limitation,  all  such  out-of-pocket
     expenses  incurred  during any workout,  restructuring  or  negotiations in
     respect  of  such  Loans  and  any   appraisal   costs   incurred   by  the
     Administrative Agent or the Lenders.

          (b)  THE  BORROWER  SHALL  INDEMNIFY  THE  ADMINISTRATIVE  AGENT,  THE
     ARRANGER,  AND EACH LENDER,  AND EACH RELATED PARTY OF ANY OF THE FOREGOING
     PERSONS (EACH SUCH PERSON BEING CALLED AN "INDEMNITEE")  AGAINST,  AND HOLD
     EACH  INDEMNITEE  HARMLESS  FROM,  ANY AND  ALL  LOSSES,  CLAIMS,  DAMAGES,
     LIABILITIES  AND  RELATED  EXPENSES,   INCLUDING  THE  FEES,   CHARGES  AND
     DISBURSEMENTS  OF ANY COUNSEL FOR ANY  INDEMNITEE,  INCURRED BY OR ASSERTED
     AGAINST ANY INDEMNITEE  ARISING OUT OF, IN CONNECTION  WITH, OR AS A RESULT
     OF (i) THE  EXECUTION  OR  DELIVERY  OF THIS  AGREEMENT  OR ANY OTHER  LOAN
     DOCUMENT OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, THE
     PERFORMANCE BY THE PARTIES HERETO OR THE PARTIES TO ANY OTHER LOAN DOCUMENT
     OF THEIR RESPECTIVE OBLIGATIONS HEREUNDER OR THEREUNDER OR THE CONSUMMATION
     OF THE TRANSACTIONS CONTEMPLATED HEREBY OR BY ANY OTHER LOAN DOCUMENT, (ii)
     THE FAILURE OF THE BORROWER OR ANY  SUBSIDIARY  TO COMPLY WITH THE TERMS OF
     ANY LOAN  DOCUMENT,  INCLUDING  THIS  AGREEMENT,  OR WITH ANY  GOVERNMENTAL
     REQUIREMENT,  (iii) ANY INACCURACY OF ANY  REPRESENTATION  OR ANY BREACH OF
     ANY WARRANTY OR COVENANT OF THE BORROWER OR ANY  GUARANTOR SET FORTH IN ANY
     OF THE LOAN  DOCUMENTS  OR ANY  INSTRUMENTS,  DOCUMENTS  OR  CERTIFICATIONS
     DELIVERED IN CONNECTION THEREWITH, (iv) ANY LOAN OR THE USE OF THE PROCEEDS
     THEREFROM, (v) ANY OTHER ASPECT OF THE LOAN DOCUMENTS,  (vi) THE OPERATIONS
     OF THE BUSINESS OF THE BORROWER  AND ITS  SUBSIDIARIES  BY THE BORROWER AND
     ITS SUBSIDIARIES, (vii) ANY ASSERTION THAT THE LENDERS WERE NOT ENTITLED TO
     RECEIVE THE PROCEEDS RECEIVED PURSUANT TO THE SECURITY INSTRUMENTS,  (viii)
     ANY  ENVIRONMENTAL  LAW APPLICABLE TO THE BORROWER OR ANY SUBSIDIARY OR ANY
     OF  THEIR   PROPERTIES,   INCLUDING  WITHOUT   LIMITATION,   THE  PRESENCE,
     GENERATION, STORAGE, RELEASE, THREATENED RELEASE, USE, TRANSPORT, DISPOSAL,
     ARRANGEMENT  OF DISPOSAL OR  TREATMENT  OF OIL,  OIL AND GAS WASTES,  SOLID
     WASTES OR HAZARDOUS SUBSTANCES ON ANY OF THEIR PROPERTIES,  (ix) THE BREACH
     OR  NON-COMPLIANCE BY THE BORROWER OR ANY SUBSIDIARY WITH ANY ENVIRONMENTAL
     LAW APPLICABLE TO THE BORROWER OR ANY SUBSIDIARY, (x) THE PAST OWNERSHIP BY
     THE BORROWER OR ANY SUBSIDIARY OF ANY OF THEIR  PROPERTIES OR PAST ACTIVITY
     ON ANY OF THEIR PROPERTIES  WHICH,  THOUGH LAWFUL AND FULLY  PERMISSIBLE AT
     THE TIME,  COULD  RESULT IN  PRESENT  LIABILITY,  (xi) THE  PRESENCE,  USE,
     RELEASE,  STORAGE,  TREATMENT,  DISPOSAL,  GENERATION,  THREATENED RELEASE,
     TRANSPORT,  ARRANGEMENT  FOR TRANSPORT OR ARRANGEMENT  FOR DISPOSAL OF OIL,
     OIL AND GAS WASTES,  SOLID WASTES OR HAZARDOUS  SUBSTANCES  ON OR AT ANY OF
     THE  PROPERTIES  OWNED OR OPERATED BY THE BORROWER OR ANY SUBSIDIARY OR ANY
     ACTUAL OR ALLEGED PRESENCE OR RELEASE OF HAZARDOUS MATERIALS ON OR FROM ANY
     PROPERTY  OWNED OR  OPERATED BY THE  BORROWER  OR ANY OF ITS  SUBSIDIARIES,
     (xii) ANY ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO THE BORROWER OR ANY
     OF ITS SUBSIDIARIES,  OR (xiii) ANY OTHER  ENVIRONMENTAL,  HEALTH OR SAFETY
     CONDITION IN  CONNECTION  WITH THE LOAN  DOCUMENTS,  OR (xiv) ANY ACTUAL OR
     PROSPECTIVE CLAIM, LITIGATION,  INVESTIGATION OR PROCEEDING RELATING TO ANY
     OF THE FOREGOING,  WHETHER BASED ON CONTRACT,  TORT OR ANY OTHER THEORY AND
     REGARDLESS OF WHETHER ANY INDEMNITEE IS A PARTY THERETO, AND SUCH INDEMNITY
     SHALL  EXTEND TO EACH  INDEMNITEE  NOTWITHSTANDING  THE SOLE OR  CONCURRENT
     NEGLIGENCE  OF  EVERY  KIND OR  CHARACTER  WHATSOEVER,  WHETHER  ACTIVE  OR
     PASSIVE,  WHETHER AN  AFFIRMATIVE  ACT OR AN  OMISSION,  INCLUDING  WITHOUT
     LIMITATION,  ALL TYPES OF NEGLIGENT  CONDUCT  IDENTIFIED IN THE RESTATEMENT
     (SECOND) OF TORTS OF ONE OR MORE OF THE  INDEMNITEES OR BY REASON OF STRICT
     LIABILITY  IMPOSED  WITHOUT  FAULT  ON ANY ONE OR MORE OF THE  INDEMNITEES;
     PROVIDED THAT SUCH INDEMNITY SHALL NOT, AS TO ANY INDEMNITEE,  BE AVAILABLE
     TO THE EXTENT THAT SUCH LOSSES,  CLAIMS,  DAMAGES,  LIABILITIES  OR RELATED
     EXPENSES ARE DETERMINED BY A COURT OF COMPETENT  JURISDICTION  BY FINAL AND
     NONAPPEALABLE  JUDGMENT  TO HAVE  RESULTED  FROM THE  GROSS  NEGLIGENCE  OR
     WILLFUL MISCONDUCT OF SUCH INDEMNITEE.

          (c) To the extent that the Borrower  fails to pay any amount  required
     to be paid by it to the Administrative Agent under Section 12.03(a) or (b),
     each  Lender  severally  agrees to pay to such  Administrative  Agent  such
     Lender's  Applicable  Percentage  (determined  as  of  the  time  that  the
     applicable  unreimbursed  expense or  indemnity  payment is sought) of such
     unpaid amount;  provided that the unreimbursed expense or indemnified loss,
     claim,  damage,  liability  or  related  expense,  as the case may be,  was
     incurred by or asserted against such  Administrative  Agent in its capacity
     as such.

          (d) To the extent  permitted by applicable law, the Borrower shall not
     assert, and hereby waives, any claim against any Indemnitee,  on any theory
     of liability, for special, indirect,  consequential or punitive damages (as
     opposed to direct or actual damages) arising out of, in connection with, or
     as a result of, this Agreement, any other Loan Document or any agreement or
     instrument  contemplated hereby or thereby,  the Transactions,  any Loan or
     the use of the proceeds thereof.

          (e) All amounts due under this Section 12.03 shall be payable promptly
     after written demand therefore.

          Section 12.04 Successors and Assigns.

          (a) The provisions of this  Agreement  shall be binding upon and inure
     to the benefit of the parties  hereto and their  respective  successors and
     assigns  permitted  hereby,  except that

               (i) the Borrower may not assign or otherwise  transfer any of its
          rights or obligations  hereunder  without the prior written consent of
          each Lender (and any attempted  assignment or transfer by the Borrower
          without  such  consent  shall be null and void) and

               (ii) no Lender may  assign or  otherwise  transfer  its rights or
          obligations  hereunder  except in accordance  with this Section 12.04.
          Nothing in this Agreement, expressed or implied, shall be construed to
          confer  upon  any  Person  (other  than  the  parties  hereto,   their
          respective  successors and assigns permitted hereby,  Participants (to
          the extent provided in Section  12.04(c)) and, to the extent expressly
          contemplated hereby, the Related Parties of each of the Administrative
          Agent and the Lenders) any legal or equitable  right,  remedy or claim
          under or by reason of this Agreement.

          (b)

               (i) Subject to the conditions set forth in Section  12.04(b)(ii),
          any Lender may assign to one or more assignees all or a portion of its
          rights  and  obligations  under  this  Agreement  (including  all or a
          portion  of its  Commitment  and the  Loans at the  time  owing to it)
          without the prior written consent of the Borrower:

               (ii) Assignments shall be subject to the following conditions:

                    (A)  except in the case of an  assignment  to a Lender or an
               Affiliate of a Lender or an  assignment  of the entire  remaining
               amount of the assigning  Lender's  Commitment,  the amount of the
               Commitment  of  the  assigning   Lender   subject  to  each  such
               assignment   (determined  as  of  the  date  the  Assignment  and
               Assumption  with respect to such  assignment  is delivered to the
               Administrative Agent) shall not be less than $100,000 unless each
               of the Borrower and the  Administrative  Agent otherwise consent,
               provided  that no such consent of the Borrower  shall be required
               if an Event of Default has occurred and is continuing;

                    (B) each partial  assignment  shall be made as an assignment
               of a proportionate  part of all the assigning Lender's rights and
               obligations  under  this  Agreement;  (C)  the  parties  to  each
               assignment shall execute and deliver to the Administrative  Agent
               an Assignment  and  Assumption,  together  with a processing  and
               recordation fee of $500; and

                    (D) the assignee, if it shall not be a Lender, shall deliver
               to the Administrative Agent any information  reasonably requested
               by the Administrative Agent;

               (iii)  Subject to Section  12.04(b)(iv)  and the  acceptance  and
          recording thereof, from and after the effective date specified in each
          Assignment  and Assumption  the assignee  thereunder  shall be a party
          hereto and, to the extent of the interest  assigned by such Assignment
          and Assumption, have the rights and obligations of a Lender under this
          Agreement, and the assigning Lender thereunder shall, to the extent of
          the interest  assigned by such Assignment and Assumption,  be released
          from its  obligations  under this  Agreement  (and,  in the case of an
          Assignment  and  Assumption  covering  all of the  assigning  Lender's
          rights and obligations  under this Agreement,  such Lender shall cease
          to be a party hereto but shall continue to be entitled to the benefits
          of Section 5.01,  Section 5.02 and Section  12.03).  Any assignment or
          transfer  by a Lender of rights or  obligations  under this  Agreement
          that does not comply  with this  Section  12.04  shall be treated  for
          purposes of this Agreement as a sale by such Lender of a participation
          in such rights and obligations in accordance with Section 12.04(c).

               (iv) The  Administrative  Agent,  acting  for this  purpose as an
          agent of the Borrower,  shall maintain at one of its offices a copy of
          each Assignment and Assumption  delivered to it and a register for the
          recordation of the names and addresses of the Lenders, and the Maximum
          Credit  Amount of, and  principal  amount of the Loans  owing to, each
          Lender   pursuant  to  the  terms   hereof  from  time  to  time  (the
          "Register").  The entries in the Register shall be conclusive, and the
          Borrower,  the  Administrative  Agent,  and the Lenders may treat each
          Person  whose name is recorded in the  Register  pursuant to the terms
          hereof  as a Lender  hereunder  for all  purposes  of this  Agreement,
          notwithstanding   notice  to  the  contrary.  The  Register  shall  be
          available  for  inspection  by the  Borrower,  and any Lender,  at any
          reasonable time and from time to time upon reasonable prior notice. In
          connection  with  any  changes  to the  Register,  if  necessary,  the
          Administrative Agent will reflect the revisions on Annex I and forward
          a copy of such revised Annex I to the Borrower and each Lender.

               (v)  Upon  its  receipt  of  a  duly  completed   Assignment  and
          Assumption  executed  by an  assigning  Lender  and an  assignee,  the
          assignee's  providing  any  information  reasonably  requested  by the
          Administrative,  the  processing  and  recordation  fee referred to in
          Section  12.04(b) and any written consent to such assignment  required
          by Section  12.04(b),  the  Administrative  Agent  shall  accept  such
          Assignment and Assumption and record the information contained therein
          in the Register. No assignment shall be effective for purposes of this
          Agreement  unless it has been  recorded in the Register as provided in
          this Section 12.04(b).

          (c) Any  Lender  may,  without  the  consent  of the  Borrower  or the
     Administrative  Agent,  sell  participations  to one or more banks or other
     entities (a  "Participant") in all or a portion of such Lender's rights and
     obligations  under  this  Agreement  (including  all  or a  portion  of its
     Commitment  and the Loans  owing to it);  provided  that (A) such  Lender's
     obligations  under this Agreement shall remain  unchanged,  (B) such Lender
     shall  remain  solely  responsible  to the  other  parties  hereto  for the
     performance of such  obligations and (C) the Borrower,  the  Administrative
     Agent,  and the other  Lenders  shall  continue to deal solely and directly
     with such Lender in connection  with such Lender's  rights and  obligations
     under this  Agreement.  Any  agreement  or  instrument  pursuant to which a
     Lender  sells such a  participation  shall  provide  that such Lender shall
     retain  the  sole  right to  enforce  this  Agreement  and to  approve  any
     amendment,  modification  or waiver  of any  provision  of this  Agreement;
     provided  that such  agreement or  instrument  may provide that such Lender
     will not, without the consent of the  Participant,  agree to any amendment,
     modification  or waiver  described  in the  proviso to  Section  12.02 that
     affects such Participant.  In addition such agreement must provide that the
     Participant be bound by the provisions of Section 12.03. Subject to Section
     12.04(c)(ii),  the Borrower agrees that each Participant  shall be entitled
     to the  benefits of Section  5.01 and Section 5.02 to the same extent as if
     it were a Lender and had acquired its  interest by  assignment  pursuant to
     Section  12.04(b).  To the extent  permitted by law, each  Participant also
     shall be  entitled  to the  benefits  of Section  12.08 as though it were a
     Lender,  provided such Participant  agrees to be subject to Section 4.01(c)
     as though it were a Lender.

               (ii) A  Participant  shall not be entitled to receive any greater
          payment under Section 5.01 or Section 5.02 than the applicable  Lender
          would have been entitled to receive with respect to the  participation
          sold to such Participant, unless the sale of the participation to such
          Participant is made with the Borrower's prior written consent.

          (d) Any Lender may at any time pledge or assign a security interest in
     all or any portion of its rights under this Agreement to secure obligations
     of such Lender, including any pledge or assignment to secure obligations to
     a Federal  Reserve Bank,  and this Section  12.04(d) shall not apply to any
     such pledge or  assignment  of a security  interest;  provided that no such
     pledge or assignment of a security interest shall release a Lender from any
     of its obligations hereunder or substitute any such pledgee or assignee for
     such Lender as a party hereto.

     Section 12.05 Survival; Revival; Reinstatement.

          (a) All covenants, agreements,  representations and warranties made by
     the Borrower herein and in the certificates or other instruments  delivered
     in connection with or pursuant to this Agreement or any other Loan Document
     shall be considered  to have been relied upon by the other  parties  hereto
     and shall  survive the  execution  and delivery of this  Agreement  and the
     making of any Loans, regardless of any investigation made by any such other
     party or on its behalf and notwithstanding that the Administrative Agent or
     any Lender may have had notice or  knowledge  of any  Default or  incorrect
     representation  or warranty  at the time any credit is extended  hereunder,
     and shall  continue in full force and effect as long as the principal of or
     any  accrued  interest on any Loan or any fee or any other  amount  payable
     under  this  Agreement  is  outstanding  and  unpaid  and  so  long  as the
     Commitments have not expired or terminated. The provisions of Section 5.01,
     Section 5.02 and Section  12.03 and ARTICLE XI shall  survive and remain in
     full force and effect  regardless of the  consummation of the  transactions
     contemplated hereby, the repayment of the Loans, and the Commitments or the
     termination  of this  Agreement,  any other Loan  Document or any provision
     hereof or thereof.

          (b) To the extent that any payments on the Indebtedness or proceeds of
     any collateral are subsequently  invalidated,  declared to be fraudulent or
     preferential,  set aside or required  to be repaid to a trustee,  debtor in
     possession,  receiver or other Person under any bankruptcy  law, common law
     or equitable  cause,  then to such extent,  the  Indebtedness  so satisfied
     shall be revived and  continue as if such  payment or proceeds had not been
     received and the  Administrative  Agent's and the Lenders' Liens,  security
     interests,  rights,  powers and remedies under this Agreement and each Loan
     Document shall continue in full force and effect.  In such event, each Loan
     Document shall be automatically reinstated and the Borrower shall take such
     action as may be reasonably  requested by the Administrative  Agent and the
     Lenders to effect such reinstatement.

     Section 12.06 Counterparts; Integration; Effectiveness.

          (a) This Agreement may be executed in  counterparts  (and by different
     parties hereto on different  counterparts),  each of which shall constitute
     an original, but all of which when taken together shall constitute a single
     contract.

          (b) This  Agreement,  the other Loan Documents and any separate letter
     agreements  with  respect  to  fees  payable  to the  Administrative  Agent
     constitute the entire  contract  among the parties  relating to the subject
     matter hereof and thereof and supersede any and all previous agreements and
     understandings,  oral or written, relating to the subject matter hereof and
     thereof.  This Agreement and the other Loan  Documents  represent the final
     agreement  among the parties hereto and thereto 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.

          (c) Except as provided in Section 6.01,  this  Agreement  shall become
     effective when it shall have been executed by the Administrative  Agent and
     when the  Administrative  Agent  shall have  received  counterparts  hereof
     which,  when  taken  together,  bear the  signatures  of each of the  other
     parties  hereto,  and  thereafter  shall be  binding  upon and inure to the
     benefit of the parties hereto and their respective  successors and assigns.
     Delivery of an executed  counterpart  of a signature page of this Agreement
     by  telecopy  shall  be  effective  as  delivery  of  a  manually  executed
     counterpart of this Agreement.

     Section 12.07  Severability.  Any provision of this  Agreement or any other
Loan Document held to be invalid,  illegal or  unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such invalidity,
illegality or  unenforceability  without  affecting  the validity,  legality and
enforceability of the remaining provisions hereof or thereof; and the invalidity
of a particular provision in a particular jurisdiction shall not invalidate such
provision in any other jurisdiction.

     Section  12.08 Right of Setoff.  If an Event of Default shall have occurred
and be continuing,  each Lender and each of its Affiliates is hereby  authorized
at any time and from time to time,  to the fullest  extent  permitted by law, to
set off and apply any and all  deposits  (general  or  special,  time or demand,
provisional  or final) at any time held and  other  obligations  (of  whatsoever
kind) at any time owing by such Lender or  Affiliate to or for the credit or the
account of the Borrower or any Subsidiary against any of and all the obligations
of the Borrower or any Subsidiary owed to such Lender now or hereafter  existing
under this Agreement or any other Loan Document,  irrespective of whether or not
such Lender  shall have made any demand  under this  Agreement or any other Loan
Document and although  such  obligations  may be  unmatured.  The rights of each
Lender  under this  Section  12.08 are in addition to other  rights and remedies
(including other rights of setoff) which such Lender or its Affiliates may have.

     Section 12.09 GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS.

          (a) THIS  AGREEMENT  AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED
     IN ACCORDANCE  WITH, THE LAWS OF THE STATE OF NEW YORK EXCEPT TO THE EXTENT
     THAT UNITED STATES FEDERAL LAW PERMITS ANY LENDER TO CONTRACT FOR,  CHARGE,
     RECEIVE,  RESERVE OR TAKE  INTEREST AT THE RATE  ALLOWED BY THE LAWS OF THE
     STATE WHERE SUCH LENDER IS LOCATED.

          (b) ANY LEGAL ACTION OR PROCEEDING  WITH RESPECT TO THE LOAN DOCUMENTS
     SHALL BE  BROUGHT  IN THE  COURTS OF THE STATE OF NEW YORK OR OF THE UNITED
     STATES OF AMERICA FOR THE SOUTHERN  DISTRICT OF NEW YORK, AND, BY EXECUTION
     AND DELIVERY OF THIS  AGREEMENT,  EACH PARTY HEREBY  ACCEPTS FOR ITSELF AND
     (TO THE EXTENT PERMITTED BY LAW) IN RESPECT OF ITS PROPERTY,  GENERALLY AND
     UNCONDITIONALLY,  THE  JURISDICTION  OF THE  AFORESAID  COURTS.  EACH PARTY
     HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY
     OBJECTION  TO THE  LAYING  OF VENUE OR BASED ON THE  GROUNDS  OF FORUM  NON
     CONVENIENS,  WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH
     ACTION OR PROCEEDING IN SUCH RESPECTIVE  JURISDICTIONS.  THIS SUBMISSION TO
     JURISDICTION IS NON-EXCLUSIVE  AND DOES NOT PRECLUDE A PARTY FROM OBTAINING
     JURISDICTION OVER ANOTHER PARTY IN ANY COURT OTHERWISE HAVING JURISDICTION.

          (c) THE BORROWER HEREBY IRREVOCABLY DESIGNATES,  APPOINTS AND EMPOWERS
     AND HEREBY CONFERS AN IRREVOCABLE  SPECIAL POWER, AMPLE AND SUFFICIENT,  TO
     CT  Corporation  System,  WITH  OFFICES  ON THE DATE  HEREOF AT 111  Eighth
     Avenue, New York, New York 10011 AS ITS DESIGNEE,  APPOINTEE AND AGENT WITH
     RESPECT TO ANY SUCH ACTION OR PROCEEDING IN NEW YORK TO RECEIVE, ACCEPT AND
     ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS PROPERTY,  SERVICE
     OF ANY AND ALL LEGAL PROCESS,  SUMMONS,  NOTICES AND DOCUMENTS WHICH MAY BE
     SERVED IN ANY SUCH  PROCEEDING AND AGREES THAT THE FAILURE OF SUCH AGENT TO
     GIVE ANY ADVICE OF ANY SUCH  SERVICE OF PROCESS TO THE  BORROWER  SHALL NOT
     IMPAIR  OR AFFECT  THE  VALIDITY  OF SUCH  SERVICE  OR OF ANY  CLAIM  BASED
     THEREON.  IF FOR ANY REASON SUCH DESIGNEE,  APPOINTEE AND AGENT SHALL CEASE
     TO BE  AVAILABLE  TO ACT AS SUCH,  THE  BORROWER  AGREES TO DESIGNATE A NEW
     DESIGNEE,  APPOINTEE AND AGENT IN NEW YORK  REASONABLY  SATISFACTORY TO THE
     ADMINISTRATIVE  AGENT ON THE TERMS AND FOR THE PURPOSES OF THIS  PROVISION.
     EACH PARTY  IRREVOCABLY  CONSENTS  TO THE  SERVICE OF PROCESS OF ANY OF THE
     AFOREMENTIONED  COURTS IN ANY SUCH ACTION OR  PROCEEDING  BY THE MAILING OF
     COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,  POSTAGE PREPAID,  TO IT AT
     THE  ADDRESS  SPECIFIED  IN  SECTION  12.01  OR SUCH  OTHER  ADDRESS  AS IS
     SPECIFIED  PURSUANT TO SECTION 12.01 (OR ITS  ASSIGNMENT  AND  ASSUMPTION),
     SUCH  SERVICE TO BECOME  EFFECTIVE  THIRTY  (30) DAYS  AFTER SUCH  MAILING.
     NOTHING HEREIN SHALL AFFECT THE RIGHT OF A PARTY OR ANY HOLDER OF A NOTE TO
     SERVE  PROCESS IN ANY OTHER MANNER  PERMITTED  BY LAW OR TO COMMENCE  LEGAL
     PROCEEDINGS  OR  OTHERWISE  PROCEED  AGAINST  ANOTHER  PARTY  IN ANY  OTHER
     JURISDICTION.

          (d) EACH PARTY HEREBY (i) IRREVOCABLY AND  UNCONDITIONALLY  WAIVES, TO
     THE FULLEST  EXTENT  PERMITTED BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR
     PROCEEDING  RELATING TO THIS  AGREEMENT OR ANY OTHER LOAN  DOCUMENT AND FOR
     ANY COUNTERCLAIM  THEREIN;  (ii) IRREVOCABLY  WAIVES, TO THE MAXIMUM EXTENT
     NOT  PROHIBITED  BY LAW,  ANY RIGHT IT MAY HAVE TO CLAIM OR  RECOVER IN ANY
     SUCH LITIGATION ANY SPECIAL, EXEMPLARY,  PUNITIVE OR CONSEQUENTIAL DAMAGES,
     OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL  DAMAGES;  (iii) CERTIFIES
     THAT NO PARTY  HERETO NOR ANY  REPRESENTATIVE  OR AGENT OF COUNSEL  FOR ANY
     PARTY HERETO HAS REPRESENTED,  EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH
     PARTY WOULD NOT, IN THE EVENT OF LITIGATION,  SEEK TO ENFORCE THE FOREGOING
     WAIVERS,  AND (iv) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS
     AGREEMENT, THE LOAN DOCUMENTS AND THE TRANSACTIONS  CONTEMPLATED HEREBY AND
     THEREBY  BY,  AMONG OTHER  THINGS,  THE MUTUAL  WAIVERS AND  CERTIFICATIONS
     CONTAINED IN THIS SECTION 12.09.

     Section  12.10  Headings.  Article  and Section  headings  and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement  and  shall  not  affect  the   construction  of,  or  be  taken  into
consideration in interpreting, this Agreement.

     Section 12.11  Confidentiality.  Each of the  Administrative  Agent and the
Lenders agrees to maintain the  confidentiality  of the  Information (as defined
below),  except that Information may be disclosed (a) to its and its Affiliates'
directors,  officers, employees and agents, including accountants, legal counsel
and other advisors (it being understood that the Persons to whom such disclosure
is made will be  informed of the  confidential  nature of such  Information  and
instructed to keep such Information  confidential),  (b) to the extent requested
by any regulatory  authority,  (c) to the extent  required by applicable laws or
regulations or by any subpoena or similar legal process,  (d) to any other party
to this  Agreement  or any  other  Loan  Document,  (e) in  connection  with the
exercise of any remedies hereunder or under any other Loan Document or any suit,
action or  proceeding  relating to this  Agreement or any other Loan Document or
the enforcement of rights  hereunder or thereunder,  (f) subject to an agreement
containing provisions  substantially the same as those of this Section 12.11, to
(i) any  assignee  of or  Participant  in,  or any  prospective  assignee  of or
Participant  in, any of its rights or  obligations  under this Agreement or (ii)
any actual or prospective counterparty (or its advisors) to any Hedging Contract
relating  to the  Borrower  and its  obligations,  (g) with the  consent  of the
Borrower or (h) to the extent such  Information (i) becomes  publicly  available
other  than as a  result  of a breach  of this  Section  12.11  or (ii)  becomes
available to the Administrative Agent or any Lender on a non-confidential  basis
from a source other than the Borrower.  For the purposes of this Section  12.11,
"Information" means all information received from the Borrower or any Subsidiary
relating to the Borrower or any Subsidiary and their businesses,  other than any
such information that is available to the Administrative  Agent or any Lender on
a  non-confidential  basis prior to  disclosure by the Borrower or a Subsidiary;
provided that, in the case of information -------- received from the Borrower or
any Subsidiary after the date hereof,  such information is clearly identified at
the time of  delivery as  confidential.  Any Person  required  to  maintain  the
confidentiality  of  Information  as  provided  in this  Section  12.11 shall be
considered  to have  complied  with its  obligation  to do so if such Person has
exercised  the same  degree  of care to  maintain  the  confidentiality  of such
Information  as such Person  would accord to its own  confidential  information.
Notwithstanding anything herein to the contrary, each of the parties hereto (and
each employee,  representative or other agent of such party) may disclose to any
and all Persons,  without  limitation of any kind,  the U.S.  federal income tax
treatment and tax structure of the transaction  contemplated  herein (as used in
this Section 12.11, the  "Transaction") and all materials of any kind (including
opinions  and  other tax  analyses)  that are  provided  to the  parties  hereto
relating  to such  tax  treatment  and tax  structure.  For this  purpose,  "tax
structure" is limited to facts relevant to the U.S. federal income tax treatment
of the Transaction and does not include information  relating to the identity of
the parties hereto, its affiliates, agents or advisors.

     Section 12.12 Interest Rate Limitation.  It is the intention of the parties
hereto that each Lender shall conform  strictly to usury laws  applicable to it.
Accordingly, if the transactions contemplated hereby would be usurious as to any
Lender under laws  applicable to it (including  the laws of the United States of
America and the States of Texas or New York or any other jurisdiction whose laws
may  be  mandatorily   applicable  to  such  Lender  notwithstanding  the  other
provisions of this Agreement),  then, in that event, notwithstanding anything to
the  contrary in any of the Loan  Documents  or any  agreement  entered  into in
connection with or as security for the Notes,  it is agreed as follows:  (i) the
aggregate of all consideration  which constitutes  interest under law applicable
to any Lender that is contracted  for, taken,  reserved,  charged or received by
such Lender  under any of the Loan  Documents  or  agreements  or  otherwise  in
connection with the Notes shall under no circumstances exceed the maximum amount
allowed by such applicable  law, and any excess shall be canceled  automatically
and if theretofore paid shall be credited by such Lender on the principal amount
of the  Indebtedness  (or,  to the  extent  that  the  principal  amount  of the
Indebtedness shall have been or would thereby be paid in full,  refunded by such
Lender to the Borrower); and (ii) in the event that the maturity of the Notes is
accelerated  by reason of an election of the holder  thereof  resulting from any
Event of  Default  under this  Agreement  or  otherwise,  or in the event of any
required or  permitted  prepayment,  then such  consideration  that  constitutes
interest  under law  applicable  to any Lender may never  include  more than the
maximum  amount allowed by such  applicable  law, and excess  interest,  if any,
provided for in this Agreement or otherwise shall be canceled  automatically  by
such  Lender  as of  the  date  of  such  acceleration  or  prepayment  and,  if
theretofore  paid,  shall be credited by such Lender on the principal  amount of
the  Indebtedness   (or,  to  the  extent  that  the  principal  amount  of  the
Indebtedness shall have been or would thereby be paid in full,  refunded by such
Lender to the  Borrower).  All sums paid or agreed to be paid to any  Lender for
the use,  forbearance  or detention of sums due hereunder  shall,  to the extent
permitted by law applicable to such Lender,  be amortized,  prorated,  allocated
and spread  throughout the stated term of the Loans evidenced by the Notes until
payment in full so that the rate or amount of  interest  on account of any Loans
hereunder does not exceed the maximum amount allowed by such  applicable law. If
at any time and from time to time (i) the  amount  of  interest  payable  to any
Lender on any date shall be computed at the Highest  Lawful Rate  applicable  to
such Lender pursuant to this Section 12.12 and (ii) in respect of any subsequent
interest  computation  period the amount of interest  otherwise  payable to such
Lender would be less than the amount of interest payable to such Lender computed
at the  Highest  Lawful  Rate  applicable  to such  Lender,  then the  amount of
interest  payable  to  such  Lender  in  respect  of  such  subsequent  interest
computation  period  shall  continue to be  computed at the Highest  Lawful Rate
applicable  to such Lender  until the total  amount of interest  payable to such
Lender shall equal the total amount of interest which would have been payable to
such Lender if the total amount of interest  had been  computed  without  giving
effect to this Section 12.12.

     Section  12.13   EXCULPATION   PROVISIONS.   EACH  OF  THE  PARTIES  HERETO
SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS  AND AGREES THAT IT IS CHARGED WITH NOTICE AND  KNOWLEDGE OF THE TERMS
OF THIS  AGREEMENT AND THE OTHER LOAN  DOCUMENTS;  THAT IT HAS IN FACT READ THIS
AGREEMENT AND IS FULLY  INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS,
CONDITIONS  AND  EFFECTS  OF THIS  AGREEMENT;  THAT IT HAS BEEN  REPRESENTED  BY
INDEPENDENT  LEGAL COUNSEL OF ITS CHOICE  THROUGHOUT THE NEGOTIATIONS  PRECEDING
ITS EXECUTION OF THIS AGREEMENT AND THE OTHER LOAN  DOCUMENTS;  AND HAS RECEIVED
THE ADVICE OF ITS ATTORNEY IN ENTERING  INTO THIS  AGREEMENT  AND THE OTHER LOAN
DOCUMENTS;  AND THAT IT RECOGNIZES  THAT CERTAIN OF THE TERMS OF THIS  AGREEMENT
AND THE OTHER LOAN DOCUMENTS RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT
IN SOME  ASPECTS  OF THE  TRANSACTION  AND  RELIEVING  THE  OTHER  PARTY  OF ITS
RESPONSIBILITY  FOR SUCH LIABILITY.  EACH PARTY HERETO AGREES AND COVENANTS THAT
IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY  PROVISION
OF THIS  AGREEMENT AND THE OTHER LOAN  DOCUMENTS ON THE BASIS THAT THE PARTY HAD
NO  NOTICE  OR  KNOWLEDGE  OF  SUCH  PROVISION  OR  THAT  THE  PROVISION  IS NOT
"CONSPICUOUS."

     Section 12.14 No Third Party Beneficiaries.  This Agreement, the other Loan
Documents,  and the agreement of the Lenders to make Loans  hereunder are solely
for the  benefit  of the  Borrower,  and no  other  Person  (including,  without
limitation,   any   Subsidiary  of  the  Borrower,   any  obligor,   contractor,
subcontractor, supplier or materialsman) shall have any rights, claims, remedies
or  privileges   hereunder  or  under  any  other  Loan  Document   against  the
Administrative Agent or any Lender for any reason whatsoever. There are no third
party beneficiaries.

     Section 12.15  Securitization.  The Borrower hereby  acknowledges  that the
Lenders   and   their   Affiliates   may  sell  or   securitize   the  Loans  (a
"Securitization")  through the pledge of the Loans as  collateral  security  for
loans to the Lenders or their Affiliates or through the sale of the Loans or the
issuance  of direct or  indirect  interests  in the  Loans,  which  loans to the
Lenders or their  Affiliates  or direct or indirect  interests  will be rated by
Moody's,  Standard  Poor's or one or more other  rating  agencies  (the "Rating
Agencies").  The Borrower shall cooperate with the Lenders and their  Affiliates
to effect the Securitization including, without limitation, by (a) amending this
Agreement and the other Loan Documents, and executing such additional documents,
as reasonably  requested by the Lenders in connection  with the  Securitization,
provided that (i) any such amendment or additional documentation does not impose
material  additional  costs on the  Borrower  and (ii)  any  such  amendment  or
additional  documentation  does not materially  adversely affect the rights,  or
materially increase the obligations, of the Borrower under the Loan Documents or
change or affect in a manner adverse to the Borrower the financial  terms of the
Loans,  (b) providing  such  information  as may be reasonably  requested by the
Lenders in connection  with the rating of the Loans or the  Securitization,  and
(c)  providing  in  connection  with any rating of the Loans a  certificate  (i)
agreeing  to  indemnify  the  Lenders  and their  Affiliates,  any of the Rating
Agencies,  or any party providing  credit support or otherwise  participating in
the Securitization (collectively,  the "Securitization Parties") for any losses,
claims,  damages or liabilities (the "Liabilities") to which the Lenders,  their
Affiliates  or such  Securitization  Parties may become  subject  insofar as the
Liabilities  arise out of or are based  upon any  untrue  statement  or  alleged
untrue  statement of any material fact  contained in any Loan Document or in any
writing delivered by or on behalf of any Loan Party to the Lenders in connection
with any Loan Document or arise out of or are based upon the omission or alleged
omission to state  therein a material  fact  required to be stated  therein,  or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, and such indemnity shall survive any
transfer  by the  Lenders or their  successors  or assigns of the Loans and (ii)
agreeing to reimburse  the Lenders and their  Affiliates  for any legal or other
expenses  reasonably  incurred by such Persons in connection  with defending the
Liabilities.

                          [SIGNATURES BEGIN NEXT PAGE]

     [Signature  Page to Credit  Agreement]  S-5 The parties  hereto have caused
this Agreement to be duly executed as of the day and year first above written.

BORROWER:                                    GULFWEST OIL  GAS COMPANY



                                             By:__\s\ Thomas R. Kaetzer
                                                Thomas R. Kaetzer
                                                President

ADMINISTRATIVE AGENT:         HIGHBRIDGE/ZWIRN SPECIAL
                              OPPORTUNITIES FUND, L.P., as Administrative Agent


                              By: \s\ D. B. Zwirn  Co., L.P.


LENDER:                      HIGHBRIDGE/ZWIRN SPECIAL
                             OPPORTUNITIES FUND, L.P.

                             By:      D.B. Zwirn  Co., L.P.

                                  Address: 745 5th Avenue, 18th Floor
                                           New York, New York  10151
                                           Attention:        Morris W. Macleod
                                           Telecopy:         (212) 287-4263
LENDER:                     DRAWBRIDGE SPECIAL OPPORTUNITIES FUND LP

                            By: \s\   Drawbridge Special Opportunities GP LLC
                                  Address: 1251 Avenue of the Americas
                                           Suite 1600
                                           New York, New York  10020
                                           Attention:
                                           Telecopy:


                       JOINDER BY Setex Oil  Gas Company



     Setex Oil  Gas Company, a Texas corporation, hereby joins in the execution
of this Credit  Agreement to evidence its  acknowledgment  and  agreement (i) to
undertake to perform all  obligations  which under the terms of the Agreement or
any other Loan Document Borrower is required to cause Operator to perform,  (ii)
not to do any action which the Borrower  under the terms of the Agreement or any
other Loan Document is obligated not to permit  Operator to do, (iii) to Agent's
right to terminate  the Contract  Operating  Agreement  between the Borrower and
Operator as provided in Sections  8.06(i) and  10.02(d),  and (iv) to not amend,
modify, restate or change in any fashion the Contract Operating Agreement.  Note
Setex Oil  Gas Company,  is not a party to the  Agreement  and is no way liable
for or responsible  for the payment of any Loans that are or maybe in the future
outstanding  under the Agreement;  its joinder hereby is solely for the purposes
set forth above in this paragraph and no other.

                                             Setex Oil  Gas Company



                                             By: \s\  Thomas R. Kaetzer
                                                  Thomas R. Kaetzer
                                                  President

                                             Address for Notices:
                                                  Setex Oil  Gas Company
                                                  4801 N. Sam Houston Pkwy. E.
                                                  Suite 300
                                                  Houston, Texas 77060
                                                  Attention of Thomas R. Kaetzer
                                                  Telecopy No. 281-260-8488

                                     Annex I
                                     ANNEX I
                         LIST OF MAXIMUM CREDIT AMOUNTS

Aggregate Maximum Credit Amounts

          Name of Lender                             Applicable       Maximum
                                                     Percentage    Credit Amount

Drawbridge Special Opportunities Fund LP                50%           $9,000,000
 Highbridge/Zwirn Special Opportunities Fund, L.P.      50%           $9,000,000

          TOTAL                                       100.00%         18,000,000


                                    Exhibit B
                                    EXHIBIT A
                        FORM OF AMEDED AND RESTATED NOTE

$18,000,000                                                       April 27, 2004

     FOR VALUE RECEIVED,  GulfWest Oil  Gas Company,  a Texas  corporation (the
"Borrower"),  hereby promises to pay to the order of [ ] (the "Lender"),  at the
principal  office of  Highbridge/Zwirn  Special  Opportunities  Fund,  L.P. (the
"Administrative  Agent"),  at 745 Fifth Avenue,  18th Floor,  New York, New York
10151,  the principal sum of EIGHTEEN MILLION Dollars  ($18,000,000),  in lawful
money of the United States of America and in immediately available funds, on the
dates and in the principal amounts provided in the Credit Agreement,  and to pay
interest on the unpaid  principal  amount of each such Loan, at such office,  in
like money and funds,  for the period  commencing on the date of such Loan until
such  Loan  shall be paid in full,  at the  rates  per  annum  and on the  dates
provided in the Credit Agreement.

     The date and  amount of the Loan made by the  Lender to the  Borrower,  and
each payment made on account of the principal thereof,  shall be recorded by the
Lender on its books and,  prior to any  transfer of this  Amended  and  Restated
Note,  may be endorsed  by the Lender on the  schedules  attached  hereto or any
continuation thereof or on any separate record maintained by the Lender. Failure
to make any such notation or to attach a schedule  shall not affect any Lender's
or the  Borrower's  rights or obligations in respect of such Loans or affect the
validity of such transfer by any Lender of this Amended and Restated Note.

     This  Amended  and  Restated  Note is one of the Notes  referred  to in the
Credit   Agreement  dated  as  of  April  27,  2004  among  the  Borrower,   the
Administrative  Agent,  and the  other  agents  and  lenders  signatory  thereto
(including the Lender),  and evidences Loans made by the Lender thereunder (such
Credit Agreement as the same may be amended,  supplemented or restated from time
to time,  the "Credit  Agreement").  Capitalized  terms used in this Amended and
Restated  Note  have the  respective  meanings  assigned  to them in the  Credit
Agreement.

     This Amended and Restated Note is issued  pursuant to the Credit  Agreement
and is entitled to the  benefits  provided for in the Credit  Agreement  and the
other Loan Documents.  The Credit Agreement provides for the acceleration of the
maturity  of this  Amended  and  Restated  Note upon the  occurrence  of certain
events, for prepayments of Loans upon the terms and conditions specified therein
and other provisions relevant to this Amended and Restated Note.

     This Amended and Restated  Note  represents  a renewal,  rearrangement  and
modification to that certain Amended and Restated Advancing Note dated effective
as of  April  5,  2000,  made by  Borrower  in the  stated  original  amount  of
$36,102,000  ("Prior Note"). All collateral given to secure the Prior Note shall
also secure this Amended and Restated Note.

     THIS  AMENDED AND  RESTATED  NOTE SHALL BE GOVERNED  BY, AND  CONSTRUED  IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

                                     GULFWEST OIL  GAS COMPANY


                                     By:  \s\  Thomas R. Kaetzer
                                          Name: Thomas R. Kaetzer
                                          Title:  President



                                    EXHIBIT B
                            FORM OF BORROWING REQUEST


                                                           _________, 200__

     GulfWest Oil  Gas Company, a Texas corporation (the "Borrower"),  pursuant
to Section  2.03 of the Credit  Agreement  dated as  --------  of April 27, 2004
(together with all amendments, restatements,  supplements or other modifications
thereto,  the "Credit Agreement") among the Borrower,  Highbridge/Zwirn  Special
Opportunities  Fund,  L.P.,  as  Administrative  Agent and the other  agents and
lenders (the "Lenders")  that are or become parties  thereto  (unless  otherwise
defined  herein,  each  capitalized  term used  herein is  defined in the Credit
Agreement), hereby requests a Borrowing as follows:

     (i)______Aggregate amount of the requested Borrowing is $18,000,000;

     (ii)_____Date of such Borrowing is [ ], 2004; and

     (iii)___Location and number of the Borrower's account to which funds are to
be disbursed,  which shall comply with the  requirements  of Section 2.04 of the
Credit Agreement, is as follows:

         [-----------------]
         [-----------------]
         [-----------------]
         [-----------------]
         [-----------------]

     The undersigned certifies that he/she is the [           ] of the Borrower,
and that as such  he/she is  authorized  to  execute  this  certificate  on
behalf of the Borrower.  The undersigned further certifies,  represents and
warrants on behalf of the Borrower that the Borrower is entitled to receive the
requested Borrowing under the terms and conditions of the Credit Agreement.

                                          GULFWEST OIL  GAS COMPANY


                                          By:
                                              Name:
                                              Title:

                                    Exhibit D
                                    EXHIBIT D
                                     FORM OF
                             COMPLIANCE CERTIFICATE


     The undersigned  hereby  certifies that he/she is the [ ] of GulfWest Oil
Gas Company,  a Texas corporation (the  "Borrower"),  and that as such he/she is
authorized to execute this certificate on behalf of the Borrower. With reference
to  the  Credit  Agreement  dated  as of  April  27,  2004  (together  with  all
amendments,  restatements,  supplements or other modifications thereto being the
"Agreement") among the Borrower,  Highbridge/Zwirn  Special  Opportunities Fund,
L.P. as  Administrative  Agent, and the other agents and lenders (the "Lenders")
that are or become a party thereto, and such Lenders, the undersigned represents
and  warrants as follows  (each  capitalized  term used  herein  having the same
meaning given to it in the Agreement unless otherwise specified):

          (a)______The  representations and warranties of the Borrower contained
     in ARTICLE VII of the  Agreement  and in the Loan  Documents  and otherwise
     made in writing by or on behalf of the Borrower  pursuant to the  Agreement
     and the Loan Documents were true and correct when made, and are repeated at
     and as of the time of  delivery  hereof  and are true  and  correct  in all
     material  respects at and as of the time of delivery hereof,  except to the
     extent such  representations  and  warranties  are expressly  limited to an
     earlier  date or the Lenders  have  expressly  consented  in writing to the
     contrary.

          (b)______The  Borrower has performed and complied with all  agreements
     and  conditions  contained  in the  Agreement  and in  the  Loan  Documents
     required to be performed or complied  with by it prior to or at the time of
     delivery hereof [or specify default and describe].

          (c)______Since  [same date as audited  financials in Section 7.04(a)],
     no change  has  occurred,  either in any case or in the  aggregate,  in the
     condition,  financial or otherwise, of the Borrower or any Subsidiary which
     could  reasonably be expected to have a Material Adverse Effect [or specify
     event].

          (d)______There  exists no  Default  or Event of  Default  [or  specify
     Default and describe].

          (e)______Attached  hereto are the detailed  computations  necessary to
     determine  whether the  Borrower is in  compliance  with  Section  9.01 and
     Section 8.14 as of the end of the [fiscal quarter][fiscal year] ending [ ].

EXECUTED AND DELIVERED this [ ] day of [ ].

                                         GULFWEST OIL  GAS COMPANY


                                         By:
                                              Name:
                                              Title:


                                   EXHIBIT E-1
                          FORM OF LEGAL OPINION OF [ ]


                                   EXHIBIT E-2
                     FORM OF LEGAL OPINION OF LOCAL COUNSEL



                                  [ ] [ ], 2004

as Administration Agent



     Re:  Credit  Agreement dated as of April ___, 2004 among GulfWest Oil  Gas
          Company, a ______________ corporation (the "Borrower"),  the banks now
          or  hereafter   signatory  thereto  (the  "Lenders"),   and  [  ],  as
          administrative   agent  for  the   Lenders  (in  such   capacity   the
          "Administrative Agent"), and other agents for the Lenders (the "Credit
          Agreement").

Gentlemen:

     We have acted as special [ ] counsel to the Borrower and its  Subsidiaries,
including [ ], a [ ] corporation ("Mortgagor"), in connection with the execution
and delivery of that certain Deed of Trust, Mortgage, Assignment of As-Extracted
Collateral,  Security  Agreement and Financing  Statement dated [ ] [ ], 2002 by
the  Mortgagor  in favor of the  Administrative  Agent,  for its benefit and the
benefit  of the  Lenders  and others  (the  "Mortgage").  This  opinion is being
furnished to you pursuant to Section  6.01(j)(ii) of the Credit  Agreement.  All
capitalized  terms not defined  herein shall have the same meanings  assigned to
them in the Credit Agreement.  In connection with the opinions set forth herein,
we have examined originals,  or copies certified or otherwise  identified to our
satisfaction, of the following documents (the "Loan Documents"):

          [(A)] the Mortgage[; and]

          [(B) the UCC-1 Financing  Statement covering  as-extracted  collateral
     and goods that are or are to become  fixtures  prepared in connection  with
     the Mortgage (the "Financing Statement")].

     In  rendering  the  opinions  set  forth   herein,   we  have  relied  upon
certificates  of officers of the Mortgagor,  certificates or telegrams of public
officials and such other  documents,  records and  information as we have deemed
necessary or appropriate.  We have assumed that all signatures are genuine; that
all  documents  submitted to us as originals are  authentic;  that all documents
submitted to us as copies conform to the originals; and that the facts stated in
all such documents are true and correct.  In rendering this opinion, we have not
made any independent  investigation  as to accuracy or completeness of any facts
or representations,  warranties,  data or other information,  whether written or
oral,  that may  have  been  made by or on  behalf  of the  parties,  except  as
specifically set forth herein.

     Based  upon the  foregoing,  and  subject to the  qualifications  set forth
herein, it is our opinion that:

          1. The form of the  Mortgage,  including  the form of  acknowledgments
     thereto,  [and the Financing  Statement,] comply with the laws of the State
     of [ ], including all applicable  recording,  filing and registration  laws
     and regulations,  and are adequate and legally  sufficient for the purposes
     intended to be accomplished thereby.

          2.  The  descriptions  of those  portions  of the  Mortgaged  Property
     located  within the State of [ ] that are shown on Exhibit "A"  attached to
     the  Mortgage  are  legally  sufficient  descriptions  for the  purpose  of
     creating and  maintaining the Liens purported to be created by the Mortgage
     and for the purposes of all applicable  recording,  filing and registration
     laws in the State of [ ].

          3. The  Mortgagor  is duly  qualified as a foreign  corporation  to do
     business and to own its Property and is in good  standing in the State of
     [                 ].

          4. So far as the law of the State of [ ] is  concerned,  the  Mortgage
     constitutes  legal,   valid  and  binding   obligations  of  the  Mortgagor
     enforceable  against it in accordance with their terms except as limited by
     bankruptcy, insolvency, reorganization, moratorium or other similar laws of
     general  application  relating to or affecting  creditors' rights generally
     and to general principles of equity.

          5. The Mortgage is effective to create in favor of the  Administrative
     Agent (or the Trustee named therein,  as applicable) for the benefit of the
     Administrative  Agent and the Lenders,  for the payment of the  obligations
     described  therein,  a valid mortgage Lien on all of the Mortgagor's right,
     title  and  interest  in and  to the  portion  of  the  Mortgaged  Property
     constituting  real  property  described in the Mortgage as being  mortgaged
     thereby  and a valid  security  interest in all of the  Mortgagor's  right,
     title and interest in and to as-extracted  collateral located in the county
     in which the Mortgaged Property is situated and all fixtures located on the
     real property described in the Mortgage.

          6. Fully  executed  counterparts  of the  Mortgage  and the  Financing
     Statement  should  be filed for  record in each  county in the State of [ ]
     where any portion of the Mortgaged Property is located [or if other, please
     specify].  Other than the foregoing, no authorization,  consent,  approval,
     license or exemption of, or filing or registration  with, any  Governmental
     Authority of the State of [ ] is necessary for either the due execution and
     delivery by the  Mortgagor of the  Mortgage,  the  perfection  of the Liens
     intended to be created  thereby or with the holding and  enforcement by the
     Administrative Agent of the Mortgage or the obligations secured thereby.

          7. After the  recordings  and filings  specified  in  paragraph 6 have
     occurred, the Liens created by the Mortgage will be perfected.

          8. After the  recordings  and filings  specified  in  paragraph 6 have
     occurred,  no  instruments  need  be  recorded,   registered  or  filed  or
     re-recorded, re-registered or re-filed in any public office in the State of
     [ ] in connection  with the execution and delivery of the Mortgage in order
     to maintain the perfection and priority of the Liens created  thereby after
     the  date  of  recordation,  other  than  [state  rule  if  necessary]  and
     continuation  statements as required by the Uniform  Commercial  Code as in
     effect in the State of [ ].

          9. No state or local  recording  tax,  stamp tax or other similar fee,
     tax or governmental  charge (other than statutory filing and recording fees
     to be paid upon the filing of the Mortgage [or the Financing Statement]) is
     required to be paid in connection with the filing and recording of [either]
     the Mortgage [or the Financing Statement][,  except as follows:  explain if
     necessary].

          10. The  execution,  delivery and  performance by the Mortgagor of its
     obligations  under the Mortgage will not result in a violation of any laws,
     rules  and  regulations  of the  State  of [ ]  which,  in our  experience,
     exercising  customary  professional  diligence,  are normally applicable to
     transactions of the type provided for in the Loan Documents.

          11. A [ ] state court of  competent  jurisdiction  or a federal  court
     sitting  in  the  State  of  [ ] of  competent  jurisdiction  and  applying
     conflicts  of laws  principles  of the State of [ ], if properly  presented
     with a choice of law issue, will honor the choice of New York law to govern
     the Credit Agreement,  the Notes and the Mortgage that state such documents
     shall be governed by the laws of the State of New York.

     The foregoing opinions are subject to the following additional  assumptions
and qualifications:

[add appropriate qualifications, if any].

     The opinions  rendered  herein are for the sole benefit of, and may only be
relied upon by, the  addressee  and the Persons from time to time Lenders  under
the Credit  Agreement,  and the opinions  herein  expressed  are not to be used,
circulated or otherwise  referred to in connection  with any  transaction  other
than those  contemplated  by the Loan  Documents.  This opinion is  specifically
limited to the  presently  effective  laws of the State of [ ]. We have not been
asked  to,  and we do  not,  render  any  opinion  as to any  matter  except  as
specifically set forth herein.

                                   Very truly yours,



                                   EXHIBIT F-1
                              SECURITY INSTRUMENTS

     1) Guarantee and  Collateral  Agreement  dated as of April 27, 2004, by the
Borrower and GulfWest  Energy,  Inc. a Texas  corporation and GulfWest Oil  Gas
Company   (Louisiana)  LLC,  a  Louisiana  limited  liability  company,  as  the
Guarantors, in favor of the Administrative Agent and the Lenders.

     2) Financing Statements in respect of item 1, by each of:

          a) the Borrower

          b) GulfWest Oil  Gas Company (Louisiana) LLC

          c) GulfWest Energy, Inc

     3) Stock Powers delivered in respect of item 1.

          a) GulfWest Energy, Inc. a Texas corporation

     4) Amended and Restated Deed of Trust, Mortgage, Assignment of As-Extracted
Collateral,  Security  Agreement and Financing  Statement  dated as of April 27,
2004 by the Borrower and GulfWest  Oil  Gas Company  (Louisiana)  LLC,  each as
mortgagor,  in favor of Michael R.  Keener,  as  Trustee,  for the  benefit  the
Administrative Agreement, the Lenders and others.

     5) Financing Statement in respect of item 4. by each of:

          a) the Borrower

          b) GulfWest Oil  Gas Company (Louisiana) LLC

     6) Amended and Restated Deed of Trust, Mortgage, Assignment of As-Extracted
Collateral,  Security  Agreement and Financing  Statement  dated as of April 27,
2004 by the Borrower, as mortgagor,  in favor of the Public Trustee, as Trustee,
for the benefit the Administrative Agreement, the Lenders and others.

     7) Financing Statement in respect of item 6. by the Borrower




                                   EXHIBIT F-2
                   FORM OF GUARANTEE AND COLLATERAL AGREEMENT



                                    EXHIBIT G
                        FORM OF ASSIGNMENT AND ASSUMPTION


     Reference  is made to the  Credit  Agreement  dated  as of [ ],  200[ ] (as
amended and in effect on the date hereof, the "Credit Agreement"),  among [ ], a
[ ], the Lenders named therein and [ ], as Administrative Agent for the Lenders.
Terms defined in the Credit Agreement are used herein with the same meanings.

     The Assignor named herein hereby sells and assigns,  without  recourse,  to
the Assignee  named  herein,  and the  Assignee  hereby  purchases  and assumes,
without  recourse,  from the Assignor,  effective as of the Assignment  Date set
forth  herein,  the  interests  set  forth  on the  grid  below  (the  "Assigned
Interest") in the Assignor's  rights and obligations under the Credit Agreement,
including,  without limitation, the interests set forth on the grid below in the
Maximum Credit Amount of the Assignor on the Assignment  Date and Loans owing to
the Assignor that are outstanding on the Assignment Date, but excluding  accrued
interest and fees to and  excluding the  Assignment  Date.  The Assignee  hereby
acknowledges  receipt  of a copy of the  Credit  Agreement  and the  other  Loan
Documents.  From and after the Assignment Date (i) the Assignee shall be a party
to and be bound by the provisions of the Credit  Agreement and, to the extent of
the Assigned  Interest,  have the rights and obligations of a Lender  thereunder
and (ii) the Assignor shall, to the extent of the Assigned Interest,  relinquish
its rights and be released from its obligations under the Credit Agreement.

     As  consideration  for the sale and  assignment  contemplated  hereby,  the
Assignee shall,  on the Assignment  Date, pay to the Assignor an amount equal to
the  principal  amount of Loans  assigned by the Assignor to the Assignee as set
forth in the grid below.  Except as otherwise  provided in this  Agreement,  all
payments hereunder shall be made in Dollars and in immediately  available funds,
without setoff, deduction or counterclaim.

     The Assignor and the Assignee agree that (i) the Assignor shall be entitled
to any payments of principal with respect to the Assigned Interest made prior to
the  Assignment  Date,  together  with any interest and fees with respect to the
Assigned  Interest accrued prior to the Assignment Date, (ii) the Assignee shall
be entitled to any payments of principal  with respect to the Assigned  Interest
made from and after the Assignment Date,  together with any and all interest and
fees  with  respect  to the  Assigned  Interest  accruing  from  and  after  the
Assignment Date, and (iii) the Administrative Agent is authorized and instructed
to allocate payments received by it for account of the Assignor and the Assignee
as provided in the foregoing clauses. Each party hereto agrees that it will hold
any interest, fees or other amounts that it may receive to which the other party
hereto shall be entitled pursuant to the preceding  sentence for account of such
other  party and pay,  in like money and  funds,  any such  amounts  that it may
receive to such other party promptly upon receipt.

     The Assignor  does not make any  representation  or warranty,  nor shall it
have any  responsibility  to the  Assignee,  with respect to the accuracy of any
recitals,  statements,  representations  or  warranties  contained  in the  Loan
Documents, or for the value, validity,  effectiveness,  genuineness,  execution,
effectiveness,  legality, enforceability or sufficiency of the Loan Documents or
any other document referred to or provided for therein or for any failure by the
Borrower or any other Person to perform any of its obligations thereunder or for
the existence,  value,  perfection or priority of any collateral security or the
financial or other  condition of the Borrower or any of its  Subsidiaries or any
other obligor or guarantor,  or any other matter  relating to the Loan Documents
or any extension of credit thereunder.

     Promptly  following  the  receipt  by the  Assignor  of  the  consideration
required to be paid to it by the Assignee hereunder,  the Assignor shall, in the
manner  contemplated by Section 2.02(d) of the Credit Agreement:  (i) deliver to
the  Administrative  Agent the Note held by the  Assignor,  and (ii)  notify the
Administrative Agent to request that the Borrower execute and deliver a new Note
to (A) the Assignee,  dated as of the Assignment  Date, in the principal  amount
equal to the Maximum  Credit  Amount of the Assignee  after giving effect to the
sale and assignment  contemplated  hereby and (B) the Assignor,  if the Assignor
has  assigned  less than the full  amount of its  Maximum  Credit  Amount to the
Assignee,  dated as of the Assignment Date, in the principal amount equal to the
Maximum  Credit  Amount  of the  Assignor  after  giving  effect to the sale and
assignment contemplated hereby.

     This  Assignment  and Assumption is being  delivered to the  Administrative
Agent  together  with,  if the Assignee is not already a Lender under the Credit
Agreement,  any information  reasonably  requested by the Administrative  Agent.
[The  [Assignee/Assignor]  shall pay the fee payable to the Administrative Agent
pursuant to Section 12.04(b) of the Credit Agreement.] [The Administrative Agent
hereby waives the fee payable to the  Administrative  Agent  pursuant to Section
12.04(b) of the Credit Agreement.]

     This  Assignment  and  Assumption  shall be  governed by and  construed  in
accordance with the laws of the State of New York.

Legal Name of the Assignor:  [                    ]

Legal Name of Assignee:  [                    ]

Assignee's Address for Notices:     [                    ]
                                    [                    ]

Effective Date of Assignment ("Assignment Date"):  [        ], 200[   ]


                                                       Applicable Percentage
                                                     Assigned (set forth as a
                    Maximum           Principal           percentage of the
                    Credit              Amount        Aggregate Maximum Credit
                    Amount             of Loans               Amounts)
      Assignors    Assigned            Assigned


[     ]           $[  ],000,000.00    $[  ],000,000.00            [   ]%
[     ]           $[  ],000,000.00    $[  ],000,000.00            [   ]%
[     ]           $[  ],000,000.00    $[  ],000,000.00            [   ]%
[     ]           $[  ],000,000.00    $[  ],000,000.00            [   ]%
[     ]           $[  ],000,000.00    $[  ],000,000.00            [   ]%
Totals            $[  ],000,000.00    $[  ],000,000.00            [   ]%


     Exhibit G - 2 IN WITNESS  WHEREOF,  the  parties  hereto  have  caused this
Assignment and Assumption to be executed by their respective  officers thereunto
duly authorized, as of the Assignment Date.

ASSIGNORS:        _________         [                       ], as Assignor


                  _________                 By:______________________________
                                            Name:
                                            Title:


                                            [                       ],
                                            as Assignor


                  _________                 By:______________________________
                                            Name:
                                            Title:


                  _________                 [                       ],
                                            as Assignor



                  _________                 By:______________________________
                                            Name:
                                            Title:


ASSIGNEE:         _________                 [                       ],
                                            as Assignee


                  _________                 By: ______________________________
                                            Name:
                                            Title:


The undersigned hereby consent to the within assignments:1

[Borrower]        _________                 [                       ],
                                            as Administrative Agent,



By:                                         By:
         [Name]   _________                 [Name]
         [Title   _________                 [Title]


                                  SCHEDULE 1.02
                             APPROVED COUNTERPARTIES

None.




                                  SCHEDULE 7.05
                                   LITIGATION




                                  SCHEDULE 7.06
                              ENVIRONMENTAL MATTERS



                                  SCHEDULE 7.13
                                    INSURANCE



                                  SCHEDULE 7.15
                          SUBSIDIARIES AND PARTNERSHIPS


                                                 Jurisdiction of        Organizational         Principal Place of
                Subsidiaries                       Organization         Identification              Business
                                                                             Number           and Chief Executive
                                                                                                     Office














Partnerships




                                  SCHEDULE 7.19
                                 GAS IMBALANCES




                                  SCHEDULE 7.20
                               MARKETING CONTRACTS


Long Term Crude Oil Sales Agreements

          PROPERTY                                TERM
[                      ]      [                      ]

Long Term Natural Gas Sales Agreements

            FIELD                STATE                  TERM
[                      ]          [ ]      [                      ]
[                      ]          [ ]      [                      ]
[                      ]          [ ]      [                      ]
[                      ]          [ ]      [                      ]
[                      ]          [ ]      [                      ]
[                      ]          [ ]      [                      ]
[                      ]          [ ]      [                      ]
[                      ]          [ ]      [                      ]
[                      ]          [ ]      [                      ]
[                      ]          [ ]      [                      ]
[                      ]          [ ]      [                      ]



                                  SCHEDULE 7.21
                                HEDGING CONTRACTS





                                  SCHEDULE 7.25
                               MATERIAL AGREEMENTS



                                  SCHEDULE 7.29
                                ACCOUNTS PAYABLE



                                SCHEDULE 8.02(e)
                            NOTICE OF CERTAIN EVENTS


     Borrower  shall  provide  notice to  Lenders  upon the  occurrence  of each
Environmental  Event, Loss Event, Tax Event,  Third Party Failure Event or Title
Event as such terms are defined below.

         "Environmental  Event" means any of the following  events,  if such event could reasonably be expected to cause or result in a
Material  Reduction in Value  (defined  below) of the  Collateral:  any  representation  or warranty  made by the Borrower or any other
Person  pursuant to any of the Loan  Documents  with  respect to  compliance  with  Environmental  Laws shall fail to be correct in any
material respect when made or deemed to be made; or any claim (whether based on tort,  contractual  liability,  statutory or otherwise)
on account of failure to comply with any  Environmental  Law or otherwise  for damages or injury to the  environment  arising  from, or
relating to, or in respect of, any Collateral shall be asserted against any Collateral,  the Borrower,  or any Environmental  Violation
(defined below) shall have occurred, or any investigation shall be commenced with respect to the Collateral.

         "Loss Event" means any of the following  events,  if such event could  reasonably be expected to cause or result in a Material
Reduction in Value of the affected  Collateral:  any damage or destruction or casualty or theft,  loss or  disappearance  or any taking
or  appropriation  by any  Governmental  Authority  under the power of  eminent  domain or  otherwise  affecting  (a) any or all of the
Collateral or (b) any equipment  which is material to the operation,  production,  development,  processing or the  transporting of any
hydrocarbons produced from the Collateral.

         "Tax Event" means,  on any date, any of the following  events,  if such event could  reasonably be expected to cause or result
in a Material  Reduction  in Value of the  Collateral:  (a) any  failure by  Borrower or any other  Person to pay any  property  tax or
severance  tax with respect to any  Collateral  when due and/or (b) any tax claim is asserted  against the Borrower with respect to any
Collateral or which is related in any way to income therefrom, to the Loans, or to any of the Loan Documents.

         "Third Party Failure Event" means any of the following  events,  if such event could reasonably be expected to cause or result
in a Material  Reduction in Value of the  Collateral:  (a) any default by Borrower  under any Loan  Document;  (b) the occurrence of an
event which excuses or could excuse  performance  under any Loan  Document;  (c) the  occurrence of any event of the type  described in
Section 10.01(h),  (i), or (j) with respect to any operator of the Collateral;  (d) any  representation or warranty made by Borrower in
any document  entered into in connection with this Agreement or in any certificate  delivered  pursuant to any document entered into in
connection  with this  Agreement is incorrect in any material  respect when made or deemed made; or (e) the  occurrence of any event or
circumstance that could reasonably be expected to change the value or nature of the Collateral.

         "Title Event" means, on any date, any of the following  events,  if such event could reasonably be expected to cause or result
in a Material  Reduction in Value of the  Collateral:  (a) the failure of Borrower to be the true and lawful owner of, and to have good
and  indefeasible  title to, any oil and gas property,  or lease interest  forming part of the  Collateral  free and clear of all Liens
other than Excepted Liens or the Liens  permitted  pursuant to Section 9.03 of the Agreement;  (b) the failure of any oil and gas lease
or other interest  described in any Security  Agreement to be valid and  subsisting and in full force and effect,  insofar as it covers
or relates to any Collateral;  (c) any material  agreement  affecting the Collateral  shall at any time cease to be valid,  binding and
enforceable  against  the  Borrower  in  accordance  with the terms of such  document;  (d) any Lien shall  exist  with  respect to any
Collateral  other than Excepted Liens or the Liens permitted  pursuant to Section 9.03 of the Agreement;  (e) the Borrower shall suffer
a writ or warrant of  attachment  or similar  process to be issued by any court or any other  creditor's  right shall be  exercised  or
attempted to be exercised  against any Collateral;  or (f) any material  representation  or warranty with respect to title or ownership
or lack of liens made by the Borrower under any Loan Document shall fail to be correct in any material  respect;  or (g) any Collateral
shall  become  the  subject  matter of  litigation  which  would or  might,  in the  reasonable  opinion  of the  Lenders,  upon  final
determination result in impairment of ownership or title to the Collateral.

         As used in this schedule, the following terms shall have the meaning as set forth below:

         "Environmental  Violation" means (a) any violation (by the Borrower or any other Person) of (i) any  Environmental Law or (ii)
of any contractual  obligation of such Borrower,  or any other Person  contained in any agreement  relating to activities  regulated by
Environmental  Law in each such case,  with respect to any  Collateral or (b) any act or omission (by the Borrower or any other Person)
that  requires  or will  require  any  remedial,  clean-up  or similar  action  with  respect to the  Collateral  under any  applicable
Environmental  Law or otherwise  including any tort claim, to the extent any such violation,  act or omission in any way relates to the
Collateral to any activities carried out on any such property  constituting  Collateral,  or to any hazardous substances located on any
such property or associated with activities on any such property.  Included among  "Environmental  Violations" are (i) any action which
is prohibited by (or which requires or will require any remedial,  clean-up or similar action under) any applicable  Environmental  Law
or  otherwise  including  any tort claim at the time such action is taken,  (ii) any action  relating  to disposal  from or to any such
property or to the  transportation  of  hazardous  substances  to or from such  property  and (iii) any failure to take action which is
required by  applicable  Environmental  Law,  whether such failure is the failure to carry on  operations  in  compliance  with current
applicable  Environmental  Law or otherwise  including  any tort claim or the failure to remediate  or clean up earlier  activities  or
omissions  which were legal when taken or omitted,  in each case to the extent such action or failure to act relates to the Borrower or
the Mortgaged Properties.

         "Material  Reduction  in  Value"  means  a  material  reduction  in  the  aggregate  value  of  the  Collateral  securing  the
Indebtedness.  With regard to the  foregoing,  it is  understood  and agreed that an adverse  effect on the Borrower  (including on the
financial condition,  business,  or operations or on the ability of Borrower to carry out its business or to meet its obligations under
any Loan  Document  on a timely  basis) or on any  Hydrocarbons,  including  any effect on when such  Hydrocarbons  may be  produced or
delivered  or,  whether any Lien on the  Collateral  may be  challenged,  and any and all such effects,  as well as any other  relevant
effects, shall be considered in determining whether there has been a Material Reduction in Value.


                                  SCHEDULE 9.05
                                   INVESTMENTS




                                  SCHEDULE 9.23
                            NET SALES VOLUME SCHEDULE





                           2Q2004                          460
                           3Q2004                          700
                           4Q2004                          930
                           1Q2005                        1,140
                           2Q2005                        1,120
                           3Q2005                        1,100
                           4Q2005                        1,000
                           1Q2006                        1,000
                           2Q2006                        1,000



1 Consents  to be included  to the extent  required  by Section  12.04(b) of the
Credit Agreement.

EX-10

                                   dated as of

                                November 30, 2000

                                     BETWEEN

                          GULFWEST DEVELOPMENT COMPANY,
                                   as Borrower

                                       AND

                            TEXAS CAPITAL BANK, N.A.,
                                    as Lender





                              TABLE OF CONTENTS


ARTICLE I DEFINITIONS 1

1.1 Definitions 1
1.2 Accounting Terms and Determinations; Changes in Accounting 13
1.3 References 13

ARTICLE  II  COMMITMENT  TO LEND AND ISSUE  LETTERS  OF CREDIT  14
2.1 Commitment.  14
2.2 Method of Borrowing and Obtaining  Letters of Credit. 15
2.3 Note. 15
2.4 Certain  Payments and Prepayments of Principal 15
2.5 Interest.16
2.6 Unused Available Commitment Fees; Engineering Fees; Facility Fees; Letter of
Credit Fees;  Authorized  Payments by Lender.  16
2.7 Termination of Commitment;
Maturity of Loans. 17
2.8 Determination of Borrowing Base,. Automatic Reductions
in  Borrowing  Base;  Borrowing  Base  Deficiency;  Notice of  Redeterminations;
Requests  for  Reductions  in  Borrowing  Base.  17
2.9  RequestforExtension  of
Maturity 18

ARTICLE  III GENERAL  PROVISIONS  18
 3.1  General  Provisions  as to
Payments and Loans. 18
 3.2 Computation of Interest.  19
3.3 Default Interest. 19
3.4 Prepayments Permitted 19

ARTICLE IV COLLATERAL 19
4.1 Security.  19
4.2 Grant of Security  Interests.  20
4.3  Notification  of Account Debtors
and Other Obligors 20
4.4 Assignment of Insurance. 20
4.5 Financing Statement. 20

ARTICLE V CONDITIONS PRECEDENT TO LOANS AND LETTERS OF CREDIT 21

5.1 All Loans and Letters of Credit 21
5.2 Initial Loan. 21

ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE BORROWER 23

6.1 Existence and Power. 23
6.2 Authorization;
Contravention. 24
6.3 BindingEffect 24
6.4 Subsidiaries; Ownership. 24
6.5 Disclosure. 25
                                       i

6.6 Financial Information 25
6.7 Litigation 25
6.8 ERISA Plans 25
6.9 Taxes and Filing of Tax Returns 26
6.10 Title to Properties; Liens; Environmental Liability. 26
6.11 Business; Compliance. 27
6.12 Licenses, Permits, Etc. 27
6.13 Compliance with Law. 27
6.14 Governmental Consent 27
6.15 Investment CompanyAct 27
6.16 Public Utili.ty Holding Company Act; State Utility 27
6.17 Refunds; Certain Contracts. 27
6.18 No Default 28

ARTICLE VII COVENANTS 28

7.1 Use of Proceeds and Letters of Credit. 28
7.2 Financial Statements;  Reserve
and  Other  Reports;   Certain  Required   Notices  from  Borrower;   Additional
Information  28
7.3 Inspection of Properties  and Books,  31
7.4  Maintenance of
Security; Insurance,Operating Accounts; Transfer Orders. 31
7.5 Payment of Taxes
and Claims 32
7.6 Payment of Debt,'Additional  Debt; Payment of .Accounts 32
7.7 Liens. 32
7.8 Loans and Advances to Others;  Investments;  Restricted Payments,'
Subsidiaries; G&A Expenses. 32
7.9 Consolidation, Merger, Maintenance, Change of
Control,.  Disposition of Property;  Restrictive Agreements; Hedging Agreements;
Modification of Organizational Documents;  Issuance of Equity Interests. 33
7.10 Primary Business;  Location of Borrower's  Office;  Ownership of Assets. 34
7.11 Operation of Properties and Equipment; Compliance with and Maintenance of
Contracts,' Duties as Nonoperator 34
7.12 Transactions with Affiliates.  35
7.13 Plans.  35
7.14 Compliance  with Laws and Documents.  35
7.15 Certain  Financial
Covenants.  36
7.16 Additional- Documents,' Quantity of Documents,' Title Data,'
Additional  Information.   36
7.17  ENVIRONMENTAL   INDEMNIFICATION.   37
7.18 Exceptions to Covenants. 38
7.19 Guarantor Promissory Note. 38

ARTICLE VIII DEFAULTS; REMEDIES 39
8.1 Events of Default; Acceleration of Maturity 39
8.2 Suits for Enforcement 41
8.3 Remedies Cumulative 41
8.4 Remedies Not Waived. 41
                                       ii


ARTICLE IX  MISCELLANEOUS  41
9.1 Amendments and Waivers.  41
9.2 Highest Lawful Interest Rate. 42
9.3 INDEMNIT 42
9.4 Expenses 43
9.5 Taxes.  44
9.6 Notices 44
9.7 Rights of Set-Off. 44
9.8 Survival.  45
9.9 Successors and Assigns:Rights of Other Holders. 45
9.10  ApplicableLaw;  Venue; Waiver of Jury Trial 45
9.11 Headings. 46
9.12 Counterparts.  46
9.13 Invalid Provisions,  Severability.46
9.14  Revolving  Loan.  47
9.15  Preclusion  of Oral  Agreements.  48
FORM OF PROMISSORY NOTE 1
FORM OF NOTICE OF BORROWING 1
FORM OF COMPLIANCE CERTIFICATE 1
                                      iii



                                CREDIT AGREEMENT

THIS CREDIT  AGREEMENT is entered  into as of November 30, 2000,  by and between
GulfWest Development Company, a Texas corporation, and Texas Capital Bank, N.A.,
a national banking association. Certain terms used herein are defined in Section
1.1.

                                    RECITALS:

     A. The  Borrower  desires  to  borrow  funds  from the  Lender;  and

     B. The Borrower  desires to acquire Oil and Gas  Properties  and to provide
for additional credit facilities;
 NOW,  THEREFORE,  the parties hereto agree as
follows:

                                    ARTICLE I

                                   DEFINITIONS

     1.1 Definitions.  The following  terms, as used herein,  have the following
meanings:

     "Accounts"  of a Person means all of the  accounts of such Person,  as such
term is defined in the UCC,  including  without  limitation the aggregate unpaid
obligations of customers and other account debtors to such Person arising out of
the sale or lease of goods or  rendition  of  services by such Person on an open
account or deferred payment basis.

     "Acceptable   Commodity   Hedging   Agreements"   means  Commodity  Hedging
Agreements meeting all the following criteria:
     (i) The  quantity  of gas and  liquid  hydrocarbons  owned by the  Borrower
subject to Commodity  Hedging  Agreements  shall not be greater than (i) for gas
hydrocarbons, 75% of the monthly production of gas hydrocarbons from the Oil and
Gas Properties of the Borrower used in  determining  the Borrowing Base and (ii)
for liquid  hydrocarbons,  75% of the monthly production of liquid  hydrocarbons
from  the  Oil and Gas  Properties  of the  Borrower  used  in  determining  the
Borrowing  Base;  in either  case,  as  forecast  in the  Lender's  most  recent
engineering  evaluation  delivered to the  Borrower,  without the prior  written
approval of the Lender;

     (ii) The "strike prices" under any Commodity  Hedging  Agreements shall not
be less than the lowest  prices  utilized in the Lender's  most recent base case
evaluation of the Oil and Gas Properties of the Borrower used in determining the
Borrowing Base, as reported to the Borrower, e.xcept that under certain downside
conditions  such  lower  strike  price as the  Lender  may  approve  in  writing
following a written request by the Borrower;

     (iii) The Lender must have given its written consent to the counter-parties
under the Commodity Hedging Agreements; and
                                       1



     (iv) The Lender  shall have  received  first and prior  perfected  securIty
interests  pursuant  to security  agreements  in fonn and  substance  reasonably
satisfactory  to  the  Lender  in  and  to  the  Commodity  Hedging  Agreements.
"Acceptable  Hedging  Agreements" means Acceptable  Commodity Hedging Agreements
and  Acceptable  Rate  Management  Transactions.   "Acceptable  Rate  Management
Transactions" means any Rate Management Transaction meeting all of the following
criteria:

     (v) The tenus thereof are satisfactory to the Lender; and

     (vi) The Persons with whom such  Transactions are effected are satisfactory
to the Lender.

     "Affiliate"  means,  with  respect  to a  Person,  (a) any  Person  owning,
Controlling or holding with power to vote 1 0% or more of the outstanding voting
interests  of the  referenced  Person,  (b) any  Person  1 0% or  more of  whose
outstanding  voting  interests are directly or indirectly  owned,  Controlled or
held with power to vote by the  referenced  Person,  (c) any Person  directly or
indirectly  Controlling,   Controlled  by  or  under  common  Control  with  the
referenced  Person,  (d) any relative  within the third degree of kindred of the
referenced  Person,  or (e) any officer,  director,  limited  liability  company
manager,  trustee,  beneficiary,  employee or general  partner of the referenced
Person or of any Person  referred  to in clauses ( a).  (b).  (c) or (d) of this
definition.  The tenn "Affiliate" shall include Affiliates of Affiliates (and so
on).

     "Agreement"  means this  Credit  Agreement,  as the same may  hereafter  be
modified or amended from time to time.

     " Available  Commitment"  means, at any time, an amount equal to the lesser
of the Commitment Amount or the Borrowing Base.

     "Borrower" means GultWest Development Company, a Texas corporation.

     "Borrowing  Base" means the amount most recently  detennined and designated
by the Lender as the Borrowing Base in accordance with Section 2.8.1,  but in no
event in excess of the Commitment  Amount,  as such Borrowing Base is reduced in
accordance  with Section 2.8.2.  The Borrowing Base ~der Section 2.8.1 is deemed
to be $2,100,000 as of the Closing Date.

     "Borrowing Base Deficiency" means, as of the date of detennination of a new
Borrowing Base under Section 2.8.1, the amount, if any, by which the outstanding
principal balance of the Loans plus the UC Exposure exceeds the Borrowing Base.

     "Business  Day" means any day (other than  Saturdays  and Sundays) on which
the Lender is open for general banking business in Dallas, Texas.

     "Change of Control  Event"  means the failure of the  Guarantor  to own and
control at least 100% of every class of Equity Interests of the Borrower.
                                       2

     "Closing" means the consummation of the transactions contemplated herein.

     "Closing Date" means the date of this Agreement.

     "Collateral"  means the Property  pledged to the Lender as security for the
Note.
     "Collateral  Value" means,  with respect to any Oil and Gas  Property,  the
positive  dollar amount which such Oil and Gas Property  contributed to the most
recently determined Borrowing Base.

     "Commitment"  means the  commitment  of the  Lender to make Loans and issue
letters  of  credit  not  exceeding  at  any  time   outstanding  the  Available
Commitment.

     "Commitment Amount" means the amount of $10,000,000.

     "Commodity  Hedging  Agreements"  means  any swap  agreement,  cap,  floor,
collar, exchange transaction, forward agreement, or other exchange or protection
agreement  relating  to  hydrocarbons  or any  option  with  respect to any such
transaction.

     "Commonly Controlled Entity" means any Person which is under common control
with the Borrower within the meaning of Section 4001 of ERISA.

     "Compliance  Certificate"  means a certificate,  substantially  in the form
attached  hereto  entitled  "Form  of  Compliance  Certificate",  executed  by a
Responsible  Officer and furnished to the Lender from time to time in accordance
with Section 7.2.1.

         "Control,"  "Controlling" and "Controlled by" mean the ability (directly or indirectly  through one or more
intermediaries)  to direct or cause the  direction of the  management  or affairs of a Person,  whether  through the
ownership of voting interests, by contract or otherwise.

     "Debt" of any Person means at any date, without duplication:

     (i) all obligations of such Person for money borrowed,  including,  without
limitation,  (a)  the  obligations  of  such  Person  for  money  borrowed  by a
partnership of which such Person is a general partner, (b) obligations which are
secured  in  whole  or in  part by the  Property  of  such  Person,  and (c) any
obligations  of such  Person in respect  of  letters  of credit  and  repurchase
agreements;
     (ii) all obligations of such Person evidenced by notes,  debentures,  bonds
or similar instruments;
     (iii) all obligations of such Person to pay the deferred  purchase price of
Property or services;
     (iv) all obligations of such Person as lessee under capital  leases,  other
than usual and customary oil and gas leases;
      (v) all liabilities which in accordance with GAAP would be included in
deteffilining total liabilities as shown on the liability side of a balance sheet;
                                       3


     (vi) all obligations of such Person under Hedging Agreements; and

     (vii) all Guarantees by such Person of Debt of another Person.

     "Default"  means the  occurrence  of an Event of Default or any event which
with  notice,  lapse of time or both would,  unless  cured or waived,  become an
Event of Default.

     "Default Rate" means a per annum interest rate equal to five percent (5.0%)
plus the TCB Rate from time  to-time in effect,  but in no event  exceeding  the
Highest Lawful Rate.

     "Dollars"  and "$" shall  mean  dollars  in lawful  currency  of the United
States of America.

     "Environmental Complaint" shall mean any written or oral complaint,  order,
directive, claim, citation, notice of environmental report or investigation,  or
other notice by any  Governmental  Authority or any other Person with respect to
(a)  air  emissions,   (b)  spills,   releases,  or  discharges  to  soils,  any
improvements located thereon, surface water, groundwater,  or the sewer, septic,
waste  treatment,  storage,  or disposal  systems  servicing any Property of the
Borrower, (c) solid or liquid waste disposal, (d) the use, generation,  storage,
transportation,   or  disposal  of  any  Hazardous   Substance,   or  (e)  other
environmental,  health, or safety matters affecting any Property of the Borrower
or the business conducted thereon.

     "Environmental  Laws"  means any law,  statute,  regulation,  order or rule
promulgated  by any  Governmental  Authority,  whether  local,  state or federal
relating to air pollution,  water pollution,  noise control and/or transporting,
storing,  handling,  discharge,  disposal  or  recovery  of on-site or off- site
hazardous substances or materials,  as each of the foregoing may be amended from
time to time.

     "Environmental  Liability" means any claim,  demand,  obligation,  cause of
action,  accusation,  allegation,  order, violation,  damage, injury,  judgment,
penalty or fine, cost of enforcement,  cost of remedial action or any other cost
or expense whatsoever,  including reasonable  attorneys' fees and disbursements,
resulting from the violation or alleged  violation of any  Environmental  Law or
the imposition of any Environmental Lien.

     "Environmental  Lien" means a Lien in favor of a Tribunal  or other  Person
(i) for any liability  under an  Environmental  Law or (ii) for damages  arising
from or costs incurred by such Tribunal or other Person in response to a release
or threatened release of hazardous or toxic waste, substance or constituent into
the environment.

     "Equipment"  of a Person  means  all of such  Person's  equipment,  as such
teffil is defined in the UCC, whether now owned or hereafter acquired, including
but not  limited to all  present  and  future  machinery,  vehicles,  furniture,
fixtures,  manufacturing  equipment,  shop equipment,  office and  recordkeeping
equipment,   parts,  tools,   supplies,   and  including  specifically  (without
limitation)  the goods  described in any equipment  schedule or list herewith or
hereafter furnished to the Lender by such Person.
                                      4


     "Equity  Interests" means, with respect to any Person,  ownership and other
~equity  interests in such Person and rights to convert into ownership or equity
interests  in such Person or to  otherwise  acquire  ownership  or other  equity
interests in such Person.

     "ERISA" means the  Employment  Retirement  Income  Security Act of 1974, as
amended,  together with all presently  effective and future  regulations  issued
pursuant thereto.

     "Event of Default" has the meaning stated in Section 8.1 hereof.

     "Final  Maturity Date" or "Final  Maturity" means November 1, 2003, as such
date may be accelerated as her~~n provided.

     "Floating  Rate"  means a per annum  interest  rate equal to the sum of one
percent  (1.00%) plus the TCB Rate from time to time in effect,  but in no event
exceeding the Highest Lawful Rate.

     "GAAP" means those generally accepted  accounting  principles and practices
which are  recognized  as such by the American  Institute  of  Certified  Public
Accountants  acting through its Accounting  Principles Board or by the Financial
Accounting  Standards  Board or through other  appropriate  boards or committees
thereof.  Any  accounting  principle  or practice  required to be changed by the
Accounting  Principles Board or Financial  Accounting  Standards Board (or other
appropriate  board or  committee  of such  Boards)  in order  to  continue  as a
generally accepted  accounting  principle or practice may be so changed.  In the
event of a change in GAAP, the Loan Documents  shall continue to be construed in
accordance with GAAP as in existence on the date hereof.

     "General  Intangibles"  of a  Person  means  all of such  Person's  general
intangibles,  as such term is defined in the UCC, whether now owned or hereafter
acquired,  including (without limitation) all present and future patents, patent
applications,  copyrights,  trademarks,  trade names, trade secrets, customer or
supplier  lists  and  contracts,   manuals,  operating  instructions,   permits,
franchises,  licenses, rights to use bonds, rights to call on letters of credit,
such Person's  causes of actions,  claims,  rights under  indemnity  agreements,
rights to tax refunds,  rights to the proceeds of  litigation,  the right to use
such Person's name, and the goodwill of such Person's business.

     "Governmental   Authority"   means  any  nation,   country,   commonwealth,
territory,  government, state,. county, parish, municipality, or other political
subdivision  and  any  entity  exercising  executive,   legislative,   judicial,
regulatory, or administrative functions of or pertaining to government.

     "Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly  guaranteeing or in effect  guaranteeing  any
Debt of any other Person and,  without limiting the generality of the foregoing,
any obligation,  direct or indirect, contingent or otherwise, of such Person (i)
to purchase or pay (or advance or supply  funds for the  purchase or payment of)
such  Debt or  other  obligation  (whether  arising  by  virtue  of  partnership
arrangements,  by agreement to keep-well,  to purchase assets, goods, securities
or services,  to  take-or-pay,  to make  reimbursement  in  connection  with any
letter-of-credit  or to maintain  financial  statement  conditions,  by "comfort
letter" or other similar undertaking of support or
                                       5


     otherwise)  or (ii)  entered  into for the purpose of assuring in any other
manner the obligee of such Debt or other obligation of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part).  The
teml  "Guarantee"  includes  the  pledging or other  encumbrance  of assets by a
Person  to  secure  the  obligations  of  another  Person  and  restrictions  or
limitations  on a  Person  or  its  assets  agreed  to in  connection  with  the
obligations of another Person, but does not include  endorsements for collection
or deposit in the ordinary  course of  business;  and  "Guaranteed"  by a Person
shall mean the act or  condition  of  providing  a  Guarantee  by such Person or
pemlitting a Guarantee of such Person to exist.

     "Guarantor" means GulfWest Oil Company, a Texas corporation.

     "Guaranty.; means the unconditional and unlimited guaranty of the Guarantor
in favor of the  Lender  guarantying  the  Obligations  of the  Borrower  to the
Lender, in foml and substance satisfactory to the Lender and the Guarantor.

     "Hazardous  Substances"  shall  mean  flammables,  explosives,  radioactive
materials,  hazardous wastes,  asbestos,  or any material  containing  asbestos,
polychlorinated   biphenyls  (PCBs),  toxic  substances  or  related  materials,
petroleum,  petroleum  products,  associated  oil or  natural  gas  exploration,
production,  and  development  wastes,  or any substances  defined as "hazardous
substances,"  "hazardous  materials,"  "hazardous wastes," or "toxic substances"
under the Comprehensive Environmental Response,  Compensation and Liability Act,
as amended,  the Superfund  Amendments and Reauthorization  Act, as amended, the
Hazardous Materials  Transportation Act, as amended,  the Resource  Conservation
and Recovery Act, as amended,  the Toxic Substances Control Act, as amended,  or
any other law or  regulation  now or  hereafter  enacted or  promulgated  by any
Governmental Authority.

     "Hedging  Agreement"  means  a  Commodity  Hedging  Agreement  and  a  Rate
Management Transaction.

     "Highest Lawful Rate" means the maximum non-usurious  interest rate, if any
(or, if the context so requires, an amount calculated at such rate), that at any
time or from time to time may be contracted for, taken,  reserved,  charged,  or
received  under  applicable  laws of the State of Texas or the United  States of
America,  whichever  authorizes  the greater rate, as such laws are presently in
effect or, to the extent  allowed by applicable  law, as such laws may hereafter
be in effect and which allow a higher  maximum  non-usurious  interest rate than
such laws now allow. To the extent the laws of the State of Texas are applicable
for the purpose of detemlining the "Highest  Lawful Rate",  such teml shall mean
the "weekly  ceiling"  from time to time in effect as referred to and defined in
Chapter 303 of the Finance Code of Texas, as amended.  The  determination of the
Highest Lawful Rate shall,  to the extent  required by applicable law, take into
account as interest  paid or  contracted  for any and all  relevant  payments or
charges under the Loan Documents.

     "Insolvency  Proceeding" of any Person means application (whether voluntary
or  instituted  by another  Person) for or the consent to the  appointment  of a
receiver,  trustee,  conservator,  custodian, or liquidator of such Person or of
all or a  substantial  part of the Property of such  Person,  or the filing of a
petition (whether  voluntary or instituted by another Person)  commencing a case
under Title 11 of the United States Code, seeking liquidation, reorganization,

                                        6

or rearrangement or taking advantage of any bankruptcy, insolvency, debtor's relief, or other similar law of the United States, the
State of Texas, or any other jurisdiction.

     "Inventory" of a Person means all of such Person's inventory,  as such term
is  defined  in the UCC,  whether  now  owned  or  hereafter  acquired,  whether
consisting  of whole goods,  spare parts or  components,  supplies or materials,
whether  acquired,  held or  furnished  for  sale,  for  lease or under  service
contracts or for manufacture or processing, and wherever located.

     "Investment"  in any  Person  shall mean any stock,  bond,  note,  or other
evidence of Debt, or any other  security  (other than current trade and customer
accounts) of, investment or partnership  intere~t in or loan or advance to, such
Person.

     "Investment  Property"  of a Person means all of such  Person's  investment
property,  as such term is defined in the UCC,  whether  now owned or  hereafter
acquired,  including but not limited to all securities,  security  entitlements,
securities accounts,  commodity contracts,  commodity accounts,  stocks,  bonds,
mutual fund shares, money market shares and U.S. Government securities.

     "Lender" means Texas Capital Bank,  N.A., a national  banking  association,
and its successors and assigns.

     "L/C  Exposure"  shall  mean,  at any time,  the  aggregate  maximum  amount
available to be drawn under outstanding Letters of Credit at such time.

     "Letter  of  Credit"  means any letter of credit  issued  pursuant  to this
Agreement.

     "Letter of Credit  Application"  shall mean the  standard  letter of credit
application  employed by the Lender from time to time in connection with letters
of credit.

     "Letter of Credit  Fee"  shall  mean each fee  payable to the Lender by the
Borrower in connection with the issuance of a Letter of Credit.

     "Letter of Credit  Limit" has the meaning  given such term in Section 2.1.1
(ii).

     "Lien" means, as to any Person, any mortgage,  lien, pledge, adverse claim,
charge, security interest, negative pledge or other encumbrance in or on, or any
interest or title of any vendor,  lessor, lender or other secured party to or of
the Person  under any  conditional  sale or other title  retention  agreement or
capital  lease with  respect to, any  property  or asset of the  Person,  or the
signing or filing of a financing  statement which names the Person as debtor, or
the  signing  of any  security  agreement  authorizing  any other  Person as the
secured party thereunder to file any financing statement.

     "Loan" means a loan made, deemed made in connection with the payment by the
Lender  on any  Letter of  Credit  or to be made by the  Lender to the  Borrower
pursuant  to this  Agreement  or the  aggregate  outstanding  amount of all such
loans, as the context may require.

     "Loan Documents" or "Loan Papers" shall mean this Agreement,  the Note, the
Letter of Credit Applications,  the Security Documents,  and all other documents
and instruments now or
                                        7

     hereafter  delivered  pursuant to the tenus of or in  connection  with this
Agreement,  the  Note,  the  Letter  of  Credit  Applications,  or the  Security
Documents,  and all renewals and extensions of,  amendments and  supplements to,
and restatements of, any or all of the foregoing from time to time in effect.

     "Material  Adverse  Effect"  shall  mean for any  Person  (i) any  material
adverse effect on the business, operations, properties, results of operations or
condition  (financial or otherwise)  of such Person,  (ii) any material  adverse
effect  upon the  business  operations,  properties,  results of  operations  or
condition  (financial or otherwise) of such Person which increases the risk that
any of the Debt of such  Person will not be repaid as and when due, or (iii) any
material adverse effect upon the Collateral or the priority or enforceability of
the Liens  securing  the Note;  if under any of the  circumstances  described in
clauses  (i).  (ii)  and(iii)  preceding,  the  material  adverse  effect  could
reasonably be  anticipated  to involve  damage,  loss or Debt of$25,000 or more.


     "Material  Agreement"  means,  with  respect to any  Person,  any  material
written or oral agreement,  contract, commitment, or understanding to which such
Person is a party,  by which such Person is directly or indirectly  bound, or to
which any  Property of such Person may be subject,  which is not  cancelable  by
such  Person upon notice of 90 days or less  without (i)  liability  for further
payment in excess of $25,000 or (ii)  forfeiture of Property having an aggregate
value in excess of $25,000.

     "Material Debt" means Debt aggregating in excess of $25,000.

     "Margin Regulations" means Regulations T, U and X of the Board of Governors
of the Federal Reserve System, as in effect from time to time.

     "Mortgages"  mean deeds of trust,  mortgages,  assignments  of  production,
security  agreements,  collateral  mortgages,  and  acts of  pledge  in fonD and
substance  acceptable  to the Lender to be  executed by the  appropriate  Person
pursuant  to  which  the  Lender  is  granted  a  first  and  prior  Lien on the
Collateral, subject only to Pennitted Liens.

     "Note"  means the  promissory  note of the  Borrower  (and any  renewal  or
extension thereof) evidencing the obligation of the Borrower to repay the Loans,
substantially in the ..fonn attached hereto entitled "Fonn of Promissory  Note",
with appropriate insertions.

     "Notice of Borrowing"  means the notice  referred to in Section 2.2,  which
shall be substantially  in the. fonD of the attachment  hereto entitled "Fonn of
Notice of Borrowing."

     "Obligations"  shall mean, without  duplication,  (i) all Debt evidenced by
the Note,  (ii) the  Reimbursement  Obligations,  (iii) the  undrawn,  unexpired
amount of all outstanding Letters of Credit, (iv) the obligation of the Borrower
for the payment of the fees payable hereunder or under the other Loan Documents,
and (v) all other obligations and liabilities of the Borrower to the Lender, now
existing or hereafter incurred,  under, arising out of or in connection with any
Loan Document, and to the extent that any of the foregoing includes or refers to
the payment of amounts deemed or constituting interest,  only so much thereof as
shall have accrued,  been earned and which remains  unpaid at each relevant time
of detennination.

     "Officer's  Certificate"  means  a  certificate  signed  by  a  Responsible
Officer.
                                        8

     "Oil and Gas Properties" shall mean fee,  leasehold,  or other interests in
or under mineral  estates or oil,  gas, and other liquid or gaseous  hydrocarbon
leases with respect to Properties situated in the United States or offshore from
any  State of the  United  States,  including,  without  limitation,  overriding
royalty  and  royalty  interests,   leasehold  estate  interests,   net  profits
interest.s,  production payment interests,  and mineral fee interests,  together
with  contracts   executed.   III   connection   therewith  and  all  tenements,
hereditaments, appurtenances and PropertIes appertaining, belonging, affixed, or
incidental thereto.

     "PBGC"  means  the  Pension  Benefit  Guaranty  Corporation  or any  entity
succeeding to any or all of its functions under ERISA.

     "Permitted Indebtedness" means (i) the Obligations, (ii) unsecured accounts
payable  incurred in the ordinary  course of  business,  which are not unpaid in
excess of 90 days beyond the invoice  date  therefor or are being  contested  in
good faith and as to which such reserve as is required by GAAP has been made and
on which  interest  charges are not paid or accrued,  (iii)  unsecured  accounts
payable  owed to insurance  companies  for  insurance  contracts  maintained  by
Borrower in its ordinary course of business and (iv) if the Lender has given its
prior written consent thereto, Subordinated Debt.

     "Permitted Investments" means investments in (i) indebtedness, evidenced by
notes  maturing  not more  than 180 days  after  the date of  issue,  issued  or
guaranteed by the government of the United States of America,  (ii) certificates
of deposit  maturing  not more than 180 days after the date of issue,  issued by
the Lender or by commercial  banking  institutions  each of which is a member of
the  Federal  Reserve  System and which has  combined  capital  and  surplus and
undivided profits of not less than $50,000,000, (iii) commercial paper, maturing
not more than 90 days after the date of issue,  issued by (a) the Lender (or any
parent  corporation of the Lender) or (b) a corporation (other than an Affiliate
of the Borrower)  with a rating of "P 1" (or its then  equivalent)  according to
Moody's  Investors  Service,  Inc., "A-I" (or its then equivalent)  according to
Standard & Poor's  Corporation  or "F-l" (or its then  equivalent)  according to
Fitch's Investors  Services,  Inc. or (iv) such other instruments,  evidences of
indebtedness or investment securities as the Lender may approve.

     "Permitted Liens" means, with respect to any Property,

          (i) Liens in favor of the Lender;

          (ii) .the  following,  if the  validity  and amount  thereof are being
     contested in good faith and by appropriate legal proceedings and so long as
     (a) levy and execution  thereon have been stayed and continue to be stayed,
     (b) they do not in the  aggregate  materially  detract from or threaten the
     value of the asset,  or materially  impair the use thereof in the operation
     of the Borrower's business, and (c) a reserve therefor, if appropriate, has
     been  established:  claims and Liens for Taxes due and payable;  claims and
     Liens upon and defects of title to real and  personal  property,  including
     any attachment of personal or real property or other legal process prior to
     adjudication  of a dispute on the  merits;  claims and Liens of  mechanics,
     materialmen,  warehousemen,  or  carriers,  or similar  Liens;  and adverse
     judgments on appeal;

          (iii) Liens for Taxes not past due;
                                        9

          (iv)  mechanics'  and  materialmen's  Liens for  services or material~
     forwhich payment is not past due;

          (v) o?erators' Liens incurred pursuant to operating agreements entered
     into by the  Borrower  m the  ordInary  course  of  business  which  secure
     obligations not past due; and

          (vi) Liens in favor of the lessor on the  Property  being leased under
     any capital lease permitted hereunder.

          "Permitted Loans and  Investments"  means (i) loans by the Borrower to
     or the  acquisition  of  Investments  by- ~he  Borrower  in any  Person not
     exceeding in the  aggregate  outstanding  at any time the amount of $25,000
     and not  otherwise  permitted  under  this  Agreement  and  (ii)  Permitted
     Investments.

          "Person"  means a corporation,  an  association,  a joint venture,  an
     organization,  a business,  an  individual  or a  government  or  political
     subdivision thereof or any governmental agency.

          "Personal Property Collateral" with respect to a Borrower means all of
     such Borrower's  Equipment,  General Intangibles,  Inventory,  Receivables,
     Accounts,  Investment Property,  all sums on deposit at the Lender, and any
     items  in any  lockbox  maintained  at the  Lender;  together  with (i) all
     substitutions  and  replacement  for and products of any of the  foregoing;
     (ii)  proceeds  of any and all of the  foregoing;  (iii) in the case of all
     tangible goods, all accessions; (iv) all accessories,  attachments,  parts,
     equipment  and repairs now or  hereafter  attached or affixed to or used in
     connection with any tangible goods; and (v) all warehouse  receipts,  bills
     of lading  and other  documents  of title now or  hereafter  covering  such
     goods.

          "Plan" means, at any time, any employee  benefit plan which is covered
     by ERISA and in respect of which the  Borrower or any  Commonly  Controlled
     Entity is (or,  if such plan were  terminated  at such  time,  would  under
     Section 4069 of ERISA be deemed to be) an  "employer" as defined in Section
     3(5) of ERISA.

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

          "Rate Management Transaction" shall mean any transaction (including an
     agreement with respect  thereto) now existing or hereafter  entered into by
     the Borrower which is a rate swap,  basis swap,  forward rate  transaction,
     commodity swap,  commodity  option,  equity or equity index swap, equity or
     equity index option,  bond option,  interest rate option,  foreign exchange
     transaction,  cap  transaction,  floor  transaction,   collar  transaction,
     forward  transaction,  currency swap transaction,  cross-currency rate swap
     transaction,  currency option or any other similar  transaction  (including
     any option with respect to any of these  transactions)  or any  combination
     thereof,  whether linked to one or more interest rates, foreign currencies,
     commodity prices, equity prices or other financial measures.

          "Receivables"  of the  Borrower  means  each  and  every  right of the
     Borrower to the payment of money,  whether such right to payment now exists
     or hereafter  arises,  whether such right to payment  arises out of a sale,
     lease or other  disposition of goods or other property,  out of a rendering
     of  services,  out of a loan,  out of the  overpayment  of  taxes  or other
     liabilities, or
                                       10


          otherwise  arises under any contract or agreement,  whether such right
     to payment-is created, generated or earned by the Borrower or by some other
     person who  subsequently  transfers its interest to the  Borrower,  whether
     such right to  payment  is or is not  already  earned by  performance,  and
     howsoever  such right to payment may be evidenced,  together with all other
     rights and interests (including all liens and security interests) which the
     Borrower  may at any time  have by law or  agreement  against  any  account
     debtor or other  obligor  obligated to make any such payment or against any
     property of such account  debtor or other  obligor;  all  including but not
     limited to all  present and future  accounts,  contract  rights,  loans and
     obligations  receivable,  chattel  papers,  bonds,  notes  and  other  debt
     instruments,  tax  refunds  and  rights to payment in the nature of General
     Intangibles.

          "Reimbursement  Obligation"  means the  obligation  of the Borrower to
     provide to the Lender or  reimburse  the  Lender for any  amounts  payable,
     paid, or incurred by the Lender with respect to Letters of Credit.

          "Requirement  of Law" means,  as to any  Person,  the  certificate  or
     articles of incorporation and by-laws or other  organizational or governing
     documents of such Person, and any applicable law, treaty, ordinance, order,
     judgment,  rule,  decree,  regulation,  or  determination of an arbitrator,
     court, or other  Governmental  Authority,  including,  without  limitation,
     rules,  regulations,   orders,  and  requirements  for  permits,  licenses,
     registrations, approvals, or authorizations, in each case as such now exist
     or may be  hereafter  amended and are  applicable  to or binding  upon such
     Person  or  any of its  Property  or to  which  such  Person  or any of its
     Property is subject.  Unless otherwise specified,  the "Person" referred to
     in this definition shall be deemed to be the Borrower.

          "Responsible Officer" means, Thomas R. Kaetzer, President, and Richard
     L. Creel, Vice President, of the Borrower.

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

          "Release of  Hazardous  Substances"  shall mean any  emission,  spill,
     release, disposal, or discharge,  except in accordance with a valid permit,
     license,  certificate,  or approval of the relevant Governmental Authority,
     of any  Hazardous  Substance  into or upon  (a) the air,  (b)  soils or any
     improvements located thereon, (c) surface water or groundwater,  or (d) the
     sewer or septic system, or the waste treatment, storage, or disposal system
     servicing any Property of the Borrower.

          "Restricted Payment" means:

               (i)  the  declaration  or  payment  of any  dividend  on,  or the
          incurrence of any liability to make any other payment or  distribution
          in  respect  of,  any shares of or other  ownership  interests  in the
          Borrower without the prior written consent of the Lender;

               (ii) any  payment or  distribution  on  account of the  purchase,
          redemption  or other  retirement  of any shares of or other  ownership
          interests in the Borrower, or of any warrant, option or other right to
          acquire such shares or such other  ownership  interests,  or any other
          payment or distribution  made in respect  thereof,  either directly or
          indirectly;
                                       11

               (iii)  the  repayment  by the  Borrower  of any  Debt  owed to an
          Affiliate,  unless such Debt  constitutes  Subordinated  Debt and such
          repayment is peflllitted by the  subordination  agreement  executed by
          such Affiliate in connection therewith; or

               (iv) any  repayment  by the  Borrower of a loan or  extension  of
          credit from any Affiliate.

     The amount of any Restricted  Payment in Property shall be deemed to be the
greater of its fair market value or its net book value ("fair market value" will
be deteflllined by the mutual  agreement of the Borrower and the Lender or by an
appraisal in foflll, and prepared by an appraiser,  selecte4 by the Borrower and
acceptable to the Lender).

     "Revolving  Credit Period" means the period  commencing on the Closing Date
and ending on the Final Maturity Date.

     "Security   Documents"  or  "Security   Instruments"   means  the  security
instruments executed and delivered in satisfaction of the condition set forth in
Section 5.2.3,  and all other  documents and instruments at any time executed as
security for all or any  -----------------  portion of the Obligations,  as such
instruments may be amended, restated, or supplemented from time to time.

     "Setex" means Setex Oil and Gas Company, a Texas corporation.

     "Single  Employer  Plan"  means a Plan  maintained  by the  Borrower or any
member of the  Controlled  Group for  employees of the Borrower or any member of
the Controlled Group.

     "Subordinated  Debt" means Debt of the  Borrower  evidenced  by  promissory
notes which by their tefllls, and by separate written  subordination  agreements
among the payee thereof,  the Borrower and the Lender, have been subordinated to
the Note and other Obligations on tefllls satisfactory to the Lender.

     "Subsidiary" means for any Person, any corporation or other entity of which
securities or other ownership  interests having ordinary voting power to elect a
majority  of the  board of  directors  or  other  persons  perfofllling  similar
functions are at the time directly or indirectly  owned,  collectively,  by such
Person and any Subsidiaries of such Person.  The teflll Subsidiary shall include
Subsidiaries of Subsidiaries (and so on).

     "Superfun~  Site"  shall  mean  those  sites  listed  on the  Environmental
Protection Agency National Priority List and eligible for remedial action or any
comparable state registries or list in any state of the United States.

     "Taxes"  means  all  taxes,  assessments,  filing  or other  fees,  levies,
imposts, duties,  deductions,  withholdings,  stamp taxes, interest equalization
taxes,  capital  transaction taxes,  foreign exchange taxes or charges, or other
charges of any nature whatsoever from time to time or at any time imposed by any
law or Tribunal.

     "TCB  Rate"  means,  on any day,  the prime rate as  published  in The Wall
Street  Journal's  "Money Rates" table for such day. If multiple prime rates are
quoted in such table,  then the highest  prime rate quoted  therein shall be the
TCB Rate. In the event that a prime rate is not
                                       12


     published in The Wall Street  Journal's  "Money Rates" table for any reason
or The  WaIl-Street  Journal is not  ---------------------------  published that
day, the Lender will choose a substitute  TCB Rate,  for purposes of calculating
the  interest  rate   applicable   hereunder,   which  is  based  on  comparable
information,  until  such  time as a prime  rate is  published  in The ---- Wall
Street Journal's  "Money Rates" table. In this  connection,  such prime rate for
each  Saturday,  Sunday  or  day  for  ----------------------  which  banks  are
authorized  to be closed in the state of Texas  shall be the most  recent  prime
rate so published if published no more than three days prior to such date.  Each
change in the TCB Rate shall become effective  without notice to the Borrower on
the effective date of each such change.

     "Transferee"  means  any  Person to which the  Lender  has sold,  assigned,
transferred, or granted a participation in any of the Obligations, as authorized
hereunder,  and any Person  acquiring,  by purchase,  assignment,  transfer,  or
participation,  from any such purchaser,  assignee,  transferee, or participant,
any part of such Obligations.

     "Tribunal"  means  any  court,   tribunal,   governmental   body,   agency,
arbitration panel, or instrumentality.

     "UCC" shall mean the Uniform Commercial Code as from time to time in effect
in the State of Texas.

     "Unused Available  Commitment" means, at any time, an amount (not less than
zero) equal to the remainder,  if any, of the (a) Available Commitment in effect
at such time  minus (b) the  outstanding  principal  amount of all Loans at such
time minus (c) the UC Exposure at such time.

     1.2 Accounting Terms and Determinations; Changes in Accounting.

     1.2.1 Unless otherwise  specified herein,  all accounting terms used herein
shall be interpreted, all accounting determinations hereunder shall be made, and
all financial statements required to be delivered hereunder shall be prepared in
accordance  with  GAAP,  applied  on a  basis  consistent  (except  for  changes
concurred in by the independent public accountants and with respect to which the
Borrower shall have promptly notified the Lender on becoming aware thereof) with
the most recent financial statements of the Borrower delivered to the Lender.

     1.2.2 The  Borrower  will not change its method of  accounting,  other than
immaterial changes in methods, changes permitted by GAAP in which the Borrower's
independent  public accountants concur and changes required by a change in GAAP,
without the prior written consent of the Lender.

     1.3  References.  References  in this  Agreement  to  Exhibits,  Schedules,
Annexes,  Appendixes,  Attachments,  Articles,  Sections or clauses  shall be to
exhibits,  schedules,  annexes, appendixes,  attachments,  articles, sections or
clauses of this Agreement,  unless expressly stated to the contrary.  References
in  this  Agreement  to  "hereby,"   "herein,"   "hereinafter,"   "hereinabove,"
"hereinbelow,"  "hereof,"  "hereunder"  and words of similar  import shall be to
this Agreement in its entirety and not only to the particular Exhibit, Schedule,
Annex,  Appendix,  Attachment,  Article,  or  Section  in which  such  reference
appears.  This Agreement,  for convenience  only, has been divided into Articles
and Sections;  and it is understood that the rights and other legal relations of
the parties hereto shall be determined from this instrument as an
                                       13

     entirety and without  regard to the  aforesaid  division  into Articles and
Sections and wit~out  regard to headings  prefixed to such Articles or Sections.
Whenever the context requIres,  reference herein made to the single number shall
be  understood  to  include  the  plural;  and  likewise,  the  plural  shall be
understood to include the singular. Definitions of terms defined in the singular
or plural shall be equally applicable to the plural or singular, as the case may
be, unless otherwise indicated. Words denoting sex shall be construed to include
the masculine,  feminine and neuter, when such construction is appropriate;  and
specific  enumeration  shall not exclude the general but shall be  construed  as
cumulative.  The  Exhibits,   Schedules,  Annexes,  Appendixes  and  Attachments
attached  to this  Agreement  and items  referenced  as being  attached  to this
Agreement  are  incorporated  herein  and  shall  be  considered  a part of this
Agreement for all purposes. --

                                   ARTICLE II

                 COMMITMENT TO LEND AND ISSUE LETTERS OF CREDIT

     2.1 Commitment.

     2.1.1 During the Revolving  Credit Period and so long as no Default exists,
the Lender agrees, subject to the other terms and conditions of this Agreement:

          (i) To lend to the Borrower from time to time amounts not to exceed in
     the aggregate at anyone time  outstanding  an amount equal to the Available
     Commitment as in effect from time to time.

          (ii) To issue  letters  of credit or renew  Letters  of Credit for the
     account of the  Borrower  from time to time in amounts not to exceed in the
     aggregate  at anyone  time  outstanding  the  lesser  of the  amount of (a)
     $500,000  or (b) the  Borrowing  Base in effect at such time  (such  lesser
     amount being herein referred to as the "Letter of Credit Limit"),  it being
     understood that  outstanding  funding  obligations  under Letters of Credit
     shall reduce the Unused Available Commitment hereunder.

          (iii) Notwithstanding any other provision of this Agreement,  under no
     circumstances  shall the Lender ever be  obligated  to lend to the Borrower
     any amount or to issue any letter of credit on behalf of the Borrower which
     would cause the Lender to violate any lending  limits or  restrictions  now
     existing or hereafter imposed on the Lender by any Governmental  Authority,
     nor shall the Lender have an implied duty to sell or  participate a portion
     of the Note or other Obligations to any other Person in order to permit the
     Lender to lend to the Borrower additional amounts or to issue any letter of
     credit on behalf of the Borrower.

     2.1.2 The Lender shall not be obligated  to lend to the  Borrower,  and the
Borrower shall not be entitled to borrow hereunder, any amount which would cause
the sum of the outstanding  principal amount of all Loans made by the Lender and
the undrawn amount of all outstanding  Letters of Credit to exceed the Available
Commitment of the Lender then in effect.

     2.1.3  The  Lender  shall  not be  obligated  to issue a letter  of  credit
pursuant to Section  --------  :f.1-:.Lor  to renew a Letter of Credit,  and the
Borrower  shall not be  entitled to have a letter of credit  issued  pursuant to
such Section or to have a Letter of Credit renewed, if the issuance of the
                                       14

     requested  letter of credit or the renewal of an existing  Letter of Credit
would cause the Letter of Credit Limit to be exceeded, after taking into account
the mandatory reductions in the Borrowing Base required during the proposed term
of such requested letter of credit or renewal Letter of Credit.

     2.2 Method of Borrowing and Obtaining Letters of Credit.

     2.2.1 The  Borrower  shall give the Lender a Notice of  Borrowing  prior to
12:00 noon (Dallas  time) of the day of the  requested  Loan under  Section 2.1.


     2.2.2 Unless the Lender determines that any applicable  condition specified
in Article V or elsewhere  herein has not been  satisfied,  the Lender will make
the funds  available  to the  Borrower at the  Lender's  address  referred to in
Section 9.6.

     2.2.3 The  Borrower  shall give the  Lender a request  for letter of credit
prior to 12:00 noon (Dallas  time) at least three (3) Business  Days before each
requested  letter of credit under  Section 2.1, by completing  and  delivering a
Notice of Borrowing together with a completed Letter of Credit Application.  The
expiry date of such requested  letter of credit cannot be later than the earlier
of (a) one (1) year from the date of issuance or (b) the last date before  which
the  Borrowing  Base is scheduled to reduce to an amount less than the aggregate
undrawn amount of the requested letter of credit and the outstanding  Letters of
Credit which, by their terms, might be outstanding on such reduction date or (c)
the date which is 30 days prior to the Final Maturity Date. The Letter of Credit
Application  must be  completed  in a manner  and shall use such  wording  as is
acceptable to the Lender.

     2.2.4 Upon  receipt of the Letter of Credit  Application,  the Lender shall
issue such letter of credit if the  conditions of Article V or elsewhere  herein
have been satisfied. -------------

     2.2.5 Subject to the terms hereof,  in the event that any  beneficiary of a
Letter of Credit shall have taken the steps  necessary to obligate the Lender to
make a payment under such Letter of Credit, the Borrower shall be deemed to have
delivered to the Lender an irrevocable Notice of Borrowing under Section 2.2 for
a Loan in the amount of such  payment  amount,  regardless  of any  ------------
limitations  set forth  herein.  The Lender  shall pay over the proceeds of such
Loan to itself as reimbursement for amounts paid under such Letter of Credit.

     2.Note.  The Loans shall be evidenced  by the Note issued by the  Borrower,
payable to the order of the Lender in the Commitment Amount.

     2.4 Certain Payments and Prepayments of Principal .

     2.4.1 If at any time the aggregate  principal of the Loans  outstanding and
the undrawn  amount of the  outstanding  Letters of Credit  exceed the Borrowing
Base then in effect,  the Borrower  shall within one (1) Business Day after such
occurrence,  repay the principal of the Loans in an amount equal to such excess,
except that if the circumstances described in this Section are the direct result
of a new  determination  of the  Borrowing  Base under Section  2.8.1,  then the
provisions of Section 2.8.3 shall apply.
                                       15

     2.4.2 In the event that a  prepayment  is  required  under this  Section or
Section 2.8.3 and the outstanding  Loans are less than the amount required to be
prepaid,  the  Borrower  shall  repay the entire  balance  of the Loans and,  in
accordance  with the  provisions  of the relevant  Letter of Credit  Application
executed by the Borrower or otherwise to the satisfaction of the Lender, deposit
with the Lender as additional collateral securing the Obligations,  an amount of
cash,  in  immediately  available  funds,  equal to the L/C  Exposure  minus the
Borrowing Base.

     2.5 Interest.

     2.5.1 The unpaid  principal  balance of the Loans shall bear  interest from
the date hereof, payable as it accrues on December 1, 2000, and on the first day
of each month thereafter and at maturity (stated or by acceleration),  at a rate
per annum equal to the lesser of the (i) the  Floating  Rate or such higher rate
as is specified in Section 3.3 or (ii) the Highest Lawful Rate.

     2.5.2 Each change in the rate of interest  charged  hereunder  shall become
effective  automatically  and without  notice to the Borrower upon the effective
date of each change in the Floating Rate or the Highest Lawful Rate, as the case
may be.

     2.6 Unused Available  Commitment  Fees;  Engineering  Fees;  Facility Fees;
Letter of Credit Fees; Authorized Payments by Lender.

     2.6.1 The Borrower  shall pay to the Lender a commitment fee of one-half of
one percent  (1/2 of 1 %) per annum,  calculated  daily on the actual  number of
days the  Commitment  is  outstanding  on the  amount  of the  Unused  Available
Commitment  in  effect  from time to time,  such  commitment  fee to be  payable
quarterly  as it accrues on each  January 1, April 1, July 1, and  October 1 and
upon termination of the Available Commitment.

     2.6.2  The  Borrower  shall  pay  to the  Lender  on the  Closing  Date  an
engineering fee in the amount of $3,000 and thereafter  shall pay an engineering
fee in the amount  of$3,000  if the  Lender's  internal  engineers  perform  the
engineering  review of the  Collateral  or the actual  fees and  expenses of any
third-party  engineers retained by the Lender to prepare an engineering  report,
payable at the time of the scheduled or Borrower requested  determination of the
Borrowing Base referred to in Section 2.8.1 or at the time of a  redetermination
of the Borrowing Base required under Section 7.9.2.


     2.6.3 To  compensate  the Lender for the costs of the  extension  of credit
hereunder,  the  Borrower  shall pay to the Lender (i) on the  Closing  Date,  a
facility  fee  in  the  amount  of  $21,000  and  (ii)   thereafter   upon  each
determination  of an increase in the Borrowing Base pursuant to Section 2.8.1, a
facility  fee in the  amount of one  percent  (1.00%) of the amount by which the
Borrowing   Base  is  increased  over  that  in  effect  on  the  date  of  such
determination.

     2.6.4 The Borrower  shall pay to the Lender at the time of each issuance of
a letter of credit  hereunder  and at the time of each renewal or extension of a
Letter of Credit, (i) a letter of credit fee equal to the greater of (a) one and
one-half  percent  (1.5%) per annum of the face  amount of such Letter of Credit
for the maximum number of days which such Letter of Credit, by its terms,  could
remain  outstanding or (b) $500, and (ii) the normal and standard charges of the
Lender for the issuance, delivery and confirmation of such Letter of Credit.
                                       16

     2.6.5 The Lender is  irrevocably  authorized to make Loans for the paymeni-
of the fees and  expenses  of the  Lender  required  to be paid by the  Borrower
hereunder. The Lender shall pay over such Loan proceeds to itself or directly to
such other Person entitled to payment hereunder.

     2.7 Termination of Commitment,' Maturity of Loans.

          2.7.1 The Commitment  shall terminate no later than the Final Maturity
     Date,  and any Loans  then  outstanding  (together  with  accrued  interest
     thereon) shall be due and payable in full on such date.

     2.7.2  -The  Borrower  shall  have the right  upon  payment  in full of the
Obligations and the cancellation of all outstanding Letters of Credit, to cancel
in full (but not in part) the Commitment, with no right of reinstatement.

     2.8  Determination of Borrowing  Base,'  Automatic  Reductions in Borrowing
Base,'  Borrowing Base  Deficiency,'  Notice of  Redeterminations;  Requests for
Reductions in Borrowing Base.

     2.8.1 On the basis of the information furnished to the Lender hereunder and
such  other  reports,   appraisals  and  information  as  the  Lender  may  deem
appropriate,  the Lender shall have the right to determine a new Borrowing  Base
as of June 1,2001,  and each December 1 and June 1 occurring  thereafter  during
the Revolving Credit Period (the "scheduled  determinations"),  or at such other
or  additional  times during the  Revolving  Credit  Period as the Lender in its
reasonable  discretion  and at its  sole  cost  may  elect  (the  "discretionary
determinations"),  and the Lender shall  determine a new Borrowing  Base at such
additional  times,  but no more often than one (1) time in any  12-month  period
without  the  Lender's  consent,  as the  Borrower  may request  (the  "Borrower
requested determinations"). Such determinations, if made, shall be in accordance
with the  Lender's  customary  practices  and  standards  for loans of a similar
nature  as in  effect  at the time  such  determinations  are made and  shall be
conclusive,  and any  increases  in the  Borrowing  Base shall be subject to the
Lender's  complete  credit approval  process.  Any new Borrowing Base determined
under this Section shall be effective  immediately upon its communication to the
Borrower regardless of any Notice of Borrowing the Lender might have received.

     2.8.2 The Borrowing Base shall be automatically reduced monthly, commencing
January 1, 2001,  and on the rust day of each month  thereafter  until the Final
Maturity  Date.  Such reduction in the Borrowing Base each month shall be in the
amount of $15,000 unless  redetermined as herein permitted.  At the time of each
new Borrowing Base  determination  under Section  2.8.1,  the Lender in its sole
discretion  may increase or decrease the amount of such monthly  reductions  and
any  decreases  in the  monthly  reductions  shall be  subject  to the  Lender's
complete credit approval process.

     2.8.3 Upon the  occurrence  of a Borrowing  Base  Deficiency,  the Borrower
shall,  within thirty (30) days following  notice by the Lender of the existence
of such  Borrowing  Base  Deficiency,  do anyone or more of the  following in an
aggregate  amount at least equal to such Borrowing Base  Deficiency:  (i) prepay
the principal of the outstanding Loans or (ii) cause to be
                                       17

     created first and prior perfected Liens (subject only to Peffilitted Liens)
in favor of the Lender, by instruments  satisfactory to the Lender, on producing
Oil and Gas Properties (or cash if the circumstances  described in Section 2.4.2
are applicable) which in  the opinion of the Lender would increase
the  Borrowing  Base by an amount  sufficient,  in  combination  with clause (i)
preceding, to eliminate such Borrowing Base Deficiency.

     2.8.4 Upon each  redeteffilination  of the Borrowing  Base,  the Lender may
notify the Borrower  orally  (confiffiling  such notice  promptly in writing) of
such  deteffilination,  and the  Borrowing  Base and the  amount  by  which  the
Borrowing  Base shall be reduced so  communicated  to the Borrower  shall become
effective upon such oral notification and shall remain in effect utltil the next
subsequent redetermination of the Borrowing Base.

     2.8.5 The Borrower may at any time by written  notice to the Lender request
that the Borrowing Base be reduced (with no right of reinstatement) by an amount
specified by the Borrower in such reduction notice, and the Borrowing Base shall
be deemed so  reduced  upon  receipt  by the  Lender of such  reduction  notice.
Further,  in the event the Borrower is advised of any increase in the  Borrowing
Base, the Borrower may decline to utilize the increased  borrowing  availability
created thereby and by written notice to the Lender irrevocably refuse to accept
all or a portion of such increase,  but any such refusal notice  received by the
Lender  more  than  three (3)  Business  Days  following  such  increase  in the
Borrowing Base shall be treated as a Borrowing  Base reduction  notice under the
immediately preceding sentence.

     2.9 Request for Extension of Maturity

     2.9.1  Following  receipt  by the  Lender  of a  written  request  from the
Borrower,  given by the  Borrower no earlier  than 15 months  prior to the Final
Maturity Date, the Lender agrees to consider, in accordance with the customs and
standards of the Lender in effect at such time for loans of a similar  nature to
the Loan and subject to the Lender's complete approval process, a request by the
Borrower to extend the Final  Maturity  Date. The Lender may charge the Borrower
fees in connection with any such request or extension.

                                   ARTICLE ill

                               GENERAL PROVISIONS

     3.1 General Provisions as to Payments and Loans.

     3.1.1 All  payments  of  principal  and  interest  on the Loans and of fees
hereunder  shall be made by 12:00  noon  (Dallas,  Texas  time) on the date such
payments  are  due in  federal  or  other  funds  immediately  available  at the
principal office of the Lender referred to in Section M and, if not made by such
time or in immediately  available funds,  then such payment shall be deemed made
when such funds are available to the Lender for its full and  unrestricted  use.
Whenever  any  payment  of  principal  of or  interest  on the  Loans or of fees
hereunder  shall  be due on a day  which  is not a  Business  Day,  the date for
payment  thereof shall be extended to the next  succeeding  Business Day. If the
date for any payment is  extended by  operation  of law or  otherwise,  interest
thereon shall be payable for such extended time.
                                       18

     3.1.2 All payments made by the Borrower on the Loans shall be made free ana
clear of, and without reduction by reason of, any Taxes.

     3.1.3  All  requests  for Loans and  letters  of credit  shall be made on a
Business Day.

     3.1.4 All Loans shall be made  available  to the Borrower on a Business Day
at the Lender's address referred to in Section 9.6.

     3.1.5 All payments and fundings  shall be  denominated  in United States of
America dollars.

     3.2 Computation of Interest.  Each  determination  hereunder of interest on
the Loans and fees  based on per annum  calculations  shall be  computed  on the
basis  of a year of 360 days and paid  for the  actual  number  of days  elapsed
(including the first day but excluding the last day), subject to the limitations
of the Highest Lawful Rate.

     3.3 Default  Interest.  Unless  waived by the Lender,  the principal of the
Note shall bear  interest  at the  Default  Rate at any time an Event of Default
exists and, to the extent  permitted by law, overdue interest on the Loans shall
bear interest at the Default Rate.

     3.4 Prepayments  Permitted.  The Loans and accrued  interest thereon may be
prepaid  by the  Borrower  in whole or in part at any time  without  premium  or
penalty.
                                   ARTICLE IV

                                   COLLATERAL

     4.1 Security.

     4.1.1  To  secure  full  and  complete   payment  and  performance  of  the
obligations  of  the  Borrower  to the  Lender,  the  Borrower  will  cause  the
appropriate Person to execute and deliver to the Lender the following  documents
and instruments:

          (i) the  Mortgages  granting  the  Lender a first and prior Lien on no
     less than 90% by Collateral Value of the Oil and Gas Properties utilized in
     determining the Borrowing Base, together with financing statements relating
     thereto, subject only to Permitted Liens;

          (ii)' the limited recourse Guaranty of the Guarantor;

          (iii) stock pledge agreement from the Guarantor to the Lender covering
     100% of the Equity Interests in the Borrower; and

          (iv)  the  financing   statement  related  to  the  Personal  Property
     Collateral.

     4.1.2 All documents delivered or to be delivered hereunder shall be in form
and substance reasonably satisfactory to the Lender and its counsel and shall be
supported  by such legal  opinions as the Lender or its  counsel may  reasonably
request.
                                       19

     4.1.3 All Liens to be created by delivery of the  documents  referred to in
this Section  shall be first and prior  perfected  Liens in favor of the Lender,
subject only to Permitted Liens.

     4.2 Grant of Security Interests.  The Borrower,  as debtor, hereby pledges,
assigns  and  grants to the  Lender,  as  secured  party,  a  security  interest
(collectively  referred to as the "Security  Interest") in the Personal Property
Collateral of the Borrower,  as security for the payment and  performance of the
Obligations.

     4.3  Notification of Account Debtors and Other Obligors.  The Lender may at
any time  while a Default  exists  notify  any  account  debtor or other  person
obligated to pay the amount due that such right to payment has been  assigned or
transferred to the Lender for security and shall be paid directly to the Lender.
The Borrower  will join in giving such notice if the Lender so requests.  At any
time after the Borrower or the Lender gives such notice to an account  debtor or
other  obligor,  the Lender may,  but need not, in the  Lender's  name or in the
Borrower's name (i) demand, sue for, collect or receive any money or property at
any time payable or  receivable  on account of, or  securing,  any such right to
payment,  or grant any extension to, make any  compromise or settlement  with or
otherwise agree to waive,  modify,  amend or change the  obligations  (including
collateral obligations) of any such account debtor or other obligor; and (ii) as
the  Borrower's  agent and  attorney-in-fact,  notify the United  States  Postal
Service to change the address for delivery of the Borrower's mail to any address
designated by the Lender,  otherwise intercept the Borrower's mail, and receive,
open and dispose of the  Borrower's  mail,  applying all Collateral as permitted
under this  Agreement and holding all other mail for the  Borrower's  account or
forwarding such mail to the Borrower's last known address.

     4.4  Assignment  of Insurance.  As additional  security for the payment and
performance of the  Obligations,  the Borrower  hereby assigns to the Lender any
and all monies (including, without limitation, proceeds of insurance and refunds
of unearned  premiums)  due or to become due under,  and all other rights of the
Borrower  with respect to, any and all policies of insurance  now or at any time
hereafter  covering  the  Collateral  or any  evidence  thereof or any  business
records or valuable papers pertaining  thereto,  and the Borrower hereby directs
the issuer of any such policy to pay all such monies directly to the Lender.  At
any time, whether or not a Default exists, the Lender may (but need not), in the
Lender's  name or in the  Borrower's  name,  execute and deliver proof of claim,
receive  all such  monies,  endorse  checks and other  instruments  representing
payment of such monies,  and adjust,  litigate,  compromise or release any claim
against the issuer of any such policy.

     4.5 Financing  Statement.  A carbon,  photographic or other reproduction of
this  Agreement  or of  any  financing  statements  signed  by the  Borrower  is
sufficient as a financing statement and may be filed as a financing statement in
any state to perfect the security interests granted hereby. For the purpose, the
following information is set forth:

     Name and address of Borrower (debtor):
     GulfW est Development  Company
     397 N. Sam Houston Parkway East, Suite
     375 Houston, Texas 77080
                                             Federal Tax id No.: 76-0661760
                                       20

Name and address of Lender(secured  party):
Texas Capital Bank,  N.A. 2100
McKinney Avenue,  Suite 100 Dallas,
Texas 75201
Attn:Energy Group                                Federal Tax id No.: 75-2695994

                                    ARTICLE V

               CONDITIONS PRECEDENT TO LOANS AND LETTERS OF CREDIT

          The  obligation of the Lender to make Loans or issue letters of credit
     hereunder  shall be subject to the  satisfaction  of each of the  following
     conditions:

          5.1 All  Loans  and  Letters  of  Credit.  In the case of each Loan or
     letter of credit to be issued  hereunder  (except the  initial  Loan issued
     hereunder):

          5.1.1 timely  receipt by the Lender of a Notice of Borrowing or Letter
     of Credit Application;

          5.1.2 the fact that,  immediately before such requested Loan or Letter
     of Credit,  no Default shall have  occurred and be continuing  and that the
     making of any such Loan will not cause a Default; and

          5.1.3 the fact that the representations and warranties of the Borrower
     contained  in this  Agreement  (except  the  representations  set  forth in
     Sections  6.7 and ~)  shall  be true  on and as of the  date of such  Loan.

          5.1.4  Each  request  for a Loan  hereunder  shall be  deemed  to be a
     representation and warranty by the Borrower on the date of such request, as
     to the facts specified in Sections 5.1.2 and

          5.2 Initial Loan. In the case of the initial Loan or Letter of Credit:

          5.2.1 receipt by the Lender of the following:

          (i)  copies of the  Articles  or  Certificates  of  Incorporation  (or
     Articles of Organization or similar documents), and all amendments thereto,
     of the Borrower and the Guarantor,  accompanied by  certificates  that such
     copies are correct and  complete,  one issued by the  Secretary of State of
     the state of  incorporation  or formation of the Borrower,  dated a current
     date,  and  one  executed  by the  President  or a Vice  President  and the
     Secretary or an Assistant  Secretary (or other authorized  representatives)
     of the Borrower, dated the Closing Date;

          (ii) copies of the Bylaws (or Regulations or similar  documents),  and
     all amendments thereto,  of the Borrower and the Guarantor,  accompanied by
     certificates  that such copies are correct and complete of the President or
     a Vice  President  and the  Secretary or an Assistant  Secretary  (or other
     authorized representatives) of the Borrower, dated the Closing Date;
                                       21

     (iii)  certificates  of the appropriate  Tribunals of each  jurisdiction in
which the Borrower or the Guarantor has an executive  office or principal  place
of business, the Borrower or the Guarantor was fonned or in which any Collateral
is located  (if the  Borrower  or the  Guarantor  is  required  to qualify to do
business  in such  state),  each dated a current  date,  to the effect  that the
Borrower or the Guarantor,  as  applicable,  is in good standing with respect to
the payment of  franchise  and/or  other Taxes and, if required by law, are duly
qualified  to  transact  business  in  such  jurisdictions,  accompanied  by the
certificate  of the  President  or a Vice  President  and  the  Secretary  or an
Assistant Secretary (or other authorized representatives) of the Borrower or the
Guarantor,  as applicable,  that such Tribunal certificates are true and correct
as of the Closing Date;

     (iv)  certificates  of  incumbencies  and signatures of all officers of the
Borrower and the  Guarantor  who will be  authorized to execute or attest any of
the Loan  Documents on behalf of the Borrower or the  Guarantor,  as applicable,
executed by the President or a Vice  President and the Secretary or an Assistant
Secretary  (or  other  authorized  representatives)  of  the  Borrower,  or  the
Guarantor, as applicable, dated the Closing Date;

     (v) copies of resolutions  approving the Loan Documents and authorizing the
transactions  contemplated  therein,  duly adopted by the Board of Directors (or
authorized  body serving a similar  function) of the Borrower and the Guarantor,
accompanied by certificates of the Secretary or an Assistant Secretary (or other
authorized representative) of the Borrower or the Guarantor, as applicable, that
such  copies are true and  correct  copies of  resolutions  duly  adopted at the
meeting of, or by the unanimous  written  consent of, the Board of Directors (or
authorized body serving a similar function) of the Borrower or the Guarantor, as
applicable,  and that such  resolutions  constitute all the resolutions  adopted
with respect to such transactions, have not been amended, modified or revoked in
any respect, and are in full force and effect as of the Closing Date;

     5.2.2  receipt by the Lender of the duly  executed  Note in the  Commitment
Amount, dated the Closing Date;

     5.2.3  receipt by the Lender of the documents  described in Section  4.1.1,
each duly executed and delivered by the appropriate Person;

     5.2.4  receipt  by the  Lender of such  title  opinions  as the  Lender may
request,  in fonn and  substance  and from  attorneys  acceptable to the Lender,
covering  such  portions  of the  Collateral  as the Lender may specify and such
other documentation and infonnation required by the Lender to satisfy the Lender
of the status of the title of the Collateral;

     5.2.5 receipt by the Lender of a certificate of ownership interests in fonn
and  substance  satisfactory  to the  Lender,  certifying  as to  the  ownership
interests of the Borrower in its Oil and Gas Properties;


     5.2.6 receipt by the Lender of a  certificate  from the President or a Vice
President  and the  Secretary or an  Assistant  Secretary  (or other  authorized
representatives)  of the Borrower  certifying as to the truth and correctness of
each  representation  and  warranty  contained  in  Article  YI hereof as of the
Closing Date;
                                       22

     5.2.7 receipt by the Lender of satis.factory  evidence that prior Liens, if
any,-on the Collateral are being released or assigned to the Lender concurrently
with the Closing;

     5.2.8  receipt by the Lender of the  opinions of counsel to the Borrower in
foffil and substance satisfactory to the Lender and its counsel;

     5.2.9  receipt by the Lender of the  results of searches of the UCC records
of the Secretary of State of the State of Texas from a source  acceptable to the
Lender reflecting no Liens against any of the intended  Collateral other than in
favor  or the  Lender,  or  Liens  being  released  or  assigned  to the  Lender
concurrently with the Closing;

     5.2.10-  receipt  by  the  Lender  of  evidence  satisfactory  to  it  that
Acceptable  Commodity  Hedging  Agreement  are in place  covering  at least  150
barrels  per day for the 12-  month  period  commencing  January  1,  2001,  and
providing a floor of no less than $22.00 per barrel;

     5.2.11 receipt by the Lender of a copy of the $150,000 promissory note from
the Guarantor to the Borrower dated November 30, 2000 (the "Guarantor Promissory
Note"); and

     5.2.12  receipt  by  the  Lender  of  such  additional   infoffilation  and
documentation  as the  Lender  may  reasonably  require  relating  to  the  Loan
Documents and the transactions contemplated hereby and thereby.

                                   ARTICLE VI

                 REPRESENTATIONS AND WARRANTIES OF THE BORROWER

     The Borrower hereby represents and warrants to the Lender as follows:
     6.1 Existence and Power. The Borrower:

     6.1.1  is a  corporation,  duly  organized,  validly  existing  and in good
standing under
the laws of the State of Texas;

     6.1.2 has all  corporate  powers and all  material  governmental  licenses,
authorizations,  consents and approvals required to carry on its business as now
conducted;

     6.1.3 is duly  qualified to transact  business as a foreign  entity in each
jurisdiction  where the nature of its business  requires the same,  except where
the failure to so qualify  could not  reasonably  be expected to have a material
adverse effect on its business or financial condition; and

     6.1.4 owns, both beneficially and of record, all of its assets reflected in
its financial statements delivered to the Lender.
                                       23

The Guarantor:

     6.1.5  is a  corporation,  duly  organized,  validly  existing  and in good
standing under the laws of the State of Texas;

     6.1.6 has all  corporate  powers and all  material  governmental  licenses,
authorizations,  consents and approvals  required to carryon its business as now
conducted;

     6.1.7 is duly  qualified to transact  business as a foreign  entity in each
jurisdiction  where the nature of its business  requires the same,  except where
the failure to so qualify  could not  reasonably  be expected to have a material
adverse effect on its business or fmancial condition; and -.

     6.1.8 owns, both beneficially and of record, all of its assets reflected in
its financial statements delivered to the Lender.

     6.2 Authorization;  Contravention.  The execution, delivery and performance
by each Person (other than the Lender)  purporting to execute this  Agreement or
the  other  Loan  Documents  are  within  such  Person's  power,  have been duly
authorized  by all necessary  action,  require no action by or in respect of, or
filing  with,  any  governmental  body,  agency  or  official  (except  that the
perfection of Liens created by certain of the Security Documents may require the
filing  of  financing  statements,  mortgages  or  similar  instruments  in  the
appropriate recordation offices), and do not contravene, or constitute a default
under,  any  provision  of  applicable  law or  regulation  (including,  without
limitation,  the Margin Regulations) or any agreement creating or governing such
Person or any agreement, judgment, injunction, order, decree or other instrument
binding upon such Person or result in the creation or  imposition of any Lien on
any Property of the Borrower, except Liens securing the Obligations.

     6.3 Binding Effect.

     6.3.1 This  Agreement  constitutes  a valid and  binding  agreement  of the
Borrower;  the  Note,  when  executed  and  delivered  in  accordance  with this
Agreement, will constitute the valid and binding obligation of the Borrower; the
Security  Documents,  when  executed  and  delivered  in  accordance  with  this
Agreement,  will  constitute  valid  and  binding  obligations  of  each  Person
purporting to execute the same;

     6.3.2  .Each Loan  Document is  enforceable  in  accordance  with its terms
except  as  (i)  the  enforceability  thereof  may  be  limited  by  bankruptcy,
insolvency or similar laws affecting creditors' rights generally and (ii) rights
of acceleration  and the  availability  of equitable  remedies may be limited by
equitable principles of general applicability.

     6.4 Subsidiaries; Ownership.

     6.4.1 The Borrower has no Subsidiaries.

     6.4.2  All of each  class of  Equity  Interests  in the  Borrower  is owned
legally and beneficially by the Guarantor.
                                       24

     6.5  Disclosure.  No document,  certificate  or statement  delivered to the
Lender by or on behalf  of the  Borrower  in  connection  with the  transactions
contemplated  hereby  contains  any untrue  statement  of a material  fact.  All
information  heretofore  furnished by the Borrower to the Lender for purposes of
or in connection with this Agreement or any transaction  contemplated hereby is,
and all such information  hereafter furnished by the Borrower to the Lender will
be, true and accurate in every material respect or based on reasonable estimates
on the date as of which such  information  is stated or certified.  The Borrower
has  disclosed  to the  Lender in  writing  any and all facts  (except  facts of
general public  knowledge)  which  materially and adversely affect or may affect
(to  the  extent  the  Borrower  can  now  reasonably   foresee)  the  business,
operations,  prospects or condition,  financial or otherwise, of the Borrower or
the ability of the Borrower tQ .perform its obligations under this Agreement.

     6.6 Financial Information.

     6.6.1 The financial  information of the Borrower delivered to the Lender in
connection  with the  request  for  this  credit  facility  fairly  present,  in
conformity with GAAP, the financial position of the Borrower.

     6.6.2  Except as  disclosed  in a writing  delivered by the Borrower to the
Lender prior to the  execution and delivery of this  Agreement,  since the dates
referenced the financial  information  referred to in Section 6.6.1 above, there
has been no material adverse change in the business, financial position, results
of operations or prospects of the Borrower.

     6. 7 Litigation. There is no action, suit or proceeding pending against, or
to the knowledge of the Borrower threatened against or affecting the Borrower or
any  Guarantor  before any Tribunal or arbitrator in which there is a reasonable
possibility of an adverse  decision which could  materially and adversely affect
the business, financial position or results of operations of the Borrower or any
Guarantor,  or which could in any manner draw into question the validity of this
Agreement or any other Loan Documents.

     6.8 ERISA Plans.

     6.8.1 The Borrower and each of its ERISA affiliates is in compliance in all
material  respects  with  any  applicable  provisions  of  ERISA  and the  final
regulations and published interpretations  thereunder with respect to all Single
Employer Plans and Multiemployer Plans.

     6.8.2 No Termination Event has occurred or is reasonably  expected to occur
with respect to any Single  Employer Plan which would  reasonably be expected to
have a Material Adverse Effect.


     6.8.3 The aggregate fair market value of the assets of all Single  Employer
Plans  was at  least  equal  to  the  actuarial  present  value  of  all  vested
nonforfeitable  benefits under such Single  Employer Plans as of the most recent
valuation date.

     6.8.4 Neither the Borrower nor any of its ERISA affiliates has incurred any
unpaid  withdrawal  liability,   or  reasonably  expects  to  incur  any  unpaid
withdrawal  liability,  under  ERISA to any  Multiemployer  Plan,  which  unpaid
withdrawal  liability  would  reasonably be expected to have a Material  Adverse
Effect.
                                       25

     6.9 Taxes and Filing of Tax Returns.

     6.9.1 The Borrower and the Guarantor have, respectively,  filed or properly
extended  all returns  required to have been filed or extended  with  respect to
Taxes and has paid all Taxes shown to be due and payable by it on such  returns,
including  interest and penalties,  and all other Taxes which are payable by it,
to the extent the same have become due and payable (unless, with respect to such
other Taxes,  the criteria set forth in Section 7.5 are being met). The Borrower
does not know of any proposed  assessment of Taxes of a material  amount against
it and all liabilities for Taxes of the Borrower are adequately provided for.

     6.1 0 TitJ~ to Properties; Liens; Environmental Liability.

     6.10.1  The  Borrower  and  the  Guarantor  have,  respectively,  good  and
indefeasible  record title to all  Property  purported to be owned by it (except
for Permitted  Liens,  minor defects in title and minor  encumbrances not in any
case materially  detracting from the value of the assets affected thereby).  All
Property of the  Borrower  is free and clear of all Liens  other than  Permitted
Liens.  Upon  the  recordation  of the  Security  Documents  in the  appropriate
recordation   offices,   the  Liens  covering  the  Collateral  will  be  valid,
enforceable, first and prior, perfected Liens in favor of the Lender, except for
Permitted Liens.

     6.10.2  Neither the Borrower nor the Guarantor  has (i) received  notice or
otherwise learned of any Environmental  Liability which could individually or in
the  aggregate  have a  Material  Adverse  Effect  on the  Borrower  arising  in
connection with (a) any non-compliance  with or violation of the requirements of
~y  Environmental  Law or (b) the release or threatened  release of any toxic or
hazardous  waste,  substance  or  constituent,   or  other  substance  into  the
environment,  or (ii)  received  notice or  otherwise  learned of any federal or
state investigation  evaluating whether any remedial action is needed to respond
to a release or threatened release of any toxic or hazardous waste, substance or
constituent  into the  environment  for which the  Borrower  is or may be liable
which would  individually or in the aggregate have a Material  Adverse Effect on
the Borrower.

     6.10.3

          (i) No Property of the  Borrower is  currently on or has ever been on,
     or is adjacent to any Property which is on or has ever been on, any federal
     or state list of Superfund Sites;

          (ii) No Hazardous Substances have been generated,  transported, and/or
     disposed  of by the  Borrower  at a site  which  was,  at the  time of such
     generation,  transportation,  and/or  disposal,  or  has  since  become,  a
     Superfund Site;

          (iii) Except in accordance with applicable  Requirements of Law or the
     terms of a valid permit, license,  certificate, or approval of the relevant
     Governmental  Authority, no Release of Hazardous Substances by the Borrower
     from, affecting,  or related to any Property of the Borrower or adjacent to
     any Property of the Borrower has occurred; and

          (iv) No Environmental Complaint has been received by the Borrower.
                                       26
                        ..
          6.11  Business;  Compliance.  The  Borrower  and the  Guarantor  have,
     respectively  perfonned  and  abided  by  all  obligations  required  to be
     perfonned by it to the extent it could be materially and adversely affected
     under  any  license,   pennit,  order,   authorization,   grant,  contract,
     agreement,  or  regulation  to which it is a party or by which it or any of
     its Property is bound.

          6.12 Licenses,  Permits,  Etc. The Borrower and the Guarantor possess,
     respectively,  such  valid  franchises,  certificates  of  convenience  and
     necessity,  operating rights, licenses, pennits, consents,  authorizations,
     exemptions  and  orders of  Tribunals  as are  necessary  to carry on their
     respective businesses as now being conducted and to own their Properties.

          6.13  CQmpliance with Law. The business and operations of the Borrower
     and the Guarantor have been and are being  conducted in accordance with all
     applicable  laws,  rules  and  regulations  of all  Tribunals,  other  than
     violations  which could not (either  individually or  collectively)  have a
     Material Adverse Effect on the Borrower.

          6.14 Governmental  Consent. No consent,  approval or authorization of,
     or declaration or filing with, any  governmental  authority is required for
     the valid  execution,  delivery and  perfonnance  of this  Agreement or any
     other Loan Documents by the Borrower or the Guarantor.

          6.15 Investment Company Act. Neither the Borrower nor the Guarantor is
     an  "investment  company,"  or a  company  "controlled"  by an  "investment
     company,"  within the meaning of the  Investment  Company  Act of 1940,  as
     amended.

          6.16 Public Utility Holding Company Act,' State Utility.

          6.16.1 Neither the Borrower nor the Guarantor is a "holding  company,"
     or a "subsidiary  company" of a "holding  company," or an  "affiliate" of a
     "holding company," or of a "subsidiary  company" of a "holding company," as
     such tenns are defined in the Public Utility  Holding  Company Act of 1935,
     as amended.

          6.16.2  Neither  the  Borrower  nor  the  Guarantor  is  defined  as a
     "utility"  under the laws of the  State of Texas or any other  jurisdiction
     wherein  the  Borrower  or the  Guarantor  is  required  to  qualify  to do
     business.

          6.17 Refunds; Certain Contracts.

          6.17.1  ,No  orders  of,   proceedings   pending   before,   or  other
     requirements  of,  the  Federal  Energy  Regulatory  Commission,  the Texas
     Railroad Commission, or any Governmental Authority exist which could result
     in the  Borrower or the  Guarantor  being  required to refund any  material
     portion  of the  proceeds  received  or to be  received  from  the  sale of
     hydrocarbons constituting part of the Collateral.


          6.17.2  Neither the  Borrower  nor the  Guarantor  is 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
     Collateral  at some future date without  receiving  full  payment  therefor
     within 90 days of delivery.
                                       27

          6.17.3 Neither the Borrower nor the Guarantor has produced gas, in any
     material  amount,  subject to, and neither the Borrower,  the Guarantor nor
     any of the Collateral is subject to,  balancing  rights of third parties or
     subject to balancing duties under governmental requirements.

          6.18 No Default. No Default has occurred which is continuing as of the
     Closing Date.

                                   ARTICLE VII

                                    COVENANTS

          During  the'Revolving  Credit  Period,  and  thereafter so long as any
     principal of or interest on the Note shall  remain  unpaid or any Letter of
     Credit remains outstanding, the Borrower will duly perform and observe each
     and all of the covenants and agreements hereinafter set forth:

          7.1 Use of Proceeds and Letters of Credit.

          7.1.1  The  Borrower  will use the  proceeds  of the  Loans  solely to
     finance the acquisition of Oil and Gas  Properties,  to develop its Oil and
     Gas Properties and for working capital purposes.

          7.1.2  Letters of Credit  shall be used for the support of oil and gas
     operations;  provided,  however, no Letter of credit may be used in lieu or
     in support of stay or appeal bonds.

          7.1.3 The Borrower will not,  directly or  indirectly,  use any of the
     proceeds of the Loans for the purpose of purchasing or carrying any "margin
     stock"  within the meaning of Regulation U of the Board of Governors of the
     Federal Reserve System (12 C. F. R. 221, as amended), or any "security that
     is  publicly-held"  within  the  meaning of  Regulation  T of such Board of
     Governors  (12 C.F.R.  220, as amended),  or  otherwise  take or permit any
     action which would involve a violation of such  Regulation U,  Regulation T
     or Regulation X (12 C.F.R. 224, as amended) or any other regulation of such
     Board of Governors. The Loans are not secured,  directly or indirectly,  in
     whole or in part, by collateral that includes any "margin stock" within the
     meaning of Regulation U. The Borrower  will not engage  principally,  or as
     one of its important  activities,  in the business of extending  credit for
     the purpose of purchasing or carrying any "margin stock" within the meaning
     of such Regulation U.

          7.2 Financial Statements;  Reserve and Other Reports; Certain Required
     Notices from Borrower; Additional Information. The Borrower will furnish to
     the Lender:

          7.2.1 (i) as soon as available  and in any event within 120 days after
     the end of each fiscal year of the Borrower, copies of the consolidated and
     consolidating statements of assets and liabilities of the Guarantor and its
     consolidated  Subsidiaries as of the end of such fiscal year, and copies of
     the related  statements  of revenues and expenses,  operations,  changes in
     stockholders'  equity and cash flow for such fiscal year,  setting forth in
     each case in comparative form the figures for the previous fiscal year, all
     in reasonable  detail,  prepared in accordance  with GAAP;  such  financial
     statements  to  be  audited  by a  firm  of  independent  certified  public
     accountants  selected by the  Guarantor  and  acceptable  to the Lender and
     accompanied by the unqualified opinion of such accountants.
                                       28

     (ii) on or before the 60th day after the last day of each fiscal quarter, a
copy of (a) the unaudited statement of assets and liabilities of the Borrower as
at the close of such  quarter and from the  beginning of such fiscal year to the
end of such quarter and (b) the related  statements  of revenues  and  expenses,
operations,  changes in stockholders' equity and cash flows for the quarter just
ended and for that  portion of the year ending on such date,  all in  reasonable
detail  and  prepared  on a  basis  consistent  with  the  financial  statements
previously delivered by the Borrower under this Section.

     (iii)  simultaneously with the delivery of each set of financial statements
pursuant to the  preceding  clauses of this  Section,  a Compliance  Certificate
stating  that such  financial  statements  fairly  and  accurately  reflect  the
financial condition and results of operation of the Borrower for the periods and
as of the dates set forth therein,  and that the signers have reviewed the terms
of this Agreement and the other Loan  Documents,  and have made, or caused to be
made  under  their  supervision,  a review  of the  transactions  and  financial
condition of the Borrower  during the fiscal  period  covered by such  financial
statements,  and that such review has not disclosed  the  existence  during such
period,  and that the signers do not have  knowledge of the  existence as of the
date of such certificate, of any condition or event which constitutes a Default,
or, if any such condition or event existed or exists,  specifying the nature and
period of existence  thereof and what action the Borrower has taken or is taking
or proposes to take with respect thereto.

     (iv)  within  30 days  after  each  filing  thereof  with any  Governmental
Authority,  complete  copies of (a) the federal and state  income tax returns of
the  Borrower and the  Guarantor so filed and (b) each Form 10-K,  Form 10-Q and
proxy  statement  filed  by the  Guarantor  with  the  Securities  and  Exchange
Commission after the Closing Date.

     7.2.2 (i) as soon as  available,  and in any event on or before March 31 of
each year  during the term of this  Agreement,  engineering  reports in form and
substance  satisfactory to the Lender in its reasonable  judgment,  certified by
any nationally  -or  regionally-  recognized  independent  consulting  petroleum
engineers  selected by the Borrower and  acceptable  to the Lender as fairly and
accurately setting forth (a) the proven and producing, shut-in, behind-pipe, and
undeveloped oil and gas reserves (separately classified as such) attributable to
the Oil and Gas Properties of the Borrower as of January 1 of such year, (b) the
aggregate  present  value  of  the  future  net  income  with  respect  to  such
Properties,  discounted  at a stated  per  annum  discount  rate of  proven  and
producing  reserves,  (c)  projections of the annual rate of  production,  gross
income, and net income with respect to such proven and producing  reserves,  and
(d)  information   with  respect  to  the   "take-or-pay,"   "prepayment,"   and
gas-balancing liabilities of the Borrower and other Persons with respect to such
Properties.

     (ii) within 60 days following each January 1 and July 1, production reports
in form and substance  satisfactory  to the Lender in its  reasonable  judgment,
prepared by the Borrower  containing  data  concerning  pricing,  quantities  of
production  from  the  oil  and  gas  Properties  of the  Borrower,  volumes  of
production sold, purchasers of production, gross revenues, expenses,  production
taxes,  engineering and geological data, and such other information with respect
thereto as the Lender may  reasonably  request  for use by the Lender to prepare
for its own exclusive use, internally generated engineering reports.
                                       29

     (iii) within 60 days  following each month end, a report setting forth oil,
gas and liquids production volumes by major field from the Borrower's Properties
for such month  ended,  and the total oil,  gas and  liquids  production  of all
fields  of the  Borrower  and  the  prices  received  therefor  and  such  other
information as the Lender shall request.

     (iv) within 60 days  following each quarter end, a report setting forth all
accounts receivable and accounts payable of the Borrower as of such quarter end,
such report to show the age of such accounts and such other  information  as the
Lender shall request.

     (v)  simultaneously  with the delivery of such engineering,  production and
other  reports undyr  clauses (i) through (iv) above,  an Officer's  Certificate
certifying  that  such  engineering,  production  and  other  reports  are true,
accurate and complete for the periods covered in such reports.

     (vi) within 15 days after any material change in insurance  coverage by the
Borrower,  a report describing such change, and, within 30 days after the end of
each fiscal year, a report describing the insurance coverage of the Borrower.

     7.2.3 (i) immediately  after any  Responsible  Officer becomes aware of the
occurrence of any condition or event which  constitutes a Default,  an Officer's
Certificate  specifying  the nature of such  condition  or event,  the period of
existence thereof,  what action the Borrower has taken or is taking and proposes
to take with respect  thereto and the date, if any, on which it is estimated the
same will be remedied.

     (ii) if and when  the-Borrower or the Guarantor (a) gives or is required to
give notice to the PBGC of any "reportable event" (as defined in Section 4043 of
ERISA) with respect to any Plan which might constitute grounds for a termination
of such Plan under Title IV of ERISA,  or knows that the plan  administrator  of
any Plan has given or is required to give notice of any such reportable event, a
copy of the notice of such reportable event given or required to be given to the
PBGC;  (b) receives  notice of complete or partial  withdrawal  liability  under
Title IV of ERISA, a copy of such notice;  or (c) receives  notice from the PBGC
under  Title IV of ERISA of an  intent to  terminate  or  appoint  a trustee  to
administer any Plan, a copy of such notice.

     (iii) promptly upon the Borrower's  learning that it has received notice or
otherwise learned of any claim,  demand,  action,  event,  condition,  report or
investigation  indicating  any  potential  or actual  liability  of the Borrower
arising in  connection  with (a) the  non-compliance  with or  violation  of the
requirements of any Environmental  Law,(b) the release or threatened  release of
any toxic or hazardous waste, substance or constituent into the environment,  or
(c) the existence of any  Environmental  Lien on any Properties of the Borrower,
notice thereof.

     (iv) promptly upon the Borrower's learning of any litigation or other event
or  circumstance  which could have a Material  Adverse Effect on the Borrower or
the Guarantor, notice thereof.

     (v) the  change in  identity  or address  of any  Person  remitting  to the
Borrower  proceeds from the sale of hydrocarbon  production from or attributable
to any Collateral.
                                       30

     (vi) any change in the senior management of the Borrower.

     (vii)  promptly  after the delivery of the same to any lender of any report
required to be delivered  pursuant to any debt instrument to which the Guarantor
is a party and not otherwise required to be delivered hereunder,  a copy of such
report.

     7.2.4 with reasonable promptness,  such other information relating directly
or  indirectly to the financial  condition,  business,  results of operations or
Properties  of the Borrower as from time to time may  reasonably be requested by
the Lender.

     7.3  Inspection of Properties  and Books.  The Borrower and the  Guarantor,
respectively  will permit any officer,  employee or agent of the Lender to visit
and inspect any of its Properties,  to examine its books of account (and to make
copies thereof and take extracts therefrom) and to discuss its affairs, finances
and accounts  (including  transactions,  agreements and other relations with any
shareholders)  with,  and to be  advised  as to the same by,  its  officers  and
independent  public  accountants,  all at such reasonable times and intervals as
the Lender may desire and, if a Default has occurred and is  continuing,  at the
expense of the Borrower.

     7.4  Maintenance  of  Security;  Insurance;  Operating  Accounts;  Transfer
Orders.

     7.4.1 (i) The Borrower shall execute and deliver,  or cause the appropriate
Person to execute  and  deliver,  to the Lender all  mortgages,  deeds of trust,
security agreements, financing statements,  assignments and such other documents
and instruments  (including  division and transfer orders),  and supplements and
amendments thereto, and take such other actions as the Lender deems necessary or
desirable  in order  to (a)  maintain  as  valid,  enforceable,  first-priority,
perfected Liens (subject only to the Permitted Liens),  all Liens granted to the
Lender to secure the Note or (b) monitor or control the proceeds therefrom.

          (ii) The  Borrower  shall  maintain,  or cause to be in  effect at all
     times, first and prior Liens in favor of the Lender by instruments properly
     recorded  in the  applicable  jurisdictions  on at least 90% by  Collateral
     Value  of  the  Oil  and  Gas  Properties   included  in  the  most  recent
     determination of the Borrowing Base.

          (iii)  The  Borrower  will  at  all  times  maintain  or  cause  to be
     maintained  insurance  covering  such risks as are  customarily  carried by
     businesses similarly situated.

     7.4.2 .The Borrower will maintain its primary  operating  accounts with the
Lender,  although  such  requirement  shall not be construed  as  requiring  the
Borrower to maintain  deposit  balances  with the Lender,  and will  deposit all
revenues of the Borrower in such accounts.

     7.4.3 The Borrower shall upon request of the Lender,  execute such transfer
orders, letters- in-lieu of transfer orders or division orders as the Lender may
from time to time request in respect of the  Collateral to effect a transfer and
delivery  to the  Lender  of the  proceeds  of  production  attributable  to the
Collateral.

     7.5  Payment  of Taxes  and  Claims.  The  Borrower  will pay (i) all Taxes
imposed upon it or any of its assets or with  respect to any of its  franchises,
business,  income or profits  before any  material  penalty or interest  accrues
thereon and (ii) all material claims (including, without
                                       31

     limitation,  claims for labor,  services,  materials and supplies) for sums
which have become due and  payable and which have or might  become a Lien (other
than a Permitted Lien) on any of its assets; provided,  however, that no payment
of such Taxes or claims  shall be required if (a) the amount,  applicability  or
validity  thereof is  currently  being  contested  in good faith by  appropriate
action promptly initiated and diligently conducted,  (b) the Borrower shall have
set aside on its books  reserves  (segregated  to the extent  required  by GAAP)
reasonably  deemed  by it to be  adequate  with  respect  thereto,  and  (c) the
Borrower has notified the Lender of such  circumstances,  in detail satisfactory
to the Lender.

     7.6 Payment of Debt; Additional Debt; Payment of Accounts.

     7.6.1  -The  Borrower  will (i) pay,  renew or  extend or cause to be paid,
renewed or extended the principal  of, and the  prepayment  charge,  if any, and
interest on all Debt heretofore or hereafter  incurred or assumed by it when and
as the same shall become due and payable  unless such payment is  prohibited  by
the Loan Documents;  (ii) faithfully perform, observe and discharge all unwaived
covenants, conditions and obligations imposed on it by any instrument evidencing
such Debt or by any indenture or other agreement  securing such Debt or pursuant
to which such Debt is issued  unless such  performance,  observance or discharge
would cause a Default hereunder;  and (iii) not permit the occurrence of any act
or  omission  which  would  constitute  a  default  under  any such  instrument,
indenture or agreement.

     7.6.2  The  Borrower  will not  create,  incur or suffer to exist any Debt,
except  without   duplication   (i)  Debt  to  the  Lender  and  (ii)  Permitted
Indebtedness.

     7.6.3 The Borrower  shall-pay all of its trade and other  accounts  payable
within 90 days after the invoice date  therefor,  unless such payables are being
contested in good faith by appropriate proceedings.

     7.7 Liens. The Borrower will not create, suffer to exist or otherwise allow
any Liens to be on or otherwise to affect any of its Property  whether now owned
or hereafter acquired, except Permitted Liens.

     7.8 Loans and  Advances  to  Others;  Investments,.  Restricted  Payments,.
Subsidiaries,. G&A Expenses.

     7.8.1 The  Borrower  will not make or suffer to exist any loan,  advance or
extension of credit to any Person except (i) current trade and customer accounts
receivable  which are for goods  furnished or services  rendered in the ordinary
course of business  and which are payable in  accordance  with  customary  trade
terms and (ii) Permitted Loans and Investments.

     7.8.2 the Borrower will not make any capital contribution to or acquire any
Investment  in, or to purchase or make a commitment to purchase any interest in,
any   Person    except   as    permitted    in   clauses   (i)   and   (it)   of
 Section 7.8.1.

     7.8.3 The Borrower will not,  directly or  indirectly,  make any Restricted
Payment  without the prior written  consent of the Lender except as specifically
permitted in the definition of such defined term.
                                       32

     7.8.4 The Borrower shall not form or acquire any  Subsidiaries  without the
prior written consent of the Lender.

     7.8.5 The general and  administrative  expenses of the  Borrower  shall not
exceed $150,000  during any  twelve-month  period,  determined on the basis of a
rolling twelve months, but excluding out-of-pocket costs directly related to the
Closing of this credit facility.

     7.9 Consolidation,  Merger, Maintenance,  Change of Control; Disposition of
Property;   Restrictive   Agreements;   Hedging   Agreements;   Modification  of
Organizational Documents; Issuance of Equity Interests.

     7.9.1  -The  Borrower  will not (i)  consolidate  or merge with or into any
other  Person  (unless the Borrower is the  surviving  entity and no Default has
occurred  and is  continuing  or will result from such merger or  consolidation)
without the prior written consent of the Lender,  (ii) sell,  lease or otherwise
transfer all or  substantially  all of its Property to any other  Person,  (iii)
terminate,  or fail to maintain,  its existence as a corporation in its state of
incorporation  represented  in  Section  6.1.1  or  (iv)  terminate,  or fail to
maintain,  its good  standing  and  qualification  to  transact  business in all
jurisdictions  where the nature of its business  requires the same (except where
the failure to maintain its good standing or qualification  could not reasonably
be  expected to have a material  adverse  effect on its  business  or  financial
condition) or (v) permit a Change of Control Event to occur.

     7.9.2 The Borrower will not sell,  encumber,  or otherwise  transfer all or
any portion of the Collateral,  any Property having  Collateral Value, or any of
its other  Property  without the consent of the Lender,  except for (i) sales of
oil and gas after severance in the ordinary course of business  provided that no
contract  for the sale of  hydrocarbons  shall  obligate the Borrower to deliver
hydrocarbons  produced  from any of the  Collateral  at some future date without
receiving  full payment  therefor  within 90 days of delivery,  (ii) the sale or
other disposition of its personal  Property  destroyed,  worn out,  damaged,  or
having only  salvage  value or no longer  used or useful in the  business of the
Borrower,  or (iii) undeveloped  leasehold acreage not constituting  Collateral.
Any  consent by the Lender to the sale of  Collateral  or other  Property of the
Borrower  may  include a  requirement  (to be treated  as a  Borrower  requested
determination)  that a new Borrowing Base be determined  under Section 2.8.1 and
that the proceeds of such sale plus such additional  amounts as the Lender deems
necessary to avoid the occurrence of a Borrowing  Base  Deficiency be applied to
the Obligations.  In this connection,  the Lender will not unreasonably withhold
its consent to sales during any 12-month period of Property of the Borrower,  in
the  aggregate,  having-  Collateral  Value of up to 10% of all  Property of the
Borrower having Collateral Value.

     7.9.3 The Borrower will not be or become party to or bound by any agreement
(including,   without  limitation,   any  undertaking  in  connection  with  the
incurrence of Debt or issuance of  securities)  which imposes any  limitation on
the disposition of the Collateral more restrictive than those set forth above or
which in any way  would be  contravened  by the  Borrower's  performance  of its
obligations  hereunder or under the other Loan  Documents or which  contains any
negative  pledge on all or any  portion of the  Borrower's  Property  (except in
favor of the Lender).
                                       33

     7.9.4 The Borrower  will not enter into any Hedging  Agreement,  other than
Acceptable Hedging Agreements.

     7.9.5 The  Borrower  will not amend its  articles of  incorporation,  under
which it was created, or its bylaws in any respect.

     7.9.6 The Borrower will not issue any Equity  Interests or rights,  options
or warrants to purchase any of the Borrower's Equity Interests.

     7.10 Primary Business; Location of Borrower's Office; Ownership of Assets.

     7.10.1- The primary  business of the  Borrower  shall be and remain the oil
and gas exploration, development and production business.

     7.10.2 The  location of the  Borrower's  principal  place of  business  and
executive  office  shall remain at the address for the Borrower set forth on the
signature  page  hereof,  unless  at least 10 days  prior to any  change in such
address the Borrower  provides  the Lender with  written  notice of such pending
change.

     7.10.3 The Borrower will at all times own, both beneficially and of record,
all assets  reflected  in its fmancial  statements  delivered to the Lender from
time to time.

     7.11 Operation of Properties and Equipment; Compliance with and Maintenance
of Contracts; Duties as Nonoperator.

     7.11.1 (i) The Borrower shall maintain, develop and operate its Oil and Gas
Properties in a good and workmanlike manner and will observe and comply with all
of the terms and  provisions,  express  or  implied,  of all oil and gas  leases
relating  to such  Properties  so long as such oil and gas leases are capable of
producing hydrocarbons in commercial quantities,  to the extent that the failure
to so observe and comply could have a Material Adverse Effect on the Borrower.

     (ii) Setex shall  remain as the named  operator for each oil or gas well in
which the  Borrower now or  hereafter  owns an interest  ifSetex is the operator
thereof on the date hereof or becomes the operator thereof subsequent hereto.

     (iii) The  Borrower  shall at all times,  maintain,  preserve  and keep all
operating equipment used or useful with respect to the Oil and Gas Properties of
the  Borrower  in  proper  repair,  working  order and  condition,  and make all
necessary  or  appropriate  repairs,  renewals,   replacements,   additions  and
improvements thereto so that the efficiency of such operating equipment shall at
all  times  be  properly  preserved  and  maintained,  provided  that no item of
operating  equipment  need  be  so  repaired,  renewed,  replaced,  added  to or
improved,  if the Borrower shall in good faith determine that such action is not
necessary or desirable for the continued  efficient and profitable  operation of
the business of the Borrower.

     7.11.2  The  Borrower  shall  comply  in all  material  respects  with  all
agreements  applicable  to or  relating  to its Oil and  Gas  Properties  or the
production and sale of hydrocarbons  therefrom and all applicable  proration and
conservation laws of the jurisdictions in which such
                                       34
                    ..
     Properties  are  located,  to the extent that the failure to so comply with
such laws or  agreements  could expose the  Borrower to any material  penalty or
forfeiture.

     7.11.3  With  respect  to the Oil and Gas  Properties  referred  to in this
Section which are operated by operators  other than the  Borrower,  the Borrower
shall not be obligated  itself to perform any  undertakings  contemplated by the
covenants and agreements contained in this Section which are performable only by
such  operators  and are beyond the control of the  Borrower,  but the  Borrower
shall use its best efforts to cause such operators to perform such undertakings.

     7.11.4 -(i) The  Borrower  will not amend,  alter or change in any material
respect which could reasonably be expected to be adverse to the interests of the
Borrower or the Lender any  agreements  relating to the  operations  or business
arrangements   of  the  Borrower  or  the   compression,   gathering,   sale  or
transportation of oil and gas without the prior written consent of the Lender.

     (ii) The Borrower will neither amend any operating agreement  applicable to
any of its Oil and Gas Properties  operated by Setex nor permit Setex,  directly
or  indirectly  (whether by action or  inaction),  to vary its  obligations  and
duties to the Borrower under any such operating agreements.

     7.12  Transactions  with  Affiliates.  The Borrower  will not engage in any
transaction  with an  Affiliate  unless  (i)  such  transaction  is at  least as
favorable to the  Borrower as could be obtained in an arm's  length  transaction
with an unaffiliated  third party, (ii) such transaction is not  disadvantageous
to the  Lender as holder of the Note and (iii) the  Lender is advised in writing
of the terms of such transaction prior to the consummation thereof.

     7.13 Plans.  The Borrower will not assume or otherwise become subject to an
obligation to contribute to or maintain any Plan or acquire any Person which has
at any time had an obligation to contribute to or maintain any Plan.

     7.14 Compliance with Laws and Documents. The Borrower will not, directly or
indirectly, violate the provisions of any laws, its certificate of incorporation
(or  similar   organizational   documents)  or  bylaws  (or  similar  regulatory
documents) or any Material Agreement, if such violation,  alone or when combined
with all other such  violations,  could have a  Material  Adverse  Effect on the
Borrower.

     7.15 Certain Financial Covenants.

     7.15.1 Cash Flow to Debt Service  Ratio.  The Borrower  will not permit the
ratio of EBITDA to Debt Service to be less than 1.25 to 1.00,  determined  as of
the end of each  fiscal  quarter of the  Borrower  ending on or after  March 31,
2001.

     "EBITDA" means,  for any fiscal quarter of the Borrower,  the net income of
the Borrower for such quarter plus (without  duplication  and only to the extent
deducted in determining  such net income),  interest expense of the Borrower for
such  quarter,   intangible  drilling  expenses,   depreciation,   amortization,
depletion,  write-down of Oil and Gas Properties and other non- cash expenses of
the Borrower for such quarter less gains on sales of assets and other non-
                                       35


     cash income for such quarter included in the determination of net income of
the Borrower. EBITDA is a quarter-by-quarter calculation.

     "Debt  Service"  means with respect to any fiscal  quarter of the Borrower,
the actual  principal and interest  payments on the Debt of the Borrower  during
such  quarter  other  than for the Note plus  required  principal  and  interest
payments on the Note during such quarter.

     7.15.2  Current  Ratio.  The Borrower  will not permit its ratio of Current
Assets to its Current Liabilities to be less than 1.25 to 1.00, determined as of
the end of each  fiscal  quarter of the  Borrower  ending on or after  March 31,
2001.

     "Current  Assets" means the current  assets of the Borrower plus the Unused
Available  Commitment,  but excluding  amounts due from officers,  directors and
shareholders of the Borrower.

     "Current  Liabilities"  means  the  current  liabilities  of the  Borrower,
exclusive  of the  current  portion  of the  Note  and the  current  portion  of
Subordinated Debt.

     7.16 Additional  Documents;  Quantity of Documents;  Title Data; Additional
Information.

     7.16.1 The Borrower  shall  execute and deliver or cause to be executed and
delivered such other and further  instruments or documents as in the judgment of
the Lender may be required to better  effectuate the  transactions  contemplated
herein and in the other Loan Documents.

     7.16.2 The Borrower will deliver all  certificates,  opinions,  reports and
documents  hereunder in such number of counterparts as the Lender may reasonably
request.

     7.16.3  Promptly,  but in any  event  within  30 days  following  a written
request  therefor from the Lender,  the Borrower  shall cause to be delivered to
the Lender title opinions,  in form and substance and from attorneys  acceptable
to the Lender, or other confirmation of title acceptable to the Lender, covering
Oil and Gas Properties constituting not less than 90% by Collateral Value of the
Oil  and  Gas  Properties  utilized  in the  most  recent  determination  of the
Borrowing Base; and promptly,  but in any event within 60 days following  notice
from the Lender of any defect,  material  in the  opinion of the Lender,  in the
title of the  mortgagor  under any Mortgage to ~y Oil and Gas  Property  covered
thereby,  clear such title  defect,  and in the event any such title defects are
not cured in a timely  manner,  pay all related  costs and fees  incurred by the
Lender in attempting to do so.

     7.16.4 The Borrower shall furnish to the Lender,  promptly upon the request
of the Lender,  such additional  financial or other  information  concerning the
assets, liabilities,  operations, and transactions of the Borrower as the Lender
may from time to time  reasonably  request;  and notify the Lender not less than
ten Business  Days prior to the  occurrence  of any  condition or event that may
change the proper  location for the filing of any  financing  statement or other
public  notice  or  recording  for  the  purpose  of  perfecting  a Lien  in any
Collateral,  including,  without  limitation,  any  change  in its  name  or the
location of its principal place of
                                       36

     business  or chief  executive  office;  and upon the request of the Lender,
execute such additional Security Documents as may be necessary or appropriate in
connection therewith.

     7.17 ENVIRONMENTAL  INDEMNIFICATION.  THE BORROWER SHALL INDEMNIFY,  DEFEND
AND HOLD THE LENDER  AND ITS  SHAREHOLDERS  ,  OFFICERS,  DIRECTORS,  EMPLOYEES,
AGENTS,  ATTORNEYS-IN-FACT,  AND  AFFILIATES AND EACH TRUSTEE FOR THE BENEFIT OF
THE LENDER UNDER ANY SECURITY DOCUMENT (COLLECTIVELY, THE "INDEMNIFIED PARTIES")
HARMLESS  ON A CURRENT  BASIS  FROM AND  AGAINST  ANY AND ALL  CLAIMS ,  LOSSES,
DAMAGES, LIABILITIES,  FINES, PENALTIES,  CHARGES,  ADMINISTRATIVE AND JUDICIAL-
PROCEEDINGS  AND  ORDERS,   JUDGMENTS,   REMEDIAL   ACTIONS,   REQUIREMENTS  AND
ENFORCEMENT  ACTIONS  OF ANY  KIND,  AND ALL  COSTS  AND  EXPENSES  INCURRED  IN
CONNECTION THEREWITH (INCLUDING, WITHOUT LIMITATION,  REASONABLE ATTORNEYS' FEES
AND EXPENSES), ARISING DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, FROM (A) THE
PRESENCE OF ANY  HAZARDOUS  SUBSTANCES  ON,  UNDER,  OR FROM ANY PROPERTY OF THE
BORROWER,  WHETHER PRIOR TO OR DURING THE TERM HEREOF,  (B) ANY ACTIVITY CARRIED
ON OR  UNDERTAKEN  ON OR OFF ANY PROPERTY OF THE  BORROWER,  WHETHER PRIOR TO OR
DURING THE TERM HEREOF, AND WHETHER BY THE BORROWER OR ANY PREDECESSOR IN TITLE,
EMPLOYEE,  AGENT,  CONTRACTOR,  OR  SUBCONTRACTOR  OF THE  BORROWER OR ANY OTHER
PERSON AT ANY TIME OCCUPYING OR PRESENT ON SUCH PROPERTY, IN CONNECTION WITH THE
HANDLING, TREATMENT, REMOVAL, STORAGE, DECONTAMINATION, CLEANUP, TRANSPORTATION,
OR DISPOSAL OF ANY  HAZARDOUS  SUBSTANCES  AT ANY TIME  LOCATED OR PRESENT ON OR
UNDER SUCH PROPERTY,  (C) ANY RESIDUAL CONTAMINATION ON OR UNDER ANY PROPERTY OF
THE  BORROWER,  OR (D) ANY  CONTAMINATION  OF ANY PROPERTY OR NATURAL  RESOURCES
ARISING  IN   CONNECTION   WITH  THE   GENERATION,   USE,   HANDLING,   STORAGE,
TRANSPORTATION  OR DISPOSAL OF ANY  HAZARDOUS  SUBSTANCES BY THE BORROWER OR ANY
EMPLOYEE, AGENT, CONTRACTOR, OR SUBCONTRACTOR OF THE BORROWER WHILE SUCH PERSONS
ARE  ACTING  WITHIN  THE  SCOPE  OF  THEIR   RELATIONSHIP   WITH  THE  BORROWER,
IRRESPECTIVE  OF WHETHER ANY OF SUCH  ACTIVITIES  WERE OR WILL BE  UNDERTAKEN IN
ACCORDANCE WITH APPLICABLE  REQUIREMENTS OF LAW,  INCLUDING ANY OF THE FOREGOING
IN THIS SECTION  ARISING FROM THE SOLE  NEGLIGENCE,  COMPARATIVE  NEGLIGENCE  OR
CONCURRENT  NEGLIGENCE  OF  ANY OF  THE  INDEMNIFIED  PARTIES  OR  THE  SOLE  OR
CONCURRENT STRICT LIABILITY IMPOSED ON ANY OF THE INDEMNIFIED  PARTIES,  BUT NOT
ANY OF THE  FOREGOING  IN THIS  SECTION  ARISING  FROM THE GROSS  NEGLIGENCE  OR
WILLFUL MISCONDUCT ON THE PART OF THE INDEMNIFIED PARTY SEEKING  INDEMNIFICATION
UNDER THIS SECTION;  WITH THE FOREGOING INDEMNITY SURVIVING  SATISFACTION OF ALL
OBLIGATIONS AND THE TERMINATION OF THIS AGREEMENT.

     7. 18 Exceptions to Covenants.  The Borrower shall not be permitted to take
any  action  which  is  permitted  by any of the  covenants  contained  in  this
Agreement  if such action is in breach of any other  covenant  contained in this
Agreement.
                                       37

     7.19  Guarantor  Promissory  Note.  The  Borrower  shall not,  directly or-
indirectly,  amend or modify the Guarantor Promissory Note or fail to vigorously
pursue the collection thereof following the maturity thereof.

                                   ARTICLE vm

                               DEFAULTS; REMEDIES

     8.1 Events of Default;  Acceleration of Maturity.  If anyone or more of the
following  events  (each an "Event  of  Default")  shall  have  occurred  and be
continuing  (whatever  the reason for such Event of Default and whether it shall
be  voluntary or  involuntary  or be effected by operation of law or pursuant to
any judgment,  decree or order of any court or any order,  rule or regulation of
any administrative or governmental body or otherwise):

     8.1.1 the  Borrower  shall  fail to pay,  when due,  any  principal  of, or
interest on, the Note or any fees or any other amount payable hereunder; or

     8.1.2 the  Borrower  shall  fail to  observe or  perform  any  covenant  or
agreement contained in Sections 7.1. 7.6.2. 7.7. 7.8. 7.9 or 7.15; or


     8.1.3 the Borrower or any other Person  (other than the Lender)  shall fail
to observe or perform any covenant or agreement  contained in this  Agreement or
the other Loan Documents  (other than those covered by Sections 8.1.1 or ~), for
a period of fifteen (15) days after the earlier of (i) any  Responsible  Officer
shall become aware or  reasonably  should have become aware  (regardless  of the
source of such awareness) of such default or (ii) written notice specifying such
default has been given to the Borrower by the Lender; or

     8.1.4 the  Borrower or the  Guarantor  shall  commence a voluntary  case or
other  proceeding  seeking  liquidation,  reorganization  or other  relief  with
respect to itself or its debts under any bankruptcy, insolvency or other similar
law now or  hereafter  in  effect  or  seeking  the  appointment  of a  trustee,
receiver,  liquidator,  custodian  or  other  similar  official  of  it  or  any
substantial part of its property,  or shall consent to any such relief or to the
appointment of or taking  possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the  benefit  of  creditors,  or shall fail  generally  to pay its debts as they
become due, or shall take any  corporate or other action to authorize any of the
foregoing; or

     8.1.5 an involuntary case or other  proceeding  shall be commenced  against
the  Borrower or the  Guarantor  seeking  liquidation,  reorganization  or other
relief with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the  appointment of a trustee,
receiver,  liquidator,  custodian  or  other  similar  official  of  it  or  any
substantial part of its property,  and such involuntary case or other proceeding
shall remain  undismissed  or unstayed for a period of 30 days;  or an order for
relief shall be entered  against the Borrower or the Guarantor under the federal
bankruptcy laws as now or hereafter in effect; or

     8.1.6 the Borrower or the Guarantor shall fail to pay, when due, any amount
which it shall have become liable to pay to the PBGC or to a Plan under Title IV
of ERISA;  or the PBGC shall  institute  proceedings  under Title IV of ERISA to
terminate or to cause a trustee to be
                                       38

     appointed to administer  any Plan or a proceeding  shall be instituted by a
fiduciary of any Plan against the Borrower to enforce Section 515 of ERISA; or a
condition  shall exist by reason of which the PBGC would be entitled to obtain a
decree adjudicating that any such Plan must be terminated; or

     8.1.7 the Borrower or the Guarantor (i) shall default in the payment of any
of their respective  Material Debts (other than the Note) and such default shall
continue  beyond  any  applicable  cure  period,   (ii)  shall  default  in  the
performance or observance of any other provision  contained in any agreements or
instruments  evidencing or governing  such Material Debt and such default is not
waived and continues beyond any applicable cure period, or (iii) any other event
or conditioll pccurs which results in the acceleration of such Material Debt; or

     8.1.8 one or more judgments or orders for the payment of money  aggregating
in excess of $50,000 shall be rendered against the Borrower or the Guarantor and
such judgment or order (i) shall continue unsatisfied or unstayed (unless bonded
with a  supersedeas  bond at least equal to such judgment or order) for a period
of 30 days, or (ii) is not fully paid and satisfied at least ten (10) days prior
to the date on which any of its  Property  may be lawfully  sold to satisfy such
judgment or order; or

     8.1.9 any  representation,  warranty,  certification  or statement  made or
deemed to have been made by or on behalf of the Borrower in this Agreement or by
the  Borrower or any other  Person in any  certificate,  financial  statement or
other document  delivered  pursuant to this  Agreement  shall prove to have been
incorrect in any respect when made if such incorrect  representation,  warranty,
certification  ~r statement (i) could reasonably be expected to have any adverse
effect  whatsoever upon the validity,  performance or enforceability of any Loan
Document,  (ii) is or might reasonably be expected to be material and adverse to
the financial condition or business operations of any Person or to the prospects
of any Person,  (iii)  could  reasonably  be  expected to impair the  Borrower's
ability to fulfill its  obligations  under the terms and  conditions of the Loan
Documents,  or (iv) could  reasonably be expected to impair the Lender's ability
to receive full and timely payment of the Note; or

     8.1.10 if any  default  shall have  occurred  and be  continuing  under any
Security Document; or

     8.1.11 any material license, franchise,  permit, or authorization issued to
the  Borrower by any Tribunal is  forfeited,  revoked,  or not  renewed;  or any
proceeding  with respect to such  forfeiture or revocation is instituted  and is
not resolved or dismissed  within one year of the date of the publication of the
order instituting such proceeding; or

     8.1.12 a default shall occur under any Material Agreement,  other than this
Agreement,  to which the  Borrower is a party or by which any of its Property is
bound; or

     8.1.13 a Change of Control Event shall occur;

     then, and in every such event,  the Lender may, at its option,  (i) declare
the outstanding principal balance of and accrued interest on the Note to be, and
the same shall thereupon forthwith become, due and payable without  presentment,
demand, protest, notice of intent to accelerate, notice of acceleration or other
notice of any kind, all of which are hereby waived by the
                                       39

     Borrower,  (ii) proceed to foreclose the Liens securing the Note, and (iii)
take such other  actions as are  pennitted by law;  provided that in the case of
any of the Events of Default  specified in Sections  8.1.4 and ~ with respect to
the Borrower, without

     any notice to the Borrower or any other act by the Lender,  the  Commitment
shall  tenninate and the Note  (together  with accrued  interest  thereon) shall
become immediately due and payable without presentment,  demand, protest, notice
of intent to accelerate, notice of acceleration or other notice of any kind, all
of which are hereby waived by the Borrower.  Upon the occurrence and continuance
of an Event of Default,  the Lender may  tenninate  its  commitment  to lend and
issue letters of credit under this Agreement and the Commitment  shall thereupon
tenninate.

     8.2 Suits fQf Enforcement.  In case anyone or more of the Events of Default
specified in Section 8.1 shall have occurred and be continuing,  the Lender may,
at its  option,  proceed to protect  and  enforce  its rights  either by suit in
equity or by action of law, or both, whether for the specific perfonnance of any
covenant or agreement  contained in this  Agreement or in aid of the exercise of
any power granted in this Agreement.

     8.3 Remedies  Cumulative.  No remedy  herein  conferred  upon the Lender is
intended  to be  exclusive  of any other  remedy and each and every such  remedy
shall be  cumulative  and  shall be in  addition  to every  other  remedy  given
hereunder  or now or  hereafter  existing  at law or in equity or by  statute or
otherwise.

     8.4  Remedies Not Waived.  No course of dealing and no delay in  exercising
any rights under this Agreement or under the other Loan Documents  shall operate
as a waiver of any rights  hereunder or  thereunder  of the Lender.
                                   ARTICLE IX
                                 MISCELLANEOUS

     9.1 Amendments and Waivers.

     9.1.1 Any tenn,  covenant,  agreement or condition of this Agreement or any
othe1 Loan  Document  may be  amended,  or  compliance  therewith  may be waived
(either  generally  or ir a  particular  instance  and either  retroactively  or
prospectively) by a written instrument signed b) the Borrower and the Lender.

     9.1.2 No failure or delay by the Lender in exercising any right,  power or
privileg(  under thIS  Agreement or any other Loan  Document  shall operate as a
waiver  thereof nor sha1 any single or partial  exercise  thereof  preclude  any
other or further exercise  thereof or th( exercise of any other right,  power or
privilege.  The rights and remedies  herein provided shall b( cumulative and not
exclusive of any rights or remedies provided by law or in equity or in any 0 the
other Loan Documents.

     9.2 Highest Lawful Interest Rate.  Regardless of any provision contained in
any of thc Loan  Documents,  the Lender  shall  never be  entitled  to  receive,
collect, or apply as interest on al or any p~ of the Loans, any amount in excess
of the Highest  Lawful Rate in effect  from day to day,  and,  III the event the
Lender ever  receives,  collects,  or applies as  interest  any such excess such
amount  which  would be  deemed  excessive  interest  shall be  deemed a partial
prepayment  0 the pnncipal of the Loans and treated  hereunder as such;  and, if
the entire principal amount of 40

     the Loans owed to the Lender is paid in full, any remaining excess shall be
repaid-to the  Borrower.  In  determining  whether the interest paid or payable,
under any specific  contingency,  exceeds the Highest Lawful Rate in effect from
day to day, the Borrower and the Lender shall,  to the maximum extent  permitted
under applicable law, (i)  characterize any nonprincipal  payment as an expense,
fee, or premium rather than as interest,  (ii) exclude voluntary prepayments and
the effects thereof, and (iii) amortize, prorate, allocate, and spread the total
amount of interest  throughout the entire contemplated term of the Loans so that
the interest rate is uniform  throughout the entire term of the Loans;  provided
that, if the interest  received by the Lender for the actual period of existence
thereof  exceeds the Highest  Lawful Rate in effect from day to day,  the Lender
shall apply or refund to the  Borrower  the amount of such excess as provided in
this  Section,  and,  in such  event,  the  Lender  shall not be  subject to any
penalties provided by any laws for contracting for, charging, taking, reserving,
or receiving interest in excess of the Highest Lawful Rate in effect from day to
day.

     9.3 INDEMNITY

     9.3.1  WHETHER OR NOT ANY LOANS ARE EVER  FUNDED OR ANY LETTER OF CREDIT IS
EVER ISSUED HEREUNDER,  AND IN ADDITION TO ANY OTHER INDEMNIFICATIONS  CONTAINED
HEREIN OR IN ANY OF THE OTHER LOAN  DOCUMENTS,  THE BORROWER AGREES TO INDEMNIFY
AND DEFEND AND HOLD  HARMLESS  ON A CURRENT  BASIS THE LENDER AND ITS  OFFICERS,
DIRECTORS,  EMPLOYEES,  AGENTS AND ATTORNEYS, AND EACH OF THEM (THE "INDEMNIFIED
PARTIES"),  FROM AND AGAINST ANY AND ALL LIABILITIES,  LOSSES,  DAMAGES,  COSTS,
INTEREST,  CHARGES,  COUNSEL FEES AND OTHER  EXPENSES AND  PENALTIES OF ANY KIND
WHICH ANY OF THE INDEMNIFIED PARTIES MAY SUSTAIN OR INCUR IN CONNECTION WITH ANY
INVESTIGATIVE,  ADMINISTRATIVE OR JUDICIAL PROCEEDING (WHETHER OR NOT THE LENDER
SHALL BE DESIGNATED A PARTY THERETO) OR OTHERWISE BY REASON OF OR ARISING OUT OF
THE EXECUTION AND DELIVERY OF THIS  AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS
AND/OR THE CONSUMMATION OF THE TRANSACTIONS  CONTEMPLATED HEREBY OR THEREBY. THE
INDEMNIFICATION  PROVISIONS IN THIS SECTION SHALL BE  ENFORCEABLE  REGARDLESS OF
WHETHER THE LIABILITY IS BASED ON PAST,  PRESENT OR FUTURE ACTS, CLAIMS OR LEGAL
REQUIREMENTS   (INCLUDING   ANY  PAST,   PRESENT  OR  FUTURE   BULK  SALES  LAW,
ENVIRONMENTAL LAW, FRAUDULENT TRANSFER ACT,  OCCUPATIONAL SAFETY AND HEALTH LAW,
OR PRODUCTS LIABILITY, SECURITIES OR OTHER LEGAL REQUIREMENT), AND REGARDLESS OF
WHETHER ANY PERSON  (INCLUDING THE PERSON FROM WHOM  INDEMNIFICATION  IS SOUGHT)
ALLEGES OR PROVES THE SOLE,  CONCURRENT,  CONTRIBUTORY OR COMPARATIVE NEGLIGENCE
OF THE PERSON SEEKING  INDEMNIFICATION OR OF ANY OTHER INDEMNIFIED PARTY, OR THE
SOLE  OR   CONCURRENT   STRICT   LIABILITY   IMPOSED  ON  THE   PERSON   SEEKING
INDEMNIFICATION  OR ON ANY OTHER INDEMNIFIED PARTY, BUT NOT ANY OF THE FOREGOING
IN THIS SECTION ARISING FROM THE GROSS  NEGLIGENCE OR WILLFUL  MISCONDUCT ON THE
PART OF THE INDEMNIFIED PARTY SEEKING  INDEMNIFICATION  UNDER THIS SECTION; WITH
THE FOREGOING INDEMNITY
                                       41

SURVIVING SATISFACTION OF ALL OBLIGATIONS AND THE TERMINATION OF THIS AGREEMENT.

     9.3.2 Any  amount to be paid under  this  Section to the Lender  shall be a
demand  obligation  owing by the  Borrower  and if  not-paid  within ten days of
demand shall bear interest from the date of expenditure by the Lender until paid
at a per annum  rate  equal to the  lesser of (i) the  Default  Rate or (ii) the
Highest  Lawful Rate.  The  obligations of the Borrower under this Section shall
survive payment of the Note and the assignment of any right hereunder.

     9.4 Expenses.

     9.4.1  -Whether  or not  anyone or more of the Loans are ever  funded,  the
Borrower  shall pay (i) all  out-of-pocket  expenses of the  Lender,  including,
without  limitation,  fees  and  disbursements  of  counsel  for the  Lender  in
connection  with the  preparation of this Agreement and the other Loan Documents
(including,  without limitation, the furnishing of any written or oral' opinions
or advice incident to this transaction) and, if appropriate,  the recordation of
the Loan Documents,  any waiver or consent  hereunder or any amendment hereof or
any  Default  or  alleged  Default  hereunder,  and (ii) if an Event of  Default
occurs, all out-of-pocket  expenses incurred by the Lender,  including,  without
limitation,  fees and  disbursements of counsel in connection with such Event of
Default and collection and other enforcement  proceedings  resulting  therefrom,
fees  of  auditors,  consultants,   engineers  and  other  Persons  incurred  in
connection   therewith   (including,   without   limitation,   the  supervision,
maintenance  or  disposition  of  the  Collateral)  and  investigative  expenses
incurred by the Lender in  connection  therewith,  which amounts shall be deemed
compensatory  in nature and  liquidated as to amount upon notice to the Borrower
by the Lender and which  amounts  shall  include,  but not be limited to (a) all
court costs, (b) reasonable attorneys' fees, (c) reasonable fees and expenses of
auditors and  accountants  incurred to protect the interests of the Lender,  (d)
fees and expenses incurred in connection with the participation by the Lender as
a member of the creditors'  committee in a case  commenced  under any Insolvency
Proceeding,  (e) fees and  expenses  incurred  in  connection  with  lifting the
automatic stay  prescribed  inss.362 Title 11 of the United States Code, and (f)
fees and expenses  incurred in  connection  with any action  pursuant  toss.1129
Title 11 of the United  States  Code all  reasonably  incurred  by the Lender in
connection  with  the  collection  of any  sums due  under  the Loan  Documents,
together  with  interest at the per annum  interest  rate equal to the  Floating
Rate,  calculated  on a basis of a calendar year of 365 or 366 days, as the case
may be, counting the actual number of days elapsed, on each such amount from the
date of notification  that the same was expended,  advanced,  or incurred by the
Lender  until the date it is repaid to the Lender,  with the  obligations  under
this Section surviving the  non-assumption of this Agreement in a case commenced
under any  Insolvency  Proceeding  and being binding upon the Borrower  and/or a
trustee,  receiver,  custodian,  or liquidator of the Borrower  appointed in any
such case.

     9.4.2 THE BORROWER SHALL  INDEMNIFY THE LENDER AGAINST ANY TRANSFER  TAXES,
DOCUMENTARY TAXES,  ASSESSMENTS OR CHARGES MADE BY ANY GOVERNMENTAL AUTHORITY BY
REASON OF THE  EXECUTION  AND  DELIVERY  OF THIS  AGREEMENT  OR THE  OTHER  LOAN
DOCUMENTS.

     9.4.3 Any  amount to be paid under  this  Section to the Lender  shall be a
demand  obligation  owing by the  Borrower  and if not paid  within  ten days of
demand shall bear interest
                                       42

     from the date of  expenditure  by the Lender until paid at a per annum rate
equal  to the  lessor  of the  Default  Rate or the  Highest  Lawful  Rate.  The
obligations of the Borrower under this Section shall survive payment of the Note
and the assignment of any right hereunder.

     9.5 Ta.xes.  The Borrower  will, to the extent they may lawfully do so, pay
all Taxes (including  interest and penalties but expressly  excluding federal or
state  income  taxes)  which may be  payable in  respect  of the  execution  and
delivery of this  Agreement  or the other Loan  Documents,  or in respect of any
amendment of or waiver under or with respect to the foregoing, and will save the
Lender harmless against any loss or liability resulting from nonpayment or delay
in payment of any such Taxes (as limited above). The obligations of the Borrower
under this Section shall  ~urvive the payment of the Note and the  assignment of
any right hereunder.

     9.6 Notices. Except as specifically provided otherwise herein, all notices,
requests and other  communications  to any party  hereunder  shall be in writing
(including  by telecopy or similar  writing) and shall be given to such party at
its address and to the attention of the Person set forth on the signature  pages
hereof (or in the case of  notices  to the  Borrower,  to the  attention  of any
officer,  or other Person holding a similar  position,  of the Borrower) or such
other address or telecopy  number or Person as such party may hereafter  specify
for such  purpose by notice to the other  party.  Each such  notice,  request or
other  communication  shall be  effective  (i) if given by  telecopy,  when such
telecopy is transmitted to the telecopier  number  specified in this Section and
the receipt thereof is acknowledged,  (ii) if given by mail, 72 hours after such
communication  is  deposited in the mails  postage  prepaid  (certified,  return
receipt requested)  addressed as aforesaid or (iii) if given by any other means,
when  delivered at the address  specified in this Section or, in the case of the
Borrower.)  when  otherwise  delivered  to the  Borrower  or any  officer of the
Borrower,  provided  that notice to the Lender  under  Section 2.2  ------------
shall not be effective until received,  and provided  further that, oral notices
to the  Borrower of  decreases in the  Borrowing  Base shall be  effective  when
communicated to the Borrower.

     9.7 Rights of Set-Off

     9.7.1  Upon the  occurrence  and  during  the  continuance  of any Event of
Default,  the Lender is hereby  authorized at any time and from time to time, to
the fullest  extent  permitted by law, to set off and apply any and all deposits
(general or special,  time or dem~d,  provisional or final) at any time held and
other  indebtedness  at any time owing by the Lender to or for the credit or the
account of the Borrower  against the  obligations of the Borrower to the Lender,
irrespective  of whether or not the Lender shall have made any demand under this
Agreement  or any other Loan  Document  and  although  such  obligations  may be
unmatured.  The Lender  agrees  promptly to notify the  Borrower  after any such
set-off and  application  made by the Lender,  provided that the failure to give
such notice shall not affect the validity of such set-off and  application.  The
rights of the Lender  under this  Section are in  addition  to other  rights and
remedies  (including,  without  limitation,  other rights of set-off)  which the
Lender may have.

     9.7.2 The Borrower  agrees,  to the fullest extent it may effectively do so
under  applicable  law,  that any  holder  of a  participation  in the Loans may
exercise rights of set-off or counterclaim and other rights with respect to such
participation  as  fully  as if such  holder  of a  participation  were a direct
creditor of the Borrower in the amount of such participation.
                                       43

     9.8 Survival.  All representations,  warranties and covenants made by or on
behalf of the Borrower in this Agreement or the other Loan  Documents  herein or
in any  certificate or other  instrument  delivered by it or in its behalf under
the Loan  Documents  shall be  considered to have been relied upon by the Lender
and shall  survive  the  delivery  to the Lender of such Loan  Documents  or the
extension of the Loans (or any part  thereof),  regardless of any  investigation
made by or on behalf of the Lender.

     9.9 Successors and Assigns: Rights of Other Holders.

     9.9.1  This  Agreement  shall be binding  on the  parties  hereto and their
respective  successors  and inure to the  benefit of and be  enforceable  by the
Lender, its legal  representatives,  successors and aSsigns. With respect to the
Borrower,  this  Agreement  and the other Loan  Documents  and the rights of the
Borrower hereunder and thereunder shall not be assignable in any respect.

     9.9.2  The  Lender  may  at any  time  sell,  transfer,  assign,  or  grant
participations  in the  Obligations  or any portion  thereof with or without the
consent  of the  Borrower;  and the Lender may  forward to each  Transferee  and
prospective   Transferee  all  documents  and   information   relating  to  such
Obligations,  whether  furnished by the Borrower or otherwise  obtained,  as the
Lender  determines  necessary  or  desirable.  The  Borrower  agre~s  that  each
Transferee,  regardless  of the nature of any  transfer to it, may  exercise all
rights (including,  without  limitation,  rights of set-off) with respect to the
portion of the  Obligations  held by it as fully as if such  Transferee were the
direct holder thereof, subject to any agreements between such Transferee and the
transferor to such Transferee.

     9.10 Applicable Law; Venue; Waiver of Ju ry Trial.

     9.10.1 THIS AGREEMENT HAS BEEN NEGOTIATED, IS BEING EXECUTED AND DELIVERED,
AND  WILL BE  PERFORMED  IN WHOLE OR IN PART,  IN THE  STATE OF  TEXAS,  AND THE
SUBSTANTIVE  LAWS OF SUCH STATE AND THE  APPLICABLE  FEDERAL  LAWS OF THE UNITED
STATES OF AMERICA  SHALL  GOVERN THE  VALIDITY,  CONSTRUCTION,  ENFORCEMENT  AND
INTERPRETATION  OF THE LOAN  DOCUMENTS,  EXCEPT  TO THE  EXTENT  THE LAWS OF ANY
JURISDICTION  WHERE COLLATERAL IS LOCATED REQUIRE  APPLICATION OF SUCH LAWS WITH
RESPECT TO SUCH COLLATERAL.

     9.10.2  THE  BORROWER  HEREBY  IRREVOCABLY  SUBMITS  TO  THE  NON-EXCLUSIVE
JURISDICTION  OF ANY UNITED  STATES  FEDERAL  OR TEXAS  STATE  COURT  SITTING IN
DALLAS,  DALLAS  COUNTY,  TEXAS IN ANY ACTION OR  PROCEEDING  ARISING  OUT OF OR
RELATING TO ANY LOAN DOCUMENTS AND THE BORROWER HEREBY  IRREVOCABLY  AGREES THAT
ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING  MAY BE HEARD AND  DETERMINED
IN ANY SUCH COURT AND  IRREVOCABLY  WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER
HAVE AS TO THE VENUE OF ANY SUCH SUIT,  ACTION OR  PROCEEDING  BROUGHT IN SUCH A
COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT
                                       44

     THE RIGHT OF THE LENDER TO BRING  PROCEEDINGS  AGAINST THE  BORROWER IN THE
COURTS  OF ANY OTHER  JURISDICTION.  ANY  JUDICIAL  PROCEEDING  BY THE  BORROWER
AGAINST  THE  LENDER OR ANY  AFFILIATE  OF THE  LENDER  INVOLVING,  DIRECTLY  OR
INDIRECTLY,  ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH
ANY LOAN  DOCUMENT  SHALL BE BROUGHT ONLY IN A COURT IN DALLAS,  DALLAS  COUNTY,
TEXAS.

     9.10.3  THE  BORROWER  AND THE  LENDER  HEREBY  KNOWINGLY,  VOLUNT  ARIL Y,
INTENTIONALLY,  IRREVOCABLY,  AND UNCONDITIONALLY  WAIVE ALL R{(;HTS TO TRIAL BY
JURY IN ANY ACTION,  SUIT,  PROCEEDING,  COUNTERCLAIM,  OR OTHER LITIGATION THAT
RELATES TO OR ARISES OUT OF ANY OF THIS  AGREEMENT OR ANY OTHER LOAN DOCUMENT OR
THE ACTS OR  OMISSIONS OF THE LENDER IN THE  ENFORCEMENT  OF ANY OF THE TERMS OR
PROVISIONS  OF THIS  AGREEMENT  OR ANY OTHER LOAN  DOCUMENT  OR  OTHERWISE  WITH
RESPECT  THERETO.  THE PROVISIONS OF THIS SECTION ARE A MATERIAL  INDUCEMENT FOR
THE LENDER ENTERING INTO THIS AGREEMENT.

     9.11 Headings. The headings in this Agreement are for purposes of reference
only and shall not limit or othelWise  affect the meaning  hereof and words such
as "hereunder" or " herein" shall refer to the entirety of this Agreement unless
specifically indicated otherwise.

     9.12  Counterparts.  This  Agreement  may  be  executed  in any  number  of
counterparts, each of which shall be an original and all of which together shall
constitute one and the same instrument. This Agreement shall become effective at
such time as the  counterparts  hereof  which,  when  taken  together,  bear the
signature of the Borrower and the Lender, shall be delivered to the Lender.

     9.13 Invalid Provisions,  Severability.  If any provision of this Agreement
or the other Loan  Documents is held to be illegal,  invalid,  or  unenforceable
under present or future laws effective  during the term hereof or thereof,  such
provision shall be fully severable,  this Agreement and the other Loan Documents
shall be construed and enforced as if such illegal,  invalid,  or  unenforceable
provision  had never  comprised a part  thereof,  and the  remaining  provisions
hereof  and  thereof  shall  remain in full  force and  effect  and shall not be
affected by the illegal, invalid, or unenforceable provision or by its severance
therefrom.  Furthermore,  in lieu  of such  illegal,  invalid  or  unenforceable
provision there shall be added  automatically as a part of this Agreement or the
other Loan  Documents a provision as similar in terms to such illegal,  invalid,
or  unenforceable  provision  as  may  be  possible  and  be  legal,  valid  and
enforceable.

     9.14  Revolving  Loan.  Pursuant to Section  346.004 of the Finance Code of
Texas,  the  Borrower  agrees that  Chapter 346 of such  Finance  Code shall not
govern or in any manner apply to the Loans.
                                       45


     9.15 Preclusion of Oral Agreements.  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.

     THERE ARE NO UN~TTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

     In witness whereof,  the undersigned have executed this Agreement as of the
day and year first above written.

                                      --BORROWER:



     397 N. Sam Houston  Parkway  East            By:
     Suite 375   Houston,                         Name:Thomas R. Kaetzer
     Texas 77080                                  Title:President
     Facsimile:  713/974-0617
                                                  LENDER:

                                                  TEXAS  CAPITAL  BANK,  N .A.
     2100 Mc Kinney Avenue, Suite 100
     Dallas, Texas 75201
     Attention: Energy Group
     Facsimile: 214/932-6704
                                       46

                             FORM OF PROMISSORY NOTE


     $10,000,000 Dallas, Texas November 30,2000

     FOR V  ALUE  RECEIVED  and  WITHOUT  GRACE,  the  undersigned  ("Borrower")
promises to pay to the order of TEXAS  CAPITAL  BANK,  N.A.  ("Lender"),  at its
banking quarters in Dallas, Dallas County, Texas, the amount of $10,000,000,  or
so much  thereof as may be  advanced  against  this Note  pursuant to the Credit
Agreement  dated of even date  herewith by and between  Borrower  and Lender (as
amended,  restated, or supplemented from time to time, the "Credit AgreemelJ~"),
together  with  interest at the rates and  calculated  as provided in the Credit
Agreement.

     Reference  is hereby  made to the Credit  Agreement  for  matters  governed
thereby,  including,  without limitation,  certain events which will entitle the
holder  hereof  to  accelerate  the  maturity  of  all  amounts  due  hereunder.
Capitalized  terms used but not  defined  in this Note  shall have the  meanings
assigned to such terms in the Credit Agreement.

     This  Note is  issued  pursuant  to and  shall be  governed  by the  Credit
Agreement  and the holder of the Note shall be entitled  to the  benefits of the
Credit Agreement. This Note shall finally mature on the Final Maturity Date.

     Without  being  limited  thereto  or  thereby,  this Note is secured by the
Security Documents.

     Borrower, and each surety, endorser, guarantor, and other party ever liable
for payment of any sums of money  payable on this note,  jointly  and  severally
waive  presentment  and  demand for  payment,  protest,  notice of  protest  and
nonpayment,  and notice of the  intention  to  accelerate,  and agree that their
liability  on this note shall not be affected by any renewal or extension in the
time of payment hereof,  by any indulgences,  or by any release or change in any
security  for the  payment  of this  note,  and  hereby  consent  to any and all
renewals,  extensions,  indulgences,  releases,  or changes,  regardless  of the
number of such renewals, extensions, indulgences, releases, or changes.

     THIS NOTE  SHALL BE  GOVERNED  AND  CONTROLLED  BY THE LAWS OF THE STATE OF
TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES  THEREOF RELATING TO CONFLICTS OF LAW;
PROVIDED,  HOWEVER,  THAT  CHAPTER  346 OF THE  FINANCE  CODE  OF  TEXAS  (WHICH
REGULATES  CERTAIN CREDIT LOAN ACCOUNTS AND TRIP ARTY ACCOUNTS)  SHALL NOT APPLY
TO THIS NOTE.

                    GULFWEST DEVELOPMENT COMPANY

                    By:
                      Thomas R. Kaetzer, President
                                       1

                              FORM OF NOTICE OF BORROWING -

Texas Capital Bank, N.A.
2100 McKinney Avenue, Suite 100
Dallas, Texas 75201
Attention: Energy Group

               Re:  Credit  Agreement  dated  November 30, 2000,  by and between
          Texas  Capital  Bank,  N.A.  and  GultWest  Development  Company  (the
          "Borrower") (as amended,  restated, or supplemented from time to time,
          the "Credit Agreement")

Ladies and Gentlemen:

     Pursuant to the Credit  Agreement,  the Borrower  hereby makes the requests
indicated below:

                    1.   Loans

                    (a)  Amount of new Loan: $ -

                    (b)  Requested funding date: , 200

                    2.   Included  herewith  is a  completed  Letter  of  Credit
                         Application.

     The  undersigned  certifies  that  _[s]he  is a  Responsible  Officer,  has
obtained all consents necessary, and as such [s]he is authorized to execute this
request  on  behalf  of  the  Borrower.   The  undersigned   further  certifies,
represents, and warrants on behalf of the Borrower that the Borrower is entitled
to  receive  the  requested  borrowing  or letter of credit  under the terms and
conditions of the Credit Agreement.

     Each  capitalized  term used but not defined  herein shall have the meaning
assigned to such term in the Credit Agreement.


                    Very truly yours,


                    GULFWEST DEVELOPMENT COMPANY



                    By.  .

                    Thomas R. Kaetzer, President
                                       1

                         FORM OF COMPLIANCE CERTIFICATE
Texas Capital Bank, N.A.
2100 McKinney Avenue, Suite 100
Dallas, Texas 75201
Attention: Energy Group

          Re:  Credit  Agreement  dated  November 30, 2000, by and between Texas
          Capital Bank,  N.A. (the  "Lender") and GulfWest  Development  Company
          (the "Borrower") (as amended,  restated,  or supplemented from time to
          time, the "Credit Agreement")

Ladies and Gentlemen:

     Pursuant  to  applicable   requirements  of  the  Credit   Agreement,   the
undersigned,  as a Responsible Officer of the Borrower,  hereby certifies to you
the following  information  as true and correct as of the date hereof or for the
period indicated, as the case may be:

          [1. To the best of the knowledge of the undersigned, no Default exists
     as of the date  hereof  or has  occurred  since  the  date of our  previous
     certification to you, if any.]

          [1. To the best of the  knowledge of the  undersigned,  the  following
          Defaults  exist as of the date hereof or have occurred  since the date
          of our  previous  certification  to you,  if any,  and the actions set
          forth below are being taken to remedy such circumstances:]

          2. The compliance of the Borrower with certain financial  covenants of
          the  Credit   Agreement,   as  of  the  close  of   business  on  (the
          "Determination Date"), is evidenced by the following:

          (a)  Section 7.8.5: G&A Expenses.

               Actual For the prior [twelve]  months on a  month-by-month  basis
               [or insert lesser number of months for quarterly  periods  ending
               prior to December  31,2001],  listed  month-by-month  as follows:
               [list each month and the G&A for each month] $ - [etc.]

          (b) Section 7.15.1: Cash Flow to Debt Service. Reguired Actual

               Not less than 1.25 to 1.00 to
                                       1

               (c)  Section 7.15.2: Current Ratio
                    Reguired Actual

                    Not less than 1.25 to 1.00

     3.   The financial  statements  being delivered to the Lender  concurrently
          herewith  pursuant  to the  Credit  Agreement  fairly  and  accurately
          reflect  the  financial  condition  and  results of  operation  of the
          Borrower  for the periods and as of the dates set forth  therein,  and
          the undersigned has reviewed the terms of the Credit Agreement and the
          other  Loan  Documents~  and has made,  or caused to be made  under my
          supervision,  a review of the transactions and financial  condition of
          the  Borrower  during the  fiscal  period  covered  by such  financial
          statements.

          Each  capitalized  term used but not  defined  herein  shall  have the
          meaning assigned to such term in the Credit Agreement.

                                                     Very truly yours,





                                              of GulfWest Development Company
                                       1

EX-10

     This First  Amendment to Credit  Agreement ("  Amendment")  is entered into
between Texas Capital Bank, N.A., a national banking association  ("Lender") and
GulfWest Development Company, a Texas corporation, (the "Borrower") and is dated
as of October 24, 2001. Terms defined in the Credit Agreement between the Lender
and the Borrower dated November  30,2000,  as amended (the "Credit  Agreement"),
are used  herein as therein  defined,  unless  otherwise  defined  herein or the
context otherwise requires.

                                    RECITALS:

     WHEREAS,  the Borrower has requested that the Lender increase the Borrowing
Base and make other changes to the Credit Agreement;

     WHEREAS, the Guarantor has changed its name from GulfW est Oil Company to ~
- - GulfWest Energy, Inc.

     WHEREAS,  contemporaneously  with  the  execution  of this  Amendment,  the
Borrower is acquiring  certain oil and gas  properties in Zavala  County,  Texas
which will be pledged to the Lender as additional  security for the Obligations;
and

     WHEREAS,  the Lender is willing  to amend the  Credit  Agreement  under the
terms and conditions set forth herein;

     NOW, THEREFORE, the Borrower and the Lender hereby agree as follows:

     1. The following  definitions are hereby added to Section 1.1 of the Credit
Agreement as follows:

     "First  Amendment to Credit  Agreement" means the First Amendment to Credit
Agreement dated October 24, 2001, between the Lender and the Borrower.

     2.  The  definition  of TCB  Rate  located  in  Section  1.1 of the  Credit
Agreement are hereby amended and restated in its entirety as follows:

     "TCB  Rate"  means,  on any  day,  the  greater  of (i) the  prime  rate as
published in ~ Wall Street  Journal's  "Money  Rates" table for such day or (ii)
five and one-half  percent  (5.50%).  Ifmultiple  prime rates are quoted in such
table,  then the highest prime rate quoted therein shall be the TCB Rate. In the
event that a prime rate is not  published  in The Wall Street  Journal's  "Money
Rates"  table for any reason or The Wall Street  Journal is not  published  that
day, the Lender will choose a substitute  TCB Rate,  for purposes of calculating
the  interest  rate   applicable   hereunder,   which  is  based  on  comparable
information,  until such time as a prime rate is  published  in The Wall  Street
Journal's  "Money Rates"  table.  In this  connection,  such prime rate for each
Saturday, Sunday or day for which banks are authorized to be closed in the state
of Texas shall be the most recent  prime rate so  published if published no more
than three days prior to such  date.  Each  change in the TCB Rate shall  become
effective  without  notice to the  Borrower on the  effective  date of each such
change.
                                        1

     3. The Borrowing  Base shall be $2,500,000 as of October 24, 2001,  and the
an1ount by which the Borrowing Base shall  automatically  be reduced on November
1, 2001,  and on the first day of each  month  thereafter  shall be $36,000  per
month, until redetermined in accordance with the Credit Agreement.

     4. The  Borrower  shall pay the Lender a facility fee of $8,000 on the date
this First Amendment to Credit Agreement is executed.

     5. The  Borrower  shall pay the Lender an  engineering  fee of$3,000 on the
date this First Amendment to Credit Agreement is executed.

     6. The Borrower shall execute and deliver or cause the  appropriate  Person
to execute and deliver such  certificates,  mortgages,  an1endments to mortgages
and other security  instruments  as the Lender may from time to time  reasonably
request to reflect the terms of this Amendment. --

     7.  GOVERNING  LA W. This  Agreement  and the Note  shall be  governed  and
controlled by the laws of the state of Texas without giving effect to principles
thereof relating to conflicts of law; provided, however, that Chapter 346 of the
Finance  Code  (which  regulates  certain  credit  loan  accounts  and  triparty
accounts) shall not apply to the Note.

     8. JURISDICTION AND VENUE. THE BORROWER HEREBY  IRREVOCABLY  SUBMITS TO THE
NON-EXCLUSIVE  JURISDICTION  OF ANY UNITED  STATES  FEDERAL OR TEXAS STATE COURT
SITTING IN DALLAS,  DALLAS COUNTY, TEXAS IN ANY ACTION OR PROCEEDING ARISING OUT
OF OR RELATING TO ANY LOAN DOCUMENTS AND THE BORROWER HEREBY  IRREVOCABLY AGREES
THAT ALL  CLAIMS  IN  RESPECT  OF SUCH  ACTION  OR  PROCEEDING  MAY BE HEARD AND
DETERMINED IN ANY SUCH COURT AND IRREVOCABLY  WAIVES ANY OBJECTION IT MAY NOW OR
HEREAFfER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN
SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT  FORUM.  NOTHING HEREIN SHALL
LIMIT THE RIGHT OF THE LENDER TO BRING  PROCEEDINGS  AGAINST THE BORROWER IN THE
COURTS  OF ANY OTHER  JURISDICTION.  ANY  JUDICIAL  PROCEEDING  BY THE  BORROWER
AGAINST  THE  LENDER OR ANY  AFFILIATE  OF THE  LENDER  INVOLVING,  DIRECTLY  OR
INDIRECTLY,  ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH
ANY LOAN  DOCUMENT  SHALL BE BROUGHT ONLY IN A COURT IN DALLAS,  DALLAS  COUNTY,
TEXAS.

     9. RELEASE OF CLAIMS.  The Borrower for itself,  its successors and assigns
and all those at interest  therewith ( collectively,  the "Releasing  Parties"),
jointly and severally,  hereby voluntarily and forever,  RELEASE,  DISCHARGE AND
ACQUIT the Lender and its officers, directors, shareholders,  employees, agents,
successors,  assigns,   representatives,   affiliates  and  insurers  (sometimes
referred  to below  collectively  as the  "Released  Parties")  and all those at
interest  therewith  of  and  from  any  and  all  claims,   causes  of  action,
liabilities, damages, costs (including, without
                                        2

     limitation,  attorneys' fees and all costs of court or other  proceedings),
and  losses of every  kind or nature at this time  known or  unknown,  direct or
indirect,  fixed or contingent,  which the Releasing Parties,  have or hereafter
may have arising out of any act, occurrence,  transaction, or omission occurring
from the beginning of time to the date of execution of this Amendment if related
to the Note or the other Loan Documents (the "Released Claims"), except that the
future  duties and  obligations  of the Lender under the Loan  Documents and the
rights of the  Borrower  to its funds on deposit  with the  Lender  shall not be
included in the term Released Claims.  IT IS THE EXPRESS INTENT OF THE RELEASING
PARTIES  THAT THE RELEASED  CLAIMS SHALL  INCLUDE ANY CLAIMS OR CAUSES OF ACTION
ARISING FROM OR  ATTRIBUTABLE  TO THE  NEGLIGENCE,  GROSS  NEGLIGENCE OR WILLFUL
MISCONDUCT OF ANY OF THE RELEASED PARTIES.

     10. WAIVER OF RIGHTS TO JURY TRIAL. THE BORROWER AND THE LENDER EACH HEREBY
KNOWINGLY, VOLUNTARILY,  INTENTIONALLY,  IRREVOCABLY, AND UNCONDITIONALLY WAIVES
ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT,  PROCEEDING,  COUNTERCLAIM,  OR
OTHER  LITIGATION  THAT RELATES TO OR ARISES OUT OF ANY OF THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT OR THE ACTS OR OMISSIONS OF THE LENDER IN THE ENFORCEMENT OF
ANY OF THE TERMS OR PROVISIONS  OF THIS  AGREEMENT OR ANY OTHER LOAN DOCUMENT OR
OTHERWISE  WITH RESPECT  THERETO.  THE PROVISIONS OF THIS SECTION ARE A MATERIAL
INDUCEMENT FOR THE LENDER ENTERING INTO THIS AGREEMENT.

     11. Countemarts. For the convenience of the parties, this Amendment may be
executed  in  multiple  counterparts,  each of which for all  purposes  shall be
deemed to be an original,  and all such counterparts  shall together  constitute
but one and the same agreement.

     12. Except  as  amended  hereby,  the  Credit  Agreement  shall  remain
unchanged and in full force and effect.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
                                       3

     13. ENTIRE  AGREEMENT.  THIS  AGREEMENT  CONSTITUTES  THE ENTIRE  AGREEMENT
BETWEEN THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF.  FURTHERMORE,  IN
THIS REGARD,  THIS  AGREEMENT  AND THE OTHER WRITTEN LOAN  DOCUMENTS  REPRESENT,
COLLECTIVELY,  THE FINAL  AGREEMENT  AMONG THE  PARTIES  THERETO  AND MAY NOT BE
CONTRADICTED  BY  EVIDENCE  OF  PRIOR,   CONTEMPORANEOUS,   OR  SUBSEQUENT  ORAL
AGREEMENTS OF SUCH PARTIES.  THERE ARE NO UNWRITTEN ORAL  AGREEMENTS  AMONG SUCH
PARTIES.

          IN WITNESS WHEREOF,  this Amendment is deemed executed effective as of
     the date first above written.

                                                     BORROWER:





                                                     By:
                                                     Name: Thomas R. Kaetzer
                                                     Title: President


                                                     LENDER:

                                                     TEXAS CAPITAL BANK, N .A.

                                                     By:
                                                     Name: Chris D. Cowan
                                                     Title: Vice President
                                       4

                            LIMITED RECOURSE GUARANTY
                                     Revised
               (GultWest Energy, Inc. f/k/a GultWest Oil Company)

          This LIMITED RECOURSE  GUARANTY (the "Guaranty")  dated as of November
     30, 2000, (but executed on October 24, 2001) is by GultW est Energy,  Inc.,
     a  Texas  corporation   (herein  referred  to  as  the  "Guarantor").   The
     capitalized  terms used herein shall have the meanings  assigned to them in
     the Credit  Agreement  (hereinafter  defined),  unless  they are  otherwise
     defined  herein.  This  Guaranty  is limited to the extent so  provided  in
     para2raph 12 hereof.
                                   WITNESSETH:


          WHEREAS,   GultWest  Development  Company,  a  Texas  corpration  (the
     "Borrower")  is arranging  financing  with Texas  Capital  Bank,  N.A. (the
     "Lender");

          WHEREAS,  the  Borrower  and the Lender have  entered  into the Credit
     Agreement dated November 30, 2000,  (such  agreement,  as the same may have
     been or be from time to time supplemented or amended,  or the terms thereof
     waived or modified being the "Credit  Agreement")  which sets forth,  inter
     alia,  the terms and  conditions  pursuant  to which the Lender will extend
     credit to the Borrower (which credit is evidenced by the Note issued by the
     Borrower to the Lender pursuant to the Credit Agreement);

          WHEREAS,  it is a condition  precedent to the obligation of the Lender
     to advance  additional  amounts to the Borrower that the Borrower cause the
     Guarantor to execute and deliver to the Lender this Guaranty;

          WHEREAS, the Guarantor has changed its name from GultW est Oil Company
     to GultW est Energy, Inc.; and

          WHEREAS,  the board 0 f directors of the Guarantor has determined that
     this  Guaranty  may   reasonably  be  expected  to  benefit,   directly  or
     indirectly, the Guarantor;

          NOW, THEREFORE, in order to induce the Lender to enter into the Credit
     Agreement, in consideration of the premises and for other good and valuable
     consideration,  the receipt of which is hereby acknowledged,  the Guarantor
     agrees as follows:

          1.  The  Guarantor,  as  primary  obligor  and not as  surety,  hereby
     irrevocably and unconditionally guarantees,  independently of the Borrower,
     to the Lender the due and punctual  payment when due by the Borrower of all
     amounts  payable  under the Credit  Agreement,  the Note and the other Loan
     Documents to which the Borrower is a party, whether principal,  interest or
     other amounts, including, without limitation,  attorneys' fees and costs of
     collection. The obligations of the Borrower guaranteed hereby and described
     in the  preceding  sentence  are  hereinafter  referred to as the  "Payment
     Obligations",  and are subject to the limitations provided for in paragraph
     12 of this Guaranty.
                                        1

          2. The  Guarantor  hereby  agrees that in the event that the  Borrower
     fails to pay any Payment  Obligations  for any reason  (including,  without
     limitation,  the  liquidation,   dissolution,   receivership,   insolvency,
     bankruptcy,  assignment  for  the  benefit  of  creditors,  reorganization,
     arrangement,  composition or readjustment of, or other similar  proceedings
     affecting the status, existence,  assets or obligations of the Borrower, or
     the  disaffirmance  by the  Borrower  in any  such  proceeding  of any Loan
     Document to which the  Borrower is a party),  the  Guarantor  will pay such
     Payment  Obligations  within five (5) days (the "Due Date")  following  the
     date  on  which  written  demand  is  made by the  Lender,  subject  to the
     limitation on amount as set forth in Qaragraph 12 hereof.

          3. The obligations of the Guarantor hereunder shall not be affected by
     (i) the genuineness,  validity,  regularity or enforceability of any of the
     Borrower's  obligations under the Credit  Agreement,  the Note or any other
     Loan  Document or any other  document to which the Borrower is a party,  or
     (ii) any amendment,  waiver or other  modification of the Credit Agreement,
     the Note or any other Loan  Document  or other  document  given or executed
     with or without the -, consent of the  Guarantor,  or (iii) any priority or
     preference to which any other  obligations  of the Borrower may be entitled
     over the Borrower's obligations under the Credit Agreement, the Note or any
     other Loan Document or other document to which the Borrower is a party,  or
     (iv) the release of any  collateral  or guaranty now or hereafter  securing
     the  Payment  Obligations,  or (v)  to  the  fullest  extent  permitted  by
     applicable law, any other circumstance  which might otherwise  constitute a
     legal or equitable  defense to or discharge of the  obligations of a surety
     or  guarantor.   This  Guaranty  shall  continue  to  be  effective  or  be
     automatically  reinstated,  as the case may be,  if,  for any  reason,  any
     payment  by or on  behalf  of the  Borrower  shall  be  rescinded  or  must
     otherwise be restored,  whether as a result of proceedings in bankruptcy or
     reorganization of the Borrower or otherwise, and the Guarantor gu(Y)antees,
     absolutely, irrevocably and unconditionally that all payments made by or on
     behalf of the  Borrower  in  respect  of its  obligations  under the Credit
     Agreement, the Note and the other Loan Documents will, when made, be final.

          4. This Guaranty shall constitute a guaranty of payment and not merely
     of  collection.  The  Guarantor  specifically  agrees  that it shall not be
     necessary  or  required,  and that the  Guarantor  shall not be entitled to
     require,  that the  Lender  (i) file suit or  proceed to obtain or assert a
     claim  for  personal   judgment   against  the  Borrower  for  the  Payment
     Obligations, or ( ii) make any effort at a collection or enforcement of the
     Payment  Obligations from the Borrower,  or (iii) foreclose against or seek
     to realize by suit or other process from any collateral pledged as security
     for the  Payrrlent  Obligations,  or (iv) file suit or proceed to obtain or
     assert a claim for personal  judgment  against any other Person  liable for
     the  Payment  Obligations,   or  (v)  make  any  effort  at  collection  or
     enforcement of the Payment  Obligations from any such other Person, or (vi)
     exercise  or assert any other right or remedy to which the Lender is or may
     be entitled in connection  with the Payment  Obligations or any security or
     other  guaranty  therefor,  or (vii)  assert or file any claim  against the
     assets of the Borrower or any other  guarantor  or other Person  liable for
     the Payment Obligations,  or any part thereof,  before or as a condition of
     enforcing the  liability of the Guarantor  under this Guaranty or requiring
     payment of said Payment Obligations by the Guarantor  hereunder,  or at any
     time thereafter.

          5. The Guarantor  waives notice of the acceptance of this Guaranty and
     of the performance or nonperformance by the Borrower, demand for payment or
     performance from the Borrower, or any other Person and notice of nonpayment
     or failure to perform on the part of the
                                        2

          Borrower and all demands whatsoever, other than the demand for payment
     hereunder provided for in Qaragraph 2 hereof.

          6. No  amendment  of or  supplement  to this  Guaranty,  or  waiver or
     modification  of or  consent  under the terms  hereof,  shall be  effective
     unless  evidenced by an instrument  in writing  signed by the Guarantor and
     the Lender.

          7. All payments  hereunder shall be made in the currency of the United
     States of  America  and at the place and in the manner as  provided  in the
     Credit Agreement and the Note for payments by the Borrower.

          8. The Guarantor  hereby  subordinates  any and all claims it may have
     against the Borrower, including without limitation, all indebtedness of the
     Borrower  to the  Guarantor  and any and all  claims  arising in respect of
     payments  made by the  Guarantor  pursuant  to this  Guaranty,  whether now
     existing or  hereafter  arising,  to any and all claims by  the_Lender  for
     amounts owing ~- from the Borrower to the Lender under the Credit Agreement
     and the Note.

          9.  Irrespective  of any  payment by the  Guarantor  pursuant  to this
     Guaranty,  the  Guarantor  will  not be  subrogated  in place of and to the
     claims and  demands of the Lender or any other  Person to whom  payment has
     been made, nor will the Guarantor have any right to participate in any Lien
     or  security  now or  hereafter  held by or on behalf of the  Lender  until
     payment in full of all amounts  guaranteed  hereby and  performance  of all
     obligations undertaken herein.

          10. Any notices or other  communications  required or  permitted to be
     given  herein  must be (i) given in writing  and  personally  delivered  or
     mailed by prepaid  certified or registered  mail, or (ii) made by facsimile
     delivered or transmitted, to the party to whom such notice of communication
     is  directed,  to the  address of such  party as  follows:  (A)  Guarantor:
     GulfWest Energy, Inc., 397 N. Sam Houston Parkway East, Suite 375, Houston,
     Texas 77080 (Attention: Thomas R. Kaetzer); (B) Lender: Texas Capital Bank,
     N.A., 2100 McKinney  Avenue,  Suite 100,  Dallas,  Texas 75201  (Attention:
     Energy Group), with a copy to Jackson Walker L.L.P., 901 Main Street, Suite
     6000, Dallas, Texas 75202 (Facsimile No. 214-953-5822) (Attention: Frank P.
     McEachern).  Any notice to be mailed or personally  deliver~d may be mailed
     or delivered to the  principal  offices of the party to whom such notice is
     addressed.  Any such notice or other  communication shall be deemed to have
     been given  (whether  actually  received or not) on the day it is mailed or
     personally  delivered as aforesaid or, if transmitted by facsimile,  on the
     day that such notice is transmitted as aforesaid.  Any party may change its
     address for purposes of this  Agreement by giving  notice of such change to
     the other parties pursuant to this paragraph.

          11.  The  Guarantor   waives  any  and  all  rights  and  remedies  of
     suretyship,  includjng, without limitation, those it may have or be able to
     assert by reason of the  provisions of Chapter 34 of the Texas Business and
     Commerce  Code. The Guarantor  waives any defense  arising by reason of any
     disability,  lack of corporate  authority or power, or other defense of the
     Borrower or any other guarantor of all or any part of the Obligations.  The
     Guarantor  expressly  waives  all  notices  of any  kind,  presentment  for
     payment,  demand for payment,  protest, notice of protest, notice of intent
     to  accelerate  maturity,  notice of  acceleration  of maturity,  dishonor,
     diligence,  notice of any  amendment  of any Loan  Document,  notice of any
     adverse  change in the financial  condition of the Borrower,  notice of any
     adjustment, indulgence, forbearance, or compromise that might be granted or
     given by
                                       3

     the Lender to the  Borrower  and  notice of  acceptance  of this  Guaranty,
acceptance  on the part of the , .. Lender  being  conclusively  presumed by its
request for this Guaranty and the delIvery of thIS Guaranty to the Lender.

     12.  Other than as  provided  in  Qaragraph  14 hereof and in the  sentence
following,  collection  of amounts due under this  Guaranty  shall be limited to
enforcement of the security documents securing this Guaranty. In this connection
and as a condition to the limitations set forth in the preceeding sentence,  the
Guarantor  shall  deliver and cause at all times to be  delivered  to the Lender
100% of the Equity  Interests  in the Borrower  together  with stock powers with
respect thereto executed in blank.

     13. In the event any part of the  Payment  Obligations  are  secured  by an
interest  in real  property in Texas  ("Real  Property"),  and such  interest is
foreclosed  upon  pursuant  to  a  judicial  or  nonjudicial  foreclosure  sale,
Guarantor  agrees  as  follows:   Notwithstanding   the  provisions  of  Section
51.003,51.004,  and 51.005 of the Texas Property Code (as the same maybe amended
from time to ~- time), and to the extent permitted by law, Guarantor agrees that
Lender shall be entitled to seek a deficiency  judgment  from  Guarantor and any
other party obligated on the Payment Obligations equal to the difference between
the amount  owing on the Payment  Obligations  and the amount for which the Real
Property  was  sold  pursuant  to  judicial  or  nonjudicial  foreclosure  sale.
Guarantor  expressly  recognizes  that this section  constitutes a waiver of the
above-cited  provisions of the Texas Property Code which would otherwise  permit
Guarantor and other Persons  against whom recovery of  deficiencies is sought or
guarantors  independently (even absent the initiation of deficiency  proceedings
against them) to present competent evidence of the fair market value of the Real
Property  as of  the  date  of the  foreclosure  sale  and  offset  against  any
deficiency  the amount by which the  foreclosure  sale price is determined to be
less than such fair market value.  Guarantor further  recognizes and agrees that
this waiver creates an irrebuttable  presumption that the foreclosure sale price
is  equal  to the  fair  market  value of the  Real  Property  for  purposes  of
calculating  deficiencies  owed by the Borrower,  Guarantor,  and others against
whom recovery of a deficiency is sought. Alternatively, in the event this waiver
is  determined by a court of competent  jurisdiction  to be  unenforceable,  the
following shall be the basis for the finder of fact's  determination of the fair
market  value of the Real  Property  as of the date of the  foreclosure  sale in
proceedings  governed  by  sections  51.003,  51.004,  and  51.005  of the Texas
Property  Code (as amended from time to time):  (a) The Real  Property  shall be
valued in an "as is" condition as of the date of the foreclosure  sale,  without
any  assumption  or  expectation  that the Real  Property  will be  repaired  or
improved in any manner before a resale of the Real Property  after  foreclosure;
(b) The  valuation  shall  be based  upon an  assumption  that  the  foreclo~ure
purchaser desires a prompt resale of the Real Property for cash promptly (but no
later than twelve  months)  following the  foreclosure  sale; (c) All reasonable
closing  costs  customarily  borne by the  seller in a  commercial  real  estate
transaction  or oil and gas  property  transaction  should be deducted  from the
gross fair market value of the Real  Property,  including,  without  limitation,
brokerage  commissions,  title insurance,  title opinions,  a survey of the Real
Property,  tax prorations,  attorney's  fees, and marketing costs; (d) The gross
fair market value of the Real  Property  shall be further  discounted to account
for any estimated  holding costs  associated with  maintaining the Real Property
pending  sale,  including,   without  limitation  utilities  expenses,  property
management  fees,  taxes and  assessments  (to the extent not  accounted  for in
~lause (c) above), and other maintenance  expenses;  and (e) Any expert opinion,
title opinions, testimony given or considered in connection with a determination
of the fair market value of the Real Property must be
                                        4

     given by  persons  who have at least five years  experience  in  appraising
property  similar to the Real  Property  and who have  conducted  and prepared a
complete written  appraisal of the Real Property taking into  consideration  the
factors set forth above.

     14. If this  Guaranty is placed in the hands of an attorney for  collection
or is enforced  by suit or through  probate or  bankruptcy  court or through any
other  judicial  proceedings,  the  Guarantor  shall pay to the Lender an amount
equal to the reasonable  attorneys'  fees and  collection  costs incurred by the
Lender in the collection or enforcement of this Guaranty.

     15. The Guarantor  (i) agrees to maintain its corporate  existence and good
standing in the State of Texas,  (ii) represents and warrants to the Lender that
the  representations  and  warranties  applicable to the Guarantor in the Credit
Agreement  are true and correct and (iii)  agrees to comply with and be bound by
the covenants and agreements in the Credit Agreement concerning the Guarantor. ~
~ - 16.  JURISDICTION AND VENUE. THE BORROWER HEREBY IRREVOCABLY  SUBMITS TO THE
NON-EXCLUSIVE  JURISDICTION  OF ANY UNITED  STATES  FEDERAL OR TEXAS STATE COURT
SITTING IN DALLAS,  DALLAS COUNTY, TEXAS IN ANY ACTION OR PROCEEDING ARISING OUT
OF OR RELATING TO ANY LOAN DOCUMENTS AND THE BORROWER HEREBY  IRREVOCABLY AGREES
THAT ALL  CLAIMS  IN  RESPECT  OF SUCH  ACTION  OR  PROCEEDING  MAY BE HEARD AND
DETERMINED  IN ANY SUCH COURT AND  IRREVOCABLY  WAIVES ANY  OBJECTION IT MAY NOW
ORHEREAFfERHA VE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING  BROUGHT
IN SUCH A COURT OR THAT SUCH  COURT IS AN  INCONVENIENT  FORUM.  NOTHING  HEREIN
SHALL LIMIT THE RIGHT OF THE LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN
THE COURTS OF ANY OTHER  JURISDICTION.  ANY JUDICIAL  PROCEEDING BY THE BORROWER
AGAINST  THE  LENDER OR ANY  AFFILIATE  OF THE  LENDER  INVOLVING,  DIRECTLY  OR
INDIRECTLY,  ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH
ANY LOAN  DOCUMENT  SHALL BE BROUGHT ONLY IN A COURT IN DALLAS,  DALLAS  COUNTY,
TEXAS.

     17. WAIVER OF RIGHTS TO JURY TRIAL.  THE GUARANTOR,  BY SIGNING BELOW,  AND
THE LENDER,  BY ITS REQUEST FOR THIS GUARANTY,  HEREBY  KNOWINGLY,  VOLUNTARILY,
INTENTIONALLY,  IRREVOCABLY,  AND  UNCONDITIONALLY  WAIVE ALL RIGHTS TO TRIAL BY
JURY IN ANY ACTION,  SUIT,  PROCEEDING,  COUNTERCLAIM,  OR OTHER LITIGATION THAT
RELATES TO OR ARISES OUT OF ANY OF THIS  GUARANTY OR ANY OTHER LOAN  DOCUMENT OR
THE ACTS OR  OMISSIONS OF THE LENDER IN THE  ENFORCEMENT  OF ANY OF THE TERMS OR
PROVISIONS OF THIS GUARANTY OR ANY OTHER LOAN DOCUMENT OR OTHERWISE WITH RESPECT
THERETO.  THE  PROVISIONS  OF THIS  SECTION  ARE A MATERIAL  INDUCEMENT  FOR THE
LENDER'S ENTERING INTO THE CREDIT AGREEMENT.

     18. This  Guaranty  (i) may be executed  in several  counterparts,  each of
which shall be deemed an original,  but all of which together  shall  constitute
one and the same instrument and (ii)
                                       5

     shall be binding  upon the heirs,  personal  represinatives  sucessors  and
assighns of the Guarantor and shall insure to the benefit of, and to the benefit
of,  and shall be  enforcable  by,  any party  entitled  to the  benefit of this
Guaranty,  and their  respective  successors  and assighns.  The Guantor may not
assighn his or its obligations  hereunder.

     19. This Guaranty shall be goverened by and construed in  accourdance  with
the internal laws of the State of Texas.

     20. THIS AGREEMENT  CONSTITUTES  THE ENTIRE  AGREEMENT  BETWEEN THE PARTIES
HERETO  WITH  RESECT TO THE  SUBJECT  HERREOF.  FURTHERMORE,  IN REGARD TO, THIS
AGREEMENT  AND THE OTHER WRITTEN LOAN  DOCUMENTS  REPRESENT,  COLLECTIVELY,  THE
FINAL  AGREEMENT  AMONG  THE  PARTIES  THERETO  AND MAY NOT BE  CONTRADICTED  BY
EVIDENCE  OF  PRIOR,  CONTEMPORANEOUS,  OR  SUBSEQUENT  ORAL  AGREEMENT  OF SUCH
PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG SUCH PARTIES.

     In witness  whereof,  the  Guarantor  has caused  this  Guarantyto  be duly
executed as of the date first heirinabove set forth.

          GULFWESTENERGY, INC.
          BY:
          Thomas R. Kaetzer, President

EX-10

             Re: $3,000,000 Revolving Letter Loan Agreement

    Gentlemen:

     This revolving  letter loan agreement  (the  "Agreement")  is between Texas
Capital Bank, N .A., a national banking  association  (the "Lender"),  and GultW
est Energy,  Inc., a Texas  corporation (the  "Borrower") and amends,  restates,
renews and replaces the $2,500,000 Revolving Letter Loan Agreement dated October
26, 2001, between the Borrower and the Lender (the "Prior Agreement"). Reference
is made to  Schedule  One hereto for  certain  of the terms used  herein,  which
Schedule is  incorporated  herein and made a part  hereof.  The Borrower and the
Lender hereby agree as follows:

     SECTION 1. Commitment to Lend. Subj ect to the terms and conditions  hereof
and if no Default  exists,  the Lender  agrees to lend to the  Borrower and have
outstanding  at any time up to  $3,000,000  (the  "Commitment"),  in one or more
Advances as may be requested  by the  Borrower  from time to time prior to 12:00
noon  (Dallas  time) on the date of the  requested  Advance,  which  amounts the
Borrower may repay and reborrow in accordance with this Agreement.  The proceeds
of the Advances  will be used by the Borrower  solely for Proper  Purposes.  The
Advances shall be evidenced by the Note, which Note shall be, in part, a renewal
of the balance  outstanding  under the $2,500,000  promissory note dated October
26, 2001, issued by the Borrower under the Prior Agreement.  It is the intention
of the  Borrower  and the  Corporate  Guarantor  that  the  Lender  shall be and
continue  to be secured by the  Properties  of the  Corporate  Guarantor  now or
hereafter  securing the indebtedness of the Corporate  Guarantor under the GultW
est Development Credit Agreement and under its guaranties of the Obligations.

     SECTION  2.  Terms  ofPay!!!ent.  The  principal  of the Note and  interest
thereon shall be due and payable as set forth in the Note,  except to the extent
earlier payment of the Note is required herein.

     SECTION 3. Fees.  The Borrower  shall pay to the Lender a commitment fee of
one-half of one percent (0.5%) per annum,  calculated daily on the amount of the
Unused Commitment in effect from time to time, such commitment fee to be payable
quarterly  as it accrues on each  January 1, April 1, July 1, and October 1, and
on the Final Maturity Date.

     SECTION 4. Security.  The Note shall be secured by, among other collateral,
the guaranties of the Guarantors and the Corporate Guarantor.

     SECTION 5. Conditions Precedent.  The obligation of the Lender to make each
Advance  hereunder  is subject to the  satisfaction  of such  conditions  as the
Lender may deem  appropriate  at such time and the  receipt by the Lender of all
resolutions,  certificates, legal opinions and other documents as the Lender may
reasonably request. All opinions, certificates, agreements, documents,
                                        1

instruments  and  other  papers  delivered  hereunder  must be in fonIl and
substance reasonably satisfactory to the Lender.

     SECTION 6.  ReDresentation  and  Warranties.  The Borrower  represents  and
warrants to the Lender that (a) the Borrower is not, and the execution, delivery
and  perfonIlance  of and the  compliance  with the tenIls of the Loan Documents
will not cause it to be in violation of any Laws, its articles of  incorporation
or other  organizational  documents,  or any material agreement to which it is a
party or by which it or its Properties are bound; (b) this Agreement constitutes
a valid and binding agreement of the Borrower;  (c) the execution,  delivery and
perfonIlance  by the Borrower of the Loan Documents have been duly authorized by
all necessary  action;  and (d) the Borrower is a corporation,  duly authorized,
validly existing and in good standing in the state of Texas.

     SECTION 7. AffinIlative  Covenants.  Until the Obligations are paid in full
and no commitment  to lend to the Borrower  exists,  the Borrower  covenants and
agrees (a) to deliver to the  Lender,  (i) on or before 60 days after the end of
each calendar year, copies of the financial  statements of each Guarantor on the
fonIlS of the Lender or in fonIl  satisfactory to the Lender, and (ii) within 15
days  following  each request  therefor  from the Lender,  a copy of the federal
income  tax  returns  of each  Guarantor;  and  (iii) at the time the  financial
statements  are  delivered  under clauses (i) and (ii)  preceding,  a Compliance
Certificate;  (b) to notify the Lender promptly after becoming aware thereof, of
any  litigation  or other  event or  circumstance  which  could  have a material
adverse effect on the financial  condition of the Borrower or either  Guarantor;
(c) to promptly pay (i) all fees and expenses of Jackson  Walker L.L.P.  paid or
incurred  by  the  Lender  in  connection  with  the  negotiation,  preparation,
confinIlation,  execution  and,  where  appropriate,  recordation  of  the  Loan
Documents and (ii) all costs, fees and expenses,  including, without limitation,
the fees and  expenses of legal  counsel,  paid or incurred by the Lender in the
negotiation,  preparation, and execution of any amendments to the Loan Documents
and the  collection or enforcement  of the Loan  Documents;  (d) to maintain its
existence as a corporation in Texas and its  qualification to do business in all
jurisdictions  where  the  nature of its  business  requires  the  same;  (e) to
maintain insurance covering such risks as are customarily  carried by businesses
similarly  situated;  (f) to  comply  with all  Laws;  (g) to keep  its  primary
business the acquisition, ownership and operation of Oil and Gas Properties; (h)
to  penIlit  the Lender  access to the  books,  records  and  Properties  of the
Borrower  at any  time  during  nonIlal  business  hours;  (i) to  maintain  all
operating  accounts  with the Lender;  and (j) from time to time to furnish such
additional infonIlation regarding the financial position, business or Properties
of the Borrower as the Lender may reasonably request.

     SECTION 8. Negative  Covenants.  Until the Obligations are paid in full and
no commitment to lend to the Borrower exists,  the Borrower covenants and agrees
not (a) to penIlit at any time the ratio of Liquid Assets to Debt of Waggoner to
ever be less than 2.0 to 1.0; or (b) to amend its articles of  incorporation  or
bylaws in any respect adverse,  in the reasonable  opinion of the Lender, to the
interests of the Lender;  or (c) to merge or consolidate  with or into any other
Person or to dissolve or liquidate; or (d) to change its lines of business.

     SECTION 9.  Remedies.  Should an Event of Default occur and be  continuing,
the  obligation of the Lender to make  Advances  hereunder  shall  automatically
cease,  and the Lender may declare the unpaid  balance of the Note,  or any part
thereof, to be immediately due and payable whereupon it shall be due and payable
without presentment,  demand, protest, notice of intent to accelerate,  or other
notice of any kind, all of which are hereby waived by the Borrower and exercise
                                        2

     any other rights under the Loan Documents or afforded at law, in equity, or
otherwise; and in the case of an Event of Default specified in clause (e) of the
definition of ' 'Event of Default",  the Note shall become  immediately  due and
payable without presentment,  demand,  protest,  notice of intent to accelerate,
notice or other action by the Lender of any kind, all of which are hereby waived
by the Borrower.  The acceptance by the Lender of partial payment on the Note or
any delay by the Lender in  exercising  any right  available  to it shall not be
deemed to be a waiver of any Event ofDefault then existing, and no waiver by the
Lender of any Event  ofDefault  shall be deemed to be a waiver of any other then
existing or subsequent Event ofDefault. All rights available to the Lender under
the Loan  Documents or otherwise  shall be  cumulative of and in addition to all
other rights granted to the Lender at law or in equity,  whether or not the Note
be due and payable and whether or not the Lender shall have  instituted any suit
for  collection  or other  action  in  connection  with the  Note.

     SECTION 10. Miscellaneous.  The parties hereto further agree that: (a) each
notice,  request  or other  communication  to any  party  hereunder  shall be in
writing (including telecopy or similar writing) and shall be given to such party
at its address set forth on the signature  pages hereof or such other address as
such party may hereafter  specify by notice to the Lender and the Borrower,  and
shall be effective  (i) if given by mail, 72 hours after such  communication  is
deposited in the mails with first class postage prepaid,  addressed as aforesaid
or (ii) if given by any other  means,  when  delivered  at the address or to the
telecopy  number  specified in this clause (a); (b) all  covenants,  agreements,
undertakings,  representations  and warranties made in any of the Loan Documents
shall survive all closings under the Loan Documents and shall not be affected by
any investigation  made by any party; (c) the Loan Documents may be amended only
by an instrument in writing executed jointly by the Borrower and the Lender, and
supplemented  only by documents  delivered or to be delivered in accordance with
the express  tenus  hereof;  (d) no failure or delay by the Lender in exercising
any  right,  power or  privilege  hereunder  or under the Note or any other Loan
Document  shall  operate  as a waiver  thereof  nor shall any  single or partial
exercise  thereof preclude any other or further exercise thereof or the exercise
of any other  right,  power or  privilege;  (e) the rights and  remedies  herein
provided  shall be  cumulative  and not  exclusive  of any  rights  or  remedies
provided by law or in any of the other Loan  Documents;  (f) if any provision of
the Loan Documents is held to be illegal, invalid or unenforceable under present
or future laws effective during the tenD thereof,  such provision shall be fully
severable,  the  Loan  Documents  shall be  construed  and  enforced  as if such
illegal,  invalid or unenforceable provision had never comprised a part thereof,
and the remaining  provisions  thereof shall remain in full force and effect and
shall not be affected by the illegal,  invalid or unenforceable  provision or by
its  severance  therefrom.  Furthennore,  in lieu of such  illegal,  invalid  or
unenforceable provision there shall be added automatically as a part of the Loan
Documents  a  provision  as  similar  in  tenus  to such  illegal,  invalid,  or
unenforceable  provision as may be possible and be legal, valid and enforceable;
(g) THE BORROWER  AGREES TO INDEMNIFY THE LENDER AND HOLD THE LENDER HARMLESS ON
A CURRENT BASIS FROM AND AGAINST ANY AND ALL LIABILITIES, LOSSES, DAMAGES, COSTS
AND  EXPENSES  OF ANY KIND WHICH MAY BE  INCURRED  BY THE LENDER  RELATING TO OR
ARISING  OUT OF THIS  AGREEMENT  OR THE OTHER  LOAN  DOCUMENTS  OR ANY ACTUAL OR
PROPOSED USE OF PROCEEDS OF THE LOAN, INCLUDING,  WITHOUT LIMITATION, ANY OF THE
FOREGOING  ARISING FROM NEGLIGENCE,  WHETHER SOLE OR CONCURRENT,  ON THE PART OF
THE  LENDER;  J2.rovided  f1!g1  the  Lender  shall  not  have  the  right to be
indemnified hereunder for its own
                                        3

     gross  negligence  or  willful  misconduct  as  determined  by a  court  of
competent  jurisdiction;  and (h) multiple counterparts of this Agreement may be
executed by the parties,  and each counterpart shall be deemed an original,  but
in  making  proofhereof  it  shall be  necessary  to  account  for only one such
counterpart.

     SECTION  11.   References.   References  in  this  Agreement  to  Exhibits,
Schedules, Annexes, Appendixes, Attachments, Articles, Sections or clauses shall
be to exhibits, schedules, annexes, appendixes,  attachments, articles, sections
or  clauses  of  this  Agreement,  unless  expressly  stated  to  the  contrary.
References   in   this   Agreement   to   "hereby,"   "herein,"   "hereinafter,"
"hereinabove,"  "hereinbelow," "hereof," "hereunder" and words of similar import
shall  be to this  Agreement  in its  entirety  and not  only to the  particular
Exhibit,  Schedule,  Annex, Appendix,  Attachment,  Article, or Section in which
such reference appears.  This Agreement,  for convenience only, has been divided
into Articles and Sections; and it is understood that the rights and other legal
relations of the parties hereto shall be determined  from this  instrument as an
entirety and without regard to the aforesaid division into Articles and Sections
and without regard to headings  prefixed to such Articles or Sections.  Whenever
the  context  requires,  reference  herein  made to the single  number  shall be
understood to include the plural;  and likewise,  the plural shall be understood
to include the singular.  Definitions of terms defined in the singular or plural
shall be  equally  applicable  to the  plural or  singular,  as the case may be,
unless otherwise indicated. Words denoting sex shall be construed to include the
masculine,  feminine and neuter,  when such  construction  is  appropriate;  and
specific  enumeration  shall not exclude the general but shall be  construed  as
cumulative.  The  Exhibits,   Schedules,  Annexes,  Appendixes  and  Attachments
attached  to this  Agreement  and items  referenced  as being  attached  to this
Agreement  are  incorporated  herein  and  shall  be  considered  a part of this
Agreement for all purposes.

     SECTION 12. ADDlicable Law: Venue: Waiver of Jyry Trial. THIS AGREEMENT HAS
BEEN NEGOTIATED, IS BEING EXECUTED AND DELIVERED, AND WILL BE PERFORMED IN WHOLE
OR IN PART, IN THE STATE OF TEXAS,  AND THE  SUBSTANTIVE  LAWS OF SUCH STATE AND
THE  APPLICABLE  FEDERAL LAWS OF THE UNITED  STATES OF AMERICA  SHALL GOVERN THE
VALIDITY,  CONSTRUCTION,  ENFORCEMENT AND  INTERPRETATION OF THE LOAN DOCUMENTS,
EXCEPT TO THE EXTENT THE LAWS OF ANY  JURISDICTION  WHERE  COLLATERAL IS LOCATED
REQUIRE  APPLICATION OF SUCH LAWS WITH RESPECT TO SUCH COLLATERAL.  THE BORROWER
HEREBY  IRREVOCABLY  SUBMITS TO THE NON-  EXCLUSIVE  JURISDICTION  OF ANY UNITED
STATES FEDERAL OR TEXAS STATE COURT SITTING IN DALLAS,  DALLAS COUNTY,  TEXAS IN
ANY ACTION OR  PROCEEDING  ARISING OUT OF OR RELATING TO ANY LOAN  DOCUMENTS AND
THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION
OR  PROCEEDING  MAY BE HEARD AND  DETERMINED  IN ANY SUCH COURT AND  IRREVOCABLY
WAIVES ANY  OBJECTION IT MAY NOW OR  HEREAFTER  HAVE AS TO THE VENUE OF ANY SUCH
SUIT,  ACTION OR  PROCEEDING  BROUGHT  IN SUCH A COURT OR THAT SUCH  COURT IS AN
INCONVENIENT FORUM.  NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE LENDER TO BRING
PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF
                                       4

     ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE
LENDER OR ANY AFFILIATE OF THE LENDER  INVOLVING,  DIRECTLY OR  INDIRECTLY,  ANY
MATTER  IN ANY WAY  ARISING  OUT OF,  RELATED  TO,  OR  CONNECTED  WITH ANY LOAN
DOCUMENT SHALL BE I BROUGHT ONLY IN A COURT IN DALLAS, DALLAS COUNTY, TEXAS. THE
BORROWER  AND  THE  LENDER   HEREBY   KNOWINGLY,   VOLUNTARILY,   INTENTIONALLY,
IRREVOCABLY,  AND  UNCONDITIONALLY  WAIVE  ALL  RIGHTS  TO  TRIAL BY JURY IN ANY
ACTION, SUIT, PROCEEDING,  COUNTERCLAIM,  OR OTHER LITIGATION THAT RELATES TO OR
ARISES OUT OF ANY OF THIS  AGREEMENT  OR ANY OTHER LOAN  DOCUMENT OR THE ACTS OR
OMISSIONS OF THE LENDER IN THE  ENFORCEMENT OF ANY OF THE TERMS OR PROVISIONS OF
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR OTHERWISE WITH RESPECT THERETO. THE
PROVISIONS  OF THIS SECTION ARE A MATERIAL  INDUCEMENT  FOR THE LENDER  ENTERING
INTO THIS AGREEMENT. SECTION 13. Arbitration.

     Upon the demand of an an Dis ute shall be resolved b bindin arbitration exc
t as set forth in Section 11.20 e below in  accordance  with the terms of this A
eement or the other

     Arbitration  Droceedine:s shall be administered bv the American Arbitration
Association                                                                    i

" AAA" or such  other  administrator  as the arties  shall  mutuall a ee u on in
accordance with the
                                       5

     No provision  hereof shall limit the right of an art to exercise  self -hel
remedies such as rovisional or ancill remedies  includin  without  limitation in
..unctive  relief se  uestration  attachment  arnishment  or the a ointment  of a
receiver from a court of com etent  .urisdiction  remed shall not waive the ri t
of an art to com el arbitration hereunder.

     law a licable  to the sub 'ect  matter of the Dis ute.  Arbitrators  are em
owered to resolve  Dis utes b summ rulin s in res onse to motions  filed rior to
the final  arbitration  hearin  .Arbitrators  i controvers  is 5 000 000 or less
shall be  decided b a sin Ie  arbitrator  who shall not render an award of eater
than 5 000 000 includin damages costs fees and ex enses .B submission to a

     participate in all hearings and  deliberations.  Notwithstandin an n herein
to the contr in an arbitration in which the amount in controvers  exceeds 25 000
000 the arbitrators shall be re uired to make sp ecific written findin s evidence
and the  conclusions of law are not erroneous  under the  substantive law of the
State of
                                       6

     Lender and  Borrower  hereby  agree to keep all  Disputes  and  arbitration
proceedings strictly confidential,  provided,  however, that Lender and Borrower
may disclose such  confidential  information  as is necessary in any  litigation
between  Lender  and  Borrower  or as  required  by  applicable  law  and,  on a
confidential  basis,  to  accountants,  attorneys and other  consultants  in the
ordinary  course  of  business.

If  the  foregoing  terms  and  provisions  are
acceptable to you,  please  indicate your  acceptance  thereof by signing in the
appropriate  space provided below whereupon this letter shall constitute a valid
and binding  agreement  between the Lender,  the Borrower  and their  respective
successors  and  assigns,  except that the  Borrower may not assign or otherwise
transfer any of its rights under this Agreement.

                    {REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
                                       7

     THIS   AGREEMENT   AND  THE  OTHER   WRITTEN  LOAN   DOCUMENTS   REPRESENT,
COLLECTIVELY,  THE FINAL  AGREEMENT AMONG THE PARTIES HERETO AND THERETO AND MAY
NOT BE  CONTRADICTED BY EVIDENCE OF PRIOR,  CONTEMPORANEOUS,  OR SUBSEQUENT ORAL
AGREEMENTS OF SUCH PARTIES.
THERE ARE NO UNWRITTEN ORAL  AGREEMENTS  AMONG SUCH
PARTIES. Sincerely,

                                                    TEXAS CAPITAL BANK, N .A.

                                                    By:
                                                        ------------------------
                                                         Chris D. Cowan
                                                         Vice President

                                                 2100 McKinney Avenue, Suite 100
                                                 Dallas, Texas 75201
                                                 Attention: Energy Group
                                                 Telecopy: (214) 932-6704


AGREED TO AND ACCEPTED:

 GULFWEST E RGY, INC.


By:
Nam


Addr480 N. Sam Houston Parkway E.
       ess: Suite 300
                Houston, Texas 77060
                Telecopy: (713) 974-0617

                                                               SCHEDULE ONE


     As  used in the  letter  loan  agreement  to  which  this  Schedule  One is
attached, the following terms shall have the meanings assigned below, unless the
context otherwise requires:

     "Advance"  or "Loan"  means a loan or an advance  made or to be made by the
Lender to the Borrower  pursuant to this Agreement or the aggregate  outstanding
amount of all such loans or advances, as the context may require.

     "Commitment" has the meaning given such term in Section I hereof.

     "Compliance  Certificate"  means a certificate,  substantially  in the form
attached  hereto as Exhibit B,  executed by the chief  financial  officer of the
Borrower and furnished to Lender from time to time in accordance  with the terms
hereof.

     "Corporate   Guarantor"  means  GulfWest   Development   Company,  a  Texas
corporation.

     "Debt" of Waggoner means at any date, without duplication:

          (i) all obligations of Waggoner for money borrowed, including, without
     limitation,  ( a) the  obligations  of  Waggoner  for money  borrowed  by a
     partnership  of which  Waggoner  is a  general  partner,  (b)  obligations,
     whether  or not  assumed,  which  are  secured  in  whole or in part by the
     Property  of Waggoner or payable  out of the  proceeds or  production  from
     Property of Waggoner, (c) any obligations of Waggoner in respect of letters
     of credit and repurchase agreements, and (d) net liabilities under interest
     rate swap, exchange or cap agreements;

          (ii) all obligations of Waggoner evidenced by notes, debentures, bonds
     or similar instruments;

          (iii) all  obligations of Waggoner to pay the deferred  purchase price
     of Property or services  (except  trade  accounts  arising in the  ordinary
     course of business if interest is not paid or accrued thereon);

          (iv) all capitalized lease obligations of Waggoner;

          (v) all  liabilities  which in accordance with OCBOA would be included
     in  determining  total  liabilities  as  shown on the  liability  side of a
     balance sheet;

          (vi) all obligations of Waggoner under hedging agreements; and

          (vii) all Guarantees by Waggoner of Debt of another Person.

     "Default"  means  any  condition  or event  which  constitutes  an Event of
Default  or which  with the I giving of  notice or lapse of time or both  would,
unless cured or waived, become an Event ofDefault. I

     "Default Rate" means a per annum interest rate equal to five percent (5.0%)
plus the TCB Rate from time to time in  effect,  but in no event  exceeding  the
Highest Lawful Rate.

     "Event of Default"  means the occurrence of anyone or more of the following
events:  (a) the  failure of the  Borrower  to pay any amount when due under the
Note or the  Agreement;  (b) the breach by the  Borrower of any of the  negative
covenants  contained  in  Section 9 of this  Agreement;  (c) the  failure of the
Borrower to properly perfonIl, observe or comply with any covenant, agreement or
condition  contained  herein  or in any other  Loan  Document  and such  failure
continues  for a period of 15 days after  notice  thereof  has been given to the
Borrower by the Lender  (except for  covenants and other  provisions  covered by
other clauses of this  definition for which there shall be no cure period);  (d)
the discovery by the Lender that any statement,  representation or warranty made
by the Borrower or any other  Person in  connection  with any Loan  Document was
false, misleading or erroneous in any material respect when made; ( e) a case is
commenced or a petition is filed  against the Borrower  under any  bankruptcy or
other  debtor  relief law, or the  Borrower  voluntarily  seeks,  consents to or
acquiesces  in the benefit of any  provision of any  bankruptcy  or other debtor
relief law; (f) the  occurrence of an "Event of Default" under and as such tenIl
is  defined  in  the  GulfW  est  Development  Credit  Agreement;   or  (g)  the
tenIlination or expiration of the GulfW est Development Credit Agreement.

     "Final  Maturity  Date" means April 1, 2003,  or such earlier date on which
the obligations of the Lender to make Advances hereunder
tenIlinate or are tenIlinated in accordance with the tenIlS of this Agreement or the payment of the Note is accelerated.

     "Floating  Rate" means a per annum interest rate equal to the TCB Rate from
time to time in effect less one-fourth of one percent  (0.25%);  but in no event
exceeding the Highest Lawful Rate.

     "Guarantees" by any Person means any  obligation,  contingent or otherwise,
of such Person directly or indirectly guaranteeing or in effect guaranteeing any
Debt of any other Person and,  without limiting the generality of the foregoing,
any obligation,  direct or indirect, contingent or otherwise, of such Person (i)
to purchase or pay (or advance or supply  funds for the  purchase or payment of)
such  Debt or  other  obligation  (whether  arising  by  virtue  of  partnership
arrangements,  by agreement to keep-well,  to purchase assets, goods, securities
or services,  to  take-or-pay,  to make  reimbursement  in  connection  with any
letter-of -credit or to maintain  financial  statement  conditions,  by "comfort
letter" or other  similar  undertaking  of support or otherwise) or (ii) entered
into for the purpose of assuring in any other manner the obligee of such Debt or
other  obligation of the payment thereof or to protect such obligee against loss
in respect  thereof(in  whole or in part).  The tenIl  "Guarantee"  includes the
pledging or other encumbrance of assets by a Person to secure the obligations of
another Person and  restrictions or limitations on a Person or its assets agreed
to in connection with the  obligations of another  Person,  but does not include
endorsements  for collection or deposit in the ordinary course of business;  and
"Guaranteed"  by a  Person  shall  mean  the act or  condition  of  providing  a
Guarantee by such Person or penIlitting a Guarantee of such Person to exist.

     "Guarantors" means Waggoner and Marshall A. Smith, ill, an individual.

     "GulfW est  Development  Credit  Agreement"  means the  $10,000,000  Credit
Agreement  dated  November 30, 2000,  between the  Corporate  Guarantor  and the
Lender, as amended from time to time.

     "Laws" mean all applicable statutes,  laws,  executive orders,  ordinances,
regulations, orders, writs, injunctions, rulings or decrees of the United States
or of any state, commonwealth,  nation, territory,  possession,  county, parish,
municipality, or governmental entity or department.

     "Liquid  Assets" of Waggoner  shall mean all of his cash,  certificates  of
deposit, U.S.  governmental agency securities,  corporate bonds and/or municipal
bonds rated Baa or better by Moody's Inc.,  common and preferred stock listed on
the New York Stock Exchange, American Stock Exchange and/or NASDAQ, mutual funds
and/or unit investment trusts that invest solely in any of the foregoing and are
not considered retirement or defined benefit accounts.

     "Loan  Documents" mean this letter loan agreement,  the Note, and all other
agreements,  documents and instruments now or hereafter executed or delivered in
connection  with  the  foregoing,  and  all  renewals,  extensions,  amendments,
restatements and modifications thereof.  "Note" means the promissory note of the
Borrower  substantially in the form of Exhibit A attached hereto and made a part
hereof, as the same may be renewed, extended or amended from time to time.

     "Obligations"  shall mean, without  duplication,  (i) all Debt evidenced by
the Note,  (ii) the  undrawn,  unexpired  amount of all  outstanding  letters of
credit issued by the Lender on behalf of the Borrower,  (iii) the  obligation of
the Borrower  for the payment of the fees  payable  hereunder or under the other
Loan Documents,  and (iv) all other  obligations and liabilities of the Borrower
to the Lender, now existing or hereafter incurred,  under,  arising out of or in
connection  with any Loan Document,  and to the extent that any of the foregoing
includes or refers to the payment of amounts  deemed or  constituting  interest,
only so much thereof as shall have accrued, been earned and which remains unpaid
at each relevant time of determination.

     "OCBOA" means "other  comprehensive basis of accounting"  applicable to tax
basis-cash  accounting,  as established  by the American  Institute of Certified
Public Accountants under its published Statement on Auditing Standards No. 14.

     "Oil and Gas Properties" shall mean fee,  leasehold,  or other interests in
or under mineral  estates or oil,  gas, and other liquid or gaseous  hydrocarbon
leases with respect to Properties situated in the United States or offshore from
any  State of the  United  States,  including,  without  limitation,  overriding
royalty  and  royalty  interests,   leasehold  estate  interests,   net  profits
interests,  production  payment interests,  and mineral fee interests,  together
with   contracts   executed  in   connection   therewith   and  all   tenements,
hereditaments, appurtenances and Properties appertaining, belonging, affixed, or
incidental thereto.

     "Person" means any individual, corporation, partnership, association, trust
or other entity, including any government, or any subdivision or agency thereof.

     "Proper Purposes" means general corporate  purposes,  but not to acquire or
carry margin stock.

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

     "Security   Documents"  or  "Security   Instruments"   means  the  security
instruments  executed and delivered in  satisfaction  of the  conditions of this
Agreement  and all  other  guarantees,  documents  and  instruments  at any time
executed  as  security  for  all or any  portion  of the  Obligations,  as  such
instruments may be amended, restated, or supplemented from time to time.

     "TCB  Rate"  means,  on any  day,  the  greater  of (i) the  prime  rate as
published in The Wall Skeet  Journal's  "Money Rates" table for such day or (ii)
five and one-half  percent  (5.50%).  Ifmultiple  prime rates are quoted in such
table,  then the highest prime rate quoted therein shall be the TCB Rate. In the
event that a prime rate is not  published  in The Wall Street  Journal's  "Money
Rates"  table for any reason or The Wall Street  Journal is not  published  that
day, the Lender will choose a substitute  TCB Rate,  for purposes of calculating
the  interest  rate   applicable   hereunder,   which  is  based  on  comparable
information,  until such time as a prime rate is  published  in The Wall  Street
Journal' s "Money Rates"  table.  In this  connection,  such prime rate for each
Saturday, Sunday or day for which banks are authorized to be closed in the state
of Texas shall be the most recent  prime rate so  published if published no more
than three days prior to such  date.  Each  change in the TCB Rate shall  become
effective  without  notice to the  Borrower on the  effective  date of each such
change.  "UCC" means the Uniform Commercial Code as in effect in Texas from time
to time.

     "Unused Commitment" means, at any time, an amount equal to the remainder of
the Commitment minus the outstanding principal balance of the Note at such time.

     "Waggoner" means J. Virgil Waggoner, an individual.




















































                                    EXHIBIT A

                                 PROMISSORY NOTE


$3,000,000                     Dallas, Texas                      April 3, 2002


FOR VALUE RECEIVED,  the undersigned  GulfWest Energy, Inc., a Texas corporation
(the  "Borrower"),  hereby promises to pay to the order of Texas Capital Bank, N
..A., a national  banking  association  (the "Lender"),  at its office in Dallas,
Texas,  the  principal  sum  $3,000,000  or  such  amount  as  is  advanced  and
outstanding hereunder, together with interest as provided herein.

This note has been executed and delivered  pursuant to the terms of that certain
letter loan agreement of even date herewith  between the Borrower and the Lender
(as  amended  from time to time,  the  "Credit  Agreement"),  and is the  "Note"
referred  to  therein,  and the  holder of this note  shall be  entitled  to the
benefits  provided  in the  Credit  Agreement.  Reference  is made to the Credit
Agreement for a statement of the events upon which  maturity of this note may be
accelerated and for a description of the collateral, if any, securing payment of
this note.  Terms  defined in the Credit  Agreement  are used  herein as therein
defined, unless otherwise defined herein or the context otherwise requires.

This note is, in part, a renewal and extension of the  indebtedness  outstanding
under the $2,500,000 promissory note of the Borrower dated October 26, 2001.

Principal  of this note  shall be due and  payable on the Final  Maturity  Date,
unless earlier payment is required under the Credit Agreement.

Principal of this note  outstanding from time to time shall bear interest at the
Floating  Rate.  Interest  on this note and  commitment  fees  under the  Credit
Agreement  shall be  calculated on the basis of actual days elapsed and computed
as if each year consisted of360 days,  subject to the limitations of the Highest
Lawful Rate.

Accrued  interest on this note shall be due and  payable on May 1, 2002,  and on
the first day of each month  thereafter  and at  maturity  hereof  (stated or by
acceleration).

If any payment hereunder becomes due on a day on which banking  institutions are
authorized  by law to close in Dallas,  Texas,  such payment shall be due on the
next  succeeding  business  day and interest  thereon  shall be payable for such
extended time.

All payments by the Borrower shall be made to the Lender at its principal office
in  Dallas,  Texas,  by not later than 2:00 p.m.  on the date due,  and shall be
payable in lawful currency of the United States in funds  immediately  available
in Dallas.

Unless  waived by the Lender,  the  principal of the Note shall bear interest at
the  Default  Rate at any time an Event of  Default  exists  and,  to the extent
permitted  by law,  overdue  interest  on the Loans  shall bear  interest at the
Default Rate.

The  principal of this note and accrued  interest  thereon may be prepaid by the
Borrower in whole or in part at any time  without  premium or penalty.  Any such
prepayment  shall  be  applied  first to  accrued  interest,  then to  principal
hereunder.  .. As used herein,  the tenn "Highest Lawful Rate" means the maximum
non-usurious  interest  rate, if any (or, if the context so requires,  an amount
calculated  at such  rate),  that  at any  time  or  from  time  to time  may be
contracted for, taken,  reserved,  charged, or received under applicable laws of
the State of Texas or the United  States of America,  whichever  authorizes  the
greater rate, as such laws are presently in effect or, to the extent  allowed by
applicable law, as such laws may hereafter be in effect and which allow a higher
maximum  non-usurious  interest rate than such laws now allow. To the extent the
laws of the State of Texas are  applicable  for the purpose of  detennining  the
"Highest  Lawful Rate",  such tenn shall mean the "weekly  ceiling" from time to
time in effect as referred to and defined in Chapter 303 of the Finance  Code of
Texas, as amended.  The  detennination  of the Highest Lawful Rate shall, to the
extent  required  by  applicable  law,  take into  account as  interest  paid or
contracted  for any  and  all  relevant  payments  or  charges  under  the  Loan
Documents,  in any case after  taking into  account,  to the extent  required by
applicable law, any and all relevant payments, charges and calculations.

Regardless of any provision contained herein or in the other Loan Documents, the
Lender shall never be entitled to receive, collect or apply, as interest on this
note,  any amount in excess of the  Highest  Lawful  Rate,  and in the event the
Lender ever  receives,  collects or applies as interest  any such  excess,  such
amount  which  would be  deemed  excessive  interest  shall be  deemed a partial
prepayment of principal on this note and treated  hereunder as such; and if this
note is  paid in  full,  any  remaining  excess  shall  promptly  be paid to the
Borrower.  In detennining  whether or not the interest paid or payable under any
specific  contingency  exceeds the Highest  Lawful  Rate,  the  Borrower and the
Lender shall, to the extent pennitted under applicable law, (a) characterize any
nonprincipal payment as an expense, fee or premium rather than as interest,  (b)
exclude  voluntary  prepayments  and the  effects  thereof,  and  (c)  amortize,
prorate,  allocate and spread,  in equal parts, the total amount of the interest
throughout the entire  contemplated tenn of this note, so that the interest rate
is the Highest  Lawful Rate  throughout  the entire tenn of this  note;]2rovided
ffiill if the unpaid  principal  balance  hereof is paid and  perfonned  in full
prior to the end of the  full  contemplated  tenn  hereof,  and if the  interest
received for the actual period of existence  thereof  exceeds the Highest Lawful
Rate,  the Lender shall refund to the Borrower the amount of such excess and, in
such event,  the Lender  shall not be subject to any  penalties  provided by any
laws for contracting for, charging,  taking,  reserving or receiving interest in
excess of the Highest Lawful Rate.

If this note is placed in the hands of attorneys  for  collection,  the Borrower
agrees to pay the  reasonable  attorneys'  fees and  collection  expenses of the
holder hereof.

     The Borrower and each surety,  endorser,  guarantor  and other party liable
for the  payment  of any sums of money  payable  on this  note  severally  waive
presentment  and demand for payment,  protest,  notice of intent to  accelerate,
notice of protest, acceleration and nonpayment, and any other notice of any kind
and agree that their liability on this note shall not be affected by any renewal
or  extension in the time of payment  hereof,  or by any release of or change in
any  security  for the  payment of this note,  regardless  of the number of such
renewals, extensions, releases or changes.

                                                GulfW est Energy, Inc.


                                                By:  \s\  Thomas R. Kaetzer
                                                    Thomas R. Kaetzer, President

EX-10

                            Change In Terms Agreement

Borrower:  Gulfwest  Energy,  Inc.  480 N. Sam  Houston  Parkway  E.,  Suite 300
Houston, IX 77060 (TIN:  87-0444770)  lender:  Southwest Bank of Texas N.A. Bell
Tower  P.O.  Box  27459 5 Post  Oak  Park/4400  Post  Oak  Parkway  Houston,  TX
77227.7459 (713) 235-8800 Principal Amount:  $1,000,000.00  Initial Rate: 5.500%
Date of Agreement: April 29, 2003 DESCRIPTION OF EXISTING INDEBTEDNESS. Original
Promissory Note (the "Note") dated April 30, 2002 in the original  principal sum
of $1,000,000.00 executed by Borrower,  payable to Southwest Bank of Texas N.A.,
as modified as applicable.  .. DESCRIPTION OF CHANGE IN TERMS. The Note is being
modified in accordance with the terms and provisions  stated  herein.PROMISE  TO
PAY. Gulfwest Energy, Inc.  (“Borrower”)  promises to pay to Southwest
Bank of Texas N.A. (“lender”), or order, in lawful money of the United
States of America,  the  principal  amount of One Million &  00/100  Dollars
($1,000,000.00) or so much as may be outstanding,  together with interest on the
unpaid  outstanding  principal  balance  of  each  advance.  Interest  shall  be
calculated  from the date of each  advance  until  repayment  of each advance or
maturity,  whichever  occurs  firs’t.  The interest  rate will not increase
above 8.000%.PAYMENT.  Borrower will pay this loan on demand. Payment in full is
due immediately  upon lender's demand.  If no demand is made,  Borrower will pay
this loan in one payment of all  outstanding  principal  plus all accrued unpaid
interest on July 28,  2003.  In  addition,  Borrower  will pay  regular  monthly
payments of all accrued unpaid  interest due as of each payment date,  beginning
May 28, 2003, with all subsequent interest payments to be due on the same day of
each month  after  that.  Interest  on this  Agreement  is computed on a 365/360
simple  interest  basis;  that is, by applying the ratio of the annual  interest
rate over a year 01: 360 days,  multiplied by the outstanding principal balance,
multiplied by the actual number of days the  principal  balance is  outstanding,
unless such calculation  would result in a usurious rate, in which case interest
shall be  calculated  on a per diem  basis of a year of 365 or 366 days,  as the
case may be. Borrower will pay Lender at Lender's address shown above or at such
other place as Lender may  designate  in  wri1:ing.  I~otwithstanding  any other
provision of this Agreement,  lender will not charge interest on any undisbursed
loan proceeds.  No scheduled payment,  whether of principal or interest or both,
will be due unless  sufficient  loan funds have been  disbursed by the scheduled
payment date to justify the payment.  VARIABLE  INTEREST RATE. The interest rate
on this  Agreement is subject to change from time to time based on changes in an
index   which  is  the   Southwest   Bank  of  Texas   N.A.   prime   rate  (the
“Index”).  Southwest  Bank of Texas N.A. prime rate of interest is the
rate of  interest  established  by the Bank from time to time as its prime rate.
The rate is set by the Bank as a general reference rate of interest, taking into
account such factors as the Bank may deem appropriate,  it being understood that
many of the Bank’s  consumer and other loans are priced in retation to such
rate, that it is not  necessarily  the lowest or best rate actually  charged any
customer and that the Bank may make various  consumer or other loans at rates of
interest  having no  relationship  to such rate.  lender will tell  Borrower the
current Index rate upon  Borrower’s  request. The interest rate change will
not occur more often than each day.  Borrower  understands  that lender may make
loans based on other rates as well. The Index currently is 4.250% per annum. The
interest rate to be applied prior to maturity to the unpaid principal balance of
the Note will be at a rate equal to the Index,  adjusted  if  necessary  for any
minimum and maximum rate limitations  described  below,  resulting in an initial
rate of 5.500% per annum.  Notwithstanding the foregoing.. the variable interest
rate or rates provided for in the Note will be subject to the following  minimum
and maximum rates.  NOTICE: Under no circumstances will the interest rate on the
Note be less than  5.500%  per annum or more than the lesser of 8.000% per annum
or the maximum rate allowed by applicable  law. For purposes of this  Agreement,
the “maximum rate allowed by applicable law”  means the greater of (A)
the maximum rate of interest  permitted under federal or other law applicable to
the  indebtedness   evidenced  by  this  Agreement,   or  (B)  the  “Weekly
Ceiling”  as  referred  to in  Sections  303.002  and  303.003 of the Texas
Finance Code.  PREPAYMENT.  Borrower may pay without penalty all or a portion of
the amount  owed  earlier  than it is due.  Any partial  payment  shall be in an
amount equal to one or more full installments.  Prepayment in full shall consist
of payment of the remaining unpaid  principal  balance together with all accrued
and unpaid interest and all other amounts, costs and expenses for which Borrower
is  responsible  under  this  Agreement  or  any  other  agreement  with  lender
pertaining  to this loan,  and in no event will Borrower ever be required to pay
any unearned  interest.  Early payments will not,  unless agreed to by lender In
writing,  relieve Borrower of Borrower's obligation to continue to make payments
of accrued  unpaid  interest.  Rather,  early payments will reduce the principal
balance due.  Borrower agrees not to send lender payments marked "paid in full",
"without  recourse",  or similar  language.  If  Borrower  sends such a payment,
lender may accept it without losing any of lender's rights under this Agreement,
and Borrower will remain obligated to pay any further amount owed to lender. All
written communications concerning disputed amounts, including any check or other
payment instrument that indicates that the payment constitutes "payment in full"
of the amount owed or that is tendered with other  conditions or  limitations or
as full  satisfaction  of a  disputed  amount  must be mailed or  delivered  to:
Southwest  Bank of Texas N.A.,  Bell Tower,  P,O. Box 27459,5 Post Oak Park/4400
Post Oak Parkway, Houston,  TX77227-7459.  INTEREST AFTER DEFAULT. Upon default,
including  failure  to pay upon  final  maturity,  the total sum due under  this
Agreement  will bear interest from the date of  acceleration  or maturity at the
variable interest rate on this Agreement.  The interest rate will not exceed the
maximum rate  permitted by  applicable  law. t DEFAULT..  Each of the  following
shall  constitute an Event of Default under this Agreement:  I Payment  Default.
Borrower  fails to make any  payment  when due  under  the  Indebtedness.  Other
Defaults.  Borrower  fails  to  comply  with  or  to  perform  any  other  term,
obligation,  covenant or condition contained in this Agreement or in any of the-
Related Documents or to comply with or to perform any term, obligation, covenant
or  condition  contained in any other  agreement  between  lender and  Borrower.
Default in Favor of Third Parties.  Borrower defaults under any loan,  extension
of  credit,  security  agreement,  purchase  or sales  agreement,  or any  other
agreement,  in favor of any other creditor or person that may materially  affect
any  of  Borrower’s   property  or   Borrower’s   ability  to  perform
Borrower’s   obligations  under  this  Agreement  or  any  of  the  Related
Documents.False  Statements.  Any warranty,  representation or statement made or
furnished  to  lender  by  Borrower  or on  Borrower’s  behalf  under  this
Agreement  or the  Related  Documents  is false or  misleading  in any  material
respect,  either  now or at the  time  made or  furnished  or  becomes  false or
misleading at any time thereafter. Insolvency. The dissolution or termination of
Borrower's  existence as a going  business,  the  insolvency  of  Borrower,  the
appointment  of a  receiver  for  any  part  of  Borrower’s  property,  qny
assignment for the benefit of creditors,  any type of creditor  workout,  or the
commencement  of any proceeding  under any  bankruptcy or insolvency  laws by or
against Borrower.to cure the default and ~hereafter  continues and completes all
reasonable  and  necessary  steps  sufficient  to produce  compliance as soon as
reasonably practical.lENDERS RIGHTS. Upon default, lender may declare the entire
indebtedness,  including the unpaid  principal  balance on this  Agreement,  all
accrued unpaid  interest,  and all other  amounts,  costs and expenses for which
Borrower is responsible  under this Agreement or any other agreement with lender
pertaining to this loan, immediately due, without notice, and then Borrower will
pay that amount.  ATTORNEYS FEES; EXPENSES.  lender may hire an attorney to help
collect  this  ,l\greement  if  Borrower  does not pay,  and  Borrower  will pay
lender’s reasonable attorneys’ fees, Borrower also will pay lender all
other amounts  lender  actually  incurs as court costs,  lawful fees for filing,
recording,   releasing  to  any  public  office  any  instrument  securing  this
Agreement;  the reasonable  cost actually  expended for  repossessing,  storing,
preparing for sale,  and selling any security;  and fees for noting a lien on or
transferring a certificate of title to any motor vehicle offered as security for
this Agreement,  or premiums or identifiable charges received in connection with
the sale of authorized insurance.  JURY WAIVER. lender and Borrower hereby waive
the right to any jury trial in any action,  proceeding,  or counterclaim brought
by either lender or Borrower  against the other.  GOVERNING  lAW. This Agreement
will be governed by,  construed and enforced in accordance  with federal law and
the laws of the State of Texas.  This  Agreement  has been accepted by lender in
the  State  of  Texas.  CHOICE  OF  VENUE.  If there  is a  lawsuit,  and if the
transaction  evidenced by this  Agreement  occurred in Harris  County,  Borrower
agrees  upon  lender's  request to submit to the  jurisdiction  of the courts of
Harris  County,  State of Texas.  RIGHT OF SETOFF.  To the extent  permitted  by
applicable  law,  Lender  reserves  a right  of  setoff  in all  Borrower’s
accounts with Lender (whether checking,  savings,  or some other account).  This
includes all accounts  Borrower holds jointly with someone else and all accounts
Borrower may open in the future. However, this does not include any IRA or Keogh
accounts,  or any trust  accounts for which setoff would be  prohibited  by law.
Borrower autnorizes Lender, to the extent permitted by applicable law, to charge
or setoff all sums owing on the debt against any and all such  accounts.LINE  OF
CREDIT. This Agreement evidences a revolving line of credit. Advances under this
Agreement may be requested  orally by Borrower or as provided in this paragraph.
Lender  may,  but need not,  require  that all oral  requests  be  confirmed  in
writing.  All  communications,  instructions,  or  directions  by  telephone  or
otherwise to Lender are to be directed to Lender’s  office shown above. The
following  person  currently is  authorized  to request  advances and  authorize
payments  under the line of credit  until  Lender  receives  from  Borrower,  at
Lender’s  address shown above,  written  notice of revocation of his or her
authority: Thomas R. Kaetzer, President of Gulfwest Energy, Inc. Borrower agrees
to be  liable  for  all  sums  either:  (A)  advanced  in  accordance  with  the
instructions of an authorized  person or (B) credited to any of  Borrower’s
accounts with Lender.  The unpaid  principal  balance owing on this Agreement at
any time may be evidenced by endorsements on this Agreement or by  Lender’s
internal  records,  including  daily  computer  print-outs.  Lender will have no
obligation  to advance  funds  under this  Agreement  if:  (A)  Borrower  or any
guarantor is in default under the terms of this J~greement or any agreement that
Borrower or any  guarantor  has with Lender,  including  any  agreement  made in
connection  with the signing of this  Agreement;  (B) Borrower or any  guarantor
ceases  doing  business or is  insolvent;  (C) any  guarantor  seeks,  claims or
otherwise attempts to limit, modify or revoke such guarantor’s guarantee of
this  Agreement  or any other loan with Lender;  (D) Borrower has applied  funds
provided  pursuant to this Agreement for purposes other than those authorized by
Lender;  or (E) Lender in good faith believes  itself  insecure.  This revolving
line of credit  shall not be  subject  to Ch.  346 of the  Texas  Finance  Code.
ARBITRATION.   Borrower  and  Lender  agree  that  all   disputes,   claims  and
contro"ersies  between  them  whether  individual,  joint,  or class in  nature,
arising from this Agreement or otherwise,  including without limitation contract
and tort  disputes,  shall be  arbitrated  pursuant to the Rules of the American
Arbitration  Association in effect at the time the claim is filed,  upon request
of either party. No act to take or dispose of any Collateral  shall constitute a
waiver of this  arbitration  Ilgreernent  or be prohibited  by this  arbitration
agreement. This includes,  without limitation,  obtaining injunctive relief or a
temporary restraining order; invoking a power of sale under any deed of trust or
mortgage;  obtaining  a writ of  attachment  or  imposition  of a  receiver;  or
exercising  any  rights  relating  to  personal  property,  including  taking or
disposing of such property with or without  judicial process pursuant to Article
9 of the  Uniform  Commercial  Code.  Any  disputes,  claims,  or  controversies
concerning  the  lawfulness  or  reasonableness  of any act,  or exercise of any
right,  concerning any Collateral,  including any claim to rescind,  reform,  or
otherwise  modify  any  agreement  relating  to the  Collateral,  shall  also be
arbitrated,  provided  however  that no  arbitrator  shall have the right or the
power to  enjoin  or  restrain  any act of any  party.  Judgment  upon any award
rendered  by any  arbitrator  may be entered in any court  having  jurisdiction.
Nothing in this Agreement shall preclude any party from seeking equitable relief
from a court of competent  jurisdiction.  The statute of limitations,  estoppel,
waiver,  laches, and similar doctrines which would otherwise be applicable in an
action brought by a party shall be applicable in any arbitration proceeding, and
the  commencement of an arbitration  proceeding shall be deemed the commencement
of an action for these purposes.  The Federal Arbitration Act shall apply to the
cons1:ruction,  interpretation,  and enforcement of this arbitration  provision.
CONTINUING VALIDITY. Except as expressly changed by this Agreement, the terms of
the original  obligation or obligations,  including all agreements  evidenced or
securing  the  obligation(s),  remain  unchanged  and in full force and  effect.
Consent by Lender to this Agreement does not waive Lender’s right to strict
performance of the  obligation(s)  as changed,  nor obligate  Lender to make any
future change in terms. Nothing in this Agreement will constitute a satisfaction
of the obligation(s).  It is the intention of Lender to retain as liable parties
all makers and endorsers of the original obligation(s),  including accommodation
parties, unless a party is expressly released by Lender in writing. Any maker or
endorser, including accommodation makers, will not be released by virtue of this
Agreement.  If any person who signed the original  obligation does not sign this
Agreement below,  then all persons signing below acknowledge that this Agreement
is  given  conditionally,  based  on  the  representation  to  Lender  that  the
non-signing  party  consents to the changes and  provisions of this Agreement or
otherwise  will not be  released  by it.  This  waiver  applies  not only to any
initial  extension,  modification  or release,  but also to all such  subsequent
actions.FACSIMILE  PROVISIONS.  All parties agree that any  execute,j  facsimile
(faxed) copy of this document shall be deemed to be of the same force and effect
as the original,  manually executed documents.  NOTICE OF FINAL AGREEMENT.  THIS
DOCUMENT AND ALL OTHER DOCUMENTS RELATING TO THIS LOAN CONSTITUTE A WRITTEN LOAN
AGREEMENT WHICH  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  RELATING TO THIS LOAN.  DOCUMENT  IMAGING.  Borrower  (or  Guarantor or
Grantor,  as  applicable)  understarlds  and agrees that (i)  Lender's  (Bank's)
document  retention  policy  involves the imaging of executed loan documents and
the  destruction  of the paper  originals,  and (ii)  Borrower (or  Guarantor or
Grantor,  as I  applicable)  waives any right that it may have to claim that the
imaged copies of the loan  documents are not originals.  ELECTRONIC  DELIVERY OF
DOCUMENTS.  (a) The  provisions of this Section shall be applicable in the event
that  Borrower  d~livers any (i)  financial  statements of eorrower or any other
Person  (“Financial  Statements”),   (ii)  no  default  or  compliance
certificates  (“No  Default  Certificates”)  or (iii)  borrowing  base
certificates  (“Borrowing Base  Certificatf)$",  and together with the
Financial  Statements,  the No Default  Certificates  and any other documents or
information regarding Borrower or any other Person delivered to Bank pursuant to
this  Agreement,   collectively,   the  “Financial   Information”)  in
electronic  form  (by  “email”).  affect  the  rest of the  Agreement.
Borrower does not agree or intend to pay, and lender does not agree or intend to
contract for, charge,  collect,  take, reserve or receive (collectively referred
to  herein as  “charge  or  collect”),  any  amount  in the  nature of
interest  or in the  nature of a fee for this  loan,  which  would in any way or
event (including demand,  prepayment, 9r acceleration) cause lender to charge or
collect more for this loan than the maximum  lender would be permitted to charge
or collect by federal law or the law of the State of Texas (as applicable).  Any
such excess  interest or unauthorized  fee shall,  instead of anything stated to
the contrary, be applied first to reduce the principal balance of this loan, and
when the principal has been paid in full, be refunded to Borrower.  The right to
accelerate  maturity of sums due under this Agreement does not include the right
to accelerate any interest  which has not otherwise  accrued on the date of such
acceleration,  and  lender  does not intend to charge or  collect  any  unearned
interest  in the  event of  acceleration.  All sums paid or agreed to be paid to
lender for the use, forbearance or detention of sums due hereunder shall, to the
extent permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of the loan  evidenced by this Agreement  until payment
in full so that the rate or amount of interest on account of the loan  evidenced
hereby does not exceed the applicable  usury ceiling.  lender may delay or forgo
enforcing  any of its rights or remedies  under this  Agreement  without  losing
them.  Borrower  and any other  person who signs,  guarantees  or endorses  this
Agreement, to the extent allowed by law, waive presentment,  demand for payment,
notice  of  dishonor,  notice  of  intent to  accelerate  the  maturity  of this
Agreement,  and notice of acceleration  of the maturity of this Agreement.  Upon
any change in the terms of this Agreement, and unless otherwise expressly stated
in  writing,  no party who signs this  Agreement,  whether as maker,  guarantor,
accommodation  maker or endorser,  shall be released  from  liability.  All such
parties agree that lender may renew or extend  (repeatedly ~nd for any length of
time) this loan or release any party or guarantor or collateral; or impair, fail
to realize upon or perfect  lender’s  security  in~erest in the  collateral
without the  consent of or notice to anyone.  All such  parties  also agree that
lender may modify this loan  without  the  con$ent of or notice to anyone  other
than the party with whom the  modification is made. The  obligations  under this
Agreement are joint and several. PRIOR TO SIGNING THIS AGREEMENT,  BORROWER READ
AND  UNDERSTOOD  All THE  PROVISIONS OF THIS  AGREEMENT,  INCLUDING THE VARIABLE
INTEREST   RATE   PROVISIONS.   BORROWER   AGRI,ES   TO   THE   TERMS   OF   THE
AGREEMENT.References  in the shaded area are for  Lender’s  use only and do
not limit the  appli(:ability  of this document to any particular  loan or item.
has been omitted du~ to text length limitations. Borrower: Gulfwest Energy, Inc.
(TIN:  87-0444770)  Lender:  Southwest  Bank of Texas  N.A.  480 N. Sam  Houston
Parkway E.. Suite 300 Bell Tower  Houston,  TX 77060 P.o. Box 27459 i 5 Post Oak
Park/4400  Post Oak Parkway  Houston,  TX 77227-7459  (713) 235-8800 THE WRITTEN
LOAN AGREEMENT  REPRE~iENTS 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.  As used  in this  Notice,  the  following  terms  have  the  following
meanings:   Loan.  The  term  "Loan"  means  the  following  described  loan:  a
non-precomputed  Variable Rate Nondisclosable Revolving Line of Credit Loan to a
Corporation  for  $1,000,000.00  due  on  July  28,  2003.  The  reference  rate
(Southwest Bank of Texas N.A. prime rate, with an interest rate floor of 5.500%,
and with an interest rate ceiling of 8.000%, currently 4.250%),  resulting in an
initial rate of 5.500.  This is an unsecured renewal  loan.Loan  Agreement.  The
term “Loan  Agreement”  means one or more promises,  promissory notes,
agreements,   undertakings,   security  agreements,  deeds  of  trust  or  other
documents,  or  commitments,  or any  combination of those actions or documents,
relating to the Loan, including without limitation the following: LOAN DOCUMENTS
Business Loan Agreement  Change In Terms  Agreement TX Commercial  Guaranty:  J.
Virgil  Waggoner  TX  Commercial  Guaranty:  Marshall  A.  Smith  TX  Commercial
Guaranty:  Thomas R. Kaetzer  Disbursement  Request and Authorization  Notice of
Final Agreement  Parties.  The term "Parties" means Southwest Bank of Texas N.A.
and any and all entities or  individuals  who are obligated to repay the loan or
have pledged property as security for the Loan, including without limitation the
following:  Borrower:  Gulfwest  Energy,  Inc.  Guarantor 1: J. Virgil  Waggoner
Guarantor 2:  Marshall A. Smith  Guarantor 3: Thomas R. Kaetzer  This Notice of
Final  Agreement  is given by Southwest  Bank of Texas N.A.  pursuant to Section
26.02 of the Texas Business and Commerce Code. Each Party who signs below, other
than Southwest Barlk of Texas N.A.,  acknowledges,  represents,  and warrants to
Southwest  Bank of Texas N.A. that it has  received,  read and  understood  this
Notice of Final  Agreement.  This Notice is dated April 29,  2003.  BORROWER:  G
LENDER:

EX-22

                  SUBSIDIARIES OF THE REGISTRANT

   GulfWest Energy Inc. has nine wholly owned direct or indirect subsidiaries:

1.   GulfWest Oil and Gas Company, Texas corporation, was organized February 18,
     1999 and is the owner of  record  of  interests  in  certain  crude oil and
     natural gas properties located in Colorado and Texas.

2.   SETEX Oil and Gas Company,  a Texas  corporation,  was organized August 11,
     1998 and is the operator of crude oil and natural gas  properties  in which
     we own the majority working interest.

3.   LTW Pipeline Co., a Texas  corporation,  was organized  April 19, 1999, was
     the owner and  operator  of  certain  natural  gas  gathering  systems  and
     pipelines  that we own,  and  marketed  the natural gas  produced  from our
     properties.  The  marketing  contract  expired  and the  subsidiary  became
     inactive.

4.   RigWest Well Service, Inc., a Texas corporation, was organized September 5,
     1996 and operates well servicing equipment for our own account.

5.   Southeast Texas Oil and Gas Company,  L.L.C., a Texas company, was acquired
     by us on  September  1, 1998 and was the owner of  record of  interests  in
     certain  crude  oil and  natural  gas  properties  located  in three  Texas
     counties. The properties were transferred to DutchWest Oil Company and this
     subsidiary became inactive.

6.   DutchWest Oil Company, a Texas corporation, was organized July 28, 1997 and
     is the owner of record of  interests  in certain  crude oil and natural gas
     properties located along the Gulf Coast of Texas.

7.   GulfWest Development  Company, a Texas corporation,  was organized November
     9, 2000 and is the owner of record of  interests  in certain  crude oil and
     natural gas properties located in Texas, Oklahoma and Mississippi.

8.   GulfWest Texas Company,  a Texas corporation,  was organized  September 23,
     1996 and was the owner of  interests  in certain  crude oil and natural gas
     properties located in the Vaughn Field, Crockett County,  Texas.  Effective
     April 1, 2000,  these  properties  were  assigned to  GulfWest  Oil and Gas
     Company to facilitate financing and the subsidiary became inactive.

9.   GulfWest  Oil and Gas Company  (Louisiana)  LLC, a Louisiana  company,  was
     formed  July 31,  2001 and is the owner of record of  interests  in certain
     crude oil and natural gas properties in Louisiana.  It is owned by GulfWest
     Oil and Gas Company.