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<SEC-DOCUMENT>0001193125-08-177798.txt : 20080814
<SEC-HEADER>0001193125-08-177798.hdr.sgml : 20080814
<ACCEPTANCE-DATETIME>20080814115747
ACCESSION NUMBER:		0001193125-08-177798
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		10
CONFORMED PERIOD OF REPORT:	20080630
FILED AS OF DATE:		20080814
DATE AS OF CHANGE:		20080814

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			PRIMEENERGY CORP
		CENTRAL INDEX KEY:			0000056868
		STANDARD INDUSTRIAL CLASSIFICATION:	CRUDE PETROLEUM & NATURAL GAS [1311]
		IRS NUMBER:				840637348
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-07406
		FILM NUMBER:		081016581

	BUSINESS ADDRESS:	
		STREET 1:		ONE LANDMARK SQ
		CITY:			STAMFORD
		STATE:			CT
		ZIP:			06901
		BUSINESS PHONE:		2033585700

	MAIL ADDRESS:	
		STREET 1:		ONE LANDMARK SQ
		CITY:			STAMFORD
		STATE:			CT
		ZIP:			06901

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	KRM PETROLEUM CORP
		DATE OF NAME CHANGE:	19900614
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>d10q.htm
<DESCRIPTION>FORM 10-Q
<TEXT>
<HTML><HEAD>
<TITLE>Form 10-Q</TITLE>
</HEAD>
 <BODY BGCOLOR="WHITE">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="line-height:0px;margin-top:0px;margin-bottom:0px;border-bottom:0.5pt solid #000000">&nbsp;</P> <P
STYLE="line-height:3px;margin-top:0px;margin-bottom:2px;border-bottom:0.5pt solid #000000">&nbsp;</P> <P STYLE="margin-top:3px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="5"><B>UNITED STATES </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="5"><B>SECURITIES AND EXCHANGE COMMISSION </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman"
SIZE="3"><B>Washington, D.C. 20549 </B></FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P><center> <P
STYLE="line-height:6px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000;width:21%">&nbsp;</P></center> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="5"><B>FORM 10-Q </B></FONT></P> <P
STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P><center> <P STYLE="line-height:6px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000;width:21%">&nbsp;</P></center> <P
STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="3"><B><FONT FACE="WINGDINGS">&#120;</FONT><B></B></B></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="3"><B>Quarterly Report under Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934 </B></FONT></TD></TR></TABLE> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><B>For the Quarterly Period Ended June&nbsp;30, 2008 </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2"><B>Or </B></FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="3"><B><FONT FACE="WINGDINGS">&#168;</FONT><B></B></B></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="3"><B>Transition Report Under Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934 </B></FONT></TD></TR></TABLE> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><B>For the Transition Period From <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> to
<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>Commission File Number 0-7406 </B></FONT></P> <P
STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P><center> <P STYLE="line-height:6px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000;width:21%">&nbsp;</P></center> <P STYLE="margin-top:12px;margin-bottom:0px"
ALIGN="center"><FONT FACE="Times New Roman" SIZE="6"><B>PrimeEnergy Corporation </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>(Exact name of registrant as specified in its
charter) </B></FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P><center> <P STYLE="line-height:6px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000;width:21%">&nbsp;</P></center> <P
STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="50%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD WIDTH="48%"></TD></TR>
<TR>
<TD VALIGN="top" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>Delaware</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>84-0637348</B></FONT></TD></TR>
<TR>
<TD VALIGN="top" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>(State or other jurisdiction of</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:1px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="1"><B>incorporation or organization)</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>(IRS employer</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:1px" ALIGN="center"><FONT FACE="Times New Roman"
SIZE="1"><B>identification number)</B></FONT></P></TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>One Landmark Square, Stamford, Connecticut 06901 </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>(Address of principal executive offices) </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman"
SIZE="2"><B>(203) 358-5700 </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>(Registrant&#146;s telephone number, including area code) </B></FONT></P> <P
STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>(Former name, former address and former fiscal year, if changed since last
report) </B></FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P><center> <P STYLE="line-height:6px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000;width:21%">&nbsp;</P></center> <P
STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Indicated by check mark whether the registrant (1)&nbsp;has filed all reports required to be filed by Section&nbsp;13 or 15 (d)&nbsp;of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)&nbsp;has been subject to such filings required for the past 90 days.&nbsp;&nbsp;&nbsp;&nbsp;Yes&nbsp;&nbsp;<FONT
FACE="WINGDINGS">&#120;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;No&nbsp;&nbsp;<FONT FACE="WINGDINGS">&#168;</FONT></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Indicate by check mark whether the Registrant is a
large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of &#147;large accelerated filer&#148; and &#147;smaller reporting company&#148; in Rule 12-B of the Exchange Act.
</FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="92%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="17%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="58%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="21%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="1%"></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Large&nbsp;Accelerated&nbsp;Filer</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2"><FONT FACE="WINGDINGS">&#168;</FONT></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Accelerated&nbsp;Filer</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2"><FONT FACE="WINGDINGS">&#168;</FONT></FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Non-Accelerated Filer</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2"><FONT FACE="WINGDINGS">&#168;</FONT></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Smaller&nbsp;Reporting&nbsp;Company</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2"><FONT FACE="WINGDINGS">&#120;</FONT></FONT></TD></TR>
<TR>
<TD VALIGN="bottom" COLSPAN="3"><FONT FACE="Times New Roman" SIZE="2">(Do not check if smaller reporting company)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).&nbsp;&nbsp;&nbsp;&nbsp;Yes&nbsp;&nbsp;<FONT FACE="WINGDINGS">&#168;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;No&nbsp;&nbsp;<FONT FACE="WINGDINGS">&#120;</FONT> </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">The number of shares outstanding of each class of the Registrant&#146;s Common Stock as of August&nbsp;11, 2008 was: Common Stock, $0.10 par value, 3,050,141 shares. </FONT></P> <P
STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P> <P STYLE="line-height:3px;margin-top:0px;margin-bottom:0px;border-bottom:0.5pt solid #000000">&nbsp;</P> <P
STYLE="line-height:3px;margin-top:0px;margin-bottom:2px;border-bottom:0.5pt solid #000000">&nbsp;</P>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><A NAME="toc"></A>PrimeEnergy Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"
ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Index to Form 10-Q </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">June&nbsp;30, 2008 </FONT></P> <P
STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" ALIGN="center">

<TR>
<TD></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="3%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="90%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="5"><FONT FACE="Times New Roman" SIZE="2">Part I - Financial Information</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD HEIGHT="8" COLSPAN="5"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="5"><FONT FACE="Times New Roman" SIZE="2">Item&nbsp;1. Financial Statements</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2"><A HREF="#tx36618_1">Consolidated Balance Sheets &#150; June 30, 2008 and December 31, 2007</A></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3-4</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2"><A HREF="#tx36618_2">Consolidated Statements of Operations for the six and three months ended June 30, 2008 and 2007</A></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5-6</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2"><A HREF="#tx36618_3">Consolidated Statement of Stockholders&#146; Equity for the six months ended June 30, 2008 and for the year ended December 31, 2007</A></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">7</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2"><A HREF="#tx36618_4">Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2007</A></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">8</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2"><A HREF="#tx36618_5">Notes to Consolidated Financial Statements</A></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">9-24</FONT></TD></TR>
<TR>
<TD HEIGHT="8" COLSPAN="5"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="5"><FONT FACE="Times New Roman" SIZE="2"><A HREF="#tx36618_6">Item&nbsp;2. Management&#146;s Discussion and Analysis of Financial Conditions and Results of Operation</A></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">25-28</FONT></TD></TR>
<TR>
<TD HEIGHT="8" COLSPAN="5"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="5"><FONT FACE="Times New Roman" SIZE="2"><A HREF="#tx36618_7">Item&nbsp;3. Quantitative and Qualitative Disclosures About Market Risk</A></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">28-29</FONT></TD></TR>
<TR>
<TD HEIGHT="8" COLSPAN="5"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="5"><FONT FACE="Times New Roman" SIZE="2"><A HREF="#tx36618_8">Item&nbsp;4T. Controls and Procedures</A></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">30</FONT></TD></TR>
<TR>
<TD HEIGHT="8" COLSPAN="5"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="5"><FONT FACE="Times New Roman" SIZE="2"><A HREF="#tx36618_9">Part II - Other Information</A></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD HEIGHT="8" COLSPAN="5"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="5"><FONT FACE="Times New Roman" SIZE="2"><A HREF="#tx36618_10">Item&nbsp;1. Legal Proceedings</A></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">31</FONT></TD></TR>
<TR>
<TD HEIGHT="8" COLSPAN="5"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="5"><FONT FACE="Times New Roman" SIZE="2"><A HREF="#tx36618_10a">Item&nbsp;1A. Risk Factors </A></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">31</FONT></TD></TR>
<TR>
<TD HEIGHT="8" COLSPAN="5"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="5"><FONT FACE="Times New Roman" SIZE="2"><A HREF="#tx36618_11">Item&nbsp;2. Changes in Securities and Use of Proceeds</A></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">31</FONT></TD></TR>
<TR>
<TD HEIGHT="8" COLSPAN="5"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="5"><FONT FACE="Times New Roman" SIZE="2"><A HREF="#tx36618_12">Item&nbsp;3. Defaults Upon Senior Securities</A></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">31</FONT></TD></TR>
<TR>
<TD HEIGHT="8" COLSPAN="5"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="5"><FONT FACE="Times New Roman" SIZE="2"><A HREF="#tx36618_13">Item&nbsp;4T. Submission of Matters to a Vote of Security Holders</A></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">32</FONT></TD></TR>
<TR>
<TD HEIGHT="8" COLSPAN="5"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="5"><FONT FACE="Times New Roman" SIZE="2"><A HREF="#tx36618_14">Item&nbsp;5. Other Information</A></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">32</FONT></TD></TR>
<TR>
<TD HEIGHT="8" COLSPAN="5"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="5"><FONT FACE="Times New Roman" SIZE="2"><A HREF="#tx36618_15">Item&nbsp;6. Exhibits</A></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">33</FONT></TD></TR>
<TR>
<TD HEIGHT="8" COLSPAN="5"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="5"><FONT FACE="Times New Roman" SIZE="2"><A HREF="#tx36618_16">Signatures</A></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">34</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">2 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><A NAME="tx36618_1"></A>PrimeEnergy Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"
ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Consolidated Balance Sheets </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">June&nbsp;30, 2008 and December&nbsp;31, 2007 </FONT></P>
<P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="78%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>June&nbsp;30,</B></FONT><br><FONT FACE="Times New Roman" SIZE="1"><B>2008</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>December&nbsp;31,</B></FONT><br><FONT FACE="Times New Roman" SIZE="1"><B>2007</B></FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>(Unaudited)</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>(Audited)</B></FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">ASSETS</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Current assets:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cash and cash equivalents</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">20,775,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">21,313,000</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Restricted cash and cash equivalents</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5,312,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,633,000</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accounts receivable (net)</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">29,080,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">20,348,000</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Due from related parties</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">281,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">212,000</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Prepaid expenses</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,009,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,391,000</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Derivative fair value</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">418,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,332,000</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Inventory at cost</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5,360,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,711,000</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Deferred income tax</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">11,783,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,582,000</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total current assets</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">75,018,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">53,522,000</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Property and equipment, at cost</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Oil and gas properties (successful efforts method), net</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">221,299,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">233,171,000</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Field service equipment and other, net</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">9,001,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">8,209,000</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net property and equipment</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">230,300,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">241,380,000</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Other assets</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">871,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,180,000</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total assets</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">306,189,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">296,082,000</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">See accompanying notes to the consolidated financial statements. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">3 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">PrimeEnergy Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">Consolidated Balance Sheets </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">June 30, 2008 and December&nbsp;31, 2007 </FONT></P> <P
STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="78%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>June&nbsp;30,</B></FONT><br><FONT FACE="Times New Roman" SIZE="1"><B>2008</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>December&nbsp;31,</B></FONT><br><FONT FACE="Times New Roman" SIZE="1"><B>2007</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>(Unaudited)</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>(Audited)</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">LIABILITIES and STOCKHOLDERS&#146; EQUITY</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Current liabilities:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Current bank debt</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">18,000,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">34,950,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accounts payable</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">37,352,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">26,726,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Current portion of asset retirement and other long-term obligations</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,171,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,065,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Derivative fair value</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">31,765,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,340,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accrued liabilities</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">11,238,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">9,953,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Due to related parties</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,179,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,563,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total current liabilities</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">101,705,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">78,597,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Long-term bank debt</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">101,050,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">120,050,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Indebtedness to related parties</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">20,000,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Asset retirement obligation</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">17,406,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">15,538,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Derivative fair value</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">23,847,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,369,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Deferred income taxes</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">19,788,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">26,930,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total liabilities</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">283,796,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">244,484,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Minority interest</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,313,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,313,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Stockholders&#146; equity:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Preferred stock, $.10 par value, Authorized 5,000,000 shares, none issued</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Common stock, $.10 par value, authorized 10,000,000 shares; issued 7,694,970 in 2008 and 2007</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">769,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">769,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Paid in capital</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">11,024,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">11,024,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Retained earnings</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">83,047,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">74,498,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accumulated other comprehensive income(loss), net</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(35,058,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(3,618,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">57,782,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">82,673,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Treasury stock, at cost, 4,442,852 common shares at 2008 and 4,500,649 common shares at 2007</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(36,702,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(32,388,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total stockholders&#146; equity</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">23,080,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">50,285,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">306,189,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">296,082,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">See accompanying notes to the consolidated financial statements. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">4 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><A NAME="tx36618_2"></A>PrimeEnergy Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"
ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Consolidated Statements of Operations </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Six Months Ended June&nbsp;30, 2008 and 2007
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">(unaudited) </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="80%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>2008</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>2007</B></FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Revenue:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Oil and gas sales</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">67,889,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">47,672,000</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Field service income</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">12,718,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">11,782,000</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Administrative overhead fees</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,499,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,812,000</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Other income</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">197,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">166,000</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total revenue</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">85,303,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">64,432,000</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Costs and expenses:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Lease operating expense</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">18,722,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">14,797,000</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Field service expense</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">9,574,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">9,050,000</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Depreciation, depletion and amortization</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">35,690,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">20,600,000</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">General and administrative expense</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">7,033,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6,790,000</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Exploration costs</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">299,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">419,000</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total costs and expenses</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">71,318,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">51,656,000</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Add gain/(loss) on sale and exchange of assets</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">78,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">611,000</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Income from operations</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">14,063,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">13,387,000</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="3"></TD>
<TD HEIGHT="8" COLSPAN="3"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Other income and expenses</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Interest expense</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,376,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,512,000</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Interest income</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">200,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">417,000</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net income before income taxes</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">9,887,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">9,292,000</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Provision for income taxes</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,338,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,345,000</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net income</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6,549,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5,947,000</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Basic income per common share</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2.13</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1.86</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="3"></TD>
<TD HEIGHT="8" COLSPAN="3"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Diluted income per common share</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1.71</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1.50</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">See accompanying notes to the consolidated financial statements. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">5 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">PrimeEnergy Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">Consolidated Statements of Operations </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Three Months Ended June&nbsp;30, 2008 and 2007 </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">(unaudited) </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="80%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>2008</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>2007</B></FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Revenue:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Oil and gas sales</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">36,737,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">27,343,000</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Field service income</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6,474,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5,895,000</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Administrative overhead fees</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,300,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,482,000</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Other income (loss)</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(5,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">391,000</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total revenue</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">45,506,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">36,111,000</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Costs and expenses:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Lease operating expense</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">10,129,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">8,244,000</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Field service expense</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,812,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,499,000</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Depreciation, depletion and amortization</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">18,274,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">12,910,000</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">General and administrative expense</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,905,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,680,000</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Exploration costs</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">242,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">58,000</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total costs and expenses</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">37,812,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">29,391,000</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Add gain/(loss) on sale and exchange of assets</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">93,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Income from operations</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">7,787,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6,720,000</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Interest expense</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,929,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,829,000</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Interest Income</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">81,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">348,000</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net income before income taxes</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5,939,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,239,000</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="3"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Provision for income taxes</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,011,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,526,000</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net income</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,928,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,713,000</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Basic income per common share</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1.28</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">0.85</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="3"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Diluted income per common share</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1.03</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">0.69</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">See accompanying notes to the consolidated financial statements. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">6 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><A NAME="tx36618_3"></A>PrimeEnergy Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"
ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Consolidated Statement of Stockholders&#146; Equity </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Six Months Ended June&nbsp;30, 2008
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">(unaudited) </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="33%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="4" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Common&nbsp;Stock</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ROWSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Paid&nbsp;In</B></FONT><br><FONT FACE="Times New Roman" SIZE="1"><B>Capital</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ROWSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Retained</B></FONT><br><FONT FACE="Times New Roman" SIZE="1"><B>Earnings</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ROWSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Accumulated</B></FONT><br><FONT FACE="Times New Roman" SIZE="1"><B>Other</B></FONT><br><FONT
FACE="Times New Roman" SIZE="1"><B>Comprehensive</B></FONT><br><FONT FACE="Times New Roman" SIZE="1"><B>Income/Loss</B></FONT></TD>
<TD VALIGN="bottom" ROWSPAN="2"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ROWSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Treasury</B></FONT><br><FONT FACE="Times New Roman" SIZE="1"><B>Stock</B></FONT></TD>
<TD VALIGN="bottom" ROWSPAN="2"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ROWSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Total</B></FONT></TD>
<TD VALIGN="bottom" ROWSPAN="2"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Shares</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Amount</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Balance at December&nbsp;31, 2006</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">7,694,970</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">769,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">11,024,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">66,908,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,976,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(27,979,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">54,698,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Purchased 80,399 shares of common Stock</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(4,409,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(4,409,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net income</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">7,590,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">7,590,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Other comprehensive Income, net of taxes</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(7,594,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(7,594,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Balance at December 31, 2007</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">7,694,970</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">769,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">11,024,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">74,498,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(3,618,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(32,388,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">50,285,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Purchased 84,368 shares of common Stock</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(4,314,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(4,314,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net income</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6,549,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6,549,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Other comprehensive Income, net of taxes</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(31,440,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(31,440,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Balance at June&nbsp;30, 2008</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">7,694,970</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">769,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">11,024,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">81,047,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(35,058,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(36,702,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">21,080,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">See accompanying notes to the consolidated financial statements. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">7 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><A NAME="tx36618_4"></A>PrimeEnergy Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"
ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Consolidated Statements of Cash Flows </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Six Months Ended June&nbsp;30, 2008 and 2007
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">(unaudited) </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="78%"></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>2008</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>2007</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cash flows from operating activities:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net income</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6,549,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5,947,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Adjustments to reconcile net income to net cash provided by</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Operating activities:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Depreciation, depletion, amortization and accretion</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">On discounted liabilities</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">35,690,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">20,600,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Dry hole and abandonment expense</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">318,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Gain on sale of properties</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(78,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(611,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Provision for deferred taxes</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,227,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,674,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Changes in assets and liabilities:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accounts receivable</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(8,732,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6,800,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Due from related parties</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(68,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">389,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Inventory</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">463,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,506,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Prepaid expense and other assets</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(1,646,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(522,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accounts payable</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">13,047,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(2,963,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accrued liabilities</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,506,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(28,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Due to related parties</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(384,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(18,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net cash provided by operating activities:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">47,628,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">35,092,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cash flows from investing activities:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Capital expenditures, including exploration expense</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(28,146,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(68,399,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Proceeds from sale of property and equipment</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">78,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">611,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net cash (used in) investing activities</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(28,068,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(67,788,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cash flows from financing activities:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Purchase of treasury stock</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(4,314,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(2,382,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Proceeds from long-term debt</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">72,175,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">65,285,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Repayment of long-term debt</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(87,959,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(41,609,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net cash provided (used in) financing activities</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(20,098,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">21,294,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net decrease in cash and cash equivalents</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(538,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(11,402,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cash and cash equivalents at the beginning of the period</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">21,313,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">24,653,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cash and cash equivalents at the end of the period</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">20,775,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">13,251,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">See accompanying notes to the consolidated financial statements. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">8 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><A NAME="tx36618_5"></A>PrimeEnergy Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"
ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Notes to Consolidated Financial Statements </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">June&nbsp;30, 2008 </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">(1) Interim Financial Statements: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">The accompanying
consolidated financial statements of PrimeEnergy Corporation, with the exception of the consolidated balance sheet at December&nbsp;31, 2007, have not been audited by independent public accountants. In the opinion of management, the accompanying
financial statements reflect all adjustments necessary to present fairly our financial position at June&nbsp;30, 2008 and our income and cash flows for the six months ended June&nbsp;30, 2008 and 2007. All such adjustments are of a normal recurring
nature. Certain amounts presented in prior period financial statements have been reclassified for consistency with current period presentation. The results for interim periods are not necessarily indicative of annual results. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">Effective January&nbsp;1, 2008, the Company adopted those provisions of Statement of Financial Accounting Standards (SFAS) No.&nbsp;157, &#147;Fair Value
Measurements,&#148; that were required to be adopted. There was no financial statement impact upon adoption on January&nbsp;1, 2008. For further information regarding the adoption of SFAS No.&nbsp;157, please refer to Note 11 of the Notes to the
Consolidated Financial Statements. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">SFAS No.&nbsp;159, &#147;The Fair Value Option for Financial Assets and Financial Liabilities, including
an amendment of FASB Statement No.&nbsp;115,&#148; became effective on January&nbsp;1, 2008 and permits companies to choose, at specified dates, to measure certain eligible financial instruments at fair value. The provisions of SFAS No.&nbsp;159
apply only to entities that elect to use the fair value option and to all entities with available-for-sale and trading securities. At the effective date, companies may elect the fair value option for eligible items that exist at that date, and the
effect of the first remeasurement to fair value must be reported as a cumulative-effect adjustment to the opening balance of retained earnings. Since the Company has not elected to adopt the fair value option for eligible items, SFAS No.&nbsp;159
has not had an impact on its financial position or results of operations. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2"><I>Recently Issued Accounting Standards: </I></FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">In May 2008, the FASB issued SFAS No.&nbsp;162, &#147;The Hierarchy of Generally Accepted Accounting Principles&#148; which identifies a consistent
framework for selecting accounting principles to be used in preparing financial statements for nongovernmental entities that are presented in conformity with United States generally accepted accounting principles (GAAP). The current GAAP hierarchy
was criticized due to its complexity, ranking position of FASB Statements of Financial Accounting Concepts and the fact that it is directed at auditors rather than entities. The statement specifies that the reporting entity, not the auditors, is
responsible for its compliance with GAAP. SFAS No.&nbsp;162 will be effective 60 days following the SEC&#146;s approval of the Public Company Accounting Oversight Board amendments to AU Section&nbsp;411, &#147;The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles. The Company does not believe that SFAS No.&nbsp;162 will have an impact on its financial position, result of operations or cash flows. The Company will adopt SFAS 162 when it becomes
effective. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">9 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">PrimeEnergy Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">Notes to Consolidated Financial Statements </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">June 30, 2008 </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">In March&nbsp;2008, the FASB issued SFAS No.&nbsp;161, &#147;Disclosure about Derivative Instruments
and Hedging Activities, an amendment of FASB Statement No.&nbsp;133.&#148; SFAS No.&nbsp;161 amends and expands the disclosure requirements of SFAS No.&nbsp;133 with the intent to provide users of financial statements with an enhanced understanding
of: (i)&nbsp;how and why an entity uses derivative instruments; (ii)&nbsp;how derivative instruments and related hedged items are accounted for under SFAS No.&nbsp;133 and its related interpretations; and (iii)&nbsp;how derivative instruments and
related hedged items affect an entity&#146;s financial position, financial performance and cash flows. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November&nbsp;15, 2008, with
early application encouraged. We are in the process of evaluating the impact of SFAS No.&nbsp;161 on our consolidated financial statements. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman"
SIZE="2">In December 2007, the FASB issued SFAS No.&nbsp;160, &#147;Noncontrolling Interest in Consolidated Financial Statements, an amendment of Accounting Research Bulletin (ARB) No.&nbsp;51.&#148; SFAS No.&nbsp;160 clarifies that a noncontrolling
interest (previously commonly referred to as a minority interest) in a subsidiary is an ownership interest in the consolidated entity and should be reported as equity in the consolidated financial statements. The presentation of the consolidated
income statement has been changed by SFAS No.&nbsp;160, and consolidated net income attributable to both the parent and the noncontrolling interest is now required to be reported separately. Previously, net income attributable to the noncontrolling
interest was typically reported as an expense or other deduction in arriving at consolidated net income and was often combined with other financial statement amounts. In addition, the ownership interests in subsidiaries held by parties other than
the parent must be clearly identified, labeled, and presented in the equity in the consolidated financial statements separately from the parent&#146;s equity. Subsequent changes in a parent&#146;s ownership interest while the parent retains its
controlling financial interest in its subsidiary should be accounted for consistently, and when a subsidiary is deconsolidated, any retained noncontrolling equity interest in the former subsidiary must be initially measured at fair value. Expanded
disclosures, including a reconciliation of equity balances of the parent and noncontrolling interest are also required. SFAS No.&nbsp;160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after
December&nbsp;15, 2008 and earlier adoption is prohibited. Prospective application is required. We are in the process of evaluating the impact of SFAS No.&nbsp;160 on our consolidated financial statements. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">10 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">PrimeEnergy Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">Notes to Consolidated Financial Statements </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">June 30, 2008 </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">In December 2007, the FASB issued SFAS No.&nbsp;141(R), &#147;Business Combinations.&#148; SFAS
No.&nbsp;141(R) was issued in an effort to continue the movement toward the greater use of fair values in financial reporting and increased transparency through expanded disclosures. It changes how business acquisitions are accounted for and will
impact financial statements at the acquisition date and in subsequent periods. Certain of these changes will introduce more volatility into earnings. The acquirer must now record all assets and liabilities of the acquired business at fair value, and
related transaction and restructuring costs will be expensed rather than the previous method of being capitalized as part of the acquisition. SFAS No.&nbsp;141(R) also impacts the annual goodwill impairment test associated with acquisitions,
including those that close before the effective date of SFAS No.&nbsp;141(R). The definitions of a &#147;business&#148; and a &#147;business combination&#148; have been expanded, resulting in more transactions qualifying as business combinations.
SFAS No.&nbsp;141(R) is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December&nbsp;31, 2008 and earlier adoption is prohibited. We cannot predict the impact that the adoption of SFAS
No.&nbsp;141(R) will have on our financial position, results of operations or cash flows with respect to any acquisitions completed after December&nbsp;31, 2008. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">(2) Significant Acquisitions, Dispositions and Property Activity </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">The Company makes an annual offer to repurchase the interests of
the partners and trust unit holders in certain of the Partnerships. The Company purchased such interests in an amount totaling $153,000 is for the six months ending June&nbsp;30, 2008 and $371,000 for the year ending December&nbsp;31, 2007. The
Company&#146;s proportionate share of assets, liabilities and results of operations related to the interests in the Partnerships are included in the consolidated financial statements. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">(3) Restricted Cash and Cash Equivalents: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">Restricted cash and cash equivalents include $5,312,000 and
$3,633,000 at June&nbsp;30, 2008 and December&nbsp;31, 2007, respectively, of cash primarily pertaining to undistributed revenue payments. There were corresponding accounts payable recorded at June&nbsp;30, 2008 and December&nbsp;31, 2007 for these
liabilities. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">11 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">PrimeEnergy Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">Notes to Consolidated Financial Statements </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">June 30, 2008 </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">(4) Additional Balance Sheet Information </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">Certain balance sheet amounts are comprised of the following: </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="92%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="74%"></TD>
<TD VALIGN="bottom" WIDTH="5%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="5%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>June&nbsp;30,&nbsp;2008</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>December&nbsp;31,&nbsp;2007</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><U>Accounts Receivable:</U></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Joint interest billing</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6,795,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,192,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Trade receivables</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,565,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,352,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Oil and gas sales</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">19,759,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">13,822,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Income tax receivable</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">795,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Other</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">243,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">415,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">29,362,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">20,576,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Less, allowance for doubtful accounts</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(282,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(228,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">29,080,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">20,348,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><U>Accounts Payable:</U></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Trade</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">17,081,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">12,364,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Royalty and other owners</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">15,824,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">11,209,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Other</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,447,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,153,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">37,352,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">26,726,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><U>Accrued Liabilities:</U></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Compensation and related expenses</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,135,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,687,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Property cost</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,818,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,472,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Income tax</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,147,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Other</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,138,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,794,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">11,238,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">9,953,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">12 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">PrimeEnergy Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">Notes to Consolidated Financial Statements </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">June 30, 2008 </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">(5) Property and Equipment: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT
FACE="Times New Roman" SIZE="2">Property and equipment at June&nbsp;30, 2008 and December&nbsp;31, 2007 consisted of the following: </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="92%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="74%"></TD>
<TD VALIGN="bottom" WIDTH="4%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="4%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>June&nbsp;30,</B></FONT><br><FONT FACE="Times New Roman" SIZE="1"><B>2008</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>December&nbsp;31,</B></FONT><br><FONT FACE="Times New Roman" SIZE="1"><B>2007</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Proved oil and gas properties, at cost</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">390,725,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">368,828,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Unproved oil and gas properties, at cost</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,315,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,458,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Less, accumulated depletion and depreciation</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(172,741,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(140,115,00</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">221,299,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">233,171,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Field service equipment and other</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">19,546,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">18,029,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Less, accumulated depreciation</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(10,545,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(9,820,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">9,001,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">8,209,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total net property and equipment</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">230,300,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">241,380,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
</TABLE> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">Total interest incurred during the year ended December&nbsp;31, 2007 was $12,984,000. Of this
amount, the Company capitalized $1,922,000. Capitalized interest is included as part of the cost of oil and gas properties. The capitalized rates are based upon the Company&#146;s weighted-average cost of borrowings used to finance expenditures.
There was no interest capitalized during the first half of 2008. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">(6) Long-Term Debt: </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2"><I><U>Bank Debt:</U> </I></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">The Company
currently has credit facilities totaling $360 million, consisting of a $200 million credit facility through Guaranty Bank (the offshore facility) and a $160 million credit facility through a syndicate of banks led by Guaranty Bank (the onshore
facility). The offshore facility&#146;s maturity date is 2009 and onshore credit facility matures in 2011. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">Availability under the credit
facilities is based on the loan value assigned to Prime&#146;s oil and gas properties. The determination of the Borrowing Base is made by the lenders taking into consideration the estimated value of Prime&#146;s oil and gas properties in accordance
with the lenders&#146; customary practices for oil and gas loans. This process involves reviewing Prime&#146;s estimated proved reserves and their valuation. The Borrowing Base is re-determined semi-annually, and the available borrowing amount could
be increased or decreased as a result of such redeterminations. In addition, Prime and the lenders each have discretion at any time to have the Borrowing Base re-determined. A revision to Prime&#146;s reserves may prompt such a </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">13 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">PrimeEnergy Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">Notes to Consolidated Financial Statements </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">June 30, 2008 </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%">
<FONT FACE="Times New Roman" SIZE="2">request on the part of the lenders, which could possibly result in a reduction in the Borrowing Base and availability under the credit facilities. If
outstanding borrowings under either of the credit facilities exceed the applicable portion of the Borrowing Base, Prime would be required to repay the excess amount within a prescribed period. If we are unable to pay the excess amount, it would
cause an event of default. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">The credit facilities include terms and covenants that require the Company to maintain, as defined, a minimum
current ratio, tangible net worth, debt coverage ratio and interest coverage ratio, and restrictions are placed on the payment of dividends and the amount of treasury stock the Company may purchase. The credit facilities are collateralized by
substantially all of the Company&#146;s assets. The Company is required to mortgage, and grant a security interest in, consolidated proved oil and gas properties. Prime also pledged the stock of several subsidiaries to the lenders to secure the
credit facilities. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">During the second quarter 2008, the Company entered into an amended and restated credit agreement related to the
offshore credit facility allowing for a subordinated credit facility with a private lender and the release of certain collateral which was then pledged to the new lender under a separate credit agreement. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">At June&nbsp;30, 2008, the borrowing bases and outstanding balances of the Company&#146;s bank debt were $96 million and $89.6 million, respectively,
under the onshore credit facility at a weighted average interest rate of 5.92%, and $29.4 million under the offshore credit facility at a weighted average interest rate of 5.28%. Total outstanding bank debt was $119 million at June&nbsp;30,2008. The
combined average interest rates paid on outstanding bank borrowings subject to interest at the bank&#146;s base rate and on outstanding bank borrowings bearing interest based upon the LIBO rate were 6.03% during the first six months of 2008 as
compared to 8.89% during the same period of 2007. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">The Company entered into interest rate hedge agreements to help manage interest rate
exposure. These contracts include interest rate swaps. Interest rate swap transactions generally involve the exchange of fixed and floating rate interest payment obligations without the exchange of the underlying principal amounts. The Company
entered into interest swap agreements for a period of two years, beginning in April 2008, related to $60 million of Company bank debt resulting in a fixed rate of 4.375%. The underlying debt contracts above are repriced quarterly based upon the
three-month LIBOR rates. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2"><I><U>Indebtedness to related parties &#150; noncurrent:</U> </I></FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">During the second quarter 2008, the Company&#146;s offshore subsidiary entered into a subordinated credit facility with a private lender with an
availability of $50 million. The private lender has specific collateral pledged under a separate credit agreement. The private lender is a member of the Company&#146;s Board of Directors. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">14 </FONT></P>


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<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">PrimeEnergy Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">Notes to Consolidated Financial Statements </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">June 30, 2008 </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">The current advances of this credit facility are $20 million. The facility matures in January 2010.
The new loan bears interest at the rate of 10%&nbsp;per annum. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">(7) Other Long-Term Obligations and Commitments: </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Operating Leases: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">The Company has several
non-cancelable operating leases, primarily for rental of office space, that have a term of more than one year. </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="84%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="85%"></TD>
<TD VALIGN="bottom" WIDTH="9%"></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B></B><B><I>Operating&nbsp;Leases</I></B><B></B></FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">2008</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">297,000</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">2009</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">350,000</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">2010</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">71,000</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">2011</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5,000</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Thereafter</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total minimum payments</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">723,000</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD></TR>
</TABLE> <P STYLE="margin-top:18px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Asset Retirement Obligation: </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">A reconciliation of our liability for plugging and abandonment costs for the Six Months Ended June&nbsp;30, 2008 and the year ended December&nbsp;31, 2007
is as follows: </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="92%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="74%"></TD>
<TD VALIGN="bottom" WIDTH="5%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="5%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>June&nbsp;30,&nbsp;2008</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>December&nbsp;31,&nbsp;2007</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Asset retirement obligation &#150; beginning of period</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">15,962,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6,440,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Liabilities incurred</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">268,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">468,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Liabilities settled</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(134,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(367,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accretion expense</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">549,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">434,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Revisions in estimated liabilities</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,211,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">8,987,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Asset retirement obligation &#150; end of period</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">17,856,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">15,962,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">15 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">PrimeEnergy Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">Notes to Consolidated Financial Statements </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">June 30, 2008 </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">The Company&#146;s liability is determined using significant assumptions, including current estimates
of plugging and abandonment costs, annual inflation of these costs, the productive life of wells and our risk-adjusted interest rate. Changes in any of these assumptions can result in significant revisions to the estimated asset retirement
obligation. Revisions to the asset retirement obligation are recorded with an offsetting change to producing properties, resulting in prospective changes to depreciation, depletion and amortization expense and accretion of discount. Because of the
subjectivity of assumptions and the relatively long life of most of our wells, the costs to ultimately retire our wells may vary significantly from previous estimates. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">(8) Contingent Liabilities: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">The Company, as managing general partner of the affiliated Partnerships, is
responsible for all Partnership activities, including the drilling of development wells and the production and sale of oil and gas from productive wells. The Company also provides the administration, accounting and tax preparation work for the
Partnerships, and is liable for all debts and liabilities of the affiliated Partnerships, to the extent that the assets of a given limited Partnership are not sufficient to satisfy its obligations. As of June&nbsp;30, 2008, the affiliated
Partnerships have established cash reserves in excess of their debts and liabilities and the Company believes these reserves will be sufficient to satisfy Partnership obligations. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">The Company is subject to environmental laws and regulations. Management believes that future expenses, before recoveries from third parties, if any, will
not have a material effect on the Company&#146;s financial condition. This opinion is based on expenses incurred to date for remediation and compliance with laws and regulations which have not been material to the Company&#146;s results of
operations. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">(9) Stock Options and Other Compensation: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman"
SIZE="2">In May 1989, non-statutory stock options were granted by the Company to four key executive officers for the purchase of shares of common stock. At June&nbsp;30, 2008 and 2007, options on 767,500 were outstanding and exercisable at prices
ranging from $1.00 to $1.25. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">(10) Related Party Transactions: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT
FACE="Times New Roman" SIZE="2">The Company acts as the managing general partner, providing administration, accounting and tax preparation services for the Partnerships. Certain directors have limited and general partnership interests in several of
these Partnerships. As the managing general partner in each of the Partnerships, the Company receives approximately 5% to 15% of the net revenues of each Partnership as a carried interest in the Partnerships&#146; properties. The Company makes an
annual offer to repurchase the interests of the partners and trust unit holders in certain of the Partnerships. The Company purchased such interests in an amount totaling $153,000 in the second quarter 2008 and $371,000 during 2007. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">16 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">PrimeEnergy Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">Notes to Consolidated Financial Statements </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">June 30, 2008 </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">Treasury stock purchases in 2008 and 2007 included shares acquired from related parties. Purchases
from related parties included a total of 70,000 shares purchased for a total consideration of $3,500,000 during the first half of 2008 and 31,700 shares purchased for a total consideration of $1,743,000 in 2007. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">Due to related parties primarily represents receipts collected by the Company as agent, for the partnerships for oil and gas sales net of expenses. As of
June&nbsp;30, 2008, also in due to related parties is the amount of accrued interest owed to the related party, a member of the Company&#146;s Board of Directors, with whom the Company&#146;s offshore subsidiary entered into a credit agreement. The
agreement provides for a loan of $20 million at a rate of 10%&nbsp;per annum and is secured by certain oil and gas properties and the Company&#146;s interest in a limited partnership which owns a shopping center in Alabama. The total due to related
parties at June&nbsp;30, 2008 and December&nbsp;31, 2007 was $1,179,000 and $1,563,000 respectively. Included at June&nbsp;30, 2008 was $164,000 of accrued interest on the related party loan. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">The Partnership agreements allow PrimeEnergy Management Corporation to receive reimbursement for property acquisition and development costs and general
and administrative overhead, incurred on behalf of the Partnerships and related party joint venture partners who are members of the Company&#146;s Board of Directors. Receivables from related parties consist of reimbursable general and
administrative costs, lease operating expenses and reimbursement for property development and related costs. Due from related parties was $281,000 at June&nbsp;30, 2008 and $212,000 at December&nbsp;31, 2007. </FONT></P> <P
STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">(11) Financial Instruments </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2"><I>Adoption of SFAS No.&nbsp;157
</I></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">In September 2006, the FASB issued SFAS No.&nbsp;157, &#147;Fair Value Measurements,&#148; which establishes a formal framework for
measuring fair values of assets and liabilities in financial statements that are already required by United States generally accepted accounting principles to be measured at fair value. SFAS No.&nbsp;157 clarifies guidance in FASB Concepts Statement
(CON) No.&nbsp;7 which discusses present value techniques in measuring fair value. Additional disclosures are also required for transactions measured at fair value. SFAS No.&nbsp;157 is effective for fiscal years beginning after November&nbsp;15,
2007, and interim periods within those fiscal years. In February 2008, the FASB issued FASB Staff Position (FSP) No. FAS 157-2, &#147;Effective Date of FASB Statement No.&nbsp;157,&#148; which granted a one year deferral (to fiscal years beginning
after November&nbsp;15, 2008, and interim periods within those fiscal years) for certain non-financial assets and liabilities to comply with SFAS No.&nbsp;157. The Company will adopt the provisions of FAS No.&nbsp;157 covered under FSP
No.&nbsp;157-2 on January&nbsp;1, 2009. Additionally, in February 2008, the FASB issued FSP No. FAS 157-1, &#147;Application of FASB Statement No.&nbsp;157 to FASB Statement No.&nbsp;13 and Other Accounting Pronouncements That Address Fair Value
Measurements for Purposes of Lease Classification or Measurement under Statement 13,&#148; which amends SFAS No.&nbsp;157 to </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">17 </FONT></P>


<p Style='page-break-before:always'>
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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">PrimeEnergy Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">Notes to Consolidated Financial Statements </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">June 30, 2008 </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%">
<FONT FACE="Times New Roman" SIZE="2">exclude SFAS No.&nbsp;13 and related pronouncements that address fair value measurements for purposes of lease classification and measurement. FSP No. FAS
157-1 is effective upon the initial adoption of SFAS No.&nbsp;157. The Company has adopted SFAS No.&nbsp;157 and the related FSPs discussed above which did not have an impact on its financial position or results of operations for the quarter ended
June&nbsp;30, 2008. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">As defined in SFAS No.&nbsp;157, fair value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date (exit price). The transaction is based on a hypothetical transaction in the principal or most advantageous market considered from the perspective of the market
participant that holds the asset or owes the liability. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">The valuation techniques that can be used under SFAS No.&nbsp;157 are the market
approach, income approach or cost approach. The market approach uses prices and other information for market transactions involving identical or comparable assets or liabilities, such as matrix pricing. The income approach uses valuation techniques
to convert future amounts to a single discounted present amount based on current market conditions about those future amounts, such as present value techniques, option pricing models (i.e. Black-Scholes model) and binomial models (i.e. Monte-Carlo
model). The cost approach is based on current replacement cost to replace an asset. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">The Company utilizes market data or assumptions that
market participants who are independent, knowledgeable and willing and able to transact would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can
be readily observable, market corroborated or generally unobservable. The Company attempts to utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The Company is able to classify fair
value balances based on the observability of those inputs. SFAS No.&nbsp;157 establishes a formal fair value hierarchy based on the inputs used to measure fair value. The hierarchy gives the highest priority level 1 measurements and the lowest
priority to level 3 measurements, and accordingly, level 1 measurements should be used whenever possible. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">18 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">PrimeEnergy Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">Notes to Consolidated Financial Statements </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">June 30, 2008 </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">The three levels of the fair value hierarchy as defined by SFAS No.&nbsp;157 are as follows:
</FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="5%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">Level 1: Valuations utilizing quoted, unadjusted prices for identical assets or liabilities in active markets that the Company has the ability to access. This is
the most reliable evidence of fair value and does not require a significant degree of judgment. Examples include exchange-traded derivatives and listed equities that are actively traded. </FONT></P></TD></TR></TABLE> <P
STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="5%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">Level 2: Valuations utilizing quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are
observable, either directly or indirectly for substantially the full term of the asset or liability. Financial instruments that are valued using models or other valuation methodologies are included. Models used should primarily be industry-standard
models that consider various assumptions and economic measures, such as interest rates, yield curves, time value, volatilities, contract terms, current market prices, credit risk or other market-corroborated inputs. Examples include most
over-the-counter derivatives (non-exchange traded), physical commodities, most structured notes and municipal and corporate bonds. </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="5%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">Level 3: Valuations utilizing significant, unobservable inputs. This provides the least objective evidence of fair value and requires a significant degree of
judgment. Inputs may be used with internally developed methodologies and should reflect an entity&#146;s assumptions using the best information available about the assumptions that market participants would use in pricing an asset or liability.
Examples include certain corporate loans, real-estate and private equity investments and long-dated or complex over-the-counter derivatives. </FONT></P></TD></TR></TABLE> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT
FACE="Times New Roman" SIZE="2">Depending on the particular asset or liability, input availability can vary depending on factors such as product type, longevity of a product in the market and other particular transaction conditions. In some cases,
certain inputs used to measure fair value may be categorized into different levels of the fair value hierarchy. For disclosure purposes under SFAS No.&nbsp;157, the lowest level that contains significant inputs used in valuation should be chosen.
Per SFAS No.&nbsp;157, the Company has classified its assets and liabilities into these levels depending upon the data relied on to determine the fair values. The fair values of the Company&#146;s natural gas and crude oil price collars and swaps
are valued based upon quotes obtained from counterparties to the agreements and are designated as Level 3. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">19 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">PrimeEnergy Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">Notes to Consolidated Financial Statements </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">June 30, 2008 </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">The following fair value hierarchy table presents information about the Company&#146;s liabilities
measured at fair value on a recurring basis as of June&nbsp;30, 2008: </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="56%"></TD>
<TD VALIGN="bottom" WIDTH="6%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="6%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="6%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="6%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Quoted&nbsp;Prices&nbsp;in</B></FONT><br><FONT FACE="Times New Roman" SIZE="1"><B>Active&nbsp;Markets</B></FONT><br><FONT
FACE="Times New Roman" SIZE="1"><B>For Identical<BR>Assets</B></FONT><br><FONT FACE="Times New Roman" SIZE="1"><B>(Level 1)</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Significant</B></FONT><br><FONT FACE="Times New Roman" SIZE="1"><B>Other</B></FONT><br><FONT FACE="Times New Roman"
SIZE="1"><B>Observable</B></FONT><br><FONT FACE="Times New Roman" SIZE="1"><B>Inputs&nbsp;(Level&nbsp;2)</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Significant</B></FONT><br><FONT FACE="Times New Roman" SIZE="1"><B>Unobservable</B></FONT><br><FONT
FACE="Times New Roman" SIZE="1"><B>Inputs&nbsp;(Level&nbsp;3)</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Balance&nbsp;as&nbsp;of</B></FONT><br><FONT FACE="Times New Roman" SIZE="1"><B>June&nbsp;30,</B></FONT><br><FONT
FACE="Times New Roman" SIZE="1"><B>2008</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><B>Assets</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Interest Rate Contracts</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">534,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">534,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total Assets</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">534,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">534,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><B>Liabilities</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Commodity Derivative Contracts</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(35,592,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(35,592,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total Liability</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(35,592,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(35,592,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">The derivative contracts were measured based on quotes from the Company&#146;s counterparties.
Such quotes have been derived using a model that considers various inputs including current market and contractual prices for the underlying instruments, quoted forward prices for natural gas and crude oil, volatility factors and interest rates,
such as a LIBOR curve for a similar length of time as the derivative contract term. Although the Company utilizes multiple quotes to assess the reasonableness of its values, the Company has not attempted to obtain sufficient corroborating market
evidence to support classifying these derivative contracts as Level 2. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">The following table sets forth a reconciliation of changes in the
fair value of financial assets and liabilities classified as level 3 in the fair value hierarchy. </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="89%"></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net liabilities as of January&nbsp;1, 2008</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(3,618,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total realized and unrealized losses:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Included in earnings</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(4,284,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Included in other comprehensive income</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(27,719,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Purchases, sales, issuances and settlements, net</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">563,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net liabilities as of June&nbsp;30, 2008</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(35,058,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
</TABLE> <P STYLE="line-height:8px;margin-top:0px;margin-bottom:2px;border-bottom:0.5pt solid #000000;width:10%">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">(a)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Amounts reported in net income are classified as sales for commodity derivative instruments and as a reduction to interest expense for interest rate swap instruments.
</FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">20 </FONT></P>


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<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">PrimeEnergy Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">Notes to Consolidated Financial Statements </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">June 30, 2008 </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I>Derivative Instruments and Hedging Activity</I>: <I> </I></FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">The Company periodically enters into derivative commodity instruments to hedge its exposure to price fluctuations on natural gas and crude oil production.
At June&nbsp;30, 2008, the Company had eleven cash flow hedges open: two natural gas price swap arrangements and nine crude oil collar arrangements. At June&nbsp;30, 2008, $55.8 million ($35.6 million net of tax) unrealized loss was recorded in
Accumulated Other Comprehensive Income, $31.8 million and $23.8 million short-term and long-term derivative payable. Also included in Accumulated Other Comprehensive Income is unrealized gain on interest rate swaps of $835,000 ($534,000 net of tax),
and $267,000 in both short and long-term derivative assets. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">The change in the fair value of derivatives designated as hedges that is
effective is initially recorded to Accumulated Other Comprehensive Income. The ineffective portion, if any, of the change in the fair value of derivatives designated as hedges, and the change in fair value of all other derivatives, is recorded
currently in earnings as a component of oil and gas sales. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">As of June&nbsp;30, 2008, natural gas price swaps cover 2,985 Mmcf of production
at a weighted average price of $8.04 for 2008 and $9.75 for 2009. The oil price collar covers 731 Mbbl of production at a floor price ranging from $60.00 to $65.00, a ceiling price ranging from $77.40 to $86.50 and a third-tier call of $100 on one
collar arrangement. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">Assuming no change in commodity prices, after June&nbsp;30, 2008, the Company would expect to reclassify to the
Statement of Operations, over the next 12 months, $20.7 million in after-tax loss associated with commodity hedges. This reclassification represents the net short-term payables associated with open positions currently not reflected in earnings at
June&nbsp;30, 2008 related to anticipated remaining 2008 production and 2009 production through June. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">Assuming no change in interest rates
after June&nbsp;30, 2008, the Company would expect to reclassify to the statement of operations $267,000 in after tax gains associated with the interest rate swaps. This reclassification represents interest swaps which will expire within one year of
June&nbsp;30, 2008. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">The Company entered into interest rate hedge agreements to help manage interest rate exposure. These contracts include
interest rate swaps. Interest rate swap transactions generally involve the exchange of fixed and floating rate interest payment obligations without the exchange of the underlying principal amounts. The Company entered into interest swap agreements
for a period of two years, beginning in April 2008, related to $60 million of Company bank debt resulting in a fixed rate of 4.375%. The underlying debt contracts above are repriced quarterly based upon the three-month LIBOR rates. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">21 </FONT></P>


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<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">PrimeEnergy Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">Notes to Consolidated Financial Statements </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">June 30, 2008 </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="67%"></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="13" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Crude Oil Price Collar</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom" NOWRAP> <P STYLE="border-bottom:1px solid #000000;width:55pt"><FONT FACE="Times New Roman" SIZE="1"><B>Contract Period</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Volume</B></FONT><br><FONT FACE="Times New Roman" SIZE="1"><B>In</B></FONT><br><FONT FACE="Times New Roman"
SIZE="1"><B>Mbbl</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="8" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Weighted&nbsp;Average&nbsp;Price<BR>Floor/Ceiling/Third&nbsp;Tier</B></FONT><br><FONT FACE="Times New Roman"
SIZE="1"><B>(per Bbl)</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Net&nbsp;Unrealized</B></FONT><br><FONT FACE="Times New Roman" SIZE="1"><B>(Loss)/Gain</B></FONT><br><FONT
FACE="Times New Roman" SIZE="1"><B>(In thousands)</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Third Quarter 2008</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">20</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">65/</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">79.25/</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">100.00</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Third Quarter 2008</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">51</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">60.00/</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">81.25</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Third Quarter 2008</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">15</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">60.00/</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">78.00</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Fourth Quarter 2008</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">18</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">65/</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">79.25/</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">100.00</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Fourth Quarter 2008</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">51</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">60.00/</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">81.25</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Fourth Quarter 2008</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">15</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">60.00/</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">78.00</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><B></B><B>Full Year 2008</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">170</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(5,398</FONT></TD>
<TD NOWRAP VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">First Quarter 2009</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">51</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">60/</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">79.70</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">First Quarter 2009</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">60/</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">77.75</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">First Quarter 2009</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">12</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">65/</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">86.50</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Second Quarter 2009</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">17</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">60/</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">79.70</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Second Quarter 2009</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">38</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">60/</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">77.40</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Second Quarter 2009</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">60/</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">77.75</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Second Quarter 2009</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">12</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">65/</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">86.50</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Third Quarter 2009</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">57</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">60/</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">77.40</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Third Quarter 2009</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">12</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">65/</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">86.50</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Fourth Quarter 2009</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">57</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">60/</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">77.40</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Fourth Quarter 2009</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">12</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">65/</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">86.50</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="top"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="top" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><B></B><B>Full Year 2009</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">276</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(10,585</FONT></TD>
<TD NOWRAP VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="top"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="top" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="top" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="top" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">First Quarter 2010</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">51</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">65/</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">80.90</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">First Quarter 2010</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">9</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">65/</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">84.14</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Second Quarter 2010</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">51</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">65/</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">80.90</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Second Quarter 2010</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">9</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">65/</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">84.14</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Third Quarter 2010</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">51</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">65/</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">80.90</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Third Quarter 2010</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">9</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">65/</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">84.14</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Fourth Quarter 2010</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">51</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">65/</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">80.90</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Fourth Quarter 2010</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">9</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">65/</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">84.14</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="top"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="top" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><B></B><B>Full Year 2010</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">240</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(8,494</FONT></TD>
<TD NOWRAP VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="top"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="top" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="top"></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="top" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="top" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">First Quarter 2011 <U></U></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">45</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">65.00/</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">84.14</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><B>Full Year 2011</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">45</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(1,517</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">22 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">PrimeEnergy Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">Notes to Consolidated Financial Statements </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">June 30, 2008 </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">At June&nbsp;30, 2008, we had two natural gas price swap contracts covering our 2008 and 2009
production as follows: </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="84%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="61%"></TD>
<TD VALIGN="bottom" WIDTH="9%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="9%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="9%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="7" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Natural Gas Price Swaps</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom" NOWRAP> <P STYLE="border-bottom:1px solid #000000;width:55pt"><FONT FACE="Times New Roman" SIZE="1"><B>Contract Period</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Volume</B></FONT><br><FONT FACE="Times New Roman" SIZE="1"><B>in&nbsp;Mmcf</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Weighted&nbsp;Average</B></FONT><br><FONT FACE="Times New Roman" SIZE="1"><B>Price (per Mcf)</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Net&nbsp;Unrealized</B></FONT><br><FONT FACE="Times New Roman" SIZE="1"><B>Gain</B></FONT><br><FONT
FACE="Times New Roman" SIZE="1"><B>(In thousands)</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Third Quarter 2008</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,005</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">8.07</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(3,333</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Fourth Quarter 2008</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,005</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">8.07</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(3,604</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><B></B><B>Full Year 2008</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,010</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">8.04</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(6,937</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">First Quarter 2009</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">975</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">9.75</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(2,662</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><B></B><B>Full Year 2009</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">975</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">9.75</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(2,662</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">We are exposed to market risk on these open contracts, to the extent of changes in market prices
of natural gas and crude oil. However, the market risk exposure on these hedged contracts is generally offset by the gain or loss recognized upon the ultimate sale of the commodity that is hedged. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">The preceding paragraphs contain forward-looking information concerning future production and projected gains and losses, which may be impacted both by
production and by changes in future market prices of energy commodities. See &#147;Forward-Looking Information&#148; for further details. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">23 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">PrimeEnergy Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">Notes to Consolidated Financial Statements </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">June 30, 2008 </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">(12) Income Per Share: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT
FACE="Times New Roman" SIZE="2">Basic earnings per share are computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect per share
amounts that would have resulted if dilutive potential common stock had been converted to common stock. The following reconciles amounts reported in the financial statements: </FONT></P> <P
STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="54%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="7" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Six Months Ended June&nbsp;30, 2008</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="7" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Six Months Ended June&nbsp;30, 2007</B></FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Net</B></FONT><br><FONT FACE="Times New Roman" SIZE="1"><B>Income</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Number of<BR>Shares</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Per&nbsp;Share<BR>Amount</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Net</B></FONT><br><FONT FACE="Times New Roman" SIZE="1"><B>Income</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Number of<BR>Shares</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Per&nbsp;Share<BR>Amount</B></FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net income per common share</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6,549,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,074,725</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2.13</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5,947,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,199,343</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1.86</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Effect of dilutive securities:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Options</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">753,132</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">753,089</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Diluted net income per common share</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6,549,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,827,857</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1.71</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5,947,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,952,432</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1.50</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD></TR>
</TABLE> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="54%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="7" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Three Months Ended</B></FONT><br><FONT FACE="Times New Roman" SIZE="1"><B>June&nbsp;30, 2008</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="7" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Three Months Ended</B></FONT><br><FONT FACE="Times New Roman" SIZE="1"><B>June&nbsp;30, 2007</B></FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Net</B></FONT><br><FONT FACE="Times New Roman" SIZE="1"><B>Income</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Number of<BR>Shares</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Per&nbsp;Share<BR>Amount</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Net</B></FONT><br><FONT FACE="Times New Roman" SIZE="1"><B>Income</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Number of<BR>Shares</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Per&nbsp;Share<BR>Amount</B></FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net income per Common share</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,928,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,057,831</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1.28</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,713,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,185,640</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">0.85</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Effect of dilutive Securities:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Options</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">753,563</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">753,264</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Diluted net income per common share</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,928,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,811,394</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1.03</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,713,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,938,904</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">0.69</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">24 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">PrimeEnergy Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">June&nbsp;30, 2008 </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="9%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"><A NAME="tx36618_6"></A>Item&nbsp;2.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS </FONT></TD></TR></TABLE> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">This discussion should be read in conjunction with the financial statements of the Company and notes thereto. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">LIQUIDITY
AND CAPITAL RESOURCES </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Cash flow provided by operations for the six month period ended June&nbsp;30, 2008 was $47,628,000. Excluding the effects of
significant unforeseen expenses or other income, our cash flow from operations fluctuates primarily because of variations in oil and gas production and prices or changes in working capital accounts. Our oil and gas production will vary based on
actual well performance but may be curtailed due to factors beyond our control. Hurricanes in the Gulf of Mexico may shut down our production for the duration of the storm&#146;s presence in the Gulf or damage production facilities so that we cannot
produce from a particular property for an extended amount of time. In addition, downstream activities on major pipelines in the Gulf of Mexico can also cause us to shut-in production for various lengths of time. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Our realized oil and gas prices vary due to world political events, supply and demand of products, product storage levels, and weather patterns. We sell the vast
majority of our production at spot market prices. Accordingly, product price volatility will affect our cash flow from operations. To mitigate price volatility we sometimes lock in prices for some portion of our production through the use of
financial instruments. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The Company&#146;s activities include development and exploratory drilling. The Company&#146;s strategy is to develop a balanced
portfolio of drilling prospects that includes lower risk wells with a high probability of success and higher risk wells with greater economic potential. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">For 2008 we have budgeted $60 million for exploration and development in our core operating areas. As of August 2008, the Company has committed approximately $27 million on wells in these areas that have been spudded since January&nbsp;1,
2008. We expect to continue to make significant capital expenditures over the next several years as part of our long-term growth strategy. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">25 </FONT></P>


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<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">PrimeEnergy Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">June 30, 2008 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>


<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="9%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">Item&nbsp;2.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">If our exploratory drilling results in significant new discoveries, we will have to expend additional capital in
order to finance the completion, development, and potential additional opportunities generated by our success. We believe that, because of the additional reserves resulting from the successful wells and our record of reserve growth in recent years,
we will be able to access sufficient additional capital through additional bank financing. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The Company has in place both a stock repurchase program and a
limited partnership interest repurchase program. Spending under these programs in 2007 was $4.8 million. As of June&nbsp;30, 2008 the Company has expended approximately $4.5 million on these programs. The amount of treasury stock the Company may
purchase is restricted by debt convents with the Company&#146;s primary lender. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The Company currently maintains two credit facilities with a bank totaling
$360 million, with a combined current borrowing base of $119 million. The bank reviews the borrowing base semi-annually and, at their discretion, may decrease or propose an increase to the borrowing base relative to a redetermined estimate of proved
oil and gas reserves. Our oil and gas properties are pledged as collateral for the line of credit and we are subject to certain financial covenants defined in the agreement. We are currently in compliance with these financial covenants. If we do not
comply with these covenants on a continuing basis, the lenders have the right to refuse to advance additional funds under the facility and/or declare all principal and interest immediately due and payable. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">During the second quarter of 2008, the Company&#146;s offshore subsidiary arranged a subordinated credit facility with a private lender controlled by a director of the
Company. The facility provides availability of $50 million and is secured by properties released by the bank and pledged under this agreement. The current advances of this credit facility are $20 million due January 2010. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">It is the goal of the Company to increase its oil and gas reserves and production through the acquisition and development of oil and gas properties. The Company also
continues to explore and consider opportunities to further expand its oilfield servicing revenues through additional investment in field service equipment. However, the majority of the Company&#146;s capital spending is discretionary, and the
ultimate level of expenditures will be dependent on the Company&#146;s assessment of the oil and gas business environment, the number and quality of oil and gas prospects available, the market for oilfield services, and oil and gas business
opportunities in general. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">26 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">PrimeEnergy Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">June 30, 2008 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>


<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="9%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">Item&nbsp;2.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">RESULTS OF OPERATIONS </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">Revenues and net income during the six month period ended June&nbsp;30, 2008, as compared to the same periods in 2007 reflect the increased oil and gas sales, presented below, offset by exploration costs and depreciation and depletion of
oil and gas properties. The table summarizes production volumes and average sales prices realized (including realized gains and losses from derivatives). </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="41%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="8" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Six months Ended</B></FONT><br><FONT FACE="Times New Roman" SIZE="1"><B>June&nbsp;30,</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="8" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Three Months Ended</B></FONT><br><FONT FACE="Times New Roman" SIZE="1"><B>June&nbsp;30,</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>2008</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>2007</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Increase /<BR>(Decrease)</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>2008</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>2007</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Increase /<BR>(Decrease)</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Barrels of Oil Produced</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">287,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">227,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">60,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">149,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">136,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">13,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Average Price Received</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">92.46</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">57.35</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">35.11</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">106.57</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">58.22</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">48.35</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Oil Revenue</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">26,536,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">13,019,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">13,517,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">15,879,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">7,918,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">7,961,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">MCF of Gas Produced</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,441,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,326,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">115,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,109,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,481,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(372,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Average Price Received</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">9.31</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">8.01</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1.30</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">9.89</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">7.83</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2.06</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Gas Revenue</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">41,354,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">34,653,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6,701,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">20,859,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">19,425,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,434,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total Oil&nbsp;&amp; Gas Revenue</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">67,890,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">47,672,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">20,218,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">36,738,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">27,343,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">9,395,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Oil and gas prices received excluding the impact of derivatives were; </FONT></P> <P
STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="62%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="8" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Six months Ended</B></FONT><br><FONT FACE="Times New Roman" SIZE="1"><B>June&nbsp;30,</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="8" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Three Months Ended</B></FONT><br><FONT FACE="Times New Roman" SIZE="1"><B>June&nbsp;30,</B></FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>2008</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>2007</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Increase /<BR>(Decrease)</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>2008</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>2007</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Increase /<BR>(Decrease)</B></FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Oil Price</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">109.26</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">56.06</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">53.20</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">128.71</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">57.63</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">71.08</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Gas Price</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">9.74</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">7.12</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2.62</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">11.25</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">7.56</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3.69</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Changes in production are due to production from properties added during 2007 and early 2008 offset by the natural
decline of existing properties. The increase in oil production is related to our onshore drilling program while the change in gas production reflects the production from our offshore drilling program. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Lease operating expense for the six months of 2008 increased by $3,925,000 compared to 2007 due to the addition of lease operating expenses of new properties, increased
production taxes related to higher prices and overall price increases in oil field services. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">27 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">PrimeEnergy Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">June 30, 2008 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>


<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="9%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">Item&nbsp;2.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">General and administrative expenses remained flat in the first six months of 2008 as compared to 2007. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Field Service income and expense for the six months of 2008 increased $936,000 and $524,000, respectively, compared to 2007. These increases reflect higher utilization
of equipment combined with an upward trend in rates and costs during 2008. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Depreciation and depletion increased to $35,690,000 in 2008 from $20,600,000 in
2007. This increase is directly attributed to the majority of the Company&#146;s offshore properties coming on line late in 2007. These additions increased the overall property basis and production for the company </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">This Report contains forward-looking statements that are based on management&#146;s current expectations, estimates and projections. Words such as &#147;expects,&#148;
&#147;anticipates,&#148; &#147;intends,&#148; &#147;plans,&#148; &#147;believes,&#148; &#147;projects&#148; and &#147;estimates,&#148; and variations of such words and similar expressions are intended to identify such forward-looking statements.
These statements constitute &#147;forward-looking statements&#148; within the meaning of Section&nbsp;27A of the Securities Act of 1933, and are subject to the safe harbors created thereby. These statements are not guarantees of future performance
and involve risks and uncertainties and are based on a number of assumptions that could ultimately prove inaccurate and, therefore, there can be no assurance that they will prove to be accurate. Actual results and outcomes may vary materially from
what is expressed or forecast in such statements due to various risks and uncertainties. These risks and uncertainties include, among other things, the possibility of drilling cost overruns and technical difficulties, volatility of oil and gas
prices, competition, risks inherent in the Company&#146;s oil and gas operations, the inexact nature of interpretation of seismic and other geological and geophysical data, imprecision of reserve estimates, and the Company&#146;s ability to replace
and expand oil and gas reserves. Accordingly, stockholders and potential investors are cautioned that certain events or circumstances could cause actual results to differ materially from those projected. </FONT></P> <P
STYLE="font-size:18px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="9%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"><A NAME="tx36618_7"></A>Item&nbsp;3.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK </FONT></TD></TR></TABLE> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I>Interest
rate and swap activity. </I></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The Company is exposed to interest rate risk on its line of credit, which has variable rates based upon the lenders base rate,
as defined, and the London Inter-Bank Offered rate. Based on the weighted average balances outstanding during the first half of 2008, a hypothetical 2.5% increase in the applicable interest rates would have increased interest expense for the Six
Months Ended June&nbsp;30, 2008 by approximately $1,601,000. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The Company entered into interest rate hedge agreements to help manage interest rate
exposure. These contracts include interest rate swaps. Interest rate swap transactions generally involve the exchange of fixed and floating rate interest payment obligations without the exchange of the underlying principal amounts. The Company
entered into swap agreements for </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">28 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">PrimeEnergy Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">June 30, 2008 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>


<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="9%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">Item&nbsp;3.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued) </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px">
<FONT FACE="Times New Roman" SIZE="2">a period of two years, beginning in April 2008, related to $60 million of Company bank debt resulting in a fixed rate of 4.375%. The underlying debt
contracts are repriced quarterly based upon the three-month LIBOR rates. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I>Derivative Instruments and Hedging Activity. </I></FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Our hedging strategy is designed to reduce the risk of price volatility for our production in the natural gas and crude oil markets. Our hedging arrangements apply to
only a portion of our production and provide only partial price protection. These hedging arrangements limit the benefit to us of increases in prices, but offer protection in the event of price declines. Further, if our counterparties defaulted,
this protection might be limited as we might not receive the benefits of the hedges. Please read the discussion below and Note 11 of the Notes to Consolidated Financial Statements for a more detailed discussion of our hedging arrangements.
</FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I>Hedges on Production &#150; Collars. </I></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">From time to
time, we enter into natural gas and crude oil collar agreements with counterparties to hedge price risk associated with a portion of our production. These cash flow hedges are not held for trading purposes. Under the collar arrangements, if the
index price rises above the ceiling price, we pay the counterparty. If the index price falls below the floor price, the counterparty pays us. In the case of a three-way collar if the index price rises above the third tier price, the counterparty
pays us. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I>Hedges on Production &#150; Swaps. </I></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">From time
to time, we enter into natural gas and crude oil swap agreements with counterparties to hedge price risk associated with a portion of our production. These cash flow hedges are not held for trading purposes. Under the swap agreements, if the index
price rises above the swap price, we pay the counterparty. If the index falls below the swap price, the counterparty pays us. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">29 </FONT></P>


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<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">PrimeEnergy Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">June 30, 2008 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>

<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="9%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"><A NAME="tx36618_8"></A>ITEM&nbsp;4T.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">CONTROLS AND PROCEDURES </FONT></TD></TR></TABLE> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I>Evaluation of Disclosure Controls and
Procedures </I></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">(a) Management&#146;s Quarterly Report on Internal Control Over Financial Reporting. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The Company&#146;s management is responsible for establishing and maintaining an adequate system of internal control over financial reporting (as defined in Exchange Act
Rule 13a-15(f)). Under the supervision and with the participation of our senior management, consisting of our chief executive officer and our chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report (the &#147;Evaluation Date&#148;). Based on that evaluation,
the Company&#146;s management, including our chief executive officer and chief financial officer, concluded that as of the Evaluation Date our disclosure controls and procedures are effective such that the information relating to us required to be
disclosed in our Securities and Exchange Commission (&#147;SEC&#148;) reports (i)&nbsp;is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii)&nbsp;is accumulated and communicated to our
management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Our
internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles
in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving
their control objectives. In evaluating the effectiveness of our internal control over financial reporting, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control&#151;Integrated Framework. This quarterly report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management&#146;s report was not subject to attestation by
our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management&#146;s report in this quarterly report. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">(b) Changes in Internal Control over Financial Reporting. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">There were no
changes in our internal control over financial reporting that occurred during the last fiscal quarter of the period covered by this report that have materially affected or are reasonably likely to materially affect our internal control over
financial reporting. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">30 </FONT></P>


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<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">PrimeEnergy Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">June 30, 2008 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><A NAME="tx36618_9"></A>PART II - OTHER INFORMATION </FONT></P> <P
STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="9%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"><A NAME="tx36618_10"></A>Item&nbsp;1.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">LEGAL PROCEEDINGS </FONT></TD></TR></TABLE> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">From time to time, the Company is party to certain
legal actions and claims arising in the ordinary course of business. While the outcome of these events cannot be predicted with certainty, management does not expect these matters to have a materially adverse effect on the financial position or
results of operations of the Company. </FONT></P> <P STYLE="font-size:18px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="9%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"><A NAME="tx36618_10a"></A>Item&nbsp;1A.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">RISK FACTORS </FONT></TD></TR></TABLE> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Not required </FONT></P> <P
STYLE="font-size:18px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="9%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"><A NAME="tx36618_11"></A>Item&nbsp;2.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS </FONT></TD></TR></TABLE> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">There were no
sales of equity securities during the period covered in this Report. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">During the six months ended June&nbsp;30, 2008, the Company purchased the following
shares of common stock as treasury shares. </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="64%"></TD>
<TD VALIGN="bottom" WIDTH="7%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="7%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="7%"></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom" NOWRAP> <P STYLE="border-bottom:1px solid #000000;width:41pt"><FONT FACE="Times New Roman" SIZE="1"><B>2008 Month</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Number&nbsp;of<BR>Shares</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Average&nbsp;Price<BR>Paid&nbsp;per&nbsp;share</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Maximum&nbsp;Number&nbsp;of&nbsp;Shares<BR>that May Yet Be Purchased<BR>Under The Plan (1)</B></FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">January</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">60,684</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">50.06</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">224,871</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">February</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">558</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">54.68</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">224,313</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">March</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">10,465</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">50.25</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">213,848</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">April</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5,500</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">58.05</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">208,348</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">May</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">435</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">61.23</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">207,913</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">June</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6,726</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">55.62</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">201,187</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total/Average</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">84,368</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">51.13</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom"></TD></TR>
</TABLE> <P STYLE="line-height:8px;margin-top:0px;margin-bottom:2px;border-bottom:0.5pt solid #000000;width:10%">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">(1)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">In December 1993, we announced that our board of directors authorized a stock repurchase program whereby we may purchase outstanding shares of our common stock from time-to-time, in
open market transactions or negotiated sales. A total of 2,700,000 shares have been authorized, to date, under this program. Through June&nbsp;30, 2008 we repurchased a total of 2,498,813 shares under this program for $32,422,977 at an average price
of $13.38 per share. Additional purchases may occur as market conditions warrant. We expect future purchases will be funded with internally generated cash flow or from working capital. </FONT></TD></TR></TABLE> <P
STYLE="font-size:18px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="9%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"><A NAME="tx36618_12"></A>Item&nbsp;3.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">DEFAULTS UPON SENIOR SECURITIES </FONT></TD></TR></TABLE> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">None </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">31 </FONT></P>


<p Style='page-break-before:always'>
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<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">PrimeEnergy Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">June 30, 2008 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">PART II - OTHER INFORMATION </FONT></P> <P
STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="9%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"><A NAME="tx36618_13"></A>Item&nbsp;4.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS </FONT></TD></TR></TABLE> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The Annual Meeting of
Stockholders of the Company was held on June&nbsp;10, 2008. The only matter submitted to the stockholders was the election of seven Directors (named below) nominated by management, all of whom were currently serving as Directors. Proxies were
solicited pursuant to Regulation 14A under the Securities Act of 1934, definitive copies of which were filed with the Commission. There was no solicitation in opposition to management&#146;s nominees, and all of the Directors nominated for the
re-election were elected. The number of shares of the Company&#146;s common stock voted at the Annual Meeting was 2,282,932. Those persons nominated and elected as Directors, and the number of shares voting for or withheld for each, is shown below.
There were no abstentions or broker non-votes. </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="92%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="82%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>For</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Withheld</B></FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Beverly A. Cummings</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,187,879</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">95,053</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Charles E. Drimal, Jr.</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,188,349</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">94,583</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Matthias Eckenstein</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,181,394</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">101,538</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">H. Gifford Fong</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,181,180</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">101,752</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Thomas S. T. Gimbel</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,278,530</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,393</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Clint Hurt</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,278,435</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,497</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Jan K. Smeets</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,192,639</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">90,293</FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">None</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
</TABLE> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="9%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"><A NAME="tx36618_14"></A>Item&nbsp;5.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">OTHER INFORMATION </FONT></TD></TR></TABLE> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">None </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">32 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">PrimeEnergy Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">June 30, 2008 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>

<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="9%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"><A NAME="tx36618_15"></A>Item&nbsp;6.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">EXHIBITS </FONT></TD></TR></TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">The following documents are filed herewith as a
part of this report: </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="95%" BORDER="0" ALIGN="center">

<TR>
<TD></TD>
<TD VALIGN="bottom" WIDTH="9%"></TD>
<TD WIDTH="91%"></TD></TR>
<TR>
<TD VALIGN="bottom" NOWRAP> <P STYLE="border-bottom:1px solid #000000;width:39pt"><FONT FACE="Times New Roman" SIZE="1"><B>Exhibit&nbsp;No.</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
</TABLE>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="95%" BORDER="0" ALIGN="center">

<TR>
<TD></TD>
<TD VALIGN="bottom" WIDTH="4%"></TD>
<TD WIDTH="91%"></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" NOWRAP><FONT FACE="Times New Roman" SIZE="2">10.26.2</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Amended and Restated Credit Agreement among Prime Offshore L.L.C. between Guaranty Bank, FSB, as agent and the Lenders party hereto effective March 31, 2008.</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" NOWRAP><FONT FACE="Times New Roman" SIZE="2">10.27.3</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Subordinated Promissory Note dated effective March 31, 2008 in the face principal amount of up to $50,000,000 executed by Prime Offshore L.L.C. and payable to Artic Management
Corporation.</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" NOWRAP><FONT FACE="Times New Roman" SIZE="2">10.27.4</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment of Production Dated effective as of March 31, 2008 from Prime Offshore L.L.C. to Mathias Eckenstein TTEE for Artic
Management Corporation (first lien).</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" NOWRAP><FONT FACE="Times New Roman" SIZE="2">10.27.5</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment of Production Dated effective as of March 31, 2008 from Prime Offshore L.L.C. to Mathias Eckenstein TTEE for Artic
Management Corporation (second lien).</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" NOWRAP><FONT FACE="Times New Roman" SIZE="2">10.27.6</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Pledge Agreement dated as effective March 31, 2008 between Prime Offshore L.L.C. and Artic Management Corporation (General Partner Interest in FWOE Partners L.P.)</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" NOWRAP><FONT FACE="Times New Roman" SIZE="2">31.1</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Certification of Chief Executive Officer pursuant to Rule 13(a)-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended (filed herewith).</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" NOWRAP><FONT FACE="Times New Roman" SIZE="2">31.2</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Certification of Chief Financial Officer pursuant to Rule 13(a)-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended (filed herewith)</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" NOWRAP><FONT FACE="Times New Roman" SIZE="2">32.1</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" NOWRAP><FONT FACE="Times New Roman" SIZE="2">32.2</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">33 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><A NAME="tx36618_16"></A>SIGNATURES </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">Pursuant to the requirements of the Securities and Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. </FONT></P> <P
STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0">

<TR>
<TD WIDTH="50%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="49%"></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">PrimeEnergy Corporation</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">(Registrant)</FONT></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">August 14, 2008</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">/s/ Charles E. Drimal, Jr.</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">(Date)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Charles E. Drimal, Jr.</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">President</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Principal Executive Officer</FONT></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">August 14, 2008</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">/s/ Beverly A. Cummings</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">(Date)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Beverly A. Cummings</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Executive Vice President</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Principal Financial and Accounting Officer</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">34 </FONT></P>

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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.26.2
<SEQUENCE>2
<FILENAME>dex10262.htm
<DESCRIPTION>AMENDED AND RESTATED CREDIT AGREEMENT
<TEXT>
<HTML><HEAD>
<TITLE>Amended and Restated Credit Agreement</TITLE>
</HEAD>
 <BODY BGCOLOR="WHITE">

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>Exhibit 10.26.2 </B></FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P> <P
STYLE="line-height:1px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000">&nbsp;</P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">AMENDED AND RESTATED CREDIT AGREEMENT </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">AMONG </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">PRIME OFFSHORE L.L.C. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">GUARANTY BANK, FSB, AS AGENT </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">AND
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">THE LENDERS PARTY HERETO </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman"
SIZE="2">Effective March&nbsp;31, 2008 </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P> <P STYLE="line-height:1px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000">&nbsp;</P> <P
STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">REVOLVING LINE OF CREDIT AND LETTER </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">OF CREDIT
FACILITY OF UP TO $200,000,000 </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P> <P STYLE="line-height:1px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000">&nbsp;</P>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>TABLE OF CONTENTS </B></FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="5%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="3%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="86%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="3%"></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"> <P STYLE="margin-top:0px;margin-bottom:1px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Page</B></FONT></P></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="5"><FONT FACE="Times New Roman" SIZE="2">ARTICLE I DEFINITIONS AND INTERPRETATION</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">1.1</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Terms Defined Above</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">1.2</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Additional Defined Terms</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">1.3</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Undefined Financial Accounting Terms</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">16</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">1.4</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">References</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">16</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">1.5</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Articles and Sections</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">16</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">1.6</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Number and Gender</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">16</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">1.7</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Incorporation of Exhibits</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">17</FONT></TD></TR>
<TR>
<TD HEIGHT="8" COLSPAN="5"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="5"><FONT FACE="Times New Roman" SIZE="2">ARTICLE II TERMS OF FACILITY</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">17</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">2.1</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Revolving Line of Credit</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">17</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">2.2</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Letter of Credit Facility</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">18</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">2.3</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Use of Loan Proceeds and Letters of Credit</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">19</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">2.4</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Interest</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">19</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">2.5</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Repayment of Loans and Interest</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">20</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">2.6</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Outstanding Amounts</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">20</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">2.7</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Time, Place, and Method of Payments</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">20</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">2.8</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Pro Rata Treatment; Adjustments</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">20</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">2.9</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Borrowing Base Determinations</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">21</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">2.10</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Mandatory Prepayments</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">22</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">2.11</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Voluntary Prepayments and Conversions of Loans</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">23</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">2.12</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Commitment Fee</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">23</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">2.13</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">RESERVED.</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">23</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">2.14</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Letter of Credit Fee</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">23</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">2.15</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Loans to Satisfy Obligations of Borrower</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">23</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">2.16</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Security Interest in Accounts; Right of Offset</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">24</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">2.17</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">General Provisions Relating to Interest</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">24</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">2.18</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Yield Protection</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">25</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">2.19</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Limitation of Types of Loans</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">27</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">2.20</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Illegality</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">28</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">2.21</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Regulatory Change</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">28</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">2.22</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Limitations on Interest Periods</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">28</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">2.23</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Letters in Lieu of Transfer Orders</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">28</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">2.24</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Power of Attorney</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">28</FONT></TD></TR>
<TR>
<TD HEIGHT="8" COLSPAN="5"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="5"><FONT FACE="Times New Roman" SIZE="2">ARTICLE III CONDITIONS</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">29</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">3.1</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Receipt of Loan Documents and Other Items</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">29</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">3.2</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Each Loan and Letter of Credit</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">30</FONT></TD></TR>
<TR>
<TD HEIGHT="8" COLSPAN="5"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="5"><FONT FACE="Times New Roman" SIZE="2">ARTICLE IV REPRESENTATIONS AND WARRANTIES</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">31</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">4.1</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Due Authorization</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">31</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">4.2</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Limited Liability Company Existence</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">32</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">4.3</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Valid and Binding Obligations</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">32</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- i - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">


<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="5%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="3%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="86%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="3%"></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">4.4</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Security Instruments</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">32</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">4.5</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Title to Assets</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">32</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">4.6</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">No Material Misstatements</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">32</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">4.7</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Liabilities, Litigation, and Restrictions</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">32</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">4.8</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Authorizations; Consents</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">33</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">4.9</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Compliance with Laws</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">33</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">4.10</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">ERISA</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">33</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">4.11</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Environmental Laws</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">33</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">4.12</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Compliance with Federal Reserve Regulations</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">34</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">4.13</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Investment Company Act Compliance</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">34</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">4.14</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">RESERVED.</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">34</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">4.15</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Proper Filing of Tax Returns; Payment of Taxes Due</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">34</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">4.16</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Refunds</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">34</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">4.17</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Gas Contracts</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">34</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">4.18</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Intellectual Property</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">35</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">4.19</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Casualties or Taking of Property</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">35</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">4.20</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Locations of Borrower</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">35</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">4.21</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Subsidiaries</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">35</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">4.22</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Compliance with Anti-Terrorism Laws</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">35</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">4.23</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Identification Numbers</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">36</FONT></TD></TR>
<TR>
<TD HEIGHT="8" COLSPAN="5"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="5"><FONT FACE="Times New Roman" SIZE="2">ARTICLE V AFFIRMATIVE COVENANTS</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">36</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">5.1</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Maintenance and Access to Records</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">36</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">5.2</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Quarterly Financial Statements; Compliance Certificates</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">36</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">5.3</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">RESERVED.</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">37</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">5.4</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">RESERVED.</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">37</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">5.5</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">RESERVED.</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">37</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">5.6</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Annual Financial Statements</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">37</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">5.7</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Oil and Gas Reserve Reports</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">37</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">5.8</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Title Opinions; Title Defects and Mortgages</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">37</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">5.9</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Notices of Certain Events</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">38</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">5.10</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Letters in Lieu of Transfer Orders; Division Orders</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">39</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">5.11</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Additional Information</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">39</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">5.12</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Compliance with Laws</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">39</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">5.13</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Payment of Assessments and Charges</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">39</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">5.14</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Maintenance of Limited Liability Company Existence and Good Standing</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">39</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">5.15</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Payment of Notes; Performance of Obligations</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">40</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">5.16</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Further Assurances</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">40</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">5.17</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Initial Fees and Expenses of Counsel to Agent</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">40</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">5.18</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Subsequent Fees and Expenses of Agent</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">40</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">5.19</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Operation of Oil and Gas Properties</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">40</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">5.20</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Maintenance and Inspection of Properties</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">41</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">5.21</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Maintenance of Insurance</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">41</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">5.22</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Evidence of Compliance with Anti-Terrorism Laws</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">41</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">5.23</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Indemnification</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">41</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">5.24</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Future Subsidiaries</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">42</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- ii - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">


<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="5%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="3%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="86%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="3%"></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">5.25</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">RESERVED.</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">42</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">5.26</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Pledge of Additional Assets</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">42</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">5.27</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Additional Reporting Requirements</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">42</FONT></TD></TR>
<TR>
<TD HEIGHT="8" COLSPAN="5"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="5"><FONT FACE="Times New Roman" SIZE="2">ARTICLE VI NEGATIVE COVENANTS</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">42</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">6.1</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Indebtedness</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">42</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">6.2</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Contingent Obligations</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">43</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">6.3</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Liens</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">43</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">6.4</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Sales of Assets</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">43</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">6.5</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Leasebacks</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">43</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">6.6</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Loans or Advances</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">43</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">6.7</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Investments</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">43</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">6.8</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Dividends and Distributions</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">44</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">6.9</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Issuance of Stock; Changes in Limited Liability Structure</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">44</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">6.10</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Transactions with Affiliates</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">44</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">6.11</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Lines of Business</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">44</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">6.12</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">ERISA Compliance</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">44</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">6.13</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">RESERVED</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">44</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">6.14</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Interest Coverage Ratio</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">44</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">6.15</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Tangible Net Worth</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">44</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">6.16</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">General and Administrative Expenses</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">45</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">6.17</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Minimum Liquidity</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">45</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">6.18</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Put Right Agreement</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">45</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">6.19</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Payments on Parent Subordinated Debt</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">45</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">6.20</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Payments on Artic Subordinated Debt</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">45</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">6.21</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Anti-Terrorism Laws</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">45</FONT></TD></TR>
<TR>
<TD HEIGHT="8" COLSPAN="5"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="5"><FONT FACE="Times New Roman" SIZE="2">ARTICLE VII EVENTS OF DEFAULT</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">45</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">7.1</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Enumeration of Events of Default</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">45</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">7.2</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Remedies</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">47</FONT></TD></TR>
<TR>
<TD HEIGHT="8" COLSPAN="5"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="5"><FONT FACE="Times New Roman" SIZE="2">ARTICLE VIII THE AGENT</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">48</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">8.1</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Appointment</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">48</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">8.2</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Waivers, Amendments</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">48</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">8.3</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Delegation of Duties</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">49</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">8.4</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Exculpatory Provisions</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">49</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">8.5</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Reliance by Agent</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">49</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">8.6</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Notice of Default</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">50</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">8.7</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Non-Reliance on Agent and Other Lenders</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">50</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">8.8</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Indemnification</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">51</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">8.9</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Restitution</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">51</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">8.10</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Agent in Its Individual Capacity</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">52</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">8.11</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Successor Agent</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">52</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">8.12</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Applicable Parties</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">52</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">8.13</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Subordination Agreements</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">52</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- iii - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">


<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="5%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="3%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="86%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="3%"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="5"><FONT FACE="Times New Roman" SIZE="2">ARTICLE IX MISCELLANEOUS</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">52</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">9.1</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Transfers; Participations</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">52</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">9.2</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Survival of Representations, Warranties, and Covenants</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">54</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">9.3</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Notices and Other Communications</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">54</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">9.4</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Parties in Interest</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">55</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">9.5</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Rights of Third Parties</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">55</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">9.6</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Renewals; Extensions</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">55</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">9.7</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">No Waiver; Rights Cumulative</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">55</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">9.8</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Survival Upon Unenforceability</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">55</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">9.9</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Amendments; Waivers</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">56</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">9.10</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Controlling Agreement</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">56</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">9.11</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Disposition of Collateral</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">56</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">9.12</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">USA Patriot Act Notice</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">56</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">9.13</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Tax Shelter Regulations</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">56</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">9.14</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Governing law</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">56</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">9.15</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Jurisdiction and Venue</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">56</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">9.16</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Waiver of rights to jury trial</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">57</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">9.17</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Entire Agreement</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">57</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">9.18</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Counterparts</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">57</FONT></TD></TR>
<TR>
<TD HEIGHT="16" COLSPAN="5"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="5"><FONT FACE="Times New Roman" SIZE="2"><U>LIST OF EXHIBITS</U></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"><FONT FACE="Times New Roman" SIZE="2">Exhibit I</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">-&nbsp;&nbsp;&nbsp;&nbsp;Form of Note</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top" NOWRAP><FONT FACE="Times New Roman" SIZE="2">Exhibit&nbsp;I(A)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">-&nbsp;&nbsp;&nbsp;&nbsp;Form of Note</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"><FONT FACE="Times New Roman" SIZE="2">Exhibit II</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">-&nbsp;&nbsp;&nbsp;&nbsp;Form of Borrowing Request</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"><FONT FACE="Times New Roman" SIZE="2">Exhibit III</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">-&nbsp;&nbsp;&nbsp;&nbsp;Form of Compliance Certificate</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"><FONT FACE="Times New Roman" SIZE="2">Exhibit IV</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">-&nbsp;&nbsp;&nbsp;&nbsp;Form of Opinion of Counsel</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"><FONT FACE="Times New Roman" SIZE="2">Exhibit V</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">-&nbsp;&nbsp;&nbsp;&nbsp;Facility Amounts</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"><FONT FACE="Times New Roman" SIZE="2">Exhibit VI</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">-&nbsp;&nbsp;&nbsp;&nbsp;Form of Assignment Agreement</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- iv - </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>AMENDED AND RESTATED CREDIT AGREEMENT </U></FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%;padding-bottom:3px;line-height:95%; vertical-align:top"><FONT FACE="Times New Roman" SIZE="2">This AMENDED AND RESTATED CREDIT AGREEMENT is made and entered into effective the 31</FONT><FONT
FACE="Times New Roman" SIZE="1"><SUP>st</SUP></FONT><FONT FACE="Times New Roman" SIZE="2"> day of March, 2008, by and among PRIME OFFSHORE L.L.C., a Delaware limited liability company (the &#147;<U>Borrower</U>&#148;), each lender that is a
signatory hereto or becomes a party hereto as provided in Section&nbsp;9.1 (individually, together with its successors and assigns, a &#147;<U>Lender</U>&#148; and, collectively, together with their respective successors and assigns, the
&#147;<U>Lenders</U>&#148;), and GUARANTY BANK, FSB, a federal savings bank (&#147;<U>Guaranty</U>&#148;), as administrative agent for the Lenders and the issuing bank for letters of credit issued hereunder (in such capacities, together with its
successors in such capacities pursuant to the terms hereof, the &#147;<U>Agent</U>&#148;). </FONT></P> <P STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>W I T N E S S E T H</U>: </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">WHEREAS, the Borrower and the Agent are parties to that certain Credit Agreement dated June&nbsp;29, 2006, as amended (as so amended, the
&#147;<U>Existing Credit Agreement</U>&#148;); </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">WHEREAS, the parties to the Existing Credit Agreement desire to amend and restate in its
entirety the Existing Credit Agreement by entering into this Amended and Restated Credit Agreement; </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">NOW, THEREFORE, in consideration of
the premises and the mutual covenants and agreements herein contained, the parties hereto hereby agree as follows, restating in its entirety the Existing Credit Agreement: </FONT></P> <P STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2"><B><U>ARTICLE I </U></B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B><U>DEFINITIONS AND INTERPRETATION </U></B></FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">1.1 <U>Terms Defined Above</U>. As used in this Agreement, each of the terms &#147;<U>Agent</U>,&#148; &#147;<U>Borrower</U>,&#148; &#147;<U>Existing
Credit Agreement</U>,&#148; &#147;<U>Guaranty</U>,&#148; &#147;<U>Lender</U>&#148; and &#147;<U>Lenders</U>&#148; shall have the meaning assigned to such term hereinabove. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">1.2 <U>Additional Defined Terms</U>. As used in this Agreement, each of the following terms shall have the meaning assigned thereto in this Section or in
Sections referred to in this Section, unless the context otherwise requires: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Additional Costs</U>&#148; shall mean
costs which the Lenders determine are attributable to their obligations to make or their making or maintaining any LIBO Rate Loan, or any reduction in any amount receivable by the Lenders in respect of any such obligation or any LIBO Rate Loan,
resulting from any Regulatory Change which (a)&nbsp;changes the basis of taxation of any amounts payable to the Lenders under this Agreement or the Note in respect of any LIBO Rate Loan (other than taxes imposed on the overall net income of the
Lender), (b)&nbsp;imposes or modifies any reserve, special deposit, minimum capital, capital rates, or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, the Lenders (including
LIBO Rate Loans and Dollar deposits in the London interbank market in connection with LIBO Rate Loans), or </FONT>
</P>

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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%">
<FONT FACE="Times New Roman" SIZE="2">any commitments of the Lenders hereunder, (c)&nbsp;increases the Assessment Rate, or (d)&nbsp;imposes any other condition affecting this Agreement or any of
such extensions of credit, liabilities, or commitments. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Adjusted LIBO Rate</U>&#148; shall mean, for any LIBO Rate
Loan, an interest rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by the Agent to be equal to the sum of the LIBO Rate for such Loan plus the Applicable Margin, but in no event exceeding the Highest Lawful Rate.
</FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Affiliate</U>&#148; shall mean any Person directly or indirectly controlling, or under common control with, the
Borrower and includes any Subsidiary of the Borrower and any &#147;affiliate&#148; of the Borrower within the meaning of Rule 12b-2 promulgated by the Securities Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, with
&#147;control,&#148; as used in this definition, meaning possession, directly or indirectly, of the power to direct or cause the direction of management, policies or action through ownership of voting securities, contract, voting trust, or
membership in management or in the group appointing or electing management or otherwise through formal or informal arrangements or business relationships. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">&#147;<U>Agreement</U>&#148; shall mean this Amended and Restated Credit Agreement, as it may be amended, supplemented, restated or otherwise modified from time to time. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Anti-Terrorism Laws</U>&#148; shall mean any laws relating to terrorism or money laundering, including Executive Order
No.&nbsp;13224 and the USA Patriot Act. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Applicable Lending Office</U>&#148; shall mean, for each Lender and each
type of Loan, the lending office of such Lender (or an affiliate of such Lender) designated for such type of Loan on the signature pages hereof or such other office of such Lender (or an affiliate of such Lender) as such Lender may from time to time
specify to the Borrower as the office by which Loans of such type are to be made and maintained by such Lender. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">&#147;<U>Applicable Margin</U>&#148; shall mean, as to each LIBO Rate Loan, two percent (2.00%). </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">&#147;<U>Arti</U>c&#148; shall mean Artic Management Corporation, a corporation incorporated under the laws of Panama. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">&#147;<U>Artic Subordinated Debt</U>&#148; shall mean Indebtedness of the Borrower owing to Artic and subject to the Artic Subordination Agreement or another Intercreditor and Subordination Agreement in form and substance acceptable to the
Agent and the Required Lenders. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 2 - </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Artic Subordination Agreement</U>&#148; shall mean that certain Intercreditor
and Subordination Agreement dated as of March&nbsp;31, 2008 among the Agent, Artic and the Borrower, as such agreement may be amended, supplemented, restated or otherwise modified from time to time. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Assessment Rate</U>&#148; shall mean, for any Interest Period, the average rate (rounded upwards if necessary to the nearest
1/100 of 1%) charged by the Federal Deposit Insurance Corporation (or any successor thereto) to a Lender for deposit insurance for Dollar time deposits with such Lender during such Interest Period, as determined by such Lender. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Assignment Agreement</U>&#148; shall mean an Assignment Agreement, substantially in the form of Exhibit VI, with appropriate
insertions. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Available Commitment</U>&#148; shall mean, at any time, an amount equal to the remainder, if any, of
(a)&nbsp;the Borrowing Base in effect at such time <U>minus</U> (b)&nbsp;the sum of (i)&nbsp;the Loan Balance and (ii)&nbsp;the L/C Exposure at such time. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">&#147;<U>Base Rate</U>&#148; shall mean, at any time, the rate of interest per annum then most recently established by Guaranty as its base rate, which rate may not be the lowest rate of interest charged by Guaranty
to its borrowers. Each change in any interest rate provided for herein based upon the Base Rate resulting from a change in the Base Rate shall take effect without notice to the Borrower at the time of such change in the Base Rate. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Benefited Lender</U>&#148; shall have the meaning assigned to such term in Section&nbsp;2.8(c). </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Blocked Person</U>&#148; shall have the meaning assigned to such term in Section&nbsp;4.22(b). </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Borrowing Base</U>&#148; shall mean, at any time, the amount determined by the Agent in accordance with Section&nbsp;2.9 and then
in effect. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Borrowing Request</U>&#148; shall mean each written request, in substantially the form attached hereto
as Exhibit II, by the Borrower to the Agent for a borrowing, conversion, or prepayment pursuant to Sections 2.1 or 2.11, each of which shall: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">(a) be signed by a Responsible Officer of the Borrower; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(b) when requesting a borrowing, be
accompanied by a Compliance Certificate or acknowledgment that Borrower is in compliance; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(c) specify the amount and type
of Loan requested, and, as applicable, the Loan to be converted or prepaid and the date of the borrowing, conversion, or prepayment (which shall be a Business Day); </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 3 - </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(d) when requesting a Floating Rate Loan, be delivered to the Lender no later than 5:00
p.m., Central Standard or Central Daylight Savings Time, as the case may be, on the Business Day preceding the day of the requested borrowing, conversion, or prepayment; </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(e) when requesting a LIBO Rate Loan, be delivered to the Lender no later than 10:00 a.m., Central Standard or Central Daylight Savings
Time, as the case may be, three Business Days preceding the requested borrowing, conversion, or prepayment and designate the Interest Period requested with respect to such Loan. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Business Day</U>&#148; shall mean (a)&nbsp;for all purposes other than as covered by clause (b)&nbsp;of this definition, a day
other than a Saturday, Sunday, legal holiday for commercial banks under the laws of the State of Texas, or any other day when banking is suspended in the State of Texas, and (b)&nbsp;with respect to all requests, notices, and determinations in
connection with, and payments of principal and interest on, LIBO Rate Loans, a day which is a Business Day described in clause (a)&nbsp;of this definition and which is a day for trading by and between banks for Dollar deposits in the London
interbank market. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Casualty Event</U>&#148; shall mean the damage, destruction or condemnation, as the case may be,
of Property of any person. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Closing Date</U>&#148; shall mean the date on which all of the conditions to the
effectiveness of this Agreement set forth in Section&nbsp;3.1 have been satisfied. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Code</U>&#148; shall mean the
United States Internal Revenue Code of 1986, as amended from time to time. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Collateral</U>&#148; shall mean the
Mortgaged Properties and any other Property now or at any time used or intended as security for the payment or performance of all or any portion of the Obligations. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Commitment</U>&#148; shall mean the obligation of the Lenders, subject to applicable provisions of this Agreement, to make Loans
to or for the benefit of the Borrower pursuant to Section&nbsp;2.1 and to participate in Letters of Credit pursuant to Section&nbsp;2.2. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">&#147;<U>Commitment Fee</U>&#148; shall mean each fee payable to the Lenders by the Borrower pursuant to Section&nbsp;2.12. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">&#147;<U>Commitment Period</U>&#148; shall mean the period from and including the Closing Date to but not including the Commitment Termination Date. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Commitment Termination Date</U>&#148; shall mean July&nbsp;1, 2009. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 4 - </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Commodity Hedge Agreement</U>&#148; shall mean any crude oil, natural gas, or
other hydrocarbon floor, collar, cap, price protection, or swap agreement, in form and substance with a Person acceptable to the Agent. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">&#147;<U>Commonly Controlled Entity</U>&#148; shall mean any Person which is under common control with the Borrower within the meaning of Section&nbsp;4001 of ERISA. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Compliance Certificate</U>&#148; shall mean each certificate, substantially in the form attached hereto as Exhibit III, executed
by a Responsible Officer of the Borrower and furnished to the Agent from time to time in accordance with Sections 5.2 and 5.6. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">&#147;<U>Contingent Obligation</U>&#148; shall mean, as to any Person, without duplication, any obligation of such Person guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends, or other obligations of any other Person
(for purposes of this definition, a &#147;<U>primary obligation</U>&#148;) in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, regardless of whether such obligation is contingent, (a)&nbsp;to
purchase any primary obligation or any Property constituting direct or indirect security therefore, (b)&nbsp;to advance or supply funds (i)&nbsp;for the purchase or payment of any primary obligation, or (ii)&nbsp;to maintain working or equity
capital of any other Person in respect of any primary obligation, or otherwise to maintain the net worth or solvency of any other Person, (c)&nbsp;to purchase Property, securities or services primarily for the purpose of assuring the owner of any
primary obligation of the ability of the Person primarily liable for such primary obligation to make payment thereof, or (d)&nbsp;otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof, with the
amount of any Contingent Obligation being deemed to be equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof as determined by such Person in good faith. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Default</U>&#148; shall mean any event or
occurrence which with the lapse of time or the giving of notice or both would become an Event of Default. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Default
Rate</U>&#148; shall mean a per annum interest rate equal to the Base Rate plus five percent (5%), but in no event exceeding the Highest Lawful Rate. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">&#147;<U>Dollars</U>&#148; and &#147;<U>$</U>&#148; shall mean dollars in lawful currency of the United States of America. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">&#147;<U>EBITDAX</U>&#148; shall mean, for any period, Net Income for such period plus interest expense, federal and state income taxes, depreciation, amortization, exploration expenses and other non-cash expenses,
less non-cash gains for such period deducted in the determination of net income for such period. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 5 - </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Environmental Complaint</U>&#148; shall mean any written 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)&nbsp;air emissions, (b)&nbsp;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)&nbsp;solid or liquid waste disposal, (d)&nbsp;the use, generation, storage,
transportation, or disposal of any Hazardous Substance, or (e)&nbsp;other environmental, health, or safety matters affecting any Property of the Borrower or the business conducted thereon. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Environmental Laws</U>&#148; shall mean (a)&nbsp;the following federal laws as they may be cited, referenced, and amended from
time to time: the Clean Air Act, the Clean Water Act, the Safe Drinking Water Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Endangered Species Act, the Resource Conservation and Recovery Act, the Hazardous
Materials Transportation Act, the Occupational Safety and Health Act, the Oil Pollution Act, the Resource Conservation and Recovery Act, the Superfund Amendments and Reauthorization Act, and the Toxic Substances Control Act; (b)&nbsp;any and all
equivalent environmental statutes of any state in which Property of the Borrower is situated, as they may be cited, referenced and amended from time to time; (c)&nbsp;any rules or regulations promulgated under or adopted pursuant to the above
federal and state laws; and (d)&nbsp;any other equivalent federal, state, or local statute or any requirement, rule, regulation, code, ordinance, or order adopted pursuant thereto, including, without limitation, those relating to the generation,
transportation, treatment, storage, recycling, disposal, handling, or release of Hazardous Substances. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">&#147;<U>ERISA</U>&#148; shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations thereunder and interpretations thereof. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Event of Default</U>&#148; shall mean any of the events specified in Section&nbsp;7.1. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Executive Order No.&nbsp;13224</U>&#148; shall mean Executive Order No.&nbsp;13224 on Terrorist Financing, effective
September&nbsp;24, 2001, as the same has been, or shall hereafter be, renewed, extended, amended or replaced. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">&#147;<U>Facility Amount</U>&#148; shall mean, for each Lender, the amount set forth opposite the name of such Lender on <U>Exhibit V</U> under the caption &#147;Facility Amounts,&#148; as modified from time to time to reflect assignments
permitted by <U>Section&nbsp;9.1</U> or otherwise pursuant to the terms hereof and to give effect to any written request of the Borrower (any such request being irrevocable, absent written agreement of the Agent and the Required Lenders, which
written agreement may be expressly conditioned on the payment of a fee (other than with respect to a reduction) by the Borrower to the Agent, for the account of the Lenders) to a reduction in the sum of the then existing Facility Amounts of the
Lenders. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 6 - </FONT></P>


<p Style='page-break-before:always'>
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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Facility Fee</U>&#148; shall mean the fee payable to the Agent for the benefit
of Lenders by the Borrower pursuant to Section&nbsp;2.13. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Final Maturity</U>&#148; shall mean July&nbsp;1, 2009.
</FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Financial Statements</U>&#148; shall mean statements of the financial condition of the Borrower as at the point in
time and for the period indicated and consisting of at least a balance sheet and related statements of operations, common stock and other stockholders&#146; equity, and cash flows for the Borrower and, when required by applicable provisions of this
Agreement to be audited, accompanied by the unqualified certification of an independent certified public accountants acceptable to the Agent, all of which shall be prepared in accordance with GAAP consistently applied and in comparative form with
respect to the corresponding period of the preceding fiscal period. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Fixed Rate Loan</U>&#148; shall mean any LIBO
Rate Loan. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Floating Rate</U>&#148; shall mean an interest rate per annum equal to the Base Rate from time to time
in effect plus 0.50% percent, but in no event exceeding the Highest Lawful Rate. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Floating Rate Loan</U>&#148;
shall mean any Loan and any portion of the Loan Balance which the Borrower has requested, in the initial Borrowing Request for such Loan or a subsequent Borrowing Request for such portion of the Loan Balance, bearing interest at the Floating Rate,
or which pursuant to the terms hereof is otherwise required to bear interest at the Floating Rate. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>GAAP</U>&#148;
shall mean generally accepted accounting principles established by the Financial Accounting Standards Board or the American Institute of Certified Public Accountants and in effect in the United States from time to time. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Governmental Authority</U>&#148; shall mean 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. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Hazardous Substances</U>&#148; 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
&#147;hazardous substances,&#148; &#147;hazardous materials,&#148; &#147;hazardous wastes,&#148; or &#147;toxic substances&#148; 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. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 7 - </FONT></P>


<p Style='page-break-before:always'>
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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Highest Lawful Rate</U>&#148; shall mean 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. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Indebtedness</U>&#148; shall mean, as to any Person, without duplication, (a)&nbsp;all liabilities
(excluding reserves for deferred income taxes, deferred compensation liabilities, and other deferred liabilities and credits) which in accordance with GAAP would be included in determining total liabilities as shown on the liability side of a
balance sheet, (b)&nbsp;all obligations of such Person evidenced by bonds, debentures, promissory notes, or similar evidences of indebtedness, (c)&nbsp;all other indebtedness of such Person for borrowed money, and (d)&nbsp;all obligations of others,
to the extent any such obligation is secured by a Lien on the assets of such Person (whether or not such Person has assumed or become liable for the obligation secured by such Lien); <U>provided</U>, <U>however</U>, Indebtedness as to an entity
shall not include unsecured advances by members and/or shareholders of such entity. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Insolvency
Proceeding</U>&#148; shall mean application (whether voluntary or instituted by another Person) for or the consent to the appointment of a receiver, trustee, conservator, custodian, or liquidator of any 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, or rearrangement or taking advantage of any
bankruptcy, insolvency, debtor&#146;s relief, or other similar law of the United States, the State of Texas, or any other jurisdiction. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">&#147;<U>Intellectual Property</U>&#148; shall mean patents, patent applications, trademarks, tradenames, copyrights, technology, know-how, and processes. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Interest Expense</U>&#148; shall mean, for any period, the total interest expense (including, without limitation, interest
expense attributable to capitalized leases) of the Borrower for such period, determined in accordance with GAAP. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">&#147;<U>Interest Period</U>&#148; shall mean, subject to the limitations set forth in Section&nbsp;2.22, with respect to any LIBO Rate Loan, a period commencing on the date such Loan is made or converted from a Loan of another type
pursuant to this Agreement or the last day of the next preceding Interest Period with respect to such Loan and ending on the numerically corresponding day in the calendar month that is one, two, or three months thereafter, as the Borrower may
request in the Borrowing Request for such Loan. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 8 - </FONT></P>


<p Style='page-break-before:always'>
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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Investment</U>&#148; in any Person shall mean any stock, bond, note, or other
evidence of Indebtedness, or any other security (other than current trade and customer accounts) of, investment or partnership interest in or loan to, such Person. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>L/C Exposure</U>&#148; shall mean, at any time, the aggregate maximum amount available to be drawn under outstanding Letters of
Credit, other than such as are issued in support of Commodity Hedge Agreements, at such time. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Letter of
Credit</U>&#148; shall mean any standby letter of credit issued by the Agent on behalf of the Lenders for the account of the Borrower pursuant to Section&nbsp;2.2. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Letter of Credit Application</U>&#148; shall mean the standard letter of credit application employed by the Lender from time to
time in connection with letters of credit, provided that in the event of a conflict between the terms of each Letter of Credit Application and this Agreement, this Agreement shall control. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Letter of Credit Fee</U>&#148; shall mean each fee payable to the Agent for the account of the Lenders or to Guaranty solely for
its account by the Borrower pursuant to Section&nbsp;2.14 upon or in connection with the issuance, renewal or extension of a Letter of Credit. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">&#147;<U>LIBO Rate</U>&#148; shall mean, with respect to any Interest Period for any LIBO Rate Loan, the lesser of (a)&nbsp;the rate per annum equal to the average of the offered quotations appearing on Bloomberg
Professional LIBOR Index Page (or if such Bloomberg Professional LIBOR Index Page shall not be available, any successor or similar service selected by the Agent and the Borrower) as of approximately 10:00 a.m., Central Standard or Central Daylight
Savings Time, as the case may be, on the day two Business Days prior to the first day of such Interest Period for Dollar deposits in an amount comparable to the principal amount of such LIBO Rate Loan and having a term comparable to the Interest
Period for such LIBO Rate Loan, or (b)&nbsp;the Highest Lawful Rate. If neither such Bloomberg Professional LIBOR Index Page nor any successor or similar service is available, the term &#147;LIBO Rate&#148; shall mean, with respect to any Interest
Period for any LIBO Rate Loan, the lesser of (a)&nbsp;the rate per annum quoted by the Agent at approximately 11:00 a.m., London time (or as soon thereafter as practicable) two Business Days prior to the first day of the Interest Period for such
LIBO Rate Loan for the offering by the Lender to leading banks in the London interbank market of Dollar deposits in an amount comparable to the principal amount of such LIBO Rate Loan and having a term comparable to the Interest Period for such LIBO
Rate Loan, or (b)&nbsp;the Highest Lawful Rate. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 9 - </FONT></P>


<p Style='page-break-before:always'>
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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>LIBO Rate Loan</U>&#148; shall mean any Loan and any portion of the Loan Balance
which the Borrower has requested, in the initial Borrowing Request for such Loan or a subsequent Borrowing Request for such portion of the Loan Balance, bearing interest at the Adjusted LIBO Rate and which is permitted by the terms hereof to bear
interest at the Adjusted LIBO Rate. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Lien</U>&#148; shall mean any interest in Property securing an obligation owed
to, or a claim by, a Person other than the owner of such Property, whether such interest is based on common law, statute, or contract, and including, but not limited to, the lien or security interest arising from a mortgage, ship mortgage,
encumbrance, pledge, security agreement, conditional sale or trust receipt, or a lease, consignment, or bailment for security purposes (other than true leases or true consignments), liens of mechanics, materialmen, and artisans, maritime liens and
reservations, exceptions, encroachments, easements, rights of way, covenants, conditions, restrictions, leases, and other title exceptions and encumbrances affecting Property which secure an obligation owed to, or a claim by, a Person other than the
owner of such Property (for the purpose of this Agreement, the Borrower shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement, financing lease, or other arrangement pursuant to which
title to the Property has been retained by or vested in some other Person for security purposes), and the filing or recording of any financing statement or other security instrument in any public office. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Limitation Period</U>&#148; shall mean, any period while any amount remains owing on the Notes, or any of them, and interest on
such amounts, calculated at the applicable interest rate, plus any fees or other sums payable under any Loan Document and deemed to be interest under applicable law, would exceed the amount of interest which would accrue at the Highest Lawful Rate.
</FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Loan</U>&#148; shall mean any loan made by the Lender to or for the benefit of the Borrower pursuant to this
Agreement and any payment made by the Lender under a Letter of Credit. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Loan Balance</U>&#148; shall mean, at any
time, the outstanding principal balance of the amount owed hereunder at such time. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Loan Documents</U>&#148; shall
mean this Agreement, the Notes, the Letter of Credit Applications, the Letters of Credit, the Security Instruments, the Subordination Agreements, and all other documents and instruments now or hereafter delivered pursuant to the terms of or in
connection with this Agreement, the Notes, the Letter of Credit Applications, the Letters of Credit, the Security Instruments or the Subordination Agreements, 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. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Material Adverse Effect</U>&#148; shall mean (a)&nbsp;any
adverse effect on the business, operations, properties, or financial condition of the Borrower, which substantially increases the risk that any of the Obligations will not be repaid as and when due, or (b)&nbsp;any substantially adverse effect upon
the Collateral. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 10 - </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Monthly Commitment Reduction Amount</U>&#148; shall mean, at any time, the
amount determined as such by the Agent and then in effect in accordance with the provisions of Section&nbsp;2.9. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">&#147;<U>Mortgaged Properties</U>&#148; shall mean all Oil and Gas Properties and pipelines and related facilities of the Borrower subject to a perfected first priority Lien in favor or for the benefit of the Agent for the benefit of the
Lenders, subject only to Permitted Liens, as security for the Obligations. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Multiemployer Plan</U>&#148; shall mean
a Plan which is a multiemployer plan as defined in Section&nbsp;4001(a)(3) of ERISA. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Net Income</U>&#148; shall
mean, for any period, the net income (or loss) of the Borrower for such period, determined in accordance with GAAP. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">&#147;<U>Notes</U>&#148; shall mean, collectively, each of the promissory notes of the Borrower payable to a Lender in the amount of the Facility Amount of such Lender in the form attached hereto as <U>Exhibit I</U> and <U>Exhibit I(A)</U>
with all blanks in such form completed appropriately, together with all renewals, extensions for any period, increases, and rearrangements thereof. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">&#147;<U>Obligations</U>&#148; shall mean, without duplication, (a)&nbsp;all Indebtedness evidenced by the Notes, (b)&nbsp;the Reimbursement Obligations, (c)&nbsp;the undrawn, unexpired amount of all outstanding
Letters of Credit, (d)&nbsp;the obligation of the Borrower for the payment of Commitment Fees, Facility Fees, Letter of Credit Fees, and Engineering Fees, (e)&nbsp;all obligations and liabilities whether now existing or hereafter arising of the
Borrower to the Lender in connection with any Commodity Hedge Agreement or Rate Management Transaction (which if done with a third party, acceptable to the Agent, will rank pari passu with all other items listed in this definition), including
Letters of Credit issued outside of this facility for Commodity Hedge Agreements or Rate Management Transactions, and (f)&nbsp;all other obligations and liabilities of the Borrower to the Agent or the Lenders, 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. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>OFAC</U>&#148; shall mean the Office of Foreign
Assets Control of the United States Department of the Treasury, or any successor Governmental Authority. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Oil and
Gas Properties</U>&#148; 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
</FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 11 - </FONT></P>


<p Style='page-break-before:always'>
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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%">
<FONT FACE="Times New Roman" SIZE="2">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. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Parent</U>&#148; shall mean PrimeEnergy Corporation, a Delaware corporation. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Parent Subordinated Debt</U>&#148; shall mean Indebtedness of the Borrower owing to the Parent and subject to the Parent
Subordination Agreement. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Parent Subordination Agreement</U>&#148; shall mean that certain Subordination Agreement
among the Borrower, Parent and the Agent dated June&nbsp;29, 2006, as such agreement may be amended, supplemented, restated or otherwise modified from time to time. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>PBGC</U>&#148; shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA or any
entity succeeding to any or all of its functions under ERISA. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Percentage Share</U>&#148; shall mean, as to each
Lender, the percentage that such Lender&#146;s Facility Amount constitutes of the sum of the Facility Amounts of all Lenders, as such percentage is shown in <U>Exhibit V</U>. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Permitted Liens</U>&#148; shall mean (a)&nbsp;Liens for taxes, assessments, or other governmental charges or levies not yet due
or which (if foreclosure, distraint, sale, or other similar proceedings shall not have been initiated) are being contested in good faith by appropriate proceedings, and such reserve as may be required by GAAP shall have been made therefor,
(b)&nbsp;Liens in connection with workers&#146; compensation, unemployment insurance or other social security (other than Liens created by Section&nbsp;4068 of ERISA), old-age pension, or public liability obligations which are not yet due or which
are being contested in good faith by appropriate proceedings, if such reserve as may be required by GAAP shall have been made therefore, (c)&nbsp;Liens in favor of vendors, carriers, warehousemen, repairmen, mechanics, workmen, materialmen,
construction, or similar Liens arising by operation of law in the ordinary course of business in respect of obligations which are not yet due or which are being contested in good faith by appropriate proceedings, if such reserve as may be required
by GAAP shall have been made therefore, (d)&nbsp;Liens in favor of operators and non-operators under joint operating agreements or similar contractual arrangements arising in the ordinary course of the business of the Borrower to secure amounts
owing, which amounts are not yet due or are being contested in good faith by appropriate proceedings, if such reserve as may be required by GAAP shall have been made therefore, (e)&nbsp;Liens under production sales agreements, division orders,
operating agreements, and other agreements customary in the oil and gas business for processing, producing, and selling hydrocarbons securing obligations not constituting Indebtedness and provided that such Liens do not secure obligations to deliver
</FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%">
<FONT FACE="Times New Roman" SIZE="2">hydrocarbons at some future date without receiving full payment therefore within 90 days of delivery, (f)&nbsp;easements, rights of way, restrictions, and
other similar encumbrances, and minor defects in the chain of title which are customarily accepted in the oil and gas financing industry, none of which interfere with the ordinary conduct of the business of the Borrower or materially detract from
the value or use of the Property to which they apply, (h)&nbsp;Liens in favor of the Agent and other Liens expressly permitted under the Security Instruments, and (i)&nbsp;Liens not to exceed $50,000. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Person</U>&#148; shall mean an individual, corporation, partnership, limited liability company, trust, unincorporated
organization, government, any agency or political subdivision of any government, or any other form of entity. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">&#147;<U>Plan</U>&#148; shall mean, 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&nbsp;4069 of ERISA be deemed to be) an &#147;employer&#148; as defined in Section&nbsp;3(5) of ERISA. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">&#147;<U>Principal Office</U>&#148; shall mean the principal office of Guaranty in Dallas, Texas, presently located at 8333 Douglas Avenue, Dallas, Texas 75225. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Prohibited Transaction</U>&#148; shall have the meaning assigned to such term in Section&nbsp;4975 of the Code. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Project Fields</U>&#148; shall mean the South Padre Island area fields 1113, 1059, 1060, 1073 and 1133 and North Padre Island
area field 998. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Property</U>&#148; shall mean any interest in any kind of property or asset, whether real,
personal or mixed, tangible or intangible. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Rate Management Transaction</U>&#148; shall mean any transaction
(including an agreement with respect thereto) now existing or hereafter entered into between the Borrower and any Lender 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 on or more interest rates, foreign currencies, commodity prices, equity prices or other financial
measures. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Regulation D</U>&#148; shall mean Regulation D of the Board of Governors of the Federal Reserve System,
as the same may be amended or supplemented from time to time. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Regulatory Change</U>&#148; shall mean the passage, adoption, institution, or
amendment of any federal, state, local, or foreign Requirement of Law (including, without limitation, Regulation D), or any interpretation, directive, or request (whether or not having the force of law) of any Governmental Authority or monetary
authority charged with the enforcement, interpretation, or administration thereof, occurring after the Closing Date and applying to a class of lenders including the Lender. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Reimbursement Obligation</U>&#148; shall mean the obligation of the Borrower to provide to the Agent or reimburse the Agent for
the account of the Lenders for any amounts payable, paid, or incurred by the Agent or the Lenders with respect to Letters of Credit. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">&#147;<U>Release of Hazardous Substances</U>&#148; 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)&nbsp;the air, (b)&nbsp;soils or any improvements located thereon, (c)&nbsp;surface water or groundwater, or (d)&nbsp;the sewer or septic system, or the waste treatment, storage, or disposal system servicing any
Property of the Borrower. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Reorganization</U>&#148; shall mean, with respect to any Multiemployer Plan, that such
Plan is in reorganization within the meaning of such term in Section&nbsp;4241 of ERISA. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Reportable
Event</U>&#148; shall mean any of the events set forth in Section&nbsp;4043(b) of ERISA, other than those events as to which the thirty-day notice period is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg. &#167;&nbsp;2615.
</FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Required Lenders</U>&#148; shall mean, Lenders (including the Agent) holding more than 66 2/3% of the then Loan
Balance, or, if there is no Loan Balance, Lenders (including the Agent) having more than 66 2/3% of the aggregate amount of the Commitments. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">&#147;<U>Requirement of Law</U>&#148; shall mean, 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. </FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Reserve Report</U>&#148; shall mean each report delivered to the Agent pursuant to Section&nbsp;5.7. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Responsible Officer</U>&#148; shall mean, as to any Person, its President, Chief
Executive Officer, Chief Operating Officer or any Vice President. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Security Instruments</U>&#148; shall mean the
security instruments and other documents and instruments at any time executed as security for all or any portion of the Obligations, as such instruments may be amended, supplemented, restated or otherwise modified from time to time. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Single Employer Plan</U>&#148; shall mean any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan.
</FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Subordinated Debt</U>&#148; shall mean, collectively, the Indebtedness of the Borrower described in the
Subordination Agreements and other Indebtedness of the Borrower not exceeding in principal amount, in the aggregate at any time, such amount as may be approved from time to time by the Agent and the Required Lenders, so long as such other
Indebtedness is subordinated, on terms approved by the Agent and the Required Lenders, to the prior payment and performance in full of the Obligations. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">&#147;<U>Subordination Agreements</U>&#148; shall mean, collectively, the Parent Subordination Agreement and the Artic Subordination Agreement, as such agreements may be amended, supplemented, restated or otherwise
modified from time to time. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Subsidiary</U>&#148; shall mean, as to any Person, a corporation of which shares of
stock having ordinary voting power (other than stock having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation are at the time owned, or the management of
which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">&#147;<U>Superfund Site</U>&#148; 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.
</FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Tangible Net Worth</U>&#148; shall mean (a)&nbsp;total assets, as would be reflected on a balance sheet of the
Borrower prepared in accordance with GAAP, exclusive of Intellectual Property, experimental or organization expenses, franchises, licenses, permits, and other intangible assets, treasury stock, unamortized underwriters&#146; debt discount and
expenses, and goodwill minus (b)&nbsp;total liabilities, as would be reflected on a balance sheet of the Borrower prepared in accordance with GAAP, exclusive of Subordinated Debt. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Transferee</U>&#148; shall mean any Person to which any Lender has sold, assigned, transferred, or granted a participation in any
of the Obligations, as authorized pursuant to Section&nbsp;9.1, and any Person acquiring, by purchase, assignment, transfer, or participation, from any such purchaser, assignee, transferee, or participant, any part of such Obligations. </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>UCC</U>&#148; shall mean the Uniform Commercial Code as from time to time in
effect in the State of Texas. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>USA Patriot Act</U>&#148; shall mean the Uniting and Strengthening America by
Providing Appropriate Tools required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. No.&nbsp;107-56, 115 Stat. 272 (2001), as the same has been, or shall hereafter be, renewed, extended, amended or replaced. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">1.3 <U>Undefined Financial Accounting Terms</U>. Undefined financial accounting terms used in this Agreement shall be defined according to GAAP at the
time in effect. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">1.4 <U>References</U>. References in this Agreement to Schedule, Exhibit, Article, or Section numbers shall be to
Schedules, Exhibits, Articles, or Sections of this Agreement, unless expressly stated to the contrary. References in this Agreement to &#147;hereby,&#148; &#147;herein,&#148; &#147;hereinafter,&#148; &#147;hereinabove,&#148; &#147;hereinbelow,&#148;
&#147;hereof,&#148; &#147;hereunder&#148; and words of similar import shall be to this Agreement in its entirety and not only to the particular Schedule, Exhibit, Article, or Section in which such reference appears. Specific enumeration herein shall
not exclude the general and, in such regard, the terms &#147;includes&#148; and &#147;including&#148; used herein shall mean &#147;includes, without limitation,&#148; or &#147;including, without limitation,&#148; as the case may be, where
appropriate. Except as otherwise indicated, references in this Agreement to statutes, sections, or regulations are to be construed as including all statutory or regulatory provisions consolidating, amending, replacing, succeeding, or supplementing
the statute, section, or regulation referred to. References in this Agreement to &#147;writing&#148; include printing, typing, lithography, facsimile reproduction, and other means of reproducing words in a tangible visible form. References in this
Agreement to agreements and other contractual instruments shall be deemed to include all exhibits and appendices attached thereto and all subsequent amendments and other modifications to such instruments, but only to the extent such amendments and
other modifications are not prohibited by the terms of this Agreement. References in this Agreement to Persons include their respective successors and permitted assigns. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">1.5 <U>Articles and Sections</U>. 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. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">1.6 <U>Number and Gender</U>. 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. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">1.7 <U>Incorporation of Exhibits</U>. The Exhibits attached to this Agreement are incorporated herein and
shall be considered a part of this Agreement for all purposes. </FONT></P> <P STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B><U>ARTICLE II </U></B></FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B><U>TERMS OF FACILITY </U></B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">2.1
<U>Revolving Line of Credit</U>. (a)&nbsp;Upon the terms and conditions (including, without limitation, the right of any Lender to decline to make any Loan so long as any Default or Event of Default exists) and relying on the representations and
warranties contained in this Agreement, each Lender severally agrees, during the Commitment Period, to make Loans, in immediately available funds at the Applicable Lending Office or the Principal Office, to or for the benefit of the Borrower in an
amount not to exceed at any time outstanding the lesser of the Borrowing Base or the Percentage Share of such Lender of the Borrowing Base then in effect. Loans shall be made from time to time on any Business Day designated by the Borrower following
receipt by the Agent of a Borrowing Request. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(b) Subject to the terms of this Agreement, during the Commitment Period, the Borrower may
borrow, repay, and reborrow and convert Loans of one type or with one Interest Period into Loans of another type or with a different Interest Period. Except for prepayments made pursuant to Section&nbsp;2.10, each borrowing, conversion, and
prepayment of principal of Loans shall be in an amount at least equal to $100,000. Each borrowing, prepayment, or conversion of or into a Loan of a different type or, in the case of a LIBO Rate Loan, having a different Interest Period, shall be
deemed a separate borrowing, conversion, and prepayment for purposes of the foregoing, one for each type of Loan or Interest Period. Anything in this Agreement to the contrary notwithstanding, the aggregate principal amount of LIBO Rate Loans having
the same Interest Period shall be at least equal to $100,000; and if any LIBO Rate Loan would otherwise be in a lesser principal amount for any period, such Loan shall be a Floating Rate Loan during such period. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(c) The Loans shall be made and maintained at the Applicable Lending Office or the Principal Office and shall be evidenced by the Notes. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(d) Not later than 2:00 p.m., Central Standard or Central Daylight Savings Time, as the case may be, on the date specified for each borrowing, the
Lenders shall make available to the Agent, in immediately available funds, the proceeds of borrowings requested by Borrower for the account of the Borrower. The amount so received by the Agent shall, subject to the terms and conditions hereof, be
made available to the Borrower in immediately available funds at the Principal Office by the end of that Business Day. All Loans by the Lenders shall be maintained at the Applicable Lending Office of the Lenders and shall be evidenced by the Note of
the Lenders. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(e) The face amount of each of the Notes has been established as an administrative convenience and do not commit the Lenders
to advance funds hereunder in excess of the then current Borrowing Base. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">2.2 <U>Letter of Credit Facility</U>. (a)&nbsp;Upon the terms and conditions and relying on the
representations and warranties contained in this Agreement, the Agent, as issuing bank for the Lenders, agrees from the date of this Agreement until the date which is thirty days prior to the Commitment Termination Date, to issue on behalf of the
Lenders in their respective Percentage Shares, Letters of Credit for the account of the Borrower and to renew and extend such Letters of Credit. Letters of Credit shall be issued, renewed, or extended from time to time on any Business Day designated
by the Borrower following the receipt in accordance with the terms hereof by the Agent of the written (or oral, confirmed promptly in writing) request by a Responsible Officer of the Borrower and a Letter of Credit Application. Letters of Credit
shall be issued in such amounts as the Borrower may request; provided, however, that (i)&nbsp;no Letter of Credit shall have an expiration date which is more than 365 days after the issuance thereof or subsequent to Final Maturity, (ii)&nbsp;each
automatically renewable Letter of Credit shall provide that it may be terminated by the Agent at its then current expiry date by not less than 30 days&#146; written notice by the Agent to the beneficiary of such Letter of Credit, and (iii)&nbsp;the
Agent shall not be obligated to issue any Letter of Credit if (A)&nbsp;the face amount thereof would exceed the Available Commitment, or (B)&nbsp;after giving effect to the issuance thereof, the L/C Exposure, when added to the Loan Balance then
outstanding, would exceed the Borrowing Base, or (C)&nbsp;the L/C Exposure would exceed $2,000,000, and (iv)&nbsp;notwithstanding the above, Letters of Credit may be issued for Commodity Hedge Agreements or Rate Management Transactions at the sole
discretion of the Agent up to an amount not to exceed $5,000,000 as evidenced by the Note shown on <U>Exhibit I(A)</U>. Any Letters of Credit issued under (iv)&nbsp;above shall be cross-collateralized and cross-defaulted with the other Obligations
hereunder and if drawn shall be due on demand. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(b) Prior to any payment in respect of any Letter of Credit, each Lender shall be deemed to
be a participant through the Agent with respect to the relevant Letter of Credit in the obligation of the Agent, as the issuer of such Letter of Credit, in an amount equal to the Percentage Share of such Lender of the maximum amount which is or at
any time may become available to be drawn thereunder. Upon delivery by such Lender of funds requested pursuant to Section&nbsp;2.2(c), such Lender shall be treated as having purchased a participating interest in an amount equal to such funds
delivered by such Lender to the Agent in the obligation of the Borrower to reimburse the Agent, as the issuer of such Letter of Credit, for any amounts payable, paid, or incurred by the Agent, as the issuer of such Letter of Credit, with respect to
such Letter of Credit. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(c) Each Lender shall be unconditionally and irrevocably liable, without regard to the occurrence of any Default or
Event of Default, to the extent of the Percentage Share of such Lender at the time of issuance of each Letter of Credit, to reimburse, on demand, the Agent, as the issuer of such Letter of Credit, for the amount of each Letter of Credit Payment
under such Letter of Credit. Each payment in respect of any Letter of Credit shall be deemed to be a Floating Rate Loan by each Lender to the extent of funds delivered by such Lender to the Agent with respect to such payment and shall to such extent
be deemed a Floating Rate Loan under and shall be evidenced by the Note of such Lender. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2"><B>(d) E<SMALL>ACH</SMALL> L<SMALL>ENDER</SMALL>
<SMALL>AGREES</SMALL> <SMALL>TO</SMALL> <SMALL>SEVERALLY</SMALL> <SMALL>INDEMNIFY</SMALL> <SMALL>THE</SMALL> A<SMALL>GENT</SMALL>, <SMALL>AS</SMALL> <SMALL>THE</SMALL> <SMALL>ISSUER</SMALL> <SMALL>OF</SMALL> <SMALL>EACH</SMALL> L<SMALL>ETTER</SMALL>
<SMALL>OF</SMALL> C<SMALL>REDIT</SMALL>, <SMALL>AND</SMALL> <SMALL>THE</SMALL> <SMALL>OFFICERS</SMALL>, <SMALL>DIRECTORS</SMALL>, <SMALL>EMPLOYEES</SMALL>, <SMALL>AGENTS</SMALL>,</B> </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 18 - </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px">
<FONT FACE="Times New Roman" SIZE="2"><B><SMALL>ATTORNEYS</SMALL>-<SMALL>IN</SMALL>-<SMALL>FACT</SMALL> <SMALL>AND</SMALL> <SMALL>AFFILIATES</SMALL> <SMALL>OF</SMALL> <SMALL>THE</SMALL>
A<SMALL>GENT</SMALL> (<SMALL>TO</SMALL> <SMALL>THE</SMALL> <SMALL>EXTENT</SMALL> <SMALL>NOT</SMALL> <SMALL>REIMBURSED</SMALL> <SMALL>BY</SMALL> <SMALL>THE</SMALL> B<SMALL>ORROWER</SMALL> <SMALL>AND</SMALL> <SMALL>WITHOUT</SMALL>
<SMALL>LIMITING</SMALL> <SMALL>THE</SMALL> O<SMALL>BLIGATION</SMALL> <SMALL>OF</SMALL> <SMALL>THE</SMALL> B<SMALL>ORROWER</SMALL> <SMALL>TO</SMALL> <SMALL>DO</SMALL> <SMALL>SO</SMALL>), <SMALL>RATABLY</SMALL> <SMALL>ACCORDING</SMALL>
<SMALL>TO</SMALL> <SMALL>THE</SMALL> P<SMALL>ERCENTAGE</SMALL> S<SMALL>HARE</SMALL> <SMALL>OF</SMALL> <SMALL>SUCH</SMALL> L<SMALL>ENDER</SMALL> <SMALL>AT</SMALL> <SMALL>THE</SMALL> <SMALL>TIME</SMALL> <SMALL>OF</SMALL> <SMALL>ISSUANCE</SMALL>
<SMALL>OF</SMALL> <SMALL>SUCH</SMALL> L<SMALL>ETTER</SMALL> <SMALL>OF</SMALL> C<SMALL>REDIT</SMALL>, <SMALL>FROM</SMALL> <SMALL>AND</SMALL> <SMALL>AGAINST</SMALL> <SMALL>ANY</SMALL> <SMALL>AND</SMALL> <SMALL>ALL</SMALL> <SMALL>LIABILITIES</SMALL>,
<SMALL>CLAIMS</SMALL>, <SMALL>OBLIGATIONS</SMALL>, <SMALL>LOSSES</SMALL>, <SMALL>DAMAGES</SMALL>, <SMALL>PENALTIES</SMALL>, <SMALL>ACTIONS</SMALL>, <SMALL>JUDGMENTS</SMALL>, <SMALL>SUITS</SMALL>, <SMALL>COSTS</SMALL>, <SMALL>EXPENSES</SMALL>
<SMALL>AND</SMALL> <SMALL>DISBURSEMENTS</SMALL> <SMALL>OF</SMALL> <SMALL>ANY</SMALL> <SMALL>KIND</SMALL> <SMALL>WHATSOEVER</SMALL> <SMALL>WHICH</SMALL> <SMALL>MAY</SMALL> <SMALL>AT</SMALL> <SMALL>ANY</SMALL> <SMALL>TIME</SMALL>
(<SMALL>INCLUDING</SMALL>, <SMALL>WITHOUT</SMALL> <SMALL>LIMITATION</SMALL>, <SMALL>ANY</SMALL> <SMALL>TIME</SMALL> <SMALL>FOLLOWING</SMALL> <SMALL>THE</SMALL> <SMALL>PAYMENT</SMALL> <SMALL>AND</SMALL> <SMALL>PERFORMANCE</SMALL> <SMALL>OF</SMALL>
<SMALL>ALL</SMALL> <SMALL>OBLIGATIONS</SMALL> <SMALL>AND</SMALL> <SMALL>THE</SMALL> <SMALL>TERMINATION</SMALL> <SMALL>OF</SMALL> <SMALL>THIS</SMALL> A<SMALL>GREEMENT</SMALL>) <SMALL>BE</SMALL> <SMALL>IMPOSED</SMALL> <SMALL>ON</SMALL>,
<SMALL>INCURRED</SMALL> <SMALL>BY</SMALL> <SMALL>OR</SMALL> <SMALL>ASSERTED</SMALL> <SMALL>AGAINST</SMALL> <SMALL>THE</SMALL> A<SMALL>GENT</SMALL> <SMALL>AS</SMALL> <SMALL>THE</SMALL> I<SMALL>SSUER</SMALL> <SMALL>OF</SMALL> <SMALL>SUCH</SMALL>
L<SMALL>ETTER</SMALL> <SMALL>OF</SMALL> C<SMALL>REDIT</SMALL> <SMALL>OR</SMALL> <SMALL>ANY</SMALL> <SMALL>OF</SMALL> <SMALL>ITS</SMALL> <SMALL>OFFICERS</SMALL>, <SMALL>DIRECTORS</SMALL>, <SMALL>EMPLOYEES</SMALL>, <SMALL>AGENTS</SMALL>,
<SMALL>ATTORNEYS</SMALL>-<SMALL>IN</SMALL>-<SMALL>FACT</SMALL> <SMALL>OR</SMALL> <SMALL>AFFILIATES</SMALL> <SMALL>IN</SMALL> <SMALL>ANY</SMALL> <SMALL>WAY</SMALL> <SMALL>RELATING</SMALL> <SMALL>TO</SMALL> <SMALL>OR</SMALL> <SMALL>ARISING</SMALL>
<SMALL>OUT</SMALL> <SMALL>OF</SMALL> <SMALL>THIS</SMALL> A<SMALL>GREEMENT</SMALL> <SMALL>OR</SMALL> <SMALL>SUCH</SMALL> L<SMALL>ETTER</SMALL> <SMALL>OF</SMALL> C<SMALL>REDIT</SMALL> <SMALL>OR</SMALL> <SMALL>ANY</SMALL> <SMALL>ACTION</SMALL>
<SMALL>TAKEN</SMALL> <SMALL>OR</SMALL> <SMALL>OMITTED</SMALL> <SMALL>BY</SMALL> <SMALL>THE</SMALL> A<SMALL>GENT</SMALL> <SMALL>AS</SMALL> <SMALL>THE</SMALL> I<SMALL>SSUER</SMALL> <SMALL>OF</SMALL> <SMALL>SUCH</SMALL> L<SMALL>ETTER</SMALL>
<SMALL>OF</SMALL> C<SMALL>REDIT</SMALL> <SMALL>OR</SMALL> <SMALL>ANY</SMALL> <SMALL>OF</SMALL> <SMALL>ITS</SMALL> <SMALL>OFFICERS</SMALL>, <SMALL>DIRECTORS</SMALL>, <SMALL>EMPLOYEES</SMALL>, <SMALL>AGENTS</SMALL>,
<SMALL>ATTORNEYS</SMALL>-<SMALL>IN</SMALL>-<SMALL>FACT</SMALL> <SMALL>OR</SMALL> <SMALL>AFFILIATES</SMALL> <SMALL>UNDER</SMALL> <SMALL>OR</SMALL> <SMALL>IN</SMALL> <SMALL>CONNECTION</SMALL> <SMALL>WITH</SMALL> <SMALL>ANY</SMALL> <SMALL>OF</SMALL>
<SMALL>THE</SMALL> <SMALL>FOREGOING</SMALL>, <SMALL>INCLUDING</SMALL>, <SMALL>WITHOUT</SMALL> <SMALL>LIMITATION</SMALL>, <SMALL>ANY</SMALL> <SMALL>LIABILITIES</SMALL>, <SMALL>CLAIMS</SMALL>, <SMALL>OBLIGATIONS</SMALL>, <SMALL>LOSSES</SMALL>,
<SMALL>DAMAGES</SMALL>, <SMALL>PENALTIES</SMALL>, <SMALL>ACTIONS</SMALL>, <SMALL>JUDGMENTS</SMALL>, <SMALL>SUITS</SMALL>, <SMALL>COSTS</SMALL>, <SMALL>EXPENSES</SMALL> <SMALL>AND</SMALL> <SMALL>DISBURSEMENTS</SMALL> <SMALL>IMPOSED</SMALL>,
<SMALL>INCURRED</SMALL> <SMALL>OR</SMALL> <SMALL>ASSERTED</SMALL> <SMALL>AS</SMALL> <SMALL>A</SMALL> <SMALL>RESULT</SMALL> <SMALL>OF</SMALL> <SMALL>THE</SMALL> <SMALL>NEGLIGENCE</SMALL>, <SMALL>WHETHER</SMALL> <SMALL>SOLE</SMALL> <SMALL>OR</SMALL>
<SMALL>CONCURRENT</SMALL>, <SMALL>OF</SMALL> <SMALL>THE</SMALL> A<SMALL>GENT</SMALL> <SMALL>AS</SMALL> <SMALL>THE</SMALL> I<SMALL>SSUER</SMALL> <SMALL>OF</SMALL> <SMALL>SUCH</SMALL> L<SMALL>ETTER</SMALL> <SMALL>OF</SMALL> C<SMALL>REDIT</SMALL>
<SMALL>OR</SMALL> <SMALL>ANY</SMALL> <SMALL>OF</SMALL> <SMALL>ITS</SMALL> <SMALL>OFFICERS</SMALL>, <SMALL>DIRECTORS</SMALL>, <SMALL>EMPLOYEES</SMALL>, <SMALL>AGENTS</SMALL>, <SMALL>ATTORNEYS</SMALL>-<SMALL>IN</SMALL>-<SMALL>FACT</SMALL>
<SMALL>OR</SMALL> <SMALL>AFFILIATES</SMALL>; <SMALL>PROVIDED</SMALL> <SMALL>THAT</SMALL> <SMALL>NO</SMALL> L<SMALL>ENDER</SMALL> (<SMALL>OTHER</SMALL> <SMALL>THAN</SMALL> <SMALL>THE</SMALL> A<SMALL>GENT</SMALL> <SMALL>AS</SMALL> <SMALL>THE</SMALL>
I<SMALL>SSUER</SMALL> <SMALL>OF</SMALL> <SMALL>A</SMALL> L<SMALL>ETTER</SMALL> <SMALL>OF</SMALL> C<SMALL>REDIT</SMALL>) <SMALL>SHALL</SMALL> <SMALL>BE</SMALL> <SMALL>LIABLE</SMALL> <SMALL>FOR</SMALL> <SMALL>THE</SMALL> <SMALL>PAYMENT</SMALL>
<SMALL>OF</SMALL> <SMALL>ANY</SMALL> <SMALL>PORTION</SMALL> <SMALL>OF</SMALL> <SMALL>SUCH</SMALL> <SMALL>LIABILITIES</SMALL>, <SMALL>OBLIGATIONS</SMALL>, <SMALL>LOSSES</SMALL>, <SMALL>DAMAGES</SMALL>, <SMALL>PENALTIES</SMALL>,
<SMALL>ACTIONS</SMALL>, <SMALL>JUDGMENTS</SMALL>, <SMALL>SUITS</SMALL>, <SMALL>COSTS</SMALL>, <SMALL>EXPENSES</SMALL> <SMALL>OR</SMALL> <SMALL>DISBURSEMENTS</SMALL> <SMALL>RESULTING</SMALL> <SMALL>FROM</SMALL> <SMALL>THE</SMALL> <SMALL>GROSS</SMALL>
<SMALL>NEGLIGENCE</SMALL>, <SMALL>WHETHER</SMALL> <SMALL>SOLE</SMALL> <SMALL>OR</SMALL> <SMALL>CONCURRENT</SMALL>, <SMALL>OR</SMALL> <SMALL>WILLFUL</SMALL> <SMALL>MISCONDUCT</SMALL> <SMALL>OF</SMALL> <SMALL>THE</SMALL> A<SMALL>GENT</SMALL>
<SMALL>AS</SMALL> <SMALL>THE</SMALL> I<SMALL>SSUER</SMALL> <SMALL>OF</SMALL> <SMALL>A</SMALL> L<SMALL>ETTER</SMALL> <SMALL>OF</SMALL> C<SMALL>REDIT</SMALL>. <SMALL>THE</SMALL> A<SMALL>GREEMENTS</SMALL> <SMALL>IN</SMALL> <SMALL>THIS</SMALL>
S<SMALL>ECTION</SMALL>&nbsp;2.2(<SMALL>D</SMALL>) <SMALL>SHALL</SMALL> <SMALL>SURVIVE</SMALL> <SMALL>THE</SMALL> <SMALL>PAYMENT</SMALL> <SMALL>AND</SMALL> <SMALL>PERFORMANCE</SMALL> <SMALL>OF</SMALL> <SMALL>ALL</SMALL> O<SMALL>BLIGATIONS</SMALL>
<SMALL>AND</SMALL> <SMALL>THE</SMALL> <SMALL>TERMINATION</SMALL> <SMALL>OF</SMALL> <SMALL>THIS</SMALL> A<SMALL>GREEMENT</SMALL>.</B> </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">2.3
<U>Use of Loan Proceeds and Letters of Credit</U>. (a)&nbsp;Proceeds of the Loan shall be used solely to finance Borrower&#146;s share of capital expenditures for the development of the Project Fields, to refinance shareholder debt and for other
projects and/or acquisitions evaluated by and acceptable to the Agent. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(b) Letters of Credit shall be used solely for other general
limited liability company purposes and to support Commodity Hedge Agreements and Rate Management Transactions. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">2.4 <U>Interest</U>.
Subject to the terms of this Agreement (including, without limitation, Section&nbsp;2.17), interest on the Loans shall accrue and be payable at a rate per annum equal to the Floating Rate for each Floating Rate Loan and the Adjusted LIBO Rate for
each LIBO Rate Loan. Interest on all Floating Rate Loans shall be computed on the basis of a year of 365 or 366 days, as applicable, for the actual days elapsed (including the first day but excluding the last day) during the period for which
payable. Interest on all LIBO Rate Loans shall be computed on the basis of a year of 360 days for the actual days elapsed (including the first day but excluding the last day) during the period for which payable. Notwithstanding the foregoing,
interest on past-due principal and, to the extent permitted by applicable law, past-due interest, shall accrue at the Default Rate, computed on the basis of a year of 365 or 366 days, as the case may be, for </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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<FONT FACE="Times New Roman" SIZE="2">the actual days elapsed (including the first day but excluding the last day) during the period for which payable, and shall be payable by the Borrower upon
demand by the Agent at any time as to all or any portion of such interest. In the event that the Borrower fails to select the duration of any Interest Period for any LIBO Rate Loan within the time period and otherwise as provided herein, such Loan
(if outstanding as a LIBO Rate Loan) will be automatically converted into a Floating Rate Loan on the last day of the then current Interest Period for such Loan or (if outstanding as a Floating Rate Loan) will remain as, or (if not then outstanding)
will be made as, a Floating Rate Loan. Interest provided for herein shall be calculated on unpaid sums actually advanced and outstanding pursuant to the terms of this Agreement and only for the period from the date or dates of such advances until
repayment. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">2.5 <U>Repayment of Loans and Interest</U>. Accrued and unpaid interest on each outstanding Floating Rate Loan shall be due and
payable monthly commencing on the first day of April, 2008 and continuing on the first day of each calendar month thereafter while any Floating Rate Loan remains outstanding, the payment in each instance to be the amount of interest which has
accrued and remains unpaid in respect of the relevant Loan. Accrued and unpaid interest on each outstanding LIBO Rate Loan shall be due and payable on the last day of the Interest Period for such LIBO Rate Loan corresponding to the day of the
calendar month on which such Interest Period commenced, the payment in each instance to be the amount of interest which has accrued and remains unpaid in respect of the relevant Loan. The Loan Balance, together with all accrued and unpaid interest
thereon, shall be due and payable at Final Maturity. At the time of making each payment hereunder or under the Notes, the Borrower shall specify to the Agent the Loans or other amounts payable by the Borrower hereunder to which such payment is to be
applied. In the event the Borrower fails to so specify, or if an Event of Default has occurred and is continuing, the Agent may apply such payment as it may elect in its sole discretion. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">2.6 <U>Outstanding Amounts</U>. The outstanding principal balance of the Notes reflected by the notations by the Agent and the Lenders on their records
shall be deemed rebuttably presumptive evidence of the principal amount owing on the Notes. The liability for payment of principal and interest evidenced by the Notes shall be limited to principal amounts actually advanced and outstanding pursuant
to this Agreement and interest on such amounts calculated in accordance with this Agreement. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">2.7 <U>Time, Place, and Method of
Payments</U>. All payments required pursuant to this Agreement or the Notes shall be made in lawful money of the United States of America and in immediately available funds, shall be deemed received by the Agent on the Business Day received, or on
the next Business Day following receipt if such receipt is after 2:00 p.m., Central Standard or Central Daylight Savings Time, as the case may be, on any Business Day, and shall be made at the Principal Office. Except as provided to the contrary
herein, if the due date of any payment hereunder or under the Notes would otherwise fall on a day which is not a Business Day, such date shall be extended to the next succeeding Business Day, and interest shall be payable for any principal so
extended for the period of such extension. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">2.8 <U>Pro Rata Treatment; Adjustments</U>. (a)&nbsp;Except to the extent otherwise expressly
provided herein, (i)&nbsp;each borrowing pursuant to this Agreement shall be made from the Lenders pro rata in accordance with their respective Percentage Shares, (ii)&nbsp;each reduction of the sum of </FONT>
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<FONT FACE="Times New Roman" SIZE="2">the Facility Amounts of the Lenders at the request of the Borrower, as well as any subsequent increase in the sum of the Facility Amounts of the Lenders at
the request of the Borrower and with written agreement of the Agent and the Required Lenders, shall serve to adjust the Facility Amounts of the Lenders pro rata in accordance with the Facility Amounts of the Lenders in effect immediately prior to
any such adjustment, (iii)&nbsp;each payment by the Borrower of fees shall be made for the account of the Lenders pro rata in accordance with their respective Percentage Shares, (iv)&nbsp;each payment of principal of Loans shall be made for the
account of the Lenders pro rata in accordance with their Percentage Shares of the Loan Balance, and (v)&nbsp;each payment of interest on Loans shall be made for the account of the Lenders pro rata in accordance with their Percentage Shares of the
aggregate amount of interest due and payable to the Lenders. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(b) The Agent shall distribute all payments with respect to the Obligations
to the Lenders promptly upon receipt in like funds as received. In the event that any payments made hereunder by the Borrower at any particular time are insufficient to satisfy in full the Obligations due and payable at such time, such payments
shall be applied (i)&nbsp;first, to fees and expenses due pursuant to the terms of this Agreement or any other Loan Document, (ii)&nbsp;second, to accrued interest, (iii)&nbsp;third, to the Loan Balance, and (iv)&nbsp;last, to any other Obligations.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(c) If any Lender (for purposes of this Section, a &#147;<U>Benefitted Lender</U>&#148;) shall at any time receive any payment of all or
part of its portion of the Obligations, or receive any Collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in <U>Section&nbsp;7.1(f)</U> or
<U>Section&nbsp;7.1(g)</U>, or otherwise) in an amount greater than such Lender was entitled to receive pursuant to the terms hereof, such Benefitted Lender shall purchase for cash from the other Lenders such portion of the Obligations of such other
Lenders, or shall provide such other Lenders with the benefits of any such Collateral or the proceeds thereof, as shall be necessary to cause such Benefitted Lender to share the excess payment or benefits of such Collateral or proceeds with each of
the Lenders according to the terms hereof. If all or any portion of such excess payment or benefits is thereafter recovered from such Benefitted Lender, such purchase shall be rescinded and the purchase price and benefits returned by such Lender, to
the extent of such recovery, but without interest. The Borrower agrees that each such Lender so purchasing a portion of the Obligations of another Lender may exercise all rights of payment (including rights of set-off) with respect to such portion
as fully as if such Lender were the direct holder of such portion. If any Lender ever receives, by voluntary payment, exercise of rights of set-off or banker&#146;s lien, counterclaim, cross-action or otherwise, any funds of the Borrower to be
applied to the Obligations, or receives any proceeds by realization on or with respect to any Collateral, all such funds and proceeds shall be forwarded immediately to the Agent for distribution in accordance with the terms of this Agreement.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">2.9 <U>Borrowing Base Determinations</U>. (a)&nbsp;The Borrowing Base as of the Closing Date is acknowledged by the Borrower, the Agent
and the Lenders to be $32,400,000. Commencing on May&nbsp;10, 2008 and continuing thereafter on the tenth day of each calendar month through the Commitment Termination Date, the amount of the Borrowing Base shall be reduced by the Monthly Commitment
Reduction Amount, which Monthly Commitment Reduction Amount as of the Closing Date is acknowledged by the Borrower and the Agent to be $1,500,000. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(b) The Borrowing Base and the Monthly Commitment Reduction Amount shall be redetermined by the Agent on
October&nbsp;1, 2008 and thereafter semi-annually (on each April&nbsp;1 and October&nbsp;1 prior to the Commitment Termination Date) on the basis of information supplied by the Borrower in compliance with the provisions of this Agreement, including
Reserve Reports, and all other relevant information available to the Agent and the Lenders. In addition, the Agent shall, in the normal course of business following a request of the Borrower, redetermine the Borrowing Base and the Monthly Commitment
Reduction Amount; provided, however, the Agent shall not be obligated to respond to more than two such requests in any calendar year. The Borrower may make additional requests for which agreement will not be unreasonably withheld by the Agent.
Notwithstanding the foregoing, the Agent may at its discretion redetermine the Borrowing Base and the Monthly Commitment Reduction Amount at any time and from time to time. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(c) Upon each determination of the Borrowing Base and the Monthly Commitment Reduction Amount, the Agent shall notify the Borrower orally (confirming
such notice promptly in writing) of such determinations, and the amounts so communicated to the Borrower shall become effective upon such oral notification and shall remain in effect until the next subsequent determination of such amounts.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(d) The Borrowing Base shall represent the determination by the Lenders, in accordance with the applicable definitions and provisions
herein contained and their customary lending practices for loans of this nature, of the value, for loan purposes, of the Mortgaged Properties, subject, in the case of any increase in the Borrowing Base, to the credit approval process of the Lenders.
Furthermore, the Borrower acknowledges that the determination of the Borrowing Base contains an equity cushion (market value in excess of loan value), which is acknowledged by the Borrower to be essential for the adequate protection of the Lenders.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(e) Notwithstanding any other provision of this Section&nbsp;2.9, the Borrower shall be entitled, by written request of the Borrower to
the Agent at any time (any such request being irrevocable, absent written agreement of the Agent and the Required Lenders with respect to any subsequently requested increase in the Borrowing Base, which written agreement may be expressly conditioned
on the payment of a fee by the Borrower to the Agent, for the account of the Lenders) to a reduction in the Borrowing Base. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">2.10
<U>Mandatory Prepayments</U>. If at any time the Loan Balance and the L/C Exposure exceeds the Borrowing Base then in effect and exceeds the Borrowing Base, the Borrower shall, within 5 Business Days of notice from the Agent of such occurrence,
(a)&nbsp;prepay, or make arrangements acceptable to the Agent for the prepayment of, the amount of such excess for application on the Loan Balance, (b)&nbsp;provide additional collateral, of character and value satisfactory to the Agent in its
reasonable discretion, to secure the Obligations by the execution and delivery to the Agent of security instruments in form and substance satisfactory to the Agent in the exercise of its reasonable discretion, or (c)&nbsp;effect any combination of
the alternatives described in clauses (a)&nbsp;and (b)&nbsp;of this Section and acceptable to the Agent in its reasonable discretion. In the event that a mandatory prepayment is required under this Section and the amount owed on the Notes plus
accrued interest is less than the amount required to be prepaid, the Borrower shall repay the amount owed, plus accrued interest and, in accordance with the provisions of the relevant Letter of Credit Applications executed by the Borrower or
otherwise to </FONT>
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<FONT FACE="Times New Roman" SIZE="2">the reasonable satisfaction of the Agent, deposit with the Agent, as additional collateral securing the Obligations, an amount of cash, in immediately
available funds, equal to the L/C Exposure minus the Borrowing Base. The cash deposited with the Agent in satisfaction of the requirement provided in this Section may be invested, at the reasonable discretion of the Agent and then only at the
express direction of the Borrower as to investment vehicle and maturity (which shall be no later than the latest expiry date of any then outstanding Letter of Credit), for the account of the Borrower in cash or cash equivalent investments offered by
or through the Agent. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">2.11 <U>Voluntary Prepayments and Conversions of Loans</U>. Subject to applicable provisions of this Agreement, the
Borrower shall have the right at any time or from time to time to prepay Loans and to convert Loans of one type or with one Interest Period into Loans of another type or with a different Interest Period; provided, however, that (a)&nbsp;the Borrower
shall give the Agent notice of each such prepayment or conversion of all or any portion of a LIBO Rate Loan no less than two Business Days prior to prepayment or conversion, (b)&nbsp;any LIBO Rate Loan may be prepaid or converted only on the last
day of an Interest Period for such Loan, (c)&nbsp;the Borrower shall pay all accrued and unpaid interest on the amounts prepaid or converted, and (d)&nbsp;no such prepayment or conversion shall serve to postpone the repayment when due of any
Obligation. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">2.12 <U>Commitment Fee</U>. In addition to interest on the Notes as provided herein and all other fees payable hereunder and
to compensate the Lenders for maintaining funds available, the Borrower shall pay to the Agent for the account of the Lenders, in immediately available funds, on the first day of April, 2008, and on the first day of each third calendar month
thereafter during the Commitment Period, a fee in the amount of 0.375%&nbsp;per annum, calculated on the basis of a year of 365 or 366 days, as the case may be, for the actual days elapsed (including the first day but excluding the last day), on the
average daily amount of the Available Commitment during the preceding quarterly period. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">2.13 <U>RESERVED</U>. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">2.14 <U>Letter of Credit Fee</U>. In addition to interest on the Notes as provided herein and all other fees payable hereunder, the Borrower agrees to
pay to the Agent for the account of the Lenders, on the date of issuance of each Letter of Credit, a fee equal to the greater of $500 or 2.00% calculated on the basis of a year of 365 or 366 days, as the case may be, for the actual days elapsed
(including the first day but excluding the last day), on the face amount of such Letter of Credit during the period for which such Letter of Credit is issued; provided, however, in the event such Letter of Credit is canceled prior to its original
expiry date or a payment is made by the Agent on behalf of the Lenders with respect to such Letter of Credit, the Agent shall, within 30 days after such cancellation or the making of such payment, rebate to the Borrower the unearned portion of such
fee. The Borrower also agrees to pay to Guaranty, on demand and solely for its account, its customary letter of credit transactional fees, including, without limitation, amendment fees, payable with respect to each Letter of Credit. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">2.15 <U>Loans to Satisfy Obligations of Borrower</U>. The Lenders may, but shall not be obligated to, but only if an Event of Default exists, make Loans
for the benefit of the Borrower and apply proceeds thereof to the satisfaction of any condition, warranty, representation, or covenant of the Borrower contained in this Agreement or any other Loan Document. Any such Loan shall be evidenced by the
Notes and shall be made as a Floating Rate Loan. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">2.16 <U>Security Interest in Accounts; Right of Offset</U>. As security for the payment and performance
of the Obligations, the Borrower hereby transfers, assigns, and pledges to the Agent for the benefit of the Lenders, and grants to the Agent for the benefit of the Lenders, a security interest in all funds of the Borrower now or hereafter or from
time to time on deposit with the Agent and such Lenders, with such interest to be retransferred, reassigned, and/or released by the Agent and each Lender, as the case may be, at the expense of the Borrower upon payment in full and complete
performance by the Borrower of all Obligations. All remedies as secured party or assignee of such funds shall be exercisable by the Agent during the existence of the occurrence of any Event of Default, regardless of whether the exercise of any such
remedy would result in any penalty or loss of interest or profit with respect to any withdrawal of funds deposited in a time deposit account prior to the maturity thereof. Furthermore, the Borrower hereby grants to the Agent and each Lender the
right, exercisable during the existence of an Event of Default, of offset or banker&#146;s lien against all funds of the Borrower now or hereafter or from time to time on deposit with the Agent and each Lender, regardless of whether the exercise of
any such remedy would result in any penalty or loss of interest or profit with respect to any withdrawal of funds deposited in a time deposit account prior to the maturity thereof, provided that such Obligation shall have matured, whether by
acceleration of maturity or otherwise. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">2.17 <U>General Provisions Relating to Interest</U>. (a)&nbsp;It is the intention of the parties
hereto to comply strictly with the usury laws of the State of Texas and the United States of America. In this connection, there shall never be collected, charged, or received on the sums advanced hereunder interest in excess of that which would
accrue at the Highest Lawful Rate. The Borrower agrees that, to the extent the Highest Lawful Rate is determined with reference to the laws of the State to Texas, the Highest Lawful Rate shall be the &#147;weekly&#148; rate as defined in Chapter 303
of the Texas Finance Code (Vernon&#146;s 1999), <U>provided</U> that the Lender may, at its election, substitute for the &#147;weekly&#148; rate the &#147;annualized&#148; or &#147;quarterly&#148; rate, as such terms are defined in the aforesaid
statute, upon the giving of notices provided for in such statute and effective upon the giving of such notices. The Lender may also rely, to the extent permitted by applicable laws of the State of Texas or the United States of America, on
alternative maximum rates of interest under other laws of the State of Texas or the United States of America applicable to the Lender, if greater. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman"
SIZE="2">(b) Notwithstanding anything herein or in the Notes, or any of them, to the contrary, during any Limitation Period, the interest rate to be charged on amounts evidenced by the Notes shall be the Highest Lawful Rate, and the obligation, if
any, of the Borrower for the payment of fees or other charges deemed to be interest under applicable law shall be suspended. During any period or periods of time following a Limitation Period, to the extent permitted by applicable laws of the State
of Texas or the United States of America, the interest rate to be charged hereunder shall remain at the Highest Lawful Rate until such time as there has been paid to the Agent for the account of the Lenders (i)&nbsp;the amount of interest in excess
of that accruing at the Highest Lawful Rate that the Agent would have received during the Limitation Period had the interest rate remained at the otherwise applicable rate, and (ii)&nbsp;all interest and fees otherwise payable to the Agent but for
the effect of such Limitation Period. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(c) If, under any circumstances, the aggregate amounts paid on the Notes, or any of them, or under this
Agreement or any other Loan Document include amounts which by law are deemed interest and which would exceed the amount permitted if the Highest Lawful Rate were in effect, the Borrower stipulates that such payment and collection will have been and
will be deemed to have been, to the extent permitted by applicable laws of the State of Texas or the United States of America, the result of mathematical error on the part of the Borrower, the Agent and the Lenders; and the Agent, on behalf of
itself and the Lenders, shall promptly refund the amount of such excess (to the extent only of such interest payments in excess of that which would have accrued and been payable on the basis of the Highest Lawful Rate) upon discovery of such error
by the Agent or notice thereof from the Borrower. In the event that the maturity of any Obligation is accelerated, by reason of an election by the Agent or otherwise, or in the event of any required or permitted prepayment, then the consideration
constituting interest under applicable laws may never exceed the Highest Lawful Rate; and excess amounts paid which by law are deemed interest, if any, shall be credited by the Agent on the principal amount of the Obligations, or if the principal
amount of the Obligations shall have been paid in full, refunded to the Borrower. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(d) All sums paid, or agreed to be paid, to the Agent,
for the account of the Lenders, for the use, forbearance and detention of the proceeds of any advance hereunder shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full term hereof until
paid in full so that the actual rate of interest is uniform but does not exceed the Highest Lawful Rate throughout the full term hereof. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">2.18 <U>Yield Protection</U>. (a)&nbsp;Without limiting the effect of the other provisions of this Section (but without duplication), the Borrower shall pay to the Agent, for the account of the Lenders, from time to time such amounts as the
Agent or the Lenders may determine are necessary to compensate the Lenders for any Additional Costs incurred by the Lenders. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(b) Without
limiting the effect of the other provisions of this Section (but without duplication), the Borrower shall pay to the Agent, for the account of the Lenders, from time to time on request such amounts as the Agent or the Lenders may determine are
necessary to compensate the Lenders for any costs attributable to the maintenance by the Lenders (or any Applicable Lending Office), pursuant to any Regulatory Change, of capital in respect of the Commitment, such compensation to include, without
limitation, an amount equal to any reduction of the rate of return on assets or equity of the Lenders (or any Applicable Lending Office) to a level below that which the Lenders (or any Applicable Lending Office) could have achieved but for such
Regulatory Change. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(c) Without limiting the effect of the other provisions of this Section (but without duplication), in the event that
any Requirement of Law or Regulatory Change or the compliance by the Agent or the Lenders therewith shall (i)&nbsp;impose, modify, or hold applicable any reserve, special deposit, or similar requirement against any Letter of Credit or obligation to
issue Letters of Credit, or (ii)&nbsp;impose upon the Agent or the Lenders any other condition regarding any Letter of Credit or obligation to issue Letters of Credit, and the result of any such event shall be to increase the cost to the Lenders of
issuing or maintaining any Letter of Credit or obligation to issue Letters of Credit or any liability with respect to payments by the Lenders under Letters of Credit, or to reduce any amount receivable in connection therewith, then within </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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<FONT FACE="Times New Roman" SIZE="2">15 days of demand by the Agent, the Borrower shall pay to the Agent, for the account of the Lenders, from time to time as specified by the Agent, additional
amounts which shall be sufficient to compensate the Lenders for such increased cost or reduced amount receivable. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(d) Without limiting the
effect of the other provisions of this Section (but without duplication), the Borrower shall pay to the Agent, for the account of the Lenders, such amounts as shall be sufficient in the reasonable opinion of the Agent to compensate the Lenders for
any loss, cost, or expense incurred by and as a result of: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(i) any payment, prepayment, or conversion by the Borrower of a
LIBO Rate Loan on a date other than the last day of an Interest Period for such Loan; or </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(ii) any failure by the Borrower
to borrow a LIBO Rate Loan on the date for such borrowing specified in the relevant Borrowing Request; </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">such compensation to include, without limitation,
with respect to any LIBO Rate Loan, an amount equal to the excess, if any, of (A)&nbsp;the amount of interest which would have accrued on the principal amount so paid, prepaid, converted, or not borrowed for the period from the date of such payment,
prepayment, conversion, or failure to borrow to the last day of the then current Interest Period for such Loan (or, in the case of a failure to borrow, the Interest Period for such Loan which would have commenced on the date of such failure to
borrow) at the applicable rate of interest for such Loan provided for herein over (B)&nbsp;the interest component (as reasonably determined by the Agent) of the amount (as reasonably determined by the Agent) the Lenders would have bid in the London
interbank market for Dollar deposits of amounts comparable to such principal amount and maturities comparable to such period; provided, however, that the Agent, on behalf of the Lenders, shall be limited to recover their actual losses and not
anticipated profits. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(e) Determinations by the Agent or the Lenders for purposes of this Section of the effect of any Regulatory Change on
capital maintained, their costs or rate of return, maintaining Loans, issuing Letters of Credit, the Lenders&#146; obligations to make Loans and issue Letters of Credit, or on amounts receivable by them in respect of Loans, Letters of Credit, or
such obligations, and the additional amounts required to compensate the Lenders under this Section, shall be rebuttable presumptions of the additional amounts due, provided that such determinations are made on a reasonable basis. The Agent shall
furnish the Borrower with a certificate setting forth in reasonable detail the basis and amount of increased costs incurred or reduced amounts receivable as a result of any such event, and the statements set forth therein shall be rebuttable
presumptions of the additional amounts due. The Agent, on behalf of the Lenders, shall (i)&nbsp;notify the Borrower, as promptly as practicable after the Agent obtains knowledge of any Additional Costs or other sums payable pursuant to this Section
and determines to request compensation therefore, of any event occurring after the Closing Date which will entitle the Lenders to compensation pursuant to this Section; provided that the Borrower shall not be obligated for the payment of any
Additional Costs or other sums payable pursuant to this Section after the earlier of (A)&nbsp;the Final Maturity (provided that the Obligations have been paid in full) and (B)&nbsp;the expiration of the Commitment (provided that the Obligations
</FONT>
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<FONT FACE="Times New Roman" SIZE="2">have been paid in full) to the extent such Additional Costs or other sums accrued more than 90 days prior to the date upon which the Borrower was given such
notice; and (ii)&nbsp;designate a different Applicable Lending Office for the Loans of the Lenders affected by such event if such designation will avoid the need for or reduce the amount of such compensation and will not, in the sole opinion of the
Lenders, be materially disadvantageous to the Lenders. If the Lenders request compensation from the Borrower under this Section, the Borrower may, by notice to the Agent, require that the Loans by the Lenders of the type with respect to which such
compensation is requested be converted into Floating Rate Loans in accordance with Section&nbsp;2.11. Any compensation requested pursuant to this Section shall be due and payable to the Agent, for the account of the Lenders, within fifteen days of
delivery of any such notice by the Agent to the Borrower. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(f) Each of the Lenders agree that it shall not request, and the Borrower shall
not be obligated to pay, any Additional Costs or other sums payable pursuant to this Section unless similar additional costs and other sums payable are also generally assessed by such Lender against other customers of such Lender similarly situated
where such customers are subject to documents providing for such assessment. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">2.19 <U>Limitation of Types of Loans</U>. Anything herein to
the contrary notwithstanding, no more than seven separate Loans shall be outstanding at any one time, with, for purposes of this Section, all Floating Rate Loans constituting one Loan and all LIBO Rate Loans for the same Interest Period constituting
one Loan. Anything herein to the contrary notwithstanding, if, on or prior to the determination of any interest rate for any LIBO Rate Loan for any Interest Period therefor: </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(a) the Lenders determine (which determination shall be conclusive) that quotations of interest rates for the deposits referred to in the
definition of &#147;LIBO Rate&#148; in Section&nbsp;1.2 are not being provided in the relevant amounts or for the relevant maturities for purposes of determining the rate of interest for such Loan as provided in this Agreement; or </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(b) the Lenders determine (which determination shall be conclusive) that the rates of interest referred to in the definition of &#147;LIBO
Rate&#148; in Section&nbsp;1.2 upon the basis of which the rate of interest for such Loan for such Interest Period is to be determined do not accurately reflect the cost to the Lenders of making or maintaining such Loan for such Interest Period,
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">then the Agent shall give the Borrower prompt notice thereof; and so long as such condition remains in effect, the Lenders shall be under no obligation to
make LIBO Rate Loans or to convert Loans of any other type into LIBO Rate Loans, and the Borrower shall, on the last day of the then current Interest Period for each outstanding LIBO Rate Loan, either prepay such LIBO Rate Loan or convert such Loan
into another type of Loan in accordance with Section&nbsp;2.11. Before giving such notice pursuant to this Section, the Agent will designate a different available Applicable Lending Office for LIBO Rate Loans or take such other action as the
Borrower may request if such designation or action will avoid the need to suspend the obligation of the Lenders to make LIBO Rate Loans hereunder and will not, in the opinion of the Agent, be materially disadvantageous to the Agent or the Lenders.
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">2.20 <U>Illegality</U>. Notwithstanding any other provision of this Agreement, in the event that it
becomes unlawful for the Lenders or their Applicable Lending Office to (a)&nbsp;honor its obligation to make any type of LIBO Rate Loans hereunder, or (b)&nbsp;maintain any type of LIBO Rate Loans hereunder, then the Agent shall promptly notify the
Borrower thereof; and the obligation of the Lenders hereunder to make such type of LIBO Rate Loans and to convert other types of Loans into LIBO Rate Loans of such type shall be suspended until such time as the Lenders may again make and maintain
LIBO Rate Loans of such type, and the outstanding LIBO Rate Loans of such type shall be converted into Floating Rate Loans in accordance with Section&nbsp;2.11. Before giving such notice pursuant to this Section, the Agent will designate a different
available Applicable Lending Office for LIBO Rate Loans or take such other action as the Borrower may request if such designation or action will avoid the need to suspend the obligation of the Lenders to make LIBO Rate Loans and will not, in the
opinion of the Agent, be disadvantageous to the Agent or the Lenders. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">2.21 <U>Regulatory Change</U>. In the event that by reason of any
Regulatory Change, the Lenders (a)&nbsp;incur Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of the Lenders which includes deposits by reference to which the
interest rate on any LIBO Rate Loan is determined as provided in this Agreement or a category of extensions of credit or other assets of such Lenders which includes any LIBO Rate Loan, or (b)&nbsp;becomes subject to restrictions on the amount of
such a category of liabilities or assets which it may hold, then, at the election of the Agent with notice to the Borrower, the obligation of the Lenders to make such LIBO Rate Loans and to convert Floating Rate Loans into such LIBO Rate Loans shall
be suspended until such time as such Regulatory Change ceases to be in effect, and all such outstanding LIBO Rate Loans shall be converted into Floating Rate Loans in accordance with Section&nbsp;2.11. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">2.22 <U>Limitations on Interest Periods</U>. Each Interest Period selected by the Borrower (a)&nbsp;which commences on the last Business Day of a
calendar month (or, with respect to any LIBO Rate Loan, any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month,
(b)&nbsp;which would otherwise end on a day which is not a Business Day shall end on the next succeeding Business Day (or, with respect to any LIBO Rate Loan, if such next succeeding Business Day falls in the next succeeding calendar month, on the
next preceding Business Day), (c)&nbsp;which would otherwise commence before and end after Final Maturity shall end on Final Maturity, and (d)&nbsp;shall have a duration of not less than one month, as to any LIBO Rate Loan, and, if any Interest
Period would otherwise be a shorter period, the relevant Loan shall be a Floating Rate Loan during such period. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">2.23 <U>Letters in Lieu of
Transfer Orders</U>. The Agent agrees that none of the letters in lieu of transfer or division orders provided by the Borrower will be sent to the addressees thereof prior to the occurrence of an Event of Default, at which time the Agent may, at its
option and in addition to the exercise of any of its other rights and remedies, send any or all of such letters. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">2.24 <U>Power of
Attorney</U>. The Borrower hereby designates the Agent as its agent and attorney-in-fact, to act in its name, place, and stead for the purpose of completing and, upon the occurrence of an Event of Default, delivering any and all of the letters in
lieu of transfer or division orders delivered by the Borrower to the Agent, including completing any blanks </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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<FONT FACE="Times New Roman" SIZE="2">contained in such letters and attaching exhibits thereto describing the relevant Collateral. The Borrower hereby ratifies and confirms all that the Agent
shall lawfully do or cause to be done by virtue of this power of attorney and the rights granted with respect to such power of attorney. This power of attorney is coupled with the interests of the Agent (for the benefit of the Lenders) in the
Collateral, shall commence and be in full force and effect as of the Closing Date and shall remain in full force and effect and shall be irrevocable so long as any Obligation remains outstanding or unpaid or any Commitment exists. The powers
conferred on the Agent by this appointment are solely to protect the interests of the Agent and the Lenders under the Loan Documents and shall not impose any duty upon the Agent to exercise any such powers. The Agent shall be accountable only for
amounts that it actually receives as a result of the exercise of such powers and shall not be responsible to the Borrower or any other Person for any act or failure to act with respect to such powers, except for gross negligence or willful
misconduct. </FONT></P> <P STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B><U>ARTICLE III </U></B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman"
SIZE="2"><B><U>CONDITIONS </U></B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">The obligations of the Agent and the Lenders to enter into this Agreement and to make Loans and issue
Letters of Credit are subject to the satisfaction of the following conditions precedent: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">3.1 <U>Receipt of Loan Documents and Other
Items</U>. The Agent and the Lenders shall have no obligation under this Agreement unless and until all matters incident to the consummation of the transactions contemplated herein, including, without limitation, the review by the Agent or its
counsel of the title of the Borrower to its Oil and Gas Properties, shall be satisfactory to the Agent, and the Agent shall have received, reviewed, and approved the following documents and other items, appropriately executed when necessary and,
where applicable, acknowledged by one or more Responsible Officers of the Borrower, all in form and substance satisfactory to the Lender and dated, where applicable, of even date herewith or a date prior or subsequent thereto and acceptable to the
Lender: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(a) multiple counterparts of this Agreement, as requested by the Lender; </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(b) the Notes; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">(c) the Artic Subordination Agreement; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(d) confirmation that the Borrower shall have received the proceeds of an
additional $5,000,000 of Parent Subordinated Debt from Parent and applied such proceeds solely to the reduction of the Loan Balance, together with all accrued and unpaid interest thereon; </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(e) confirmation that the Borrower shall have received the proceeds of $20,000,000 of Artic Subordinated Debt from Artic and applied such
proceeds solely to the reduction of the Loan Balance, together with all accrued and unpaid interest thereon; and </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(f) such other agreements, documents, instruments, opinions, certificates, waivers,
consents, and evidence as the Lender may reasonably request. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">3.2 <U>Each Loan and Letter of Credit</U>. In addition to the conditions
precedent stated elsewhere herein, the Lenders shall not be obligated to make any Loan or issue any Letter of Credit unless: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">(a) the Borrower shall have delivered to the Agent a Borrowing Request at least the requisite time prior to the requested date for the relevant Loan, or a Letter of Credit Application at least three Business Days prior to the requested
issuance date for the relevant Letter of Credit; and each statement or certification made in such Borrowing Request or Letter of Credit Application, as the case may be, shall be true and correct in all material respects on the requested date for
such Loan or the issuance of such Letter of Credit; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(b) no Event of Default or Default shall exist or will occur as a
result of the making of the requested Loan or the issuance of the requested Letter of Credit; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(c) if requested by the
Agent, the Borrower shall have delivered evidence satisfactory to the Agent substantiating any of the material matters contained in this Agreement which are necessary to enable the Borrower to qualify for such Loan or the issuance of such Letter of
Credit; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(d) no event shall have occurred which, in the reasonable opinion of the Agent, would have a Material Adverse
Effect; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(e) each of the representations and warranties contained in this Agreement shall be true and correct and shall be
deemed to be repeated by the Borrower as if made on the requested date for such Loan or the issuance of such Letter of Credit (except to the extent such representations and warranties expressly refer to an earlier date, in which case, they shall be
true and correct as of such earlier date) provided, however, for purposes of this Section&nbsp;3.2, in each representation and warranty in Article IV that makes reference to an Exhibit, the representation under this Section&nbsp;3.2 that such
representation and warranty in Article IV is true on and as of the date of the making of such Loan or the issuance of such Letter of Credit shall take into account (i)&nbsp;any subsequent amendments to any Exhibit referred to therein, (ii)&nbsp;any
exception contained in a written notice received by the Agent which makes specific reference to the applicable Exhibit, or (iii)&nbsp;any written disclosure made by the Borrower or any of its Subsidiaries prior to the date as of which such
representation or warranty is made, provided that such amendment, exception or disclosure has been consented to by the Agent if such amendment, exception or disclosure amends or waives provisions of this Agreement or is otherwise required under the
terms of this Agreement. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(f) all of the Security Instruments shall be in full force and effect and provide to the
Lenders the security intended thereby; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(g) neither the consummation of the transactions contemplated hereby nor the making
of such Loan or the issuance of such Letter of Credit shall contravene, violate, or conflict with any Requirement of Law; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">(h) the Borrower shall hold full legal title to the Collateral and be the sole beneficial owner thereof; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(i) the
Agent and the Lenders shall have received the payment of all fees payable to the Agent and the Lenders hereunder and reimbursement from the Borrower, or special legal counsel for the Agent shall have received payment from the Borrower, for
(i)&nbsp;all reasonable fees and expenses of counsel to the Agent for which the Borrower is responsible pursuant to applicable provisions of this Agreement and for which invoices have been presented at least 15 days prior to the date of the relevant
Loan or Letter of Credit Application (otherwise the initial Borrowing which must be presented at least two days prior to the Closing Date), and (ii)&nbsp;estimated fees charged by filing officers and other public officials incurred or to be incurred
in connection with the filing and recordation of any Security Instruments, for which invoices have been presented as of or prior to the date of the requested Loan or Letter of Credit Application (otherwise the initial Borrowing which must be
presented at least five days prior to the Closing Date); and </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(j) all matters incident to the consummation of the
transactions hereby contemplated shall be satisfactory to the Agent. </FONT></P> <P STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B><U>ARTICLE IV </U></B></FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B><U>REPRESENTATIONS AND WARRANTIES </U></B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">To induce the Agent and the Lenders to enter into this Agreement and to make the Loans and issue Letters of Credit, the Borrower represents and warrants to the Agent and the Lenders (which representations and warranties shall survive the
delivery of the Notes) that: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">4.1 <U>Due Authorization</U>. The execution and delivery by the Borrower of this Agreement and the borrowings
hereunder, the execution and delivery by the Borrower of the Notes, the repayment of the Notes and interest and fees provided for in the Notes and this Agreement, the execution and delivery of the Security Instruments by the Borrower and the
performance of all obligations of the Borrower under the Loan Documents, are within the power of the Borrower, have been duly authorized by all necessary limited liability company action by the Borrower, and do not and will not (a)&nbsp;require the
consent of any Governmental Authority, (b)&nbsp;contravene or conflict with any Requirement of Law, (c)&nbsp;contravene or conflict with any indenture, instrument, or other agreement to which the Borrower is a party or by which any Property of the
Borrower may be presently bound or encumbered, except where such contravention or conflict would not individually or in the aggregate result in a Material Adverse </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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<FONT FACE="Times New Roman" SIZE="2">Effect, or (d)&nbsp;result in or require the creation or imposition of any Lien in, upon or of any Property of the Borrower under any such indenture,
instrument, or other agreement, other than the Loan Documents. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">4.2 <U>Limited Liability Company Existence</U>. The Borrower is a limited
liability company duly organized, legally existing, and in good standing under the laws of its state of formation and is duly qualified as foreign limited liability company and is in good standing in all jurisdictions wherein the ownership of
Property or the operation of its business necessitates same, other than those jurisdictions wherein the failure to so qualify will not have a Material Adverse Effect. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">4.3 <U>Valid and Binding Obligations</U>. All Loan Documents, when duly executed and delivered by the Borrower, will be the legal, valid, and binding obligations of the Borrower, enforceable against the Borrower in
accordance with their respective terms except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors&#146; rights generally or by equitable principles relative to enforceability.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">4.4 <U>Security Instruments</U>. The provisions of each Security Instrument are effective to create in favor of the Agent, for the benefit
of the Lenders, a legal, valid, and enforceable Lien in all right, title, and interest of the Borrower in the Collateral described therein, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the
enforcement of creditors&#146; rights generally or by equitable principles relative to enforceability, which Liens, assuming the accomplishment of recording and filing in accordance with applicable laws prior to the intervention of rights of other
Persons, shall constitute fully perfected first-priority Liens on all right, title, and interest of the Borrower in the Collateral described therein subject to Permitted Liens. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">4.5 <U>Title to Assets</U>. The Borrower has good and indefeasible title to all of its interests in its Properties then owned by it, free and clear of
all Liens except Permitted Liens. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">4.6 <U>No Material Misstatements</U>. As of the Closing Date, no information, exhibit, statement, or
report furnished to the Lender by or at the direction of the Borrower in connection with this Agreement contains any material misstatement of fact or omits to state a material fact or any fact necessary to make the statements contained therein not
misleading as of the date made or deemed made. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">4.7 <U>Liabilities, Litigation, and Restrictions</U>. As of the Closing Date, other than as
reflected and reported in Borrower&#146;s Financial Statements as of March&nbsp;31, 2006, including the due to related parties, the Borrower has no liabilities, direct, or contingent, which would result in a Material Adverse Effect, no litigation or
other action of any nature affecting the Borrower is pending before any Governmental Authority or, to the best knowledge of the Borrower, threatened against or affecting the Borrower which might reasonably be expected to result in any material
impairment of its ownership of any Collateral or have a Material Adverse Effect. To the best knowledge of the Borrower, after due inquiry, no unusual or unduly burdensome restriction, restraint or hazard exists by contract, Requirement of Law, or
otherwise relative to the business or operations of the Borrower or the ownership and operation of the Collateral would result in a Material Adverse Effect, other than such as relate generally to Persons engaged in business activities similar to
those conducted by the Borrower. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">4.8 <U>Authorizations; Consents</U>. Except as expressly contemplated by this Agreement, no
authorization, consent, approval, exemption, franchise, permit, or license of, or filing with, any Governmental Authority or any other Person is required to authorize or is otherwise required in connection with the valid execution and delivery by
the Borrower of the Loan Documents or any instrument contemplated hereby, the repayment by the Borrower of the Notes and interest and fees provided in the Notes and this Agreement, or the performance by the Borrower of the Obligations. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">4.9 <U>Compliance with Laws</U>. The Borrower and its Property, including, without limitation, the Mortgaged Property, are in compliance with all
material applicable Requirements of Law, including, without limitation, Environmental Laws, the Natural Gas Policy Act of 1978, as amended, and ERISA, except to the extent non-compliance with any such Requirements of Law could not reasonably be
expected to have a Material Adverse Effect. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">4.10 <U>ERISA</U>. No Reportable Event has occurred with respect to any Single Employer Plan,
and each Single Employer Plan has complied with and been administered in all material respects in accordance with applicable provisions of ERISA and the Code. To the knowledge of the Borrower, (a)&nbsp;no Reportable Event has occurred with respect
to any Multiemployer Plan, and (b)&nbsp;each Multiemployer Plan has complied with and been administered in all material respects with applicable provisions of ERISA and the Code. The present value of all benefits vested under each Single Employer
Plan maintained by the Borrower or any Commonly Controlled Entity (based on the assumptions used to fund such Plan) did not, as of the last annual valuation date applicable thereto, exceed the value of the assets of such Plan allocable to such
vested benefits. Neither the Borrower nor any Commonly Controlled Entity has had a complete or partial withdrawal from any Multiemployer Plan for which there is any withdrawal liability. As of the most recent valuation date applicable to any
Multiemployer Plan, neither the Borrower nor any Commonly Controlled Entity would become subject to any liability under ERISA if the Borrower or such Commonly Controlled Entity were to withdraw completely from such Multiemployer Plan. Neither the
Borrower nor any Commonly Controlled Entity has received notice that any Multiemployer Plan is Insolvent or in Reorganization. To the knowledge of the Borrower, no such Insolvency or Reorganization is reasonably likely to occur. Based upon GAAP
existing as of the date of this Agreement and current factual circumstances, the Borrower has no reason to believe that the annual cost during the term of this Agreement to the Borrower and all Commonly Controlled Entities for post-retirement
benefits to be provided to the current and former employees of the Borrower and all Commonly Controlled Entities under Plans which are welfare benefit plans (as defined in Section&nbsp;3(1) of ERISA) will, in the aggregate, have a Material Adverse
Effect. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">4.11 <U>Environmental Laws</U>. To the knowledge and belief of the Borrower, except as would not have a Material Adverse Effect:
</FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(a) 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; </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(b) 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; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">(c) 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
or from, affecting, or related to any Property of the Borrower or adjacent to any Property of the Borrower has occurred; and </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">(d) no Environmental Complaint has been received by the Borrower. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">4.12 <U>Compliance with Federal Reserve Regulations</U>. No
transaction contemplated by the Loan Documents is in violation of any regulations promulgated by the Board of Governors of the Federal Reserve System, including, without limitation, Regulations G, T, U, or X. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">4.13 <U>Investment Company Act Compliance</U>. The Borrower is not, nor is the Borrower directly or indirectly controlled by or acting on behalf of any
Person which is, an &#147;investment company&#148; or an &#147;affiliated person&#148; of an &#147;investment company&#148; within the meaning of the Investment Company Act of 1940, as amended. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">4.14 <U>RESERVED</U>. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">4.15 <U>Proper
Filing of Tax Returns; Payment of Taxes Due</U>. The Borrower has duly and properly filed its United States income tax return and all other tax returns which are required to be filed and has paid all taxes due except such as are being contested in
good faith and as to which adequate provisions and disclosures have been made. The respective charges and reserves on the books of the Borrower with respect to taxes and other governmental charges are adequate. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">4.16 <U>Refunds</U>. 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 being required to refund any material portion of the proceeds received or to be received from the sale of hydrocarbons constituting part of the Mortgaged Property.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">4.17 <U>Gas Contracts</U>. The Borrower (a)&nbsp;is not obligated in any material respect by virtue of any prepayment made under any
contract containing a &#147;take-or-pay&#148; or &#147;prepayment&#148; provision or under any similar agreement to deliver hydrocarbons produced from or allocated to any of the Mortgaged Property at some future date without receiving full payment
therefor within 90 days of delivery, and (b)&nbsp;has not produced gas, in any material amount, subject to, and neither the Borrower nor any of the Mortgaged Properties is subject to, balancing rights of third parties or subject to balancing duties
under governmental requirements, except as to such matters for which the Borrower has reflected in the most recent engineering report or established monetary reserves adequate in amount to satisfy such obligations and has segregated such reserves
from other accounts. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">4.18 <U>Intellectual Property</U>. The Borrower owns or is licensed to use all Intellectual Property
necessary to conduct all business material to its financial condition, business, or operations as such business is currently conducted. No claim has been asserted or is pending by any Person with the respect to the use of any such Intellectual
Property or challenging or questioning the validity or effectiveness of any such Intellectual Property; and the Borrower knows of no valid basis for any such claim. The use of such Intellectual Property by the Borrower does not infringe on the
rights of any Person, except for such claims and infringements as do not, in the aggregate, give rise to any material liability on the part of the Borrower. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">4.19 <U>Casualties or Taking of Property</U>. Except as would not result in a Material Adverse Effect, neither the business nor any Property of the Borrower has been materially adversely affected as a result of any
fire, explosion, earthquake, flood, drought, windstorm, accident, strike or other labor disturbance, embargo, requisition or taking of Property, or cancellation of contracts, permits, or concessions by any Governmental Authority, riot, activities of
armed forces, or acts of God. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">4.20 <U>Locations of Borrower</U>. The principal place of business and chief executive office of the
Borrower is located at the address of the Borrower set forth in Section&nbsp;9.3 or at such other location as the Borrower may have, by proper written notice hereunder, advised the Agent, provided that such other location is within a state in which
appropriate financing statements from the Borrower in favor of the Agent have been filed. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">4.21 <U>Subsidiaries</U>. As of the Closing
Date, the Borrower has no Subsidiaries. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">4.22 <U>Compliance with Anti-Terrorism Laws</U>. (a)&nbsp;Neither the Borrower nor any Affiliate
of the Borrower is in violation of any Anti-Terrorism Law or knowingly engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth
in any Anti-Terrorism Law. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(b) Neither the Borrower nor any Affiliate of the Borrower is any of the following (each a &#147;<U>Blocked
Person</U>&#148;): </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(i) a Person that is listed in the annex, to, or is otherwise subject to the provisions of, Executive
Order No.&nbsp;13224; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(ii) a Person owned or controlled by, or acting for or on behalf of, any Person that is listed in the
annex to, or is otherwise subject to the provisions of, Executive Order No.&nbsp;13224; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(iii) a Person or entity with which
any bank or other financial institution is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">(iv) a Person or entity that commits, threatens or conspires to commit or supports &#147;terrorism&#148; as defined in Executive Order No.&nbsp;13224; </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(v) a Person or entity that is named as a &#147;specially designated national&#148; on
the most current list published by OFAC at its official website or any replacement website or other replacement official publication of such list; or </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">(vi) a Person or entity who is affiliated with a Person or entity listed above. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(c) Neither the Borrower
nor any Affiliate of the Borrower (i)&nbsp;conducts any business or engages in making or receiving any contribution of funds, goods or services to or for the benefit of any Blocked Person or (ii)&nbsp;deals in, or otherwise engages in any
transaction relating to, any property or interests in property blocked pursuant to Executive Order No.&nbsp;13224. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(d) Neither the
Borrower nor any Affiliate of the Borrower is in violation of any rules or regulations promulgated by OFAC or of any economic or trade sanctions administered and enforced by OFAC or engages in or conspires to engage in any transaction that evades or
avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any rules or regulations promulgated by OFAC. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">4.23 <U>Identification Numbers</U>. The federal taxpayer identification number of the Borrower is 76-0688905 and the organizational number of the Borrower with the Secretary of State of the State of Delaware is
3408892. </FONT></P> <P STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B><U>ARTICLE V </U></B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman"
SIZE="2"><B><U>AFFIRMATIVE COVENANTS </U></B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">So long as any Obligation remains outstanding or unpaid or any Commitment exists, the
Borrower shall: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">5.1 <U>Maintenance and Access to Records</U>. Keep adequate records, of all its transactions so that at any time, and from
time to time, its true and complete financial condition may be readily determined, and promptly following the reasonable request of the Agent, make such records available for inspection by the Agent and, at the expense of the Borrower, allow the
Agent to make and take away copies thereof. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">5.2 <U>Quarterly Financial Statements; Compliance Certificates</U>. Deliver to the Agent,
(a)&nbsp;on or before the 45th day after the close of each of the first three quarterly periods of each fiscal year of the Borrower, beginning with the fiscal quarter ending March&nbsp;31, 2008, a copy of its unaudited Financial Statements at the
close of such quarterly period and from the beginning of such fiscal year to the end of such period, such Financial Statements to be certified by a Responsible Officer of the Borrower as having been prepared in accordance with GAAP (with the
exception of footnotes) consistently applied and as a fair presentation of the condition of the Borrower, subject to changes resulting from normal year-end audit adjustments, and (b)&nbsp;on or before the 45th day after the close of each fiscal
quarter, with the exception of the last fiscal quarter, a Compliance Certificate. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">5.3 <U>RESERVED</U>. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">5.4 <U>RESERVED</U>. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">5.5 <U>RESERVED</U>. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%;padding-bottom:3px;line-height:95%; vertical-align:top"><FONT FACE="Times New Roman" SIZE="2">5.6 <U>Annual Financial Statements</U>. Deliver to the Agent, on or before the 120th day after the
close of each fiscal year of the Borrower, a copy of the Borrower&#146;s annual unaudited Financial Statements and the Borrowers Compliance Certificate on the 120</FONT><FONT FACE="Times New Roman" SIZE="1"><SUP>th</SUP></FONT><FONT
FACE="Times New Roman" SIZE="2"> day after the close of each fiscal year. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">5.7 <U>Oil and Gas Reserve Reports</U>. (a)&nbsp;Deliver to the
Agent, no later than March&nbsp;1 of each year during the term of this Agreement, engineering reports in form and substance satisfactory to the Agent, certified by Ryder Scott Company as fairly and accurately setting forth (i)&nbsp;the proven and
producing, shut-in, behind-pipe, and undeveloped oil and gas reserves (separately classified as such) attributable to the Mortgaged Properties as of January&nbsp;1 of the year for which such reserve reports are furnished, (ii)&nbsp;the aggregate
present value of the future net income with respect to such Mortgaged Properties, discounted at a stated per annum discount rate of proven and producing reserves, (iii)&nbsp;projections of the annual rate of production, gross income, and net income
with respect to such proven and producing reserves, and (iv)&nbsp;information with respect to the &#147;take-or-pay,&#148; &#147;prepayment,&#148; and gas-balancing liabilities of the Borrower. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(b) Deliver to the Agent no later than September&nbsp;1 of each year during the term of this Agreement, engineering reports in form and substance
satisfactory to the Agent certified by Ryder Scott Company evaluating the Mortgaged Properties as of July&nbsp;1 of the year for which such reserve reports are furnished and updating the information provided in the reports pursuant to
Section&nbsp;5.7(a). </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(c) Each of the reports provided pursuant to this Section shall be submitted to the Agent together with additional
data concerning pricing, quantities of production from the Mortgaged Properties, volumes of production sold, purchasers of production, gross revenues, expenses, log section, map, test data and such other information and engineering and geological
data with respect thereto as the Agent may reasonably request. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(d) Notwithstanding anything in this Section&nbsp;5.7 to the contrary, the
engineering report required pursuant to Section&nbsp;5.7(b) evaluating the Mortgaged Properties as of July&nbsp;1, 2008 and to be delivered by the Borrower to the Agent no later than September&nbsp;1, 2008 shall be in the form of and contain all of
the information required as to an engineering report delivered to the Agent in satisfaction of the provisions of Section&nbsp;5.7(a). </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">5.8
<U>Title Opinions; Title Defects and Mortgages</U>. Promptly upon the request of the Agent, furnish to the Agent title opinions, in form and substance and by counsel satisfactory to the Agent, or other confirmation of title acceptable to the Agent,
covering all Oil and Gas Properties currently in the Borrowing Base; and promptly, but in any event within 30 days after notice by the Agent of any defect, material in the opinion of the Agent in value, in the title of the Borrower to any of its Oil
and Gas Properties, clear such title defects, and, in the event any such title defects are not cured in a timely manner, pay all related costs and fees incurred by the Agent to do so. The Borrower shall at all times have granted a Mortgage to the
Agent covering all of the Oil and Gas Properties in the Borrowing Base. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 37 - </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">5.9 <U>Notices of Certain Events</U>. Deliver to the Agent, immediately upon having knowledge of the
occurrence of any of the following events or circumstances, a written statement with respect thereto, signed by a Responsible Officer of the Borrower and setting forth the relevant event or circumstance and the steps being taken by the Borrower with
respect to such event or circumstance: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(a) any Default or Event of Default; </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(b) any default or event of default under any contractual obligation of the Borrower, or any litigation, investigation, or proceeding
between the Borrower and any Governmental Authority which, in either case, if not cured or if adversely determined, as the case may be, could reasonably be expected to have a Material Adverse Effect; </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(c) any litigation or proceeding involving the Borrower as a defendant or in which any Property of the Borrower is subject to a claim and
in which the amount involved is $100,000 or more and which is not covered by insurance or in which injunctive or similar relief is sought; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">(d) the receipt by the Borrower of any Environmental Complaint; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(e) any actual, proposed,
or threatened testing or other investigation by any Governmental Authority or other Person concerning the environmental condition of, or relating to, any Property of the Borrower or adjacent to any Property of the Borrower following any allegation
of a violation of any Requirement of Law; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(f) any Release of Hazardous Substances by the Borrower or from, affecting, or
related to any Property of the Borrower or adjacent to any Property of the Borrower except in accordance with applicable Requirements of Law or the terms of a valid permit, license, certificate, or approval of the relevant Governmental Authority, or
the violation of any Environmental Law, or the revocation, suspension, or forfeiture of or failure to renew, any permit, license, registration, approval, or authorization which could reasonably be expected to have a Material Adverse Effect;
</FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(g) 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 Mortgaged Property; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(h) any change in the senior management of the Borrower;
</FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(i) any Reportable Event or imminently expected Reportable Event with respect to any Plan; any withdrawal from, or the
termination, Reorganization </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 38 - </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%">
<FONT FACE="Times New Roman" SIZE="2">or Insolvency of, any Multiemployer Plan; the institution of proceedings or the taking of any other action by the PBGC, the Borrower or any Commonly
Controlled Entity or Multiemployer Plan with respect to the withdrawal from, or the termination, Reorganization or Insolvency of, any Single Employer Plan or Multiemployer Plan; or any Prohibited Transaction in connection with any Plan or any trust
created thereunder and the action being taken by the Internal Revenue Service with respect thereto; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(j) any other event or
condition which could reasonably be expected to have a Material Adverse Effect. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">5.10 <U>Letters in Lieu of Transfer Orders; Division
Orders</U>. Promptly upon request by the Agent at any time and from time to time, execute such letters in lieu of transfer or division orders and/or division and/or transfer orders as are necessary or appropriate to transfer and deliver to the Agent
proceeds from or attributable to any Mortgaged Property. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">5.11 <U>Additional Information</U>. Furnish to the Agent, promptly upon the
request of the Agent, such additional financial or other information concerning the assets, liabilities, operations, and transactions of the Borrower as the Agent may from time to time 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 business or chief executive office; and upon the request of the Agent, execute such additional Security Instruments as may be necessary or appropriate in connection
therewith. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">5.12 <U>Compliance with Laws</U>. Except to the extent the failure to comply or cause compliance would not have a Material
Adverse Effect, comply with all applicable Requirements of Law, including, without limitation, (a)&nbsp;the Natural Gas Policy Act of 1978, as amended, (b)&nbsp;ERISA, (c)&nbsp;Environmental Laws, and (d)&nbsp;all permits, licenses, registrations,
approvals, and authorizations (i)&nbsp;related to any natural or environmental resource or media located on, above, within, in the vicinity of, related to or affected by any Property of the Borrower, (ii)&nbsp;required for the performance of the
operations of the Borrower, or (iii)&nbsp;applicable to the use, generation, handling, storage, treatment, transport, or disposal of any Hazardous Substances; and cause all employees, crew members, agents, contractors, subcontractors, and future
lessees (pursuant to appropriate lease provisions) of the Borrower, while such Persons are acting within the scope of their relationship with the Borrower, to comply with all such Requirements of Law as may be necessary or appropriate to enable the
Borrower to so comply. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">5.13 <U>Payment of Assessments and Charges</U>. Pay all taxes, assessments, governmental charges, rent, and other
Indebtedness which, if unpaid, might become a Lien against the Property of the Borrower, except any of the foregoing being contested in good faith and as to which adequate reserve in accordance with GAAP has been established or unless failure to pay
would not have a Material Adverse Effect. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">5.14 <U>Maintenance of Limited Liability Company Existence and Good Standing</U>. Maintain its
limited liability company existence or qualification and good standing in its </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 39 - </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px">
<FONT FACE="Times New Roman" SIZE="2">jurisdictions of incorporation or formation and in all jurisdictions wherein the Property now owned or hereafter acquired or business now or hereafter
conducted necessitates same, unless the failure to do so would not have a Material Adverse Effect. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">5.15 <U>Payment of Notes; Performance
of Obligations</U>. Pay the Notes according to the reading, tenor, and effect thereof, as modified hereby, and do and perform every act and discharge all of its other Obligations. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">5.16 <U>Further Assurances</U>. Promptly cure any defects in the execution and delivery of any of the Loan Documents and all agreements contemplated
thereby, and execute, acknowledge, and deliver such other assurances and instruments as shall, in the opinion of the Agent, be necessary to fulfill the terms of the Loan Documents. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">5.17 <U>Initial Fees and Expenses of Counsel to Agent</U>. Upon request by the Agent, promptly reimburse the Agent for all reasonable fees and expenses
of Jackson Walker L.L.P., special counsel to the Agent, in connection with the preparation of this Agreement and all documentation contemplated hereby, the satisfaction of the conditions precedent set forth herein, the filing and recordation of
Security Instruments, and the consummation of the transactions contemplated in this Agreement. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">5.18 <U>Subsequent Fees and Expenses of
Agent</U>. Upon request by the Agent, promptly reimburse the Agent (to the fullest extent permitted by law) for all amounts reasonably expended, advanced, or incurred by or on behalf of the Agent to satisfy any obligation of the Borrower under any
of the Loan Documents; to collect the Obligations; to ratify, amend, restate, or prepare additional Loan Documents, as the case may be; for the filing and recordation of Security Instruments; to enforce the rights of the Agent under any of the Loan
Documents; and to protect the Properties or business of the Borrower, including, without limitation, the Collateral, which amounts shall be deemed compensatory in nature and liquidated as to amount upon notice to the Borrower by the Agent and which
amounts shall include, but not be limited to (a)&nbsp;all court costs, (b)&nbsp;reasonable attorneys&#146; fees, (c)&nbsp;reasonable fees and expenses of auditors and accountants incurred to protect the interests of the Agent or the Lenders,
(d)&nbsp;fees and expenses incurred in connection with the participation by the Agent or the Lenders as members of the creditors&#146; committee in a case commenced under any Insolvency Proceeding, (e)&nbsp;fees and expenses incurred in connection
with lifting the automatic stay prescribed in &#167;362 Title 11 of the United States Code, and (f)&nbsp;fees and expenses incurred in connection with any action pursuant to &#167;1129 Title 11 of the United States Code; all reasonably incurred by
the Agent 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 Agent until the date it is repaid to the Agent, 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. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">5.19 <U>Operation of Oil and Gas Properties</U>. Develop, maintain, and operate its Oil and Gas Properties in a prudent and workmanlike manner in
accordance with industry standards. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 40 - </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">5.20 <U>Maintenance and Inspection of Properties</U>. Maintain all of its tangible Properties in good
repair and condition, ordinary wear and tear excepted; make all necessary replacements thereof and operate such Properties in a good and workmanlike manner; and permit any authorized representative of the Agent to visit and inspect, at the expense
of the Borrower, any tangible Property of the Borrower. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">5.21 <U>Maintenance of Insurance</U>. The Borrower shall maintain insurance with
respect to its Properties and businesses against such liabilities, casualties, risks, and contingencies as is customary in the relevant industry and sufficient to prevent a Material Adverse Effect, all such insurance to be in amounts (and with
deductibles) and from insurers reasonably acceptable to the Agent or as may be required under the laws of any state or jurisdiction in which it may be engaged in business, maintained by Borrower, naming the Agent as loss payee, only as to coverage
on physical damage and only as it relates to Borrower&#146;s specific interest in such property and, as additional insured (in the case of liability insurance) upon any renewal of any such insurance and at other times upon request by the Agent,
furnish to the Agent evidence, satisfactory to the Agent, of the maintenance of such insurance. The Borrower will give Agent 30 days prior written notice of intent to cancel or modify any such insurance. If no Borrowing Base deficiency exists and no
Event of Default has occurred and its continuing, (a)&nbsp;the Borrower will cause all proceeds of insurance in connection with a Casualty Event to be deposited into a deposit account at the Agent and (b)&nbsp;the Borrower may use such insurance
proceeds to, at its option, repair or rebuild the affected property or pay or prepay any outstanding Loans or other Obligations or for any other lawful purpose not otherwise restricted by the Loan Documents. If a Borrowing Base deficiency exists,
such insurance proceeds shall be used to cure such Borrowing Base deficiency by prepaying the Loans and/or Letters of Credit to the extent of the deficiency. After the occurrence and during the continuance of an Event of Default, the Agent may apply
all insurance proceeds upon receipt thereof to the Obligations. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">5.22 <U>Evidence of Compliance with Anti-Terrorism Laws</U>. Deliver to
the Lender any certification or other evidence requested from time to time by the Lender, in its reasonable discretion, confirming compliance by the Borrower with the provisions of Section&nbsp;6.21. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">5.23 <U>Indemnification</U>. <B>I<SMALL>NDEMNIFY</SMALL> <SMALL>AND</SMALL> <SMALL>HOLD</SMALL> <SMALL>THE</SMALL> A<SMALL>GENT</SMALL>
<SMALL>AND</SMALL> <SMALL>EACH</SMALL> L<SMALL>ENDER</SMALL> <SMALL>AND</SMALL> <SMALL>THEIR</SMALL> <SMALL>RESPECTIVE</SMALL> <SMALL>SHAREHOLDERS</SMALL>, <SMALL>OFFICERS</SMALL>, <SMALL>DIRECTORS</SMALL>, <SMALL>EMPLOYEES</SMALL>,
<SMALL>AGENTS</SMALL>, <SMALL>ATTORNEYS</SMALL>-<SMALL>IN</SMALL>-<SMALL>FACT</SMALL>, <SMALL>AND</SMALL> <SMALL>AFFILIATES</SMALL> <SMALL>AND</SMALL> <SMALL>EACH</SMALL> <SMALL>TRUSTEE</SMALL> <SMALL>FOR</SMALL> <SMALL>THE</SMALL>
<SMALL>BENEFIT</SMALL> <SMALL>OF</SMALL> <SMALL>THE</SMALL> A<SMALL>GENT</SMALL> <SMALL>OR</SMALL> <SMALL>THE</SMALL> L<SMALL>ENDERS</SMALL> <SMALL>AND</SMALL> <SMALL>EACH</SMALL> S<SMALL>ECURED</SMALL> P<SMALL>ARTY</SMALL> <SMALL>UNDER</SMALL>
<SMALL>ANY</SMALL> <SMALL>SECURITY</SMALL> <SMALL>INSTRUMENT</SMALL> <SMALL>HARMLESS</SMALL> <SMALL>FROM</SMALL> <SMALL>AND</SMALL> <SMALL>AGAINST</SMALL> <SMALL>ANY</SMALL> <SMALL>AND</SMALL> <SMALL>ALL</SMALL> <SMALL>CLAIMS</SMALL>,
<SMALL>LOSSES</SMALL>, <SMALL>DAMAGES</SMALL>, <SMALL>LIABILITIES</SMALL>, <SMALL>FINES</SMALL>, <SMALL>PENALTIES</SMALL>, <SMALL>CHARGES</SMALL>, <SMALL>ADMINISTRATIVE</SMALL> <SMALL>AND</SMALL> <SMALL>JUDICIAL</SMALL> <SMALL>PROCEEDINGS</SMALL>
<SMALL>AND</SMALL> <SMALL>ORDERS</SMALL>, <SMALL>JUDGMENTS</SMALL>, <SMALL>REMEDIAL</SMALL> <SMALL>ACTIONS</SMALL>, <SMALL>REQUIREMENTS</SMALL> <SMALL>AND</SMALL> <SMALL>ENFORCEMENT</SMALL> <SMALL>ACTIONS</SMALL> <SMALL>OF</SMALL> <SMALL>ANY</SMALL>
<SMALL>KIND</SMALL>, <SMALL>AND</SMALL> <SMALL>ALL</SMALL> <SMALL>COSTS</SMALL> <SMALL>AND</SMALL> <SMALL>EXPENSES</SMALL> <SMALL>INCURRED</SMALL> <SMALL>IN</SMALL> <SMALL>CONNECTION</SMALL> <SMALL>THEREWITH</SMALL> (<SMALL>INCLUDING</SMALL>,
<SMALL>WITHOUT</SMALL> <SMALL>LIMITATION</SMALL>, <SMALL>ATTORNEYS</SMALL>&#146; <SMALL>FEES</SMALL> <SMALL>AND</SMALL> <SMALL>EXPENSES</SMALL>), <SMALL>ARISING</SMALL> <SMALL>DIRECTLY</SMALL> <SMALL>OR</SMALL> <SMALL>INDIRECTLY</SMALL>,
<SMALL>IN</SMALL> <SMALL>WHOLE</SMALL> <SMALL>OR</SMALL> <SMALL>IN</SMALL> <SMALL>PART</SMALL>, <SMALL>FROM</SMALL> (<SMALL>A</SMALL>)&nbsp;<SMALL>THE</SMALL> <SMALL>PRESENCE</SMALL> <SMALL>OF</SMALL> <SMALL>ANY</SMALL> <SMALL>HAZARDOUS</SMALL>
<SMALL>SUBSTANCES</SMALL> <SMALL>ON</SMALL>, <SMALL>UNDER</SMALL>, <SMALL>OR</SMALL> <SMALL>FROM</SMALL> <SMALL>ANY</SMALL> <SMALL>PROPERTY</SMALL> <SMALL>OF</SMALL> <SMALL>THE</SMALL> B<SMALL>ORROWER</SMALL>, <SMALL>WHETHER</SMALL>
<SMALL>PRIOR</SMALL> <SMALL>TO</SMALL> <SMALL>OR</SMALL> <SMALL>DURING</SMALL> <SMALL>THE</SMALL> <SMALL>TERM</SMALL> <SMALL>HEREOF</SMALL>, (<SMALL>B</SMALL>)&nbsp;<SMALL>ANY</SMALL> <SMALL>ACTIVITY</SMALL> <SMALL>CARRIED</SMALL> <SMALL>ON</SMALL>
<SMALL>OR</SMALL> <SMALL>UNDERTAKEN</SMALL> <SMALL>ON</SMALL> <SMALL>OR</SMALL> <SMALL>OFF</SMALL> <SMALL>ANY</SMALL> <SMALL>PROPERTY</SMALL> <SMALL>OF</SMALL> <SMALL>THE</SMALL> B<SMALL>ORROWER</SMALL>, <SMALL>WHETHER</SMALL> <SMALL>PRIOR</SMALL>
<SMALL>TO</SMALL> <SMALL>OR</SMALL> <SMALL>DURING</SMALL> <SMALL>THE</SMALL> <SMALL>TERM</SMALL> <SMALL>HEREOF</SMALL>, <SMALL>AND</SMALL> <SMALL>WHETHER</SMALL> <SMALL>BY</SMALL> <SMALL>THE</SMALL> B<SMALL>ORROWER</SMALL> <SMALL>OR</SMALL>
<SMALL>ANY</SMALL> <SMALL>PREDECESSOR</SMALL> <SMALL>IN</SMALL> <SMALL>TITLE</SMALL>, <SMALL>EMPLOYEE</SMALL>, <SMALL>AGENT</SMALL>, <SMALL>CONTRACTOR</SMALL>, <SMALL>OR</SMALL> <SMALL>SUBCONTRACTOR</SMALL> <SMALL>OF</SMALL> <SMALL>THE</SMALL>
B<SMALL>ORROWER</SMALL> <SMALL>OR</SMALL> <SMALL>ANY</SMALL> <SMALL>OTHER</SMALL> <SMALL>PERSON</SMALL> <SMALL>AT</SMALL> <SMALL>ANY</SMALL> <SMALL>TIME</SMALL> <SMALL>OCCUPYING</SMALL> <SMALL>OR</SMALL> <SMALL>PRESENT</SMALL> <SMALL>ON</SMALL>
<SMALL>SUCH</SMALL></B><SMALL></SMALL> </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 41 - </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px">
<FONT FACE="Times New Roman" SIZE="2"><B><SMALL>PROPERTY</SMALL>, <SMALL>IN</SMALL> <SMALL>CONNECTION</SMALL> <SMALL>WITH</SMALL> <SMALL>THE</SMALL> <SMALL>HANDLING</SMALL>,
<SMALL>TREATMENT</SMALL>, <SMALL>REMOVAL</SMALL>, <SMALL>STORAGE</SMALL>, <SMALL>DECONTAMINATION</SMALL>, <SMALL>CLEANUP</SMALL>, <SMALL>TRANSPORTATION</SMALL>, <SMALL>OR</SMALL> <SMALL>DISPOSAL</SMALL> <SMALL>OF</SMALL> <SMALL>ANY</SMALL>
<SMALL>HAZARDOUS</SMALL> <SMALL>SUBSTANCES</SMALL> <SMALL>AT</SMALL> <SMALL>ANY</SMALL> <SMALL>TIME</SMALL> <SMALL>LOCATED</SMALL> <SMALL>OR</SMALL> <SMALL>PRESENT</SMALL> <SMALL>ON</SMALL> <SMALL>OR</SMALL> <SMALL>UNDER</SMALL> <SMALL>SUCH</SMALL>
<SMALL>PROPERTY</SMALL>, (<SMALL>C</SMALL>)&nbsp;<SMALL>ANY</SMALL> <SMALL>RESIDUAL</SMALL> <SMALL>CONTAMINATION</SMALL> <SMALL>ON</SMALL> <SMALL>OR</SMALL> <SMALL>UNDER</SMALL> <SMALL>ANY</SMALL> <SMALL>PROPERTY</SMALL> <SMALL>OF</SMALL>
<SMALL>THE</SMALL> B<SMALL>ORROWER</SMALL>, (<SMALL>D</SMALL>)&nbsp;<SMALL>ANY</SMALL> <SMALL>CONTAMINATION</SMALL> <SMALL>OF</SMALL> <SMALL>ANY</SMALL> <SMALL>PROPERTY</SMALL> <SMALL>OR</SMALL> <SMALL>NATURAL</SMALL> <SMALL>RESOURCES</SMALL>
<SMALL>ARISING</SMALL> <SMALL>IN</SMALL> <SMALL>CONNECTION</SMALL> <SMALL>WITH</SMALL> <SMALL>THE</SMALL> <SMALL>GENERATION</SMALL>, <SMALL>USE</SMALL>, <SMALL>HANDLING</SMALL>, <SMALL>STORAGE</SMALL>, <SMALL>TRANSPORTATION</SMALL> <SMALL>OR</SMALL>
<SMALL>DISPOSAL</SMALL> <SMALL>OF</SMALL> <SMALL>ANY</SMALL> <SMALL>HAZARDOUS</SMALL> <SMALL>SUBSTANCES</SMALL> <SMALL>BY</SMALL> <SMALL>THE</SMALL> B<SMALL>ORROWER</SMALL> <SMALL>OR</SMALL> <SMALL>ANY</SMALL> <SMALL>EMPLOYEE</SMALL>,
<SMALL>AGENT</SMALL>, <SMALL>CONTRACTOR</SMALL>, <SMALL>OR</SMALL> <SMALL>SUBCONTRACTOR</SMALL> <SMALL>OF</SMALL> <SMALL>THE</SMALL> B<SMALL>ORROWER</SMALL> <SMALL>WHILE</SMALL> <SMALL>SUCH</SMALL> <SMALL>PERSONS</SMALL> <SMALL>ARE</SMALL>
<SMALL>ACTING</SMALL> <SMALL>WITHIN</SMALL> <SMALL>THE</SMALL> <SMALL>SCOPE</SMALL> <SMALL>OF</SMALL> <SMALL>THEIR</SMALL> <SMALL>RELATIONSHIP</SMALL> <SMALL>WITH</SMALL> <SMALL>THE</SMALL> B<SMALL>ORROWER</SMALL>, <SMALL>IRRESPECTIVE</SMALL>
<SMALL>OF</SMALL> <SMALL>WHETHER</SMALL> <SMALL>ANY</SMALL> <SMALL>OF</SMALL> <SMALL>SUCH</SMALL> <SMALL>ACTIVITIES</SMALL> <SMALL>WERE</SMALL> <SMALL>OR</SMALL> <SMALL>WILL</SMALL> <SMALL>BE</SMALL> <SMALL>UNDERTAKEN</SMALL> <SMALL>IN</SMALL>
<SMALL>ACCORDANCE</SMALL> <SMALL>WITH</SMALL> <SMALL>APPLICABLE</SMALL> <SMALL>REQUIREMENTS</SMALL> <SMALL>OF</SMALL> <SMALL>LAW</SMALL>, <SMALL>OR</SMALL> (<SMALL>E</SMALL>)&nbsp;<SMALL>THE</SMALL> <SMALL>PERFORMANCE</SMALL> <SMALL>AND</SMALL>
<SMALL>ENFORCEMENT</SMALL> <SMALL>OF</SMALL> <SMALL>ANY</SMALL> <SMALL>LOAN</SMALL> <SMALL>DOCUMENT</SMALL> <SMALL>OR</SMALL> <SMALL>ANY</SMALL> <SMALL>OTHER</SMALL> <SMALL>ACT</SMALL> <SMALL>OR</SMALL> <SMALL>OMISSION</SMALL> <SMALL>IN</SMALL>
<SMALL>CONNECTION</SMALL> <SMALL>WITH</SMALL> <SMALL>OR</SMALL> <SMALL>RELATED</SMALL> <SMALL>TO</SMALL> <SMALL>ANY</SMALL> <SMALL>LOAN</SMALL> <SMALL>DOCUMENT</SMALL> <SMALL>OR</SMALL> <SMALL>THE</SMALL> <SMALL>TRANSACTIONS</SMALL>
<SMALL>CONTEMPLATED</SMALL> <SMALL>THEREBY</SMALL>, <SMALL>INCLUDING</SMALL>, <SMALL>WITHOUT</SMALL> <SMALL>LIMITATION</SMALL>, <SMALL>ANY</SMALL> <SMALL>OF</SMALL> <SMALL>THE</SMALL> <SMALL>FOREGOING</SMALL> <SMALL>IN</SMALL> <SMALL>THIS</SMALL>
<SMALL>SECTION</SMALL> <SMALL>ARISING</SMALL> <SMALL>FROM</SMALL> <SMALL>NEGLIGENCE</SMALL>, <SMALL>WHETHER</SMALL> <SMALL>SOLE</SMALL> <SMALL>OR</SMALL> <SMALL>CONCURRENT</SMALL>, <SMALL>ON</SMALL> <SMALL>THE</SMALL> <SMALL>PART</SMALL>
<SMALL>OF</SMALL> <SMALL>THE</SMALL> A<SMALL>GENT</SMALL> <SMALL>OR</SMALL> <SMALL>ANY</SMALL> L<SMALL>ENDER</SMALL> <SMALL>OR</SMALL> <SMALL>THEIR</SMALL> <SMALL>RESPECTIVE</SMALL> <SMALL>SHAREHOLDERS</SMALL>, <SMALL>OFFICERS</SMALL>,
<SMALL>DIRECTORS</SMALL>, <SMALL>EMPLOYEES</SMALL>, <SMALL>AGENTS</SMALL>, <SMALL>ATTORNEYS</SMALL>-<SMALL>IN</SMALL>-<SMALL>FACT</SMALL>, <SMALL>OR</SMALL> <SMALL>AFFILIATES</SMALL> <SMALL>OR</SMALL> <SMALL>ANY</SMALL> <SMALL>TRUSTEE</SMALL>
<SMALL>FOR</SMALL> <SMALL>THE</SMALL> <SMALL>BENEFIT</SMALL> <SMALL>OF</SMALL> <SMALL>THE</SMALL> A<SMALL>GENT</SMALL> <SMALL>OR</SMALL> <SMALL>THE</SMALL> L<SMALL>ENDERS</SMALL> <SMALL>OR</SMALL> <SMALL>ANY</SMALL> S<SMALL>ECURED</SMALL>
P<SMALL>ARTY</SMALL> <SMALL>UNDER</SMALL> <SMALL>ANY</SMALL> <SMALL>SECURITY</SMALL> <SMALL>INSTRUMENT</SMALL>; <SMALL>WITH</SMALL> <SMALL>THE</SMALL> <SMALL>FOREGOING</SMALL> <SMALL>INDEMNITY</SMALL> <SMALL>SURVIVING</SMALL>
<SMALL>SATISFACTION</SMALL> <SMALL>OF</SMALL> <SMALL>ALL</SMALL> <SMALL>OBLIGATIONS</SMALL> <SMALL>AND</SMALL> <SMALL>THE</SMALL> <SMALL>TERMINATION</SMALL> <SMALL>OF</SMALL> <SMALL>THIS</SMALL> A<SMALL>GREEMENT</SMALL>.</B> </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">5.24 <U>Future Subsidiaries</U>. In the event Borrower acquires any Subsidiaries, it agrees to have such Subsidiary become a Borrower under this
Agreement or to guarantee the Obligation hereunder, in each case as the Agent may require in its sole discretion. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">5.25 <U>RESERVED</U>.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">5.26 <U>Pledge of Additional Assets</U>. After 15 days written notice by the Agent, pledge any additional assets requested by the Agent,
including assets such as inventory and undeveloped Oil and Gas Properties. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">5.27 <U>Additional Reporting Requirements</U>. Deliver to the
Agent a monthly production volume throughput report as to production from the Project Fields within 30 days after each month end. </FONT></P> <P STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman"
SIZE="2"><B><U>ARTICLE VI </U></B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B><U>NEGATIVE COVENANTS </U></B></FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">So long as any Obligation remains outstanding or unpaid or any Commitment exists, the Borrower will not: </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">6.1 <U>Indebtedness</U>. Create, incur, assume, or suffer to exist any Indebtedness, whether by way of loan or otherwise; provided, however, the foregoing
restriction shall not apply to (a)&nbsp;the Obligations, (b)&nbsp;unsecured accounts payable in excess of $50,000 in the aggregate incurred in the ordinary course of business, which are not unpaid in excess of 60 days beyond invoice date or are
being contested in good faith and as to which such reserve as is required by GAAP has been made or if there is an agreement between the trade creditor and the Borrower allowing a </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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<FONT FACE="Times New Roman" SIZE="2">longer time for payment, (c)&nbsp;crude oil, natural gas, or other hydrocarbon floor, collar, cap, price protection, or swap agreements (&#147;Commodity
Hedge Agreements&#148;), in form and substance and with a Person acceptable to the Agent, provided that (i)&nbsp;each commitment issued under such agreement must also be approved by the Agent, (ii)&nbsp;such agreements shall not be entered into with
respect to Mortgaged Properties constituting more than 80% of monthly production of proven developed shut-in reserves as forecast in the Agent&#146;s most recent engineering evaluation, (iii)&nbsp;that the strike prices in such agreements are not
less than the prices used by the Agent in its most recent Borrowing Base determination, and (iv)&nbsp;the Agent, for the benefit of the Lenders, shall receive a security interest in the Commodity Hedge Agreements, (d)&nbsp;Rate Management
Transactions, in form and substance and with a Person acceptable to the Agent, (e)&nbsp;Indebtedness secured by Permitted Liens and (f)&nbsp;Subordinated Debt of the Borrower, including the Parent Subordinated Debt and the Artic Subordinated Debt.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">6.2 <U>Contingent Obligations</U>. Create, incur, assume, or suffer to exist any Contingent Obligation; provided, however, the foregoing
restriction shall not apply to (a)&nbsp;performance guarantees and performance surety or other bonds provided in the ordinary course of business, or (b)&nbsp;trade credit incurred or operating leases entered into in the ordinary course of business.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">6.3 <U>Liens</U>. Create, incur, assume or suffer to exist any Lien on any of its Oil and Gas Properties or any other Property, whether
now owned or hereafter acquired; provided, however, the foregoing restrictions shall not apply to (a)&nbsp;Permitted Liens or (b)&nbsp;Liens securing the Artic Subordinated Debt, so long as such Liens are subject to the lien priorities provided in
the Artic Subordination Agreement. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">6.4 <U>Sales of Assets</U>. Without the prior written consent of the Agent, sell, transfer, or
otherwise dispose of, in one or any series of transactions assets in excess of $100,000 in the aggregate, whether now owned or hereafter acquired, or enter into any agreement to do so; <U>provided, however</U>, the foregoing restriction shall not
apply to the sale of hydrocarbons or inventory in the ordinary course of business or the sale or other disposition of Property destroyed, lost, worn out, damaged or having only salvage value or no longer used or useful in the business of the
Borrower. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">6.5 <U>Leasebacks</U>. Enter into any agreement to sell or transfer any Property and thereafter rent or lease as lessee such
Property or other Property intended for the same use or purpose as the Property sold or transferred. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">6.6 <U>Loans or Advances</U>. Make or
agree to make or allow to remain outstanding any loans or advances to any Person; provided, however, the foregoing restrictions shall not apply to (a)&nbsp;advances or extensions of credit in the form of accounts receivable incurred in the ordinary
course of business and upon terms common in the industry for such accounts receivable, (b)&nbsp;advances to employees of the Borrower for the payment of expenses in the ordinary course of business or (c)&nbsp;subject to the provisions of Sections
6.19 and 6.20, repayment of Subordinated Debt. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">6.7 <U>Investments</U>. Make or acquire Investments in, or purchase or otherwise acquire
all or substantially all of the assets of, any Person; provided, however, the foregoing restriction shall not apply to the purchase or acquisition of (a)&nbsp;Oil and Gas Properties, (b)&nbsp;Investments in the </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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<FONT FACE="Times New Roman" SIZE="2">form of (i)&nbsp;debt securities issued or directly and fully guaranteed or insured by the United States Government or any agency or instrumentality thereof,
with maturities of no more than one year, (ii)&nbsp;commercial paper of a domestic issuer rated at the date of acquisition at least P-2 by Moody&#146;s Investor Service, Inc. or A-2 by Standard&nbsp;&amp; Poor&#146;s Corporation and with maturities
of no more than one year from the date of acquisition, or (iii)&nbsp;repurchase agreements covering debt securities or commercial paper of the type permitted in this Section, certificates of deposit, demand deposits, eurodollar time deposits,
overnight bank deposits and bankers&#146; acceptances, with maturities of no more than one year from the date of acquisition, issued by or acquired from or through the Agent or any bank or trust company organized under the laws of the United States
or any state thereof and having capital surplus and undivided profits aggregating at least $500,000,000, (c)&nbsp;other short-term Investments similar in nature and degree of risk to those described in clause (b)&nbsp;of this Section, or
(d)&nbsp;money-market funds. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">6.8 <U>Dividends and Distributions</U>. Declare, pay, or make, whether in cash or Property of the Borrower,
any dividend or distribution to any Person. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">6.9 <U>Issuance of Stock; Changes in Limited Liability Structure</U>. Issue or agree to issue
additional shares of capital stock, in one or any series of transactions; enter into any transaction of consolidation, merger, or amalgamation; liquidate, wind up, or dissolve (or suffer any liquidation or dissolution). </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">6.10 <U>Transactions with Affiliates</U>. Directly or indirectly, enter into any transaction (including the sale, lease, or exchange of Property or the
rendering of service) with any of its Affiliates, other than upon fair and reasonable terms no less favorable than could be obtained in an arm&#146;s length transaction with a Person which was not an Affiliate. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">6.11 <U>Lines of Business</U>. Expand, on its own or through any Subsidiary, into any line of business other than those in which the Borrower is engaged
as of the date hereof. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">6.12 <U>ERISA Compliance</U>. Permit any Plan maintained by it or any Commonly Controlled Entity to (a)&nbsp;engage
in any Prohibited Transaction, (b)&nbsp;incur any &#147;accumulated funding deficiency,&#148; as such term is defined in Section&nbsp;302 of ERISA, or (c)&nbsp;terminate in a manner which could result in the imposition of a Lien on any Property of
the Borrower pursuant to Section&nbsp;4068 of ERISA; or assume an obligation to contribute to any Multiemployer Plan; or acquire any Person or the assets of any Person which has now or has had at any time an obligation to contribute to any
Multiemployer Plan. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">6.13 <U>RESERVED</U> </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">6.14 <U>Interest Coverage Ratio</U>. Permit as of the close of any fiscal quarter, the ratio of (a)&nbsp;EBITDAX to (b)&nbsp;Interest Expense, measured on a rolling four-quarter basis, to be less than 4.00 to 1.00 for
the fiscal quarter ending March&nbsp;31, 2008 and each fiscal quarter thereafter. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">6.15 <U>Tangible Net Worth</U>. Permit Tangible Net
Worth, as of the close of any fiscal quarter beginning March&nbsp;31, 2008, to be less than 90% of the Tangible Net Worth at March&nbsp;31, 2006, plus 75% of positive quarterly net income thereafter. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">6.16 <U>General and Administrative Expenses</U>. Permit, as of the close of any fiscal quarter, general
and administrative expenses to be more than $525,000 per quarter beginning with the period ending March&nbsp;31, 2008. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">6.17 <U>Minimum
Liquidity</U>. Permit the sum of the Available Commitment plus unrestricted cash plus cash equivalents to be less than $1,000,000 at any time. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">6.18 <U>Put Right Agreement</U>. Change, without the written consent of the Agent, which consent shall not be unreasonably withheld, any terms of the Put Right Agreement between the Borrower and the Parent. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">6.19 <U>Payments on Parent Subordinated Debt</U>. Make any payments of principal or interest on the Parent Subordinated Debt; provided, however, the
foregoing restriction shall not apply to repayments of Parent Subordinated Debt in an aggregate amount not exceeding the product of $385,000 multiplied by the number of calendar months subsequent to March, 2008, so long as no Default or Event of
Default exists at the time of any such payment or would result from any such payment. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">6.20 <U>Payments on Artic Subordinated Debt</U>.
Make any payments of principal or interest on the Artic Subordinated Debt in violation of the provisions of the Artic Subordination Agreement. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">6.21 <U>Anti-Terrorism Laws</U>. Permit any of its Affiliates to, (a)&nbsp;conduct any business or engage in any transaction or dealing with any Blocked Person, including the making or receiving of any contribution of funds, goods or
services to or for the benefit of any Blocked Person; (b)&nbsp;deal in, or otherwise engage in any transaction relating to, any Property or interests in Property blocked pursuant to Executive Order No.&nbsp;13224; (c)&nbsp;engage in or conspire to
engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, (i)&nbsp;any of the prohibitions set forth in Executive Order No.&nbsp;13224 or the USA Patriot Act, or (ii)&nbsp;any prohibitions
set forth in the rules or regulations issued by OFAC or any sanctions against targeted foreign countries, terrorism sponsoring organizations, and international narcotics traffickers based on United States foreign policy. </FONT></P> <P
STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B><U>ARTICLE VII </U></B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B><U>EVENTS OF
DEFAULT </U></B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">7.1 <U>Enumeration of Events of Default</U>. Any of the following events shall constitute an Event of Default: </FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(a) default shall be made in the payment when due on any installment of principal or interest under this Agreement or the Notes or in
the payment when due on any fee or other sum payable under any Loan Document and such default as to interest or fees only shall have continued for three Business Days; </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(b) default shall be made by the Borrower in the due observance or performance of any of its obligations under the Loan Documents, and
such default shall continue for 30 days after the earlier of notice thereof to the Borrower by the Agent or knowledge thereof by the Borrower; </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(c) any representation or warranty made by the Borrower in any of the Loan Documents
proves to have been untrue in any material respect or any representation, statement (including Financial Statements), certificate, or data furnished or made to the Agent or any Lender in connection herewith proves to have been untrue in any material
respect as of the date the facts therein set forth were stated or certified; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(d) default shall be made by the Borrower (as
principal or guarantor or other surety) in the payment or performance of any bond, debenture, note, or other Indebtedness, including, without limitation, any Subordinated Debt, or under any credit agreement, loan agreement, indenture, promissory
note, or similar agreement or instrument executed in connection with any of the foregoing, and such default shall remain unremedied for in excess of the period of grace, if any, with respect thereto; </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(e) the Borrower shall be unable to satisfy any condition or cure any circumstance specified in Article III, the satisfaction or curing of
which is precedent to the right of the Borrower to obtain a Loan or the issuance of a Letter of Credit, and such inability shall continue for a period in excess of 30 days; </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(f) either the Borrower shall (i)&nbsp;apply for or consent to the appointment of a receiver, trustee, or liquidator of it or all or a
substantial part of its assets, (ii)&nbsp;file a voluntary petition commencing an Insolvency Proceeding, (iii)&nbsp;make a general assignment for the benefit of creditors, (iv)&nbsp;be unable, or admit in writing its inability, to pay its debts
generally as they become due, or (v)&nbsp;file an answer admitting the material allegations of a petition filed against it in any Insolvency Proceeding; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">(g) an order, judgment, or decree shall be entered against the Borrower by any court of competent jurisdiction or by any other duly authorized authority, on the petition of a creditor or otherwise, granting relief in
any Insolvency Proceeding or approving a petition seeking reorganization or an arrangement of its debts or appointing a receiver, trustee, conservator, custodian, or liquidator of it or all or any substantial part of its assets, and such order,
judgment, or decree shall not be dismissed or stayed within 60 days; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(h) the levy against any significant portion of the
Property of the Borrower, or any execution, garnishment, attachment, sequestration, or other writ or similar proceeding which is not permanently dismissed or discharged within 30 days after the levy; </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(i) a final and non-appealable order, judgment, or decree shall be entered against the Borrower for money damages and/or Indebtedness due
in an amount in excess of $500,000, and such order, judgment, or decree shall not be paid in full, dismissed, or stayed within 60 days; </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(j) any charges are filed or any other action or proceeding is instituted by any
Governmental Authority against the Borrower under the Racketeering Influence and Corrupt Organizations Statute (18&nbsp;U.S.C.&nbsp;&#167;1961&nbsp;et seq.), the result of which could be the forfeiture or transfer of any material Property of the
Borrower subject to a Lien in favor of the Agent and/or the Lenders without (i)&nbsp;satisfaction or provision for satisfaction of such Lien, or (ii)&nbsp;such forfeiture or transfer of such Property being expressly made subject to such Lien;
</FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(k) the Borrower shall have (i)&nbsp;concealed, removed, or diverted, or permitted to be concealed, removed, or diverted,
any part of its Property, with intent to hinder, delay, or defraud its creditors or any of them, (ii)&nbsp;made or suffered a transfer of any of its Property which may be fraudulent under any bankruptcy, fraudulent conveyance, or similar law,
(iii)&nbsp;made any transfer of its Property to or for the benefit of a creditor at a time when other creditors similarly situated have not been paid, or (iv)&nbsp;shall have suffered or permitted, while insolvent, any creditor to obtain a Lien upon
any of its Property through legal proceedings or distraint which is not vacated within 30 days from the date thereof; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(l)
any Security Instrument shall for any reason not, or cease to, create valid and perfected first-priority Liens against the Collateral purportedly covered thereby; </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(m) the Borrower shall cease to be owned by its shareholders existing as of the Closing Date; </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(n) the occurrence of a Material Adverse Effect and the same shall remain unremedied for in excess of 60 days after notice given by the
Agent; or </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(o) breach by the Borrower of any Subordination Agreement or default by the Borrower in the payment or
performance of any agreement or instrument evidencing the Subordinated Debt or executed in connection therewith, and such breach or default shall remain unremedied for in excess of the period of grace, if any, with respect thereto. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">7.2 <U>Remedies</U>. (a)&nbsp;Upon the occurrence of an Event of Default specified in Sections 7.1(f) or 7.1(g), immediately and without notice,
(i)&nbsp;all Obligations shall automatically become immediately due and payable, without presentment, demand, protest, notice of protest, default, or dishonor, notice of intent to accelerate maturity, notice of acceleration of maturity, or other
notice of any kind, except as may be provided to the contrary elsewhere herein, all of which are hereby expressly waived by the Borrower; (ii)&nbsp;the Commitment shall immediately cease and terminate unless and until reinstated by the Agent in
writing; and (iii)&nbsp;the Agent and the Lenders are hereby authorized at any time and from time to time, without notice to the Borrower (any such notice being expressly waived by the Borrower), to set-off and apply any and all deposits (general or
special, time or demand, provisional or final) held by the Agent or the Lenders and </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px">
<FONT FACE="Times New Roman" SIZE="2">any and all other indebtedness at any time owing by the Agent or the Lenders to or for the credit or account of the Borrower against any and all of the
Obligations although such Obligations may be unmatured. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(b) Upon the occurrence of any Event of Default other than those specified in
Sections 7.1(f) or 7.1(g), (i)&nbsp;the Agent may, by notice to the Borrower, declare all Obligations immediately due and payable, without presentment, demand, protest, notice of protest, default, or dishonor, notice of intent to accelerate
maturity, notice of acceleration of maturity, or other notice of any kind, except as may be provided to the contrary elsewhere herein, all of which are hereby expressly waived by the Borrower; (ii)&nbsp;the Commitment shall immediately cease and
terminate unless and until reinstated by the Agent in writing; and (iii)&nbsp;the Agent and the Lenders are hereby authorized at any time and from time to time, without notice to the Borrower (any such notice being expressly waived by the Borrower),
to set-off and apply any and all deposits (general or special, time or demand, provisional or final) held by the Agent or the Lenders and any and all other indebtedness at any time owing by the Agent or the Lenders to or for the credit or account of
the Borrower against any and all of the Obligations although such Obligations may be unmatured. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(c) Upon the occurrence of any Event of
Default, the Agent and the Lenders may, in addition to the foregoing in this Section, exercise any or all of its rights and remedies provided by law or pursuant to the Loan Documents. </FONT></P> <P STYLE="margin-top:24px;margin-bottom:0px"
ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B><U>ARTICLE VIII </U></B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B><U>THE AGENT </U></B></FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">8.1 <U>Appointment</U>. Each Lender hereby designates and appoints the Agent as the agent of such Lender under this Agreement and the other Loan
Documents. Each Lender authorizes the Agent, as the agent for such Lender, to take such action on behalf of such Lender under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are
expressly delegated to the Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement or in any
other Loan Document, the Agent shall not have any duties or responsibilities except those expressly set forth herein or in any other Loan Document or any fiduciary relationship with any Lender; and no implied covenants, functions, responsibilities,
duties, obligations, or liabilities on the part of the Agent shall be read into this Agreement or any other Loan Document or otherwise exist against the Agent. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">8.2 <I><U></U></I><U>Waivers, Amendments<I></I></U><I></I>. The provisions of this Agreement and of each other Loan Document may from time to time be amended, modified or waived, if such amendment, modification, or
waiver is in writing and consented to by the Borrower and the Required Lenders; provided, however, that no such amendment, modification or waiver would: (a)&nbsp;modify any requirement hereunder that any particular action be taken by all of the
Lenders or by the Required Lenders unless consented to by each Lender; (b)&nbsp;modify this Section&nbsp;8.2, change the definition of &#147;Required Lenders&#148;, or change the Commitment Amount or Percentage Share of any Lender, reduce the fees
described in Article II, extend the Commitment Termination Date or </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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<FONT FACE="Times New Roman" SIZE="2">Final Maturity, release any Security Instrument or Lien, or initiate any foreclosure, enforcement or collection procedure without the consent of each Lender;
(c)&nbsp;extend the due date for, or reduce the amount of any scheduled repayment or prepayment of principal of or interest on any Loan, without the consent of the holder of the Note(s) evidencing such Loan; (d)&nbsp;affect, adversely the interests,
rights, or obligations of the Agent without the consent of the Agent; or (e)&nbsp;modify the Borrowing Base or modify the monthly amount by which the Borrowing Base shall be reduced. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">8.3 <U>Delegation of Duties</U>. The Agent may execute any of its duties under this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible to any Lender for the negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">8.4 <U>Exculpatory Provisions</U>. Neither the Agent nor any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates shall be (a)&nbsp;required to initiate or conduct any litigation or collection proceedings hereunder, except with the concurrence of the Required Lenders and contribution by each Lender of its Percentage Share of
costs reasonably expected by the Agent to be incurred in connection therewith, (b)&nbsp;liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Loan Document (except
for gross negligence or willful misconduct of the Agent or such Person), or (c)&nbsp;responsible in any manner to any Lender for any recitals, statements, representations or warranties made by the Borrower or any officer thereof contained in this
Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Loan Document, or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or for any failure of the Borrower to perform its obligations hereunder or thereunder. The Agent shall not be under any obligation to
any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Borrower. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">8.5 <U>Reliance by Agent</U>. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, writing, resolution,
notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the
proper Person or Persons and upon advice and statements of legal counsel (including counsel to the Borrower), independent accountants and other experts selected by the Agent. The Agent may deem and treat the payee of any Note as the owner thereof
for all purposes unless and until a written notice of assignment, negotiation, or transfer thereof shall have been received by the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other
Loan Document unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate and contribution by each Lender of its Percentage Share of costs reasonably expected by the Agent to be incurred in connection
therewith. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of the Required Lenders. Such request and any action taken or failure
to act pursuant thereto </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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<FONT FACE="Times New Roman" SIZE="2">shall be binding upon the Lenders and all future holders of the Notes. In no event shall the Agent be required to take any action that exposes the Agent to
personal liability or that is contrary to any Loan Document or applicable Requirement of Law. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">8.6 <U>Notice of Default</U>. The Agent
shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default unless the Agent has received notice from a Lender or the Borrower referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a &#147;notice of default.&#148; In the event that the Agent receives such a notice, the Agent shall promptly give notice thereof to the Lenders. The Agent shall take such action with respect to such Default or Event of
Default as shall be reasonably directed by the Required Lenders; <U>provided</U> that unless and until the Agent shall have received such directions, subject to the provisions of <U>Section&nbsp;7.2</U>, the Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders. In the event that the officer of the Agent primarily responsible for the lending
relationship with the Borrower or the officer of any Lender primarily responsible for the lending relationship with the Borrower becomes aware that a Default or Event of Default has occurred and is continuing, the Agent or such Lender, as the case
may be, shall use its good faith efforts to inform the other Lenders and/or the Agent, as the case may be, promptly of such occurrence. Notwithstanding the preceding sentence, failure to comply with the preceding sentence shall not result in any
liability to the Agent or any Lender. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">8.7 <U>Non-Reliance on Agent and Other Lenders</U>. Each Lender expressly acknowledges that neither
the Agent nor any other Lender nor any of their respective officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representation or warranty to such Lender and that no act by the Agent or any other Lender hereafter
taken, including any review of the affairs of the Borrower, shall be deemed to constitute any representation or warranty by the Agent or any Lender to any other Lender. Each Lender represents to the Agent that it has, independently and without
reliance upon the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, condition (financial and otherwise) and
creditworthiness of the Borrower and the value of the Collateral and other Properties of the Borrower and has made its own decision to enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the
Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan
Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, condition (financial and otherwise) and creditworthiness of the Borrower and the value of the Collateral and other Properties
of the Borrower. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, condition (financial and otherwise), or creditworthiness of the Borrower or the value of the Collateral or other Properties of the Borrower which may come into the possession of the Agent or any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">8.8 <U>Indemnification</U>. <B>E<SMALL>ACH</SMALL> L<SMALL>ENDER</SMALL> <SMALL>AGREES</SMALL>
<SMALL>TO</SMALL> <SMALL>INDEMNIFY</SMALL> <SMALL>THE</SMALL> A<SMALL>GENT</SMALL> <SMALL>AND</SMALL> <SMALL>ITS</SMALL> <SMALL>OFFICERS</SMALL>, <SMALL>DIRECTORS</SMALL>, <SMALL>EMPLOYEES</SMALL>, <SMALL>AGENTS</SMALL>,
<SMALL>ATTORNEYS</SMALL>-<SMALL>IN</SMALL>-<SMALL>FACT</SMALL> <SMALL>AND</SMALL> <SMALL>AFFILIATES</SMALL> (<SMALL>TO</SMALL> <SMALL>THE</SMALL> <SMALL>EXTENT</SMALL> <SMALL>NOT</SMALL> <SMALL>REIMBURSED</SMALL> <SMALL>BY</SMALL> <SMALL>THE</SMALL>
B<SMALL>ORROWER</SMALL> <SMALL>AND</SMALL> <SMALL>WITHOUT</SMALL> <SMALL>LIMITING</SMALL> <SMALL>THE</SMALL> <SMALL>OBLIGATION</SMALL> <SMALL>OF</SMALL> <SMALL>THE</SMALL> B<SMALL>ORROWER</SMALL> <SMALL>TO</SMALL> <SMALL>DO</SMALL>
<SMALL>SO</SMALL>), <SMALL>RATABLY</SMALL> <SMALL>ACCORDING</SMALL> <SMALL>TO</SMALL> <SMALL>THE</SMALL> P<SMALL>ERCENTAGE</SMALL> S<SMALL>HARE</SMALL> <SMALL>OF</SMALL> <SMALL>SUCH</SMALL> L<SMALL>ENDER</SMALL>, <SMALL>FROM</SMALL>
<SMALL>AND</SMALL> <SMALL>AGAINST</SMALL> <SMALL>ANY</SMALL> <SMALL>AND</SMALL> <SMALL>ALL</SMALL> <SMALL>LIABILITIES</SMALL>, <SMALL>CLAIMS</SMALL>, <SMALL>OBLIGATIONS</SMALL>, <SMALL>LOSSES</SMALL>, <SMALL>DAMAGES</SMALL>,
<SMALL>PENALTIES</SMALL>, <SMALL>ACTIONS</SMALL>, <SMALL>JUDGMENTS</SMALL>, <SMALL>SUITS</SMALL>, <SMALL>COSTS</SMALL>, <SMALL>EXPENSES</SMALL> <SMALL>AND</SMALL> <SMALL>DISBURSEMENTS</SMALL> <SMALL>OF</SMALL> <SMALL>ANY</SMALL> <SMALL>KIND</SMALL>
<SMALL>WHATSOEVER</SMALL> <SMALL>WHICH</SMALL> <SMALL>MAY</SMALL> <SMALL>AT</SMALL> <SMALL>ANY</SMALL> <SMALL>TIME</SMALL> (<SMALL>INCLUDING</SMALL> <SMALL>ANY</SMALL> <SMALL>TIME</SMALL> <SMALL>FOLLOWING</SMALL> <SMALL>THE</SMALL>
<SMALL>PAYMENT</SMALL> <SMALL>AND</SMALL> <SMALL>PERFORMANCE</SMALL> <SMALL>OF</SMALL> <SMALL>ALL</SMALL> O<SMALL>BLIGATIONS</SMALL> <SMALL>AND</SMALL> <SMALL>THE</SMALL> <SMALL>TERMINATION</SMALL> <SMALL>OF</SMALL> <SMALL>THIS</SMALL>
A<SMALL>GREEMENT</SMALL>) <SMALL>BE</SMALL> <SMALL>IMPOSED</SMALL> <SMALL>ON</SMALL>, <SMALL>INCURRED</SMALL> <SMALL>BY</SMALL> <SMALL>OR</SMALL> <SMALL>ASSERTED</SMALL> <SMALL>AGAINST</SMALL> <SMALL>THE</SMALL> A<SMALL>GENT</SMALL>
<SMALL>OR</SMALL> <SMALL>ANY</SMALL> <SMALL>OF</SMALL> <SMALL>ITS</SMALL> <SMALL>OFFICERS</SMALL>, <SMALL>DIRECTORS</SMALL>, <SMALL>EMPLOYEES</SMALL>, <SMALL>AGENTS</SMALL>, <SMALL>ATTORNEYS</SMALL>-<SMALL>IN</SMALL>-<SMALL>FACT</SMALL>
<SMALL>OR</SMALL> <SMALL>AFFILIATES</SMALL> <SMALL>IN</SMALL> <SMALL>ANY</SMALL> <SMALL>WAY</SMALL> <SMALL>RELATING</SMALL> <SMALL>TO</SMALL> <SMALL>OR</SMALL> <SMALL>ARISING</SMALL> <SMALL>OUT</SMALL> <SMALL>OF</SMALL> <SMALL>THIS</SMALL>
A<SMALL>GREEMENT</SMALL> <SMALL>OR</SMALL> <SMALL>ANY</SMALL> <SMALL>OTHER</SMALL> L<SMALL>OAN</SMALL> D<SMALL>OCUMENT</SMALL>, <SMALL>OR</SMALL> <SMALL>ANY</SMALL> <SMALL>OTHER</SMALL> <SMALL>DOCUMENT</SMALL> <SMALL>CONTEMPLATED</SMALL>
<SMALL>OR</SMALL> <SMALL>REFERRED</SMALL> <SMALL>TO</SMALL> <SMALL>HEREIN</SMALL> <SMALL>OR</SMALL> <SMALL>THE</SMALL> <SMALL>TRANSACTIONS</SMALL> <SMALL>CONTEMPLATED</SMALL> <SMALL>HEREBY</SMALL> <SMALL>OR</SMALL> <SMALL>ANY</SMALL>
<SMALL>ACTION</SMALL> <SMALL>TAKEN</SMALL> <SMALL>OR</SMALL> <SMALL>OMITTED</SMALL> <SMALL>BY</SMALL> <SMALL>THE</SMALL> A<SMALL>GENT</SMALL> <SMALL>OR</SMALL> <SMALL>ANY</SMALL> <SMALL>OF</SMALL> <SMALL>ITS</SMALL> <SMALL>OFFICERS</SMALL>,
<SMALL>DIRECTORS</SMALL>, <SMALL>EMPLOYEES</SMALL>, <SMALL>AGENTS</SMALL>, <SMALL>ATTORNEYS</SMALL>-<SMALL>IN</SMALL>-<SMALL>FACT</SMALL> <SMALL>OR</SMALL> <SMALL>AFFILIATES</SMALL> <SMALL>UNDER</SMALL> <SMALL>OR</SMALL> <SMALL>IN</SMALL>
<SMALL>CONNECTION</SMALL> <SMALL>WITH</SMALL> <SMALL>ANY</SMALL> <SMALL>OF</SMALL> <SMALL>THE</SMALL> <SMALL>FOREGOING</SMALL>, <SMALL>INCLUDING</SMALL> <SMALL>ANY</SMALL> <SMALL>LIABILITIES</SMALL>, <SMALL>CLAIMS</SMALL>,
<SMALL>OBLIGATIONS</SMALL>, <SMALL>LOSSES</SMALL>, <SMALL>DAMAGES</SMALL>, <SMALL>PENALTIES</SMALL>, <SMALL>ACTIONS</SMALL>, <SMALL>JUDGMENTS</SMALL>, <SMALL>SUITS</SMALL>, <SMALL>COSTS</SMALL>, <SMALL>EXPENSES</SMALL> <SMALL>AND</SMALL>
<SMALL>DISBURSEMENTS</SMALL> <SMALL>IMPOSED</SMALL>, <SMALL>INCURRED</SMALL> <SMALL>OR</SMALL> <SMALL>ASSERTED</SMALL> <SMALL>AS</SMALL> <SMALL>A</SMALL> <SMALL>RESULT</SMALL> <SMALL>OF</SMALL> <SMALL>THE</SMALL> <SMALL>NEGLIGENCE</SMALL>,
<SMALL>WHETHER</SMALL> <SMALL>SOLE</SMALL> <SMALL>OR</SMALL> <SMALL>CONCURRENT</SMALL>, <SMALL>OF</SMALL> <SMALL>THE</SMALL> <SMALL>AGENT</SMALL> <SMALL>OR</SMALL> <SMALL>ANY</SMALL> <SMALL>OF</SMALL> <SMALL>ITS</SMALL> <SMALL>OFFICERS</SMALL>,
<SMALL>DIRECTORS</SMALL>, <SMALL>EMPLOYEES</SMALL>, <SMALL>AGENTS</SMALL>, <SMALL>ATTORNEYS</SMALL>-<SMALL>IN</SMALL>-<SMALL>FACT</SMALL> <SMALL>OR</SMALL> <SMALL>AFFILIATES</SMALL>; <SMALL>PROVIDED</SMALL> <SMALL>THAT</SMALL> <SMALL>NO</SMALL>
<SMALL>LENDER</SMALL> <SMALL>SHALL</SMALL> <SMALL>BE</SMALL> <SMALL>LIABLE</SMALL> <SMALL>FOR</SMALL> <SMALL>THE</SMALL> <SMALL>PAYMENT</SMALL> <SMALL>OF</SMALL> <SMALL>ANY</SMALL> <SMALL>PORTION</SMALL> <SMALL>OF</SMALL> <SMALL>SUCH</SMALL>
<SMALL>LIABILITIES</SMALL>, <SMALL>OBLIGATIONS</SMALL>, <SMALL>LOSSES</SMALL>, <SMALL>DAMAGES</SMALL>, <SMALL>PENALTIES</SMALL>, <SMALL>ACTIONS</SMALL>, <SMALL>JUDGMENTS</SMALL>, <SMALL>SUITS</SMALL>, <SMALL>COSTS</SMALL>, <SMALL>EXPENSES</SMALL>
<SMALL>OR</SMALL> <SMALL>DISBURSEMENTS</SMALL> <SMALL>RESULTING</SMALL> <SMALL>SOLELY</SMALL> <SMALL>FROM</SMALL> <SMALL>THE</SMALL> <SMALL>GROSS</SMALL> <SMALL>NEGLIGENCE</SMALL> <SMALL>OR</SMALL> <SMALL>WILLFUL</SMALL> <SMALL>MISCONDUCT</SMALL>
<SMALL>OF</SMALL> <SMALL>THE</SMALL> <SMALL>AGENT</SMALL> <SMALL>OR</SMALL> <SMALL>ANY</SMALL> <SMALL>OF</SMALL> <SMALL>ITS</SMALL> <SMALL>OFFICERS</SMALL>, <SMALL>DIRECTORS</SMALL>, <SMALL>EMPLOYEES</SMALL>, <SMALL>AGENTS</SMALL>,
<SMALL>ATTORNEYS</SMALL>-<SMALL>IN</SMALL>-<SMALL>FACT</SMALL> <SMALL>OR</SMALL> <SMALL>AFFILIATES</SMALL>. T<SMALL>HE</SMALL> A<SMALL>GREEMENTS</SMALL> <SMALL>IN</SMALL> <SMALL>THIS</SMALL> <SMALL>SECTION</SMALL> <SMALL>SHALL</SMALL>
<SMALL>SURVIVE</SMALL> <SMALL>THE</SMALL> <SMALL>PAYMENT</SMALL> <SMALL>AND</SMALL> <SMALL>PERFORMANCE</SMALL> <SMALL>OF</SMALL> <SMALL>ALL</SMALL> O<SMALL>BLIGATIONS</SMALL> <SMALL>AND</SMALL> <SMALL>THE</SMALL> <SMALL>TERMINATION</SMALL>
<SMALL>OF</SMALL> <SMALL>THIS</SMALL> A<SMALL>GREEMENT</SMALL>.</B> </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">8.9 <U>Restitution</U>. Should the right of the Agent or any Lender to
realize funds with respect to the Obligations be challenged and any application of such funds to the Obligations be reversed, whether by Governmental Authority or otherwise, or should the Borrower otherwise be entitled to a refund or return of funds
distributed to the Lenders in connection with the Obligations, the Agent or such Lender, as the case may be, shall promptly notify the Lenders of such fact. Not later than Noon, Central Standard or Central Daylight Savings Time, as the case may be,
of the Business Day following such notice, each Lender shall pay to the Agent an amount equal to the ratable share of such Lender of the funds required to be returned to the Borrower. The ratable share of each Lender shall be determined on the basis
of the percentage of the payment all or a portion of which is required to be refunded originally distributed to such Lender, if such percentage can be determined, or, if such percentage cannot be determined, on the basis of the Percentage Share of
such Lender. The Agent shall forward such funds to the Borrower or to the Lender required to return such funds. If any such amount due to the Agent is made available by any Lender after Noon, Central Standard or Central Daylight Savings Time, as the
case may be, of the Business Day following such notice, such Lender shall pay to the Agent (or the Lender required to return funds to the Borrower, as the case may be) for its own account interest on such amount at a rate equal to the Federal Funds
Rate for the period from and including the date on which restitution to the Borrower is made by the Agent (or the Lender required to return funds to the Borrower, as the case may be) to but not including the date on which such Lender failing to
timely forward its share of funds required to be returned to the Borrower shall have made its ratable share of such funds available. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">8.10 <U>Agent in Its Individual Capacity</U>. The Agent and its affiliates may make loans to, accept
deposits from and generally engage in any kind of business with the Borrower as though the Agent were not the agent hereunder. With respect to any Note issued to the Lender serving as the Agent, the Agent shall have the same rights and powers under
this Agreement as a Lender and may exercise such rights and powers as though it were not the Agent. The terms &#147;Lender&#148; and &#147;Lenders&#148; shall include the Agent in its individual capacity. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">8.11 <U>Successor Agent</U>. The Agent may resign as Agent upon ten (10)&nbsp;days&#146; notice to the Lenders and the Borrower. If the Agent shall
resign as Agent under this Agreement and the other Loan Documents, Lenders for which the Percentage Shares aggregate at least fifty-one percent (51%)&nbsp;shall appoint from among the Lenders a successor agent for the Lenders, subject to the
reasonable consent of the Borrower, whereupon such successor agent shall succeed to the rights, powers and duties of the Agent. The term &#147;Agent&#148; shall mean such successor agent effective upon its appointment. The rights, powers, and duties
of the former Agent as Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement or any holders of the Notes. After the removal or resignation of any Agent hereunder
as Agent, the provisions of this <U>Article VIII</U> and those of any Section hereof relating to the Agent, including <U>Section&nbsp;5.17</U>, <U>Section&nbsp;5.18</U>, and <U>Section&nbsp;5.22</U>, shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under this Agreement and the other Loan Documents. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">8.12 <U>Applicable Parties</U>.
The provisions of this Article are solely for the benefit of the Agent and the Lenders, and the Borrower shall not have any rights as a third party beneficiary or otherwise under any of the provisions of this Article. In performing functions and
duties hereunder and under the other Loan Documents, the Agent shall act solely as the agent of the Lenders and does not assume, nor shall it be deemed to have assumed, any obligation or relationship of trust or agency with or for the Borrower or
any legal representative, successor, and assign of the Borrower. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">8.13 <U>Subordination Agreements</U>. In furtherance of the authority
granted to the Agent in <U>Section&nbsp;8.1</U> and elsewhere in this Agreement, each of the Lenders authorizes the Agent to execute and, by such execution, to bind such Lender to the terms of each of the Subordination Agreements and agrees to be
bound by the terms of each of the Subordination Agreements as fully as if a signatory thereto. </FONT></P> <P STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B><U>ARTICLE IX </U></B></FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B><U>MISCELLANEOUS </U></B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">9.1
<U>Transfers; Participations</U>. Each Lender may assign or sell participations in its Loans and Commitments to one or more other Persons in accordance with this Section&nbsp;9.1. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 52 - </FONT></P>


<p Style='page-break-before:always'>
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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(a) <U>Assignments</U>. Any Lender, </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(i) with the written consent of the Borrower and the Agent (which consent shall not be unreasonably delayed or withheld), may at any time,
assign and delegate to one or more commercial banks or other financial institutions, and </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(ii) with notice to the Borrower
and the Agent, but without the consent of the Borrower or the Agent, may assign and delegate to any of its Affiliates or to any other Lender </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">(each Person
described in (i)&nbsp;or (ii)&nbsp;above as being the Person to whom such assignment and delegation is to be made, being hereinafter referred to as an &#147;<U>Assignee Lender</U>&#148;), all or any fraction of such Lender&#146;s total Loans and
Commitments (which assignment and delegation shall be of a constant, and not a varying percentage, of all the assigning Lender&#146;s Loans and Commitments), in a minimum aggregate amount of $1,000,000 of such Lender&#146;s Percentage Share of the
Maximum Commitment Amount; provided, however, that such Assignee Lender will comply with all the provisions of this Agreement, and further, provided, however, that the Borrower and Agent shall be entitled to continue to deal solely and directly with
such assigning Lender in connection with the interests so assigned and delegated to an Assignee Lender until: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(iii) written
notice of such assignment and delegation together with payment instructions, addresses and related information with respect to such Assignee Lender, shall have been given to the Borrower and the Agent by such Lender and such Assignee Lender,
</FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(iv) such Assignee Lender shall have executed and delivered to the Borrower and the Agent a Lender Assignment Agreement,
accepted by the Borrower and the Agent and attached hereto as Exhibit VII, and </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(v) the processing fees described below
shall have been paid. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">From and after the date that the Borrower and the Agent accept such Lender Assignment Agreement, (a)&nbsp;the Assignee Lender
thereunder shall be deemed automatically to have become a party hereto and, to the extent that rights and obligations hereunder have been assigned and delegated to such Assignee Lender in connection with such Lender Assignment Agreement, shall have
the rights and obligations of a Lender hereunder and under the other Loan Documents, and (b)&nbsp;the assignor Lender, to the extent that rights and obligations hereunder have been assigned and delegated by it in connection with such Lender
Assignment Agreement, shall be released from its obligations hereunder and under the other Loan Documents. Within five Business Days after its receipt of notice that the Agent has received an executed Lender Assignment Agreement, the Borrower shall
execute and deliver to the Agent (for delivery to the relevant Assignee Lender) new Notes evidencing such Assignee Lender&#146;s assigned Loans and Commitments and, if the assignor Lender has retained Loans and Commitments hereunder, replacement
Notes in the </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 53 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px">
<FONT FACE="Times New Roman" SIZE="2">principal amount of the Loans and Commitments retained by the assignor Lender hereunder (such Notes to be in exchange for, but not in payment of, those Notes
then held by such assignor Lender). Each such Note shall be dated the date of the predecessor Notes. The assignor Lender shall mark the predecessor Notes &#147;exchanged&#148; and deliver them to the Borrower. Accrued interest on that part of the
predecessor Notes evidenced by the new Notes, and accrued fees, shall be paid as provided in the Lender Assignment Agreement. Accrued interest on that part of the predecessor Notes evidenced by the replacement Notes shall be paid to the assignor
Lender. Accrued interest and accrued fees shall be paid at the same time or times provided in the predecessor Notes and in this Agreement. Such assignor Lender or such Assignee Lender must also pay a processing fee to the Agent upon delivery of any
Lender Assignment Agreement in the amount of $3,000. Any attempted assignment and delegation not made in accordance with this Section&nbsp;9.1 shall be null and void. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
FACE="Times New Roman" SIZE="2">(b) <U>Participations</U>. Any Lender, with the prior written consent of the Borrower in its sole discretion, may at any time sell to one or more commercial banks (each of such commercial banks being herein called a
&#147;<U>Participant</U>&#148;) participating interests in any of the Loans, Commitments, or other interests of such Lender hereunder; provided, however, that (a)&nbsp;no participation contemplated in this Section&nbsp;9.1 shall relieve such Lender
from its Commitments or its other obligations hereunder or under any other Loan Document, (b)&nbsp;such Lender shall remain solely responsible for the performance of its Commitments and such other obligations, (c)&nbsp;the Borrower and the Agent
shall continue to deal solely and directly with such Lender in connection with such Lender&#146;s rights and obligations under this Agreement and each of the other Loan Documents, (d)&nbsp;no Participant shall be entitled to require such Lender to
take or refrain from taking any action hereunder or under any other Loan Document. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">9.2 <U>Survival of Representations, Warranties, and
Covenants</U>. All representations and warranties of the Borrower and all covenants and agreements herein made shall survive the execution and delivery of the Notes and the Security Instruments and shall remain in force and effect so long as any
Obligation is outstanding or any Commitment exists. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">9.3 <U>Notices and Other Communications</U>. Except as to oral notices expressly
authorized herein, which oral notices shall be confirmed in writing, all notices, requests, and communications hereunder shall be in writing (including facsimile or other electronic form). Unless otherwise expressly provided herein, any such notice,
request, demand, or other communication shall be deemed to have been duly given or made when delivered by hand, or, in the case of delivery by mail, when deposited in the mail, certified mail, return receipt requested, postage prepaid, or, in the
case of facsimile or other electronic notice, when receipt thereof is acknowledged orally or by written confirmation report, addressed as follows: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">(a) if to the Agent, to: </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="76%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="9%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="90%"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Guaranty Bank, FSB</FONT></P></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">333 Clay Street, Suite 4400</FONT></P></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Houston, Texas 77002</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Attention:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">David M. Butler</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Facsimile:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">(713) 890-8868</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 54 - </FONT></P>


<p Style='page-break-before:always'>
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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(b) if to any Lender, to the address for such Lender set forth on its signature page
hereto or in a relevant Assignment Agreement. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(c) if to the Borrower, to: </FONT></P> <P
STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="76%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="9%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="90%"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Prime Offshore L.L.C.</FONT></P></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">9821 Katy Freeway, Suite 1050</FONT></P></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Houston, Texas 77024</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Attention:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Jim R. Brock</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Facsimile:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">(713) 461-9231</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Any party may, by proper written notice hereunder to the others, change the individuals or
addresses to which such notices to it shall thereafter be sent. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">9.4 <U>Parties in Interest</U>. Subject to applicable restrictions
contained herein, all covenants and agreements herein contained by or on behalf of the Borrower, the Agent or the Lenders shall be binding upon and inure to the benefit of the Borrower, the Agent or the Lenders, as the case may be, and their
respective legal representatives, successors, and assigns. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">9.5 <U>Rights of Third Parties</U>. All provisions herein are imposed solely
and exclusively for the benefit of the Agent, Lenders and the Borrower. No other Person shall have any right, benefit, priority, or interest hereunder or as a result hereof or have standing to require satisfaction of provisions hereof in accordance
with their terms. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">9.6 <U>Renewals; Extensions</U>. All provisions of this Agreement relating to the Notes shall apply with equal force and
effect to each promissory note hereafter executed which in whole or in part represents a renewal or extension of any part of the Indebtedness of the Borrower under this Agreement, the Notes, or any other Loan Document. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">9.7 <U>No Waiver; Rights Cumulative</U>. No course of dealing on the part of the Agent or a Lender, its officers or employees, nor any failure or delay
by the Agent or a Lender with respect to exercising any of its rights under any Loan Document shall operate as a waiver thereof. The rights of the Agent or a Lender under the Loan Documents shall be cumulative and the exercise or partial exercise of
any such right shall not preclude the exercise of any other right. Neither the making of any Loan nor the issuance of a Letter of Credit shall constitute a waiver of any of the covenants, warranties, or conditions of the Borrower contained herein.
In the event the Borrower is unable to satisfy any such covenant, warranty, or condition, neither the making of any Loan nor the issuance of a Letter of Credit shall have the effect of precluding the Agent from thereafter declaring such inability to
be an Event of Default as hereinabove provided. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">9.8 <U>Survival Upon Unenforceability</U>. In the event any one or more of the provisions
contained in any of the Loan Documents or in any other instrument referred to herein or executed in connection with the Obligations shall, for any reason, be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality,
or unenforceability shall not affect any other provision of any Loan Document or of any other instrument referred to herein or executed in connection with such Obligations. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 55 - </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">9.9 <U>Amendments; Waivers</U>. Neither this Agreement nor any provision hereof may be amended, waived,
discharged, or terminated orally, but only by an instrument in writing signed by the party against whom enforcement of the amendment, waiver, discharge, or termination is sought. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">9.10 <U>Controlling Agreement</U>. In the event of a conflict between the provisions of this Agreement and those of any other Loan Document, the
provisions of this Agreement shall control. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">9.11 <U>Disposition of Collateral</U>. Notwithstanding any term or provision, express or
implied, in any of the Security Instruments, the realization, liquidation, foreclosure, or any other disposition on or of any or all of the Collateral shall be in the order and manner and determined in the sole discretion of the Agent; provided,
however, that in no event shall the Agent violate applicable law or exercise rights and remedies other than those provided in such Security Instruments or otherwise existing at law or in equity. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">9.12 <U>USA Patriot Act Notice</U>. The Agent hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act the Agent is required
to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow the Agent to identify the Borrower in accordance with the USA Patriot Act.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">9.13 <U>Tax Shelter Regulations</U>. The Borrower does not intend to treat the Loans and related transactions hereunder and under the
other Loan Documents as a &#147;reportable transaction&#148; (within the meanings under current Treasury Regulation Section&nbsp;1.6011-4 and Proposed Treasury Regulation Section&nbsp;1.6011-4, promulgated on November&nbsp;1, 2006). In the event the
Borrower determines to take any action inconsistent with the foregoing statement, it will promptly notify the Agent thereof. If the Borrower so notifies the Agent, the Borrower acknowledges that the Agent and the Lenders may treat the Loans and
related transactions hereunder and under the other Loan Documents as part of a transaction that is subject to current Treasury Regulation Section&nbsp;301.6112-1 or Proposed Treasury Regulation Section&nbsp;301.6112-1, promulgated on
November&nbsp;1, 2006, and, in such case, the Agent will maintain the lists and other records required, if any, by such Treasury Regulations. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">9.14 <U>Governing law</U>. <B>T<SMALL>HIS</SMALL> A<SMALL>GREEMENT</SMALL> <SMALL>AND</SMALL> <SMALL>THE</SMALL> N<SMALL>OTES</SMALL> <SMALL>SHALL</SMALL> <SMALL>BE</SMALL> <SMALL>DEEMED</SMALL> <SMALL>TO</SMALL> <SMALL>BE</SMALL>
<SMALL>CONTRACTS</SMALL> <SMALL>MADE</SMALL> <SMALL>UNDER</SMALL> <SMALL>AND</SMALL> <SMALL>SHALL</SMALL> <SMALL>BE</SMALL> <SMALL>CONSTRUED</SMALL> <SMALL>IN</SMALL> <SMALL>ACCORDANCE</SMALL> <SMALL>WITH</SMALL> <SMALL>AND</SMALL>
<SMALL>GOVERNED</SMALL> <SMALL>BY</SMALL> <SMALL>THE</SMALL> <SMALL>LAWS</SMALL> <SMALL>OF</SMALL> <SMALL>THE</SMALL> S<SMALL>TATE</SMALL> <SMALL>OF</SMALL> T<SMALL>EXAS</SMALL> <SMALL>WITHOUT</SMALL> <SMALL>GIVING</SMALL> <SMALL>EFFECT</SMALL>
<SMALL>TO</SMALL> <SMALL>PRINCIPLES</SMALL> <SMALL>THEREOF</SMALL> <SMALL>RELATING</SMALL> <SMALL>TO</SMALL> <SMALL>CONFLICTS</SMALL> <SMALL>OF</SMALL> <SMALL>LAW</SMALL>.</B> </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">9.15 <U>Jurisdiction and Venue</U>. <B>A<SMALL>LL</SMALL> <SMALL>ACTIONS</SMALL> <SMALL>OR</SMALL> <SMALL>PROCEEDINGS</SMALL> <SMALL>WITH</SMALL>
<SMALL>RESPECT</SMALL> <SMALL>TO</SMALL>, <SMALL>ARISING</SMALL> <SMALL>DIRECTLY</SMALL> <SMALL>OR</SMALL> <SMALL>INDIRECTLY</SMALL> <SMALL>IN</SMALL> <SMALL>CONNECTION</SMALL> <SMALL>WITH</SMALL>, <SMALL>OUT</SMALL> <SMALL>OF</SMALL>,
<SMALL>RELATED</SMALL> <SMALL>TO</SMALL>, <SMALL>OR</SMALL> <SMALL>FROM</SMALL> <SMALL>THIS</SMALL> A<SMALL>GREEMENT</SMALL> <SMALL>OR</SMALL> <SMALL>ANY</SMALL> <SMALL>OTHER</SMALL> L<SMALL>OAN</SMALL> D<SMALL>OCUMENT</SMALL> <SMALL>MAY</SMALL>
<SMALL>BE</SMALL> <SMALL>LITIGATED</SMALL>, <SMALL>AT</SMALL> <SMALL>THE</SMALL> <SMALL>SOLE</SMALL> <SMALL>DISCRETION</SMALL> <SMALL>AND</SMALL> <SMALL>ELECTION</SMALL> <SMALL>OF</SMALL> <SMALL>THE</SMALL> L<SMALL>ENDER</SMALL>, <SMALL>IN</SMALL>
<SMALL>COURTS</SMALL> <SMALL>HAVING</SMALL> <SMALL>SITUS</SMALL> <SMALL>IN</SMALL> H<SMALL>OUSTON</SMALL>, H<SMALL>ARRIS</SMALL> C<SMALL>OUNTY</SMALL>, T<SMALL>EXAS</SMALL>. T<SMALL>HE</SMALL> B<SMALL>ORROWER</SMALL> <SMALL>HEREBY</SMALL>
<SMALL>SUBMITS</SMALL> <SMALL>TO</SMALL> <SMALL>THE</SMALL> <SMALL>JURISDICTION</SMALL> <SMALL>OF</SMALL> <SMALL>ANY</SMALL> <SMALL>LOCAL</SMALL>, <SMALL>STATE</SMALL>, <SMALL>OR</SMALL> <SMALL>FEDERAL</SMALL> <SMALL>COURT</SMALL>
<SMALL>LOCATED</SMALL> <SMALL>IN</SMALL> H<SMALL>OUSTON</SMALL>, H<SMALL>ARRIS</SMALL> C<SMALL>OUNTY</SMALL>, T<SMALL>EXAS</SMALL>, <SMALL>AND</SMALL> <SMALL>HEREBY</SMALL> <SMALL>WAIVES</SMALL> <SMALL>ANY</SMALL> <SMALL>RIGHTS</SMALL>
<SMALL>IT</SMALL> <SMALL>MAY</SMALL> <SMALL>HAVE</SMALL> <SMALL>TO</SMALL> <SMALL>TRANSFER</SMALL> <SMALL>OR</SMALL> <SMALL>CHANGE</SMALL> <SMALL>THE</SMALL> <SMALL>JURISDICTION</SMALL> <SMALL>OR</SMALL> <SMALL>VENUE</SMALL> <SMALL>OF</SMALL>
<SMALL>ANY</SMALL> <SMALL>LITIGATION</SMALL> <SMALL>BROUGHT</SMALL> <SMALL>AGAINST</SMALL> <SMALL>IT</SMALL> <SMALL>BY</SMALL> <SMALL>THE</SMALL> A<SMALL>GENT</SMALL> <SMALL>OR</SMALL> <SMALL>ANY</SMALL> L<SMALL>ENDER</SMALL> <SMALL>IN</SMALL>
<SMALL>ACCORDANCE</SMALL> <SMALL>WITH</SMALL> <SMALL>THIS</SMALL> S<SMALL>ECTION</SMALL></B><SMALL></SMALL>. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 56 - </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">9.16 <U>Waiver of rights to jury trial</U>. <B>T<SMALL>HE</SMALL> B<SMALL>ORROWER</SMALL>,
<SMALL>THE</SMALL> A<SMALL>GENT</SMALL> <SMALL>AND</SMALL> <SMALL>THE</SMALL> L<SMALL>ENDERS</SMALL> <SMALL>HEREBY</SMALL> <SMALL>KNOWINGLY</SMALL>, <SMALL>VOLUNTARILY</SMALL>, <SMALL>INTENTIONALLY</SMALL>, <SMALL>IRREVOCABLY</SMALL>,
<SMALL>AND</SMALL> <SMALL>UNCONDITIONALLY</SMALL> <SMALL>WAIVE</SMALL> <SMALL>ALL</SMALL> <SMALL>RIGHTS</SMALL> <SMALL>TO</SMALL> <SMALL>TRIAL</SMALL> <SMALL>BY</SMALL> <SMALL>JURY</SMALL> <SMALL>IN</SMALL> <SMALL>ANY</SMALL> <SMALL>ACTION</SMALL>,
<SMALL>SUIT</SMALL>, <SMALL>PROCEEDING</SMALL>, <SMALL>COUNTERCLAIM</SMALL>, <SMALL>OR</SMALL> <SMALL>OTHER</SMALL> <SMALL>LITIGATION</SMALL> <SMALL>THAT</SMALL> <SMALL>RELATES</SMALL> <SMALL>TO</SMALL> <SMALL>OR</SMALL> <SMALL>ARISES</SMALL>
<SMALL>OUT</SMALL> <SMALL>OF</SMALL> <SMALL>ANY</SMALL> <SMALL>OF</SMALL> <SMALL>THIS</SMALL> A<SMALL>GREEMENT</SMALL> <SMALL>OR</SMALL> <SMALL>ANY</SMALL> <SMALL>OTHER</SMALL> L<SMALL>OAN</SMALL> D<SMALL>OCUMENT</SMALL> <SMALL>OR</SMALL>
<SMALL>THE</SMALL> <SMALL>ACTS</SMALL> <SMALL>OR</SMALL> <SMALL>OMISSIONS</SMALL> <SMALL>OF</SMALL> <SMALL>THE</SMALL> L<SMALL>ENDER</SMALL> <SMALL>IN</SMALL> <SMALL>THE</SMALL> <SMALL>ENFORCEMENT</SMALL> <SMALL>OF</SMALL> <SMALL>ANY</SMALL>
<SMALL>OF</SMALL> <SMALL>THE</SMALL> <SMALL>TERMS</SMALL> <SMALL>OR</SMALL> <SMALL>PROVISIONS</SMALL> <SMALL>OF</SMALL> <SMALL>THIS</SMALL> A<SMALL>GREEMENT</SMALL> <SMALL>OR</SMALL> <SMALL>ANY</SMALL> <SMALL>OTHER</SMALL> L<SMALL>OAN</SMALL>
D<SMALL>OCUMENT</SMALL> <SMALL>OR</SMALL> <SMALL>OTHERWISE</SMALL> <SMALL>WITH</SMALL> <SMALL>RESPECT</SMALL> <SMALL>THERETO</SMALL>. T<SMALL>HE</SMALL> <SMALL>PROVISIONS</SMALL> <SMALL>OF</SMALL> <SMALL>THIS</SMALL> S<SMALL>ECTION</SMALL>
<SMALL>ARE</SMALL> <SMALL>A</SMALL> <SMALL>MATERIAL</SMALL> <SMALL>INDUCEMENT</SMALL> <SMALL>FOR</SMALL> <SMALL>THE</SMALL> <SMALL>PARTIES</SMALL> <SMALL>ENTERING</SMALL> <SMALL>INTO</SMALL> <SMALL>THIS</SMALL>
A<SMALL>GREEMENT</SMALL></B><SMALL></SMALL>. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">9.17 <U>Entire Agreement</U>. <B>T<SMALL>HIS</SMALL> A<SMALL>GREEMENT</SMALL>
<SMALL>CONSTITUTES</SMALL> <SMALL>THE</SMALL> <SMALL>ENTIRE</SMALL> A<SMALL>GREEMENT</SMALL> <SMALL>BETWEEN</SMALL> <SMALL>THE</SMALL> <SMALL>PARTIES</SMALL> <SMALL>HERETO</SMALL> <SMALL>WITH</SMALL> <SMALL>RESPECT</SMALL> <SMALL>TO</SMALL>
<SMALL>THE</SMALL> <SMALL>SUBJECT</SMALL> <SMALL>HEREOF</SMALL> <SMALL>AND</SMALL> <SMALL>SHALL</SMALL> <SMALL>SUPERSEDE</SMALL> <SMALL>ANY</SMALL> <SMALL>PRIOR</SMALL> <SMALL>AGREEMENT</SMALL> <SMALL>BETWEEN</SMALL> <SMALL>THE</SMALL>
<SMALL>PARTIES</SMALL> <SMALL>HERETO</SMALL>, <SMALL>WHETHER</SMALL> <SMALL>WRITTEN</SMALL> <SMALL>OR</SMALL> <SMALL>ORAL</SMALL>, <SMALL>RELATING</SMALL> <SMALL>TO</SMALL> <SMALL>THE</SMALL> <SMALL>SUBJECT</SMALL> <SMALL>HEREOF</SMALL>.
F<SMALL>URTHERMORE</SMALL>, <SMALL>IN</SMALL> <SMALL>THIS</SMALL> <SMALL>REGARD</SMALL>, <SMALL>THIS</SMALL> A<SMALL>GREEMENT</SMALL> <SMALL>AND</SMALL> <SMALL>THE</SMALL> <SMALL>OTHER</SMALL> <SMALL>WRITTEN</SMALL> L<SMALL>OAN</SMALL>
D<SMALL>OCUMENTS</SMALL> <SMALL>REPRESENT</SMALL>, <SMALL>COLLECTIVELY</SMALL>, <SMALL>THE</SMALL> <SMALL>FINAL</SMALL> <SMALL>AGREEMENT</SMALL> <SMALL>AMONG</SMALL> <SMALL>THE</SMALL> <SMALL>PARTIES</SMALL> <SMALL>THERETO</SMALL> <SMALL>AND</SMALL>
<SMALL>MAY</SMALL> <SMALL>NOT</SMALL> <SMALL>BE</SMALL> <SMALL>CONTRADICTED</SMALL> <SMALL>BY</SMALL> <SMALL>EVIDENCE</SMALL> <SMALL>OF</SMALL> <SMALL>PRIOR</SMALL>, <SMALL>CONTEMPORANEOUS</SMALL>, <SMALL>OR</SMALL> <SMALL>SUBSEQUENT</SMALL>
<SMALL>ORAL</SMALL> <SMALL>AGREEMENTS</SMALL> <SMALL>OF</SMALL> <SMALL>SUCH</SMALL> <SMALL>PARTIES</SMALL>. <SMALL>THERE</SMALL> <SMALL>ARE</SMALL> <SMALL>NO</SMALL> <SMALL>UNWRITTEN</SMALL> <SMALL>ORAL</SMALL> <SMALL>AGREEMENTS</SMALL>
<SMALL>AMONG</SMALL> <SMALL>SUCH</SMALL> <SMALL>PARTIES</SMALL>.</B> </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">9.18 <U>Counterparts</U>. This Agreement may be executed by one or
more of the parties hereto in any number of separate counterparts, and all of such counterparts taken together shall be deemed to constitute one and the same instrument and shall be enforceable as of the Closing Date upon the execution of one or
more counterparts hereof by each of the parties hereto. In this regard, each of the parties hereto acknowledges that a counterpart of this Agreement containing a set of counterpart execution pages reflecting the execution of each party hereto shall
be sufficient to reflect the execution of this Agreement by each necessary party hereto and shall constitute one instrument. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>(Signatures
appear on following pages) </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 57 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">IN WITNESS WHEREOF<B>,</B> this Agreement is executed effective as of the date first above written.
</FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P><DIV ALIGN="right">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="40%" BORDER="0">

<TR>
<TD WIDTH="6%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="93%"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">BORROWER:</FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P> <P
STYLE="margin-top:0px;margin-bottom:1px; margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">PRIME OFFSHORE L.L.C.</FONT></P></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">By:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Beverly A. Cummings</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Chief Executive Officer</FONT></TD></TR>
</TABLE></DIV> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>(Signatures continue on following page) </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 58 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">

<DIV ALIGN="right">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="40%" BORDER="0">

<TR>
<TD WIDTH="6%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="93%"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">AGENT:</FONT></P></TD></TR>
<TR>
<TD HEIGHT="8" COLSPAN="3"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">GUARANTY BANK, FSB,</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:1px; margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">as Agent</FONT></P></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">By:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Kelly L. Elmore, III</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Senior Vice President</FONT></TD></TR>
<TR>
<TD HEIGHT="16" COLSPAN="3"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">LENDER:</FONT></P></TD></TR>
<TR>
<TD HEIGHT="16" COLSPAN="3"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">GUARANTY BANK, FSB</FONT></P></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">By:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Kelly L. Elmore, III</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Senior Vice President</FONT></TD></TR>
<TR>
<TD HEIGHT="8" COLSPAN="3"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Applicable Lending Office</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">for Base Rate
Loans and</FONT></P> <P STYLE="margin-top:0px;margin-bottom:1px"><FONT FACE="Times New Roman" SIZE="2">LIBO Rate Loans:</FONT></P></TD></TR>
<TR>
<TD HEIGHT="8" COLSPAN="3"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">8333 Douglas Avenue</FONT></P> <P STYLE="margin-top:0px;margin-bottom:1px"><FONT FACE="Times New Roman" SIZE="2">Dallas, Texas
75225</FONT></P></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"><FONT FACE="Times New Roman" SIZE="2">Facsimile: (214)&nbsp;360-1938</FONT></TD></TR>
</TABLE></DIV> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 59 - </FONT></P>


<p Style='page-break-before:always'>
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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>EXHIBIT I </U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">[FORM OF NOTE] </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">PROMISSORY NOTE </FONT></P> <P
STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="35%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="32%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="31%"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">$<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Houston, Texas</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>, 20<U>&nbsp;&nbsp;&nbsp;&nbsp;</U></FONT></TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">FOR VALUE RECEIVED and WITHOUT GRACE, the undersigned (&#147;<U>Maker</U>&#148;) promises to pay
to the order of <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> (&#147;<U>Payee</U>&#148;), at the banking quarters of
Guaranty Bank, FSB in Dallas, Dallas County, Texas, the sum of
<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>
DOLLARS ($<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>), or so much thereof as may be advanced against this Note pursuant to the Amended and Restated Credit Agreement dated effective March&nbsp;31, 2008 by and
among Maker, the lenders party thereto and Guaranty Bank, FSB, as administrative agent for such lenders and letter of credit issuer (as amended, restated, or supplemented from time to time, the &#147;<U>Credit Agreement</U>&#148;), together with
interest at the rates and calculated as provided in the Credit Agreement. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Reference is hereby made to the Credit Agreement for matters
governed thereby, including, without limitation, availability of the Maker to receive advances under this Note and 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. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">This Note is issued pursuant to and
is payable as provided in the Credit Agreement. Subject to compliance with applicable provisions of the Credit Agreement, Maker may at any time pay the full amount or any part of this Note without the payment of any premium or fee, but such payment
shall not, until this Note is fully paid and satisfied, excuse the payment as it becomes due of any payment on this Note provided for in the Credit Agreement. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">Without being limited thereto or thereby, this Note is secured by the Security Instruments. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2"><B>T<SMALL>HIS</SMALL> N<SMALL>OTE</SMALL> <SMALL>SHALL</SMALL> <SMALL>BE</SMALL> <SMALL>GOVERNED</SMALL> <SMALL>AND</SMALL> <SMALL>CONTROLLED</SMALL> <SMALL>BY</SMALL> <SMALL>THE</SMALL> <SMALL>LAWS</SMALL> <SMALL>OF</SMALL>
<SMALL>THE</SMALL> S<SMALL>TATE</SMALL> <SMALL>OF</SMALL> T<SMALL>EXAS</SMALL> <SMALL>WITHOUT</SMALL> <SMALL>GIVING</SMALL> <SMALL>EFFECT</SMALL> <SMALL>TO</SMALL> <SMALL>PRINCIPLES</SMALL> <SMALL>THEREOF</SMALL> <SMALL>RELATING</SMALL>
<SMALL>TO</SMALL> <SMALL>CONFLICTS</SMALL> <SMALL>OF</SMALL> <SMALL>LAW</SMALL></B><SMALL></SMALL>. </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P><DIV ALIGN="right">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="40%" BORDER="0">

<TR>
<TD WIDTH="12%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="87%"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">PRIME OFFSHORE L.L.C.</FONT></P></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">By:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Name:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Title:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
</TABLE></DIV> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">I-i </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>EXHIBIT I(A) </U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">[FORM OF NOTE] </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">PROMISSORY NOTE </FONT></P> <P
STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="35%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="32%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="31%"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">$<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Houston, Texas</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>, 20<U>&nbsp;&nbsp;&nbsp;&nbsp;</U></FONT></TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">FOR VALUE RECEIVED and WITHOUT GRACE, the undersigned (&#147;<U>Maker</U>&#148;) promises to pay
to the order of <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> (&#147;<U>Payee</U>&#148;), at the banking quarters of
Guaranty Bank, FSB in Dallas, Dallas County, Texas, ON DEMAND the sum of
<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>
DOLLARS ($<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>), or so much thereof as may be advanced against this Note pursuant to the Amended and Restated Credit Agreement dated effective March&nbsp;31, 2008 by and
among Maker, the lenders party thereto and Guaranty Bank, FSB, as administrative agent for such lenders and letter of credit issuer (as amended, restated, or supplemented from time to time, the &#147;<U>Credit Agreement</U>&#148;), together with
interest at the rates and calculated as provided in the Credit Agreement. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Reference is hereby made to the Credit Agreement for matters
governed thereby, including, without limitation, availability of the Maker to receive advances under this Note and 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. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">This Note is issued pursuant to and
is payable as provided in the Credit Agreement. Subject to compliance with applicable provisions of the Credit Agreement, Maker may at any time pay the full amount or any part of this Note without the payment of any premium or fee, but such payment
shall not, until this Note is fully paid and satisfied, excuse the payment as it becomes due of any payment on this Note provided for in the Credit Agreement. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">Without being limited thereto or thereby, this Note is secured by the Security Instruments. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2"><B>T<SMALL>HIS</SMALL> N<SMALL>OTE</SMALL> <SMALL>SHALL</SMALL> <SMALL>BE</SMALL> <SMALL>GOVERNED</SMALL> <SMALL>AND</SMALL> <SMALL>CONTROLLED</SMALL> <SMALL>BY</SMALL> <SMALL>THE</SMALL> <SMALL>LAWS</SMALL> <SMALL>OF</SMALL>
<SMALL>THE</SMALL> S<SMALL>TATE</SMALL> <SMALL>OF</SMALL> T<SMALL>EXAS</SMALL> <SMALL>WITHOUT</SMALL> <SMALL>GIVING</SMALL> <SMALL>EFFECT</SMALL> <SMALL>TO</SMALL> <SMALL>PRINCIPLES</SMALL> <SMALL>THEREOF</SMALL> <SMALL>RELATING</SMALL>
<SMALL>TO</SMALL> <SMALL>CONFLICTS</SMALL> <SMALL>OF</SMALL> <SMALL>LAW</SMALL></B><SMALL></SMALL>. </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P><DIV ALIGN="right">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="40%" BORDER="0">

<TR>
<TD WIDTH="12%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="87%"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">PRIME OFFSHORE L.L.C.</FONT></P></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">By:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Name:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Title:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
</TABLE></DIV> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">I(A)-i </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>EXHIBIT II </U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">[FORM OF BORROWING REQUEST] </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman"
SIZE="2"><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>, 20<U>&nbsp;&nbsp;&nbsp;&nbsp;</U> </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Guaranty Bank, FSB </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">333 Clay Street, Suite 4400 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Houston, Texas 77002 </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Attention: David M. Butler </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">Re:</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Amended and Restated Credit Agreement dated effective as of March&nbsp;31, 2008, by and among Prime Offshore L.L.C., Guaranty Bank, FSB, as Agent, and the Lenders party thereto from
time to time (as amended, restated, or supplemented from time to time, the &#147;<U>Credit Agreement</U>&#148;) </FONT></TD></TR></TABLE> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Ladies and Gentlemen:
</FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Pursuant to the Credit Agreement, the Borrower hereby makes the requests indicated below: </FONT></P> <P
STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">1.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Loans </FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">(a)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Amount of new Loan: $<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> </FONT></TD></TR></TABLE> <P
STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">(b)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Requested funding date: <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>, 20<U>&nbsp;&nbsp;&nbsp;&nbsp;</U>. </FONT></TD></TR></TABLE> <P
STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">(c)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> of such Loan is to be a Floating Rate Loan; </FONT></TD></TR></TABLE> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">$<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> of such Loan is to be a LIBO Rate Loan. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">Requested Interest Period for LIBO Rate Loan: <U>&nbsp;&nbsp;&nbsp;&nbsp;</U> months. </FONT></P> <P
STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">2.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Continuation or conversion of LIBO Rate Loan maturing on <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>: </FONT></TD></TR></TABLE> <P
STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">(a)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Amount to be continued as a LIBO Rate Loan is $<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>, with an Interest Period of
<U>&nbsp;&nbsp;&nbsp;&nbsp;</U> months; </FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">(b)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Amount to be converted to a Floating Rate Loan is $<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>; and </FONT></TD></TR></TABLE> <P
STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">3.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Conversion of Floating Rate Loan: </FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">(a)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Requested conversion date: <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>, 20<U>&nbsp;&nbsp;&nbsp;&nbsp;</U>. </FONT></TD></TR></TABLE> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">II-i </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">


<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">(b)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Amount to be converted to a LIBO Rate Loan is $<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>, with an Interest Period of
<U>&nbsp;&nbsp;&nbsp;&nbsp;</U> months. </FONT></TD></TR></TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">The undersigned certifies that he is the
<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> of the Borrower, has obtained all consents necessary, and as such she/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, continuation, or conversion
under the terms and conditions of the Credit Agreement and are in full compliance with all 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. </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P><DIV ALIGN="right">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="40%" BORDER="0">

<TR>
<TD WIDTH="12%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="87%"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">PRIME OFFSHORE L.L.C.</FONT></P></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">By:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Name:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Title:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
</TABLE></DIV> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">II-ii </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>EXHIBIT III </U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">[FORM OF COMPLIANCE CERTIFICATE] </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman"
SIZE="2"><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>, 20<U>&nbsp;&nbsp;&nbsp;&nbsp;</U> </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Guaranty Bank, FSB </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">333 Clay Street, Suite 4400 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Houston, Texas 77002 </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Attention: David M. Butler </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">Re:</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Amended and Restated Credit Agreement dated effective March&nbsp;31, 2008, by and among Prime Offshore L.L.C., Guaranty Bank, FSB, as Agent, and the Lenders party thereto from time
to time (as amended, restated, or supplemented from time to time, the &#147;<U>Credit Agreement</U>&#148;) </FONT></TD></TR></TABLE> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Ladies and Gentlemen: </FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">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: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">1. To the best of the
knowledge of the undersigned, no Default or Event of Default exists as of the date hereof or has occurred since the date of our previous certification to you, if any. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT
FACE="Times New Roman" SIZE="2">1. To the best of the knowledge of the undersigned, the following Defaults or Events of Default 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: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">2. The compliance of the Borrower with the financial covenants of the Credit
Agreement, as of the close of business on , is evidenced by the following: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">(a)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Section&nbsp;6.14: <U>Interest Coverage Ratio</U>. Permit as of the close of any fiscal quarter, the ratio of (a)&nbsp;EBITDAX to (b)&nbsp;Interest Expense, measured on a rolling
four-quarter basis, to be less than 4.00 to 1.00 for the fiscal quarter ending March&nbsp;31, 2008 and each fiscal quarter thereafter. </FONT></TD></TR></TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; margin-left:56%" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">Actual </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; margin-left:56%" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>&nbsp;&nbsp;&nbsp;&nbsp;</U> to 1.0 </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">III-i </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">


<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">(b)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Section&nbsp;6.15: <U>Tangible Net Worth</U>. Permit Tangible Net Worth, as adjusted for exploration costs as of the close of any fiscal quarter beginning March&nbsp;31, 2008, to be
less than 90% of the Tangible Net Worth at March&nbsp;31, 2006, plus 75% of positive quarterly net income thereafter. </FONT></TD></TR></TABLE> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="68%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="51%"></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD WIDTH="46%"></TD></TR>
<TR>
<TD VALIGN="top" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>Required</U></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>Actual</U></FONT></TD></TR>
</TABLE> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">(c)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Section&nbsp;6.16: <U>General and Administrative Expenses</U>. Permit, as of the close of any fiscal quarter, general and administrative expenses to be more than $525,000 per
quarter beginning with the period ending March&nbsp;31, 2008. </FONT></TD></TR></TABLE> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="68%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="51%"></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD WIDTH="46%"></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>Actual</U></FONT></TD></TR>
</TABLE> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">(e)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Section&nbsp;6.17: <U>Minimum Liquidity</U>. Permit the sum of the Available Commitment plus unrestricted cash plus cash equivalent to be less than $1,000,000 at any time.
</FONT></TD></TR></TABLE> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="68%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="51%"></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD WIDTH="46%"></TD></TR>
<TR>
<TD VALIGN="top" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>Required</U></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>Actual</U></FONT></TD></TR>
</TABLE> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">3.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">No Material Adverse Effect has occurred since the date of the Financial Statements dated as of
<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>. </FONT></TD></TR></TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">Each capitalized term used but not defined herein shall have the meaning assigned to such term in the Credit Agreement. </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P><DIV ALIGN="right">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="40%" BORDER="0">

<TR>
<TD WIDTH="12%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="87%"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Very truly yours,</FONT></P></TD></TR>
<TR>
<TD HEIGHT="16" COLSPAN="3"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">PRIME OFFSHORE L.L.C.</FONT></P></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">By:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Name:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Title:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
</TABLE></DIV> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">III-ii </FONT></P>


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<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>EXHIBIT IV </U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">[FORM OF OPINION OF COUNSEL] </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">INTENTIONALLY OMITTED </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">IV-i </FONT></P>


<p Style='page-break-before:always'>
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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>EXHIBIT V </U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">FACILITY AMOUNTS </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="92%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="73%"></TD>
<TD VALIGN="bottom" WIDTH="8%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="8%"></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom" NOWRAP> <P STYLE="border-bottom:1px solid #000000;width:55pt"><FONT FACE="Times New Roman" SIZE="1"><B>Name of Lender</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Facility&nbsp;Amount</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Percentage&nbsp;Share</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Guaranty Bank, FSB</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">200,000,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">100</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">%</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="3"></TD>
<TD HEIGHT="8" COLSPAN="3"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">200,000,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">100</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">%</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">V-i </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>EXHIBIT VI </U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">[FORM OF ASSIGNMENT AGREEMENT] </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">ASSIGNMENT AGREEMENT </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">This ASSIGNMENT AGREEMENT (as amended, supplemented, restated or otherwise modified from time to time, this &#147;<U>Agreement</U>&#148;) is dated as of
<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>, <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>, by and between
<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> (the &#147;<U>Assignor</U>&#148;) and
<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> (the &#147;<U>Assignee</U>&#148;). </FONT></P> <P STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2"><B><U>RECITALS </U></B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">WHEREAS, the Assignor is a party to the Amended and Restated Credit Agreement dated
effective as of March&nbsp;31, 2008, (as amended, supplemented, restated, or otherwise modified from time to time, the &#147;<U>Credit Agreement</U>&#148;) by and among PRIME OFFSHORE L.L.C. (the &#147;<U>Borrower</U>&#148;), each of the lenders
that is or becomes a party thereto as provided in Section&nbsp;9.1 of the Credit Agreement (individually, together with its successors and assigns, a &#147;<U>Lender</U>&#148;, and collectively, together with their successors and assigns, the
&#147;<U>Lenders</U>&#148;), and Guaranty Bank, FSB, a federal savings bank, as administrative agent for the Lenders and the issuing bank for letters of credit issued thereunder (in such capacities, together with its successors in such capacities,
the &#147;<U>Agent</U>&#148;); and </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">WHEREAS, the Assignor proposes to sell, assign and transfer to the Assignee, and the Assignee proposes
to purchase and assume from the Assignor, <B>[all][a portion]</B> of the Assignor&#146;s Facility Amount and its outstanding Loans, all on the terms and conditions of this Agreement; </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">ARTICLE I </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>DEFINITIONS AND INTERPRETATION </U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">1.1
<U>Definitions from Credit Agreement</U>. All capitalized terms used but not defined herein have the respective meanings given to such terms in the Credit Agreement. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">1.2 <U>Additional Defined Terms</U>. As used herein, the following terms have the following respective meanings: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">&#147;<U>Assigned Interest</U>&#148; shall mean all of Assignor&#146;s (in its capacity as a &#147;Lender&#148;) rights and obligations (i)&nbsp;under the Credit Agreement and the other Loan Documents in respect of
<B>[all of] [the portion of the]</B> Facility Amount of the Assignor in the principal amount equal to $<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> and (ii)&nbsp;to make Loans under its Commitment up to such amount
referenced above and any right to receive payments for the Loans currently outstanding under its Commitment in the principal amount of $<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> (the &#147;<U>Loan
Balance</U>&#148;), plus the interest and fees which will accrue with respect thereto from and after the Assignment Date. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">VI-i </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Assignment Date</U>&#148; shall mean
<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">1.3 <U>References</U>. References in this Agreement to Schedule, Exhibit, Article, or Section numbers shall be to Schedules, Exhibits,
Articles, or Sections of this Agreement, unless expressly stated to the contrary. References in this Agreement to &#147;hereby,&#148; &#147;herein,&#148; &#147;hereinafter,&#148; &#147;hereinabove,&#148; &#147;hereinbelow,&#148; &#147;hereof,&#148;
&#147;hereunder&#148; and words of similar import shall be to this Agreement in its entirety and not only to the particular Schedule, Exhibit, Article, or Section in which such reference appears. Except as otherwise indicated, references in this
Agreement to statutes, sections, or regulations are to be construed as including all statutory or regulatory provisions consolidating, amending, replacing, succeeding, or supplementing the statute, section, or regulation referred to. References in
this Agreement to &#147;writing&#148; include printing, typing, lithography, facsimile reproduction, and other means of reproducing words in a tangible visible form. References in this Agreement to agreements and other contractual instruments shall
be deemed to include all exhibits and appendices attached thereto and all subsequent amendments and other modifications to such instruments, but only to the extent such amendments and other modifications are not prohibited by the terms of this
Agreement. References in this Agreement to Persons include their respective successors and permitted assigns. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">1.4 <U>Articles and
Sections</U>. 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. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">1.5
<U>Number and Gender</U>. 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. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">1.6 <U>Negotiated Transaction</U>. Each party to
this Agreement affirms to the other that it has had the opportunity to consult, and discuss the provisions of this Agreement with, independent counsel and fully understands the legal effect of each provision. </FONT></P> <P
STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">ARTICLE II </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>SALE AND ASSIGNMENT
</U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">2.1 <U>Sale and Assignment</U>. On the terms and conditions set forth herein, effective on and as of the Assignment Date, the Assignor
hereby sells, assigns and transfers to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, all of the right, title and interest of the Assignor in and to, and all of the obligations of the Assignor in respect of, the
Assigned Interest. Such sale, assignment and transfer is without recourse and, except as expressly provided in this Agreement, without representation or warranty. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">VI-ii </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">2.2 <U>Assumption of Obligations</U>. The Assignee agrees with the Assignor (for&nbsp;the express benefit
of the Assignor and the Borrower) that the Assignee will, from and after the Assignment Date, assume and perform all of the obligations of the Assignor in respect of the Assigned Interest. From and after the Assignment Date: (a)&nbsp;the Assignor
shall be released from the Assignor&#146;s obligations in respect of the Assigned Interest, and (b)&nbsp;the Assignee shall be entitled to all of the Assignor&#146;s rights, powers and privileges under the Credit Agreement and the other Loan
Documents in respect of the Assigned Interest. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">2.3 <U>Consent by Agent</U>. By executing this Agreement as provided below,
in&nbsp;accordance with Section&nbsp;9.1(b) of the Credit Agreement, the Agent hereby acknowledges notice of the transactions contemplated by this Agreement and consents to such transactions. </FONT></P> <P STYLE="margin-top:24px;margin-bottom:0px"
ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">ARTICLE III </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>PAYMENTS </U></FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">3.1 <U>Payments</U>. As consideration for the sale, assignment and transfer contemplated by <U>Section&nbsp;2.1</U>, the Assignee shall, on the
Assignment Date, assume Assignor&#146;s obligations in respect of the Assigned Interest and pay to the Assignor an amount equal to the Loan Balance, if any, all accrued and unpaid interest and fees with respect to the Assigned Interest as of the
Assignment Date. 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. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">3.2 <U>Allocation of Payments</U>. The Assignor and the Assignee agree that (i)&nbsp;the&nbsp;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)&nbsp;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)&nbsp;the Agent is
authorized and instructed to allocate payments received by it for the 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. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">3.3 <U>Delivery of Notes</U>. Promptly following the receipt by the Assignor of the&nbsp;consideration required to be paid under <U>Section&nbsp;3.1</U>
hereof, the Assignor shall, in the manner&nbsp;contemplated by Section&nbsp;9.1(b) of the Credit Agreement, (i)&nbsp;deliver to the Agent (or its counsel) the Note held by the Assignor and (ii)&nbsp;notify the Agent to request that the Borrower
execute and deliver new Notes to the Assignor, if Assignor continues to be a Lender, and the Assignee, dated the Assignment Date in respective principal amounts equal to the respective Facility Amounts of the Assignor (if appropriate) and the
Assignee after giving effect to the sale, assignment and transfer contemplated hereby. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">VI-iii </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">3.4 <U>Further Assurances</U>. The Assignor and the Assignee hereby agree to execute and deliver such
other instruments, and take such other actions, as either party may reasonably request in connection with the transactions contemplated by this Agreement. </FONT></P> <P STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">ARTICLE IV </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>CONDITIONS PRECEDENT </U></FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">The effectiveness of the sale, assignment and transfer contemplated hereby is subject to the satisfaction of each of the following conditions precedent:
</FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(a) the execution and delivery of this Agreement by the Assignor and the Assignee; </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(b) the receipt by the Assignor of the payments required to be made under <U>Section&nbsp;3.1</U>; and </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(c) the acknowledgment and consent by the Agent contemplated by <U>Section&nbsp;2.3.</U> </FONT></P> <P
STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">ARTICLE V </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>REPRESENTATIONS AND WARRANTIES
</U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">5.1 <U>Representations and Warranties of Assignor</U>. The Assignor represents&nbsp;and warrants to the Assignee as follows:
</FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(a) it has all requisite power and authority, and has taken all action necessary to execute and deliver this Agreement and
to fulfill its obligations under, and consummate the transactions contemplated by, this Agreement; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(b) the execution,
delivery and compliance with the terms hereof by the Assignor and the delivery of all instruments required to be delivered by it hereunder do not and will not violate any Requirement of Law applicable to it; </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(c) this Agreement has been duly executed and delivered by it and constitutes the legal, valid and binding obligation of the Assignor,
enforceable against it in accordance with its terms; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(d) all approvals and authorizations of, all filings with and all
actions by any Governmental Authority necessary for the validity or enforceability of its obligations under this Agreement have been obtained; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">(e) the Assignor has good title to, and is the sole legal and beneficial owner of, the Assigned Interest, free and clear of all Liens, claims, participations or other charges of any nature whatsoever; and </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">VI-iv </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(f) the transactions contemplated by this Agreement are commercial banking transactions
entered into in the ordinary course of the banking business of the Assignor. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">5.2 <U>Disclaimer</U>. Except as expressly provided in
<U>Section&nbsp;5.1</U> hereof, 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
Credit Agreement or in any other Loan Document or for the value, validity, effectiveness, genuineness, execution, legality, enforceability or sufficiency of the Credit Agreement, the Notes or any other Loan Document or for any failure by the
Borrower or any other Person (other than Assignor) 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 other Person,
or any other matter relating to the Credit Agreement or any other Loan Document or any extension of credit thereunder. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">5.3
<U>Representations and Warranties of Assignee</U>. The Assignee represents and warrants to the Assignor as follows: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(a) it
has all requisite power and authority, and has taken all action necessary to execute and deliver this Agreement and to fulfill its obligations under, and consummate the transactions contemplated by, this Agreement; </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(b) the execution, delivery and compliance with the terms hereof by the Assignee and the delivery of all instruments required to be
delivered by it hereunder do not and will not violate any Requirement of Law applicable to it; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(c) this Agreement has been
duly executed and delivered by it and constitutes the legal, valid and binding obligation of the Assignee, enforceable against it in accordance with its terms; </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(d) all approvals and authorizations of, all filings with and all actions by any Governmental Authority necessary for the validity or
enforceability of its obligations under this Agreement have been obtained; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(e) the Assignee has received copies of the
Credit Agreement and the other Loan Documents, as well as copies of all Financial Statements previously provided by the Borrower in satisfaction of obligations under the Credit Agreement. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(f) the Assignee has fully reviewed the terms of the Credit Agreement and the other Loan Documents and has independently and without
reliance upon the Assignor, and based on such information as the Assignee has deemed appropriate, made its own credit analysis and decision to enter into this Agreement; </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(g) if the Assignee is not incorporated under the laws of the United Sates of America or a state thereof, the Assignee has
contemporaneously herewith delivered to the Agent and the Borrower such documents as are required by Section&nbsp;2.25(b) of the Credit Agreement; and </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">VI-v </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(h) the transactions contemplated by this Agreement are commercial banking transactions
entered into in the ordinary course of the banking business of the Assignee. </FONT></P> <P STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">ARTICLE VI </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>MISCELLANEOUS </U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">6.1 <U>Notices</U>.
All notices and other communications provided for herein (including any modifications of, or waivers, requests or consents under, this Agreement) shall be given or made in writing (including by telecopy) to the intended recipient at its
&#147;Address for Notices&#148; specified below its name on the signature pages hereof or, as to either party, at such other address as shall be designated by such party in a notice to the other party. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">6.2 <U>Amendment, Modification or Waiver</U>. No provision of this Agreement may be amended, modified or waived except by an instrument in writing signed
by the Assignor and the Assignee, and consented to by the Agent. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">6.3 <U>Successors and Assigns</U>. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors and permitted assigns. The representations and warranties made herein by the Assignee are also made for the benefit of the Agent, and the Assignee agrees that the Agent
is entitled to rely upon such representations and warranties. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">6.4 <U>Assignments</U>. Neither party hereto may assign any of its rights or
obligations hereunder except in accordance with the terms of the Credit Agreement. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">6.5 <U>Counterparts</U>. This Agreement may be executed
in any number of counterparts, each of which shall be identical and all of which, taken together, shall constitute one and the same instrument, and each of the parties hereto may execute this Agreement by signing any such counterpart. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">6.6 <U>Governing Law</U>. This Agreement (including the validity and enforceability hereof) shall be governed by, and construed in accordance with, the
laws of the State of Texas, other than the conflict of laws rules thereof. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">6.7 <U>Expenses</U>. To the extent not paid by the Borrower
pursuant to the terms of the Credit Agreement, each party hereto shall bear its own expenses in connection with the execution, delivery and performance of this Agreement. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">6.8 <U>Waiver of Jury Trial</U>. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, any and all right to trial by jury in any legal proceeding arising out of or relating to
this Agreement or the transactions contemplated hereby. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>(Signatures appear on the following page) </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">VI-vi </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">IN WITNESS WHEREOF, the parties hereto have caused this Assignment Agreement to be executed and delivered
as of the date first above written. </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P><DIV ALIGN="right">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="40%" BORDER="0">

<TR>
<TD WIDTH="12%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="87%"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><U>ASSIGNOR</U></FONT></P></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">By:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Name:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Title:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
</TABLE></DIV> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P><DIV ALIGN="right">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="40%" BORDER="0">

<TR>
<TD WIDTH="24%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="75%"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"><FONT FACE="Times New Roman" SIZE="2"><U>Address for Notices:</U></FONT></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Facsimile&nbsp;No.:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Telephone&nbsp;No.:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Attention:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
</TABLE></DIV> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P><DIV ALIGN="right">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="40%" BORDER="0">

<TR>
<TD WIDTH="12%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="87%"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"><FONT FACE="Times New Roman" SIZE="2"><U>ASSIGNEE</U></FONT></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">By:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Name:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Title:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
</TABLE></DIV> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P><DIV ALIGN="right">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="40%" BORDER="0">

<TR>
<TD WIDTH="24%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="75%"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"><FONT FACE="Times New Roman" SIZE="2"><U>Address for Notices:</U></FONT></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Facsimile&nbsp;No.:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Telephone&nbsp;No.:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Attention:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
</TABLE></DIV> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="40%" BORDER="0">

<TR>
<TD WIDTH="13%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="86%"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">ACKNOWLEDGED AND CONSENTED TO:</FONT></P></TD></TR>
<TR>
<TD HEIGHT="8" COLSPAN="3"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">GUARANTY BANK, FSB</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:1px; margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">as Agent</FONT></P></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">By:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Name:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Title:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">VI-vii </FONT></P>

</BODY></HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.27.3
<SEQUENCE>3
<FILENAME>dex10273.htm
<DESCRIPTION>SUBORDINATED PROMISSORY NOTE
<TEXT>
<HTML><HEAD>
<TITLE>Subordinated Promissory Note</TITLE>
</HEAD>
 <BODY BGCOLOR="WHITE">

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>Exhibit 10.27.3 </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">SUBORDINATED PROMISSORY NOTE </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">(this &#147;Note&#148;) </FONT></P> <P
STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="35%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="32%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="31%"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">$50,000,000.00</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Houston, Texas</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">March&nbsp;31, 2008</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">FOR VALUE RECEIVED and WITHOUT GRACE (except to the extent, if any, hereinafter provided), PRIME
OFFSHORE L.L.C., a Delaware limited liability company (&#147;Maker&#148;), promises to pay to the order of ARTIC MANAGEMENT CORPORATION, a corporation incorporated under the laws of Panama (&#147;Payee&#148;), at his Principal Office (hereinafter
defined), the sum of FIFTY MILLION AND NO/100 DOLLARS ($50,000,000.00) or so much thereof as may have been advanced to Maker by Payee, at the sole discretion of Payee, and remains unpaid, together with interest at the rates and calculated as
hereinafter provided. Maker may, with the agreement of Payee, borrow, repay and reborrow funds under this Note. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Subject to the further
provisions of this Note, interest on the Loan Balance (hereinafter defined) shall accrue and be payable at the Contract Rate (hereinafter defined). Notwithstanding the foregoing, interest on past-due principal and, to the extent permitted by
applicable law, past-due interest, shall accrue at the Default Rate (hereinafter defined) and shall be payable upon demand by Payee at any time as to all or any portion of such interest. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Interest accruing on the Loan Balance shall be due and payable monthly, commencing on May&nbsp;1, 2008 and continuing thereafter on the first day of each
calendar month thereafter to, but not including, the calendar month in which the Maturity Date (hereinafter defined) falls, the amount of each such payment to be equal to the amount of accrued and unpaid interest as of the relevant payment date. The
then existing Loan Balance, together with all accrued and unpaid interest thereon, shall be due and payable on the Maturity Date. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">All
payments required pursuant to this Note shall be made without set-off or counterclaim in Dollars (hereinafter defined) and in immediately available funds. All payments by Maker shall be deemed received on (i)&nbsp;receipt or (ii)&nbsp;the next
Business Day following receipt if such receipt is after 2:00 p.m., Central Standard or Daylight Time, as the case may be, on any Business Day (hereinafter defined). Except as provided to the contrary herein, if the due date of any payment under this
Note would otherwise fall on a day which is not a Business Day, such date shall be extended to the next succeeding Business Day, and interest shall be payable for any principal so extended for the period of such extension. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">Initial:<U>&nbsp;&nbsp;&nbsp;&nbsp;</U> </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Subject to the provisions of the Intercreditor and Subordination Agreement referred to hereinafter, Maker
shall have the right, at any time or from time to time, to prepay this Note, in whole or in part, without prepayment penalty or fee. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">Subject to the provisions of the Intercreditor and Subordination Agreement referred to hereinafter, this Note shall be assignable by Payee without the need for the consent of Maker. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">The outstanding principal balance of this Note reflected by the notations of Payee on Annex A hereto or in the records of Payee shall be deemed
rebuttably presumptive evidence of the principal amount owing on this Note. The liability of Maker for payment of principal and interest evidenced by this Note shall be limited to principal amounts actually advanced and outstanding pursuant hereto
and interest on such amounts calculated in accordance with the applicable provisions hereof. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">It is the intention of the parties hereto to
comply strictly with the usury laws of the State of Texas and the United States of America. In this connection, there shall never be collected, charged, or received on the sums advanced hereunder interest in excess of that which would accrue at the
Highest Lawful Rate (hereinafter defined). Maker agrees that, to the extent the Highest Lawful Rate is determined with reference to the laws of the State to Texas, the Highest Lawful Rate shall be the &#147;weekly&#148; rate as defined in Chapter
303 of the Texas Finance Code, provided that Payee may, at its election, substitute for the &#147;weekly&#148; rate ceiling the &#147;annualized&#148; or &#147;quarterly&#148; ceiling, as such terms are defined in the aforesaid statute, upon the
giving of notices provided for in such statute and effective upon the giving of such notices. Payee may also rely, to the extent permitted by applicable laws of the State of Texas or the United States of America, on alternative maximum rates of
interest under other laws of the State of Texas or the United States of America applicable to Payee, if greater. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Notwithstanding anything
in this Note to the contrary, during any Limitation Period (hereinafter defined), the interest rate to be charged on amounts evidenced by this Note shall be the Highest Lawful Rate. During any period or periods of time following a Limitation Period,
to the extent permitted by applicable laws of the State of Texas or the United States of America, the interest rate to be charged hereunder shall remain at the Highest Lawful Rate until such time as there has been paid to Payee the amount of
interest in excess of that accruing at the Highest Lawful Rate that Payee would have received during the Limitation Period had the interest rate remained at the otherwise applicable rate. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">If, under any circumstances, the aggregate amounts paid on this Note include amounts which by law are deemed interest and which would </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>

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<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 2 -</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">Initial:<U>&nbsp;&nbsp;&nbsp;&nbsp;</U></FONT></TD></TR>
</TABLE>


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 <P STYLE="margin-top:0px;margin-bottom:0px">
<FONT FACE="Times New Roman" SIZE="2">exceed the amount permitted if the Highest Lawful Rate were in effect, Maker stipulates that such payment and collection will have been and will be deemed to
have been, to the extent permitted by applicable laws of the State of Texas or the United States of America, the result of mathematical error on the part of Maker and Payee; and Payee shall promptly refund the amount of such excess (to the extent
only of such interest payments in excess of that which would have accrued and been payable on the basis of the Highest Lawful Rate) upon discovery of such error by Payee or notice thereof from Maker. In the event that the maturity of this Note is
accelerated, by reason of an election by Payee or otherwise, or in the event of any prepayment, then the consideration constituting interest under applicable laws may never exceed that payable on the basis of the Highest Lawful Rate, and excess
amounts paid which by law are deemed interest, if any, shall be credited by Payee on the Loan Balance, or if the Loan Balance shall have been paid in full, refunded to Maker. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">All sums paid, or agreed to be paid, to Payee for the use, forbearance and detention of the proceeds hereof shall, to the extent permitted by applicable
law, be amortized, prorated, allocated, and spread throughout the full term hereof until paid in full so that the actual rate of interest is uniform but does not exceed the Highest Lawful Rate throughout the full term hereof. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">So long as any portion of the Loan Balance or interest accrued hereunder remains outstanding, Maker shall: </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(a) keep adequate records, in accordance with good accounting practices, of all its transactions so that at any time, and from time to time, its true and
complete financial condition may be readily determined, and promptly following the reasonable request of Payee, make such records available for inspection by Payee and, at the expense of Maker, allow Payee to make and take away copies thereof;
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(b) furnish to Payee, promptly upon the request of Payee, such additional financial or other information concerning the assets,
liabilities, operations, and transactions of Maker as Payee may from time to time reasonably request; and </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(c) subject to the provisions of
the Intercreditor and Subordination Agreement referred to hereinafter, execute and deliver to Payee such Security Documents (hereinafter defined covering such assets of Maker as Payee may request. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Any of the following events shall constitute an &#147;Event of Default&#148; for purposes of this Note: </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(a) default shall be made in the payment when due of any installment of principal or interest under this Note and such default shall remain unremedied for
in excess of five (5)&nbsp;Business Days; </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>

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<TD VALIGN="top" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 3 -</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">Initial:<U>&nbsp;&nbsp;&nbsp;&nbsp;</U></FONT></TD></TR>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(b) material default shall be made by Maker and remain uncured for 30 days in the due observance or
performance of any of its obligations under this Note other than for payment; </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(c) Maker shall (i)&nbsp;apply for or consent to the
appointment of a receiver, trustee, or liquidator of it or all or a substantial part of its assets, (ii)&nbsp;file a voluntary petition commencing an Insolvency Proceeding (hereinafter defined), (iii)&nbsp;make a general assignment for the benefit
of creditors of all or substantially all of its assets, (iv)&nbsp;be unable, or admit in writing its inability, to pay its debts generally as they become due, or (v)&nbsp;file an answer admitting the material allegations of a petition filed against
it in any Insolvency Proceeding; </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(d) an order, judgment, or decree shall be entered against Maker by any court of competent jurisdiction
or by any other duly authorized authority, on the petition of a creditor or otherwise, granting relief in any Insolvency Proceeding or approving a petition seeking reorganization or an arrangement of its debts or appointing a receiver, trustee,
conservator, custodian, or liquidator of it or all or any substantial part of its assets, and such order, judgment, or decree shall not be dismissed or stayed within ninety (90)&nbsp;days; or </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(e) default shall be made by Maker (as principal or guarantor or other surety) in the payment or performance of any bond, debenture, note or other
indebtedness or under any credit agreement, loan agreement, indenture, promissory note or similar agreement or instrument executed in connection with any of the foregoing, and such default shall remain unremedied for in excess of the period of
grace, if any, with respect thereto or there shall occur any event or condition in respect of any of the foregoing with respect thereto or there shall occur any event or condition in respect of any of the foregoing which would allow any holder or
holders of any of the foregoing to require such to be repaid, repurchased or redeemed. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Subject to the provisions of the Intercreditor and
Subordination Agreement referred to hereinafter, upon the occurrence of an Event of Default specified in clauses (c)&nbsp;or (d)&nbsp;of the preceding paragraph, immediately and without notice, (i)&nbsp;the Loan Balance and all accrued interest
hereunder shall automatically become immediately due and payable, without presentment, demand, protest, notice of protest, default, or dishonor, notice of intent to accelerate maturity, notice of acceleration of maturity, or other notice of any
kind, all of which are hereby expressly waived by Maker except as may be provided to the contrary elsewhere </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>

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<TD VALIGN="top" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 4 -</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">Initial:<U>&nbsp;&nbsp;&nbsp;&nbsp;</U></FONT></TD></TR>
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 <P STYLE="margin-top:0px;margin-bottom:0px">
<FONT FACE="Times New Roman" SIZE="2">herein. Subject to the provisions of the Intercreditor and Subordination Agreement referred to hereinafter, upon the occurrence and during the continuance of
any other Event of Default, Payee may, by notice in writing to Maker, declare the Loan Balance and all accrued interest hereunder immediately due and payable, without presentment, demand, protest, notice of protest, default, or dishonor, notice of
intent to accelerate maturity, notice of acceleration of maturity, or other notice of any kind, all of which are hereby expressly waived by Maker except as may be provided to the contrary elsewhere herein. Furthermore, upon the occurrence of any
Event of Default, Payee may, in addition to the foregoing in this paragraph, but subject to the provisions of the Intercreditor and Subordination Agreement referred to hereinafter, exercise any or all of its rights and remedies provided by law or
existing in equity. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">All notices, requests, and communications hereunder shall be in writing (including by facsimile or electronic mail).
Unless otherwise expressly provided herein, any such notice, request, demand, or other communication shall be deemed to have been duly given or made when delivered by hand, or, in the case of delivery by mail, when deposited in the mail, certified
mail, return receipt requested, postage prepaid, or, in the case of facsimile notice, when receipt thereof is acknowledged orally or by written confirmation report, addressed as follows: </FONT></P> <P
STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">(i)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">if to Payee, to: </FONT></TD></TR></TABLE> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Artic Management Corporation</FONT></P></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Attn: Matthias Eckenstein</FONT></P></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Solothurnerstrasse 94</FONT></P></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">CH-4008 Basel, Switzerland</FONT></P></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Facsimile: 011-4161-361-7139</FONT></P></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">E-mail: None</FONT></P></TD></TR>
</TABLE> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">(ii)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">if to Maker, to: </FONT></TD></TR></TABLE> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD VALIGN="top" COLSPAN="3"><FONT FACE="Times New Roman" SIZE="2">Prime Offshore L.L.C.</FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Attn:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Beverly A. Cummings</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Chief Executive Officer</FONT></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"><FONT FACE="Times New Roman" SIZE="2">1 Landmark Square, 11</FONT><FONT FACE="Times New Roman" SIZE="1"><SUP>th</SUP></FONT><FONT FACE="Times New Roman" SIZE="2"> Floor</FONT></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"><FONT FACE="Times New Roman" SIZE="2">Stamford, Connecticut 06901</FONT></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"><FONT FACE="Times New Roman" SIZE="2">Facsimile: (713) 461-9396</FONT></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"><FONT FACE="Times New Roman" SIZE="2">E-mail: <U>bcummings@primeenergy.com</U></FONT></TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Either party may, by proper written notice hereunder to the other, change the address to which such notices to it
shall thereafter be sent. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>

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<TD VALIGN="top" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 5 -</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">Initial:<U>&nbsp;&nbsp;&nbsp;&nbsp;</U></FONT></TD></TR>
</TABLE>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">In the event any one or more of the provisions contained in this Note shall, for any reason, be held to
be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of this Note or any of the Security Documents. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Neither this Note nor any provision hereof may be amended, waived, discharged or terminated orally, but only by an instrument in writing signed by the
party against whom enforcement of the amendment, waiver, discharge, or termination is sought. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><B>A<SMALL>LL</SMALL> <SMALL>ACTIONS</SMALL>
<SMALL>OR</SMALL> <SMALL>PROCEEDINGS</SMALL> <SMALL>WITH</SMALL> <SMALL>RESPECT</SMALL> <SMALL>TO</SMALL>, <SMALL>ARISING</SMALL> <SMALL>DIRECTLY</SMALL> <SMALL>OR</SMALL> <SMALL>INDIRECTLY</SMALL> <SMALL>IN</SMALL> <SMALL>CONNECTION</SMALL>
<SMALL>WITH</SMALL>, <SMALL>OUT</SMALL> <SMALL>OF</SMALL>, <SMALL>RELATED</SMALL> <SMALL>TO</SMALL>, <SMALL>OR</SMALL> <SMALL>FROM</SMALL> <SMALL>THIS</SMALL> N<SMALL>OTE</SMALL> <SMALL>SHALL</SMALL> <SMALL>BE</SMALL> <SMALL>LITIGATED</SMALL>
<SMALL>IN</SMALL> <SMALL>COURTS</SMALL> <SMALL>HAVING</SMALL> <SMALL>SITUS</SMALL> <SMALL>IN</SMALL> H<SMALL>OUSTON</SMALL>, H<SMALL>ARRIS</SMALL> C<SMALL>OUNTY</SMALL>, T<SMALL>EXAS</SMALL>. I<SMALL>N</SMALL> <SMALL>SUCH</SMALL>
<SMALL>REGARD</SMALL>, M<SMALL>AKER</SMALL> <SMALL>HEREBY</SMALL> <SMALL>SUBMITS</SMALL> <SMALL>TO</SMALL> <SMALL>THE</SMALL> <SMALL>JURISDICTION</SMALL> <SMALL>OF</SMALL> <SMALL>ANY</SMALL> <SMALL>LOCAL</SMALL>, <SMALL>STATE</SMALL>
<SMALL>OR</SMALL> <SMALL>FEDERAL</SMALL> <SMALL>COURT</SMALL> <SMALL>LOCATED</SMALL> <SMALL>IN</SMALL> H<SMALL>OUSTON</SMALL>, H<SMALL>ARRIS</SMALL> C<SMALL>OUNTY</SMALL>, T<SMALL>EXAS</SMALL>, <SMALL>AND</SMALL> <SMALL>HEREBY</SMALL>
<SMALL>WAIVES</SMALL> <SMALL>ANY</SMALL> <SMALL>RIGHTS</SMALL> <SMALL>IT</SMALL> <SMALL>MAY</SMALL> <SMALL>HAVE</SMALL> <SMALL>TO</SMALL> <SMALL>TRANSFER</SMALL> <SMALL>OR</SMALL> <SMALL>CHANGE</SMALL> <SMALL>THE</SMALL> <SMALL>JURISDICTION</SMALL>
<SMALL>OR</SMALL> <SMALL>VENUE</SMALL> <SMALL>OF</SMALL> <SMALL>ANY</SMALL> <SMALL>LITIGATION</SMALL> <SMALL>BROUGHT</SMALL> <SMALL>AGAINST</SMALL> <SMALL>IT</SMALL> <SMALL>BY</SMALL> P<SMALL>AYEE</SMALL> <SMALL>IN</SMALL> <SMALL>ACCORDANCE</SMALL>
<SMALL>WITH</SMALL> <SMALL>THIS</SMALL> <SMALL>PARAGRAPH</SMALL>.</B> </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><B>T<SMALL>HIS</SMALL> N<SMALL>OTE</SMALL>
<SMALL>CONSTITUTES</SMALL> <SMALL>THE</SMALL> <SMALL>ENTIRE</SMALL> <SMALL>AGREEMENT</SMALL> <SMALL>BETWEEN</SMALL> M<SMALL>AKER</SMALL> <SMALL>AND</SMALL> P<SMALL>AYEE</SMALL> <SMALL>WITH</SMALL> <SMALL>RESPECT</SMALL> <SMALL>TO</SMALL>
<SMALL>THE</SMALL> <SMALL>SUBJECT</SMALL> <SMALL>HEREOF</SMALL> <SMALL>AND</SMALL> <SMALL>SHALL</SMALL> <SMALL>SUPERSEDE</SMALL> <SMALL>ANY</SMALL> <SMALL>PRIOR</SMALL> <SMALL>AGREEMENT</SMALL> <SMALL>BETWEEN</SMALL> <SMALL>SUCH</SMALL>
<SMALL>PARTIES</SMALL>, <SMALL>WHETHER</SMALL> <SMALL>WRITTEN</SMALL> <SMALL>OR</SMALL> <SMALL>ORAL</SMALL>, <SMALL>RELATING</SMALL> <SMALL>TO</SMALL> <SMALL>THE</SMALL> <SMALL>SUBJECT</SMALL> <SMALL>HEREOF</SMALL>. F<SMALL>URTHERMORE</SMALL>,
<SMALL>IN</SMALL> <SMALL>THIS</SMALL> <SMALL>REGARD</SMALL>, <SMALL>THIS</SMALL> N<SMALL>OTE</SMALL> <SMALL>REPRESENTS</SMALL> <SMALL>THE</SMALL> <SMALL>FINAL</SMALL> <SMALL>AGREEMENT</SMALL> <SMALL>BETWEEN</SMALL> M<SMALL>AKER</SMALL>
<SMALL>AND</SMALL> P<SMALL>AYEE</SMALL> <SMALL>AND</SMALL> <SMALL>MAY</SMALL> <SMALL>NOT</SMALL> <SMALL>BE</SMALL> <SMALL>CONTRADICTED</SMALL> <SMALL>BY</SMALL> <SMALL>EVIDENCE</SMALL> <SMALL>OF</SMALL> <SMALL>PRIOR</SMALL>,
<SMALL>CONTEMPORANEOUS</SMALL>, <SMALL>OR</SMALL> <SMALL>SUBSEQUENT</SMALL> <SMALL>ORAL</SMALL> <SMALL>AGREEMENTS</SMALL> <SMALL>OF</SMALL> <SMALL>SUCH</SMALL> <SMALL>PARTIES</SMALL>. T<SMALL>HERE</SMALL> <SMALL>ARE</SMALL> <SMALL>NO</SMALL>
<SMALL>UNWRITTEN</SMALL> <SMALL>ORAL</SMALL> <SMALL>AGREEMENTS</SMALL> <SMALL>BETWEEN</SMALL> <SMALL>SUCH</SMALL> <SMALL>PARTIES</SMALL>.</B> </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">References in this Note to &#147;hereby,&#148; &#147;herein,&#148; &#147;hereinafter,&#148; &#147;hereinabove,&#148; &#147;hereinbelow,&#148; &#147;hereof,&#148; &#147;hereunder&#148; and words of similar import shall be to this Note in its
entirety and not only to the particular paragraph in which such reference appears. Specific enumeration herein shall not exclude the general and, in such regard, the terms &#147;includes&#148; and &#147;including&#148; used herein shall mean
&#147;includes, without limitation,&#148; or &#147;including, without limitation,&#148; as the case may be, where appropriate. Except as otherwise indicated, references in this Note to statutes, sections, or regulations are to be construed as
including all statutory or regulatory provisions consolidating, amending, replacing, succeeding, or supplementing the statute, section, or regulation referred to. References in this Note to &#147;writing&#148; include printing, typing, lithography,
facsimile reproduction, and other means of reproducing words in a tangible visible form. References in this Note to agreements and other contractual instruments shall be deemed to include all exhibits and appendices attached thereto and all
subsequent amendments and other modifications to such instruments, but only to the extent such amendments and other </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>

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<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 6 -</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">Initial:<U>&nbsp;&nbsp;&nbsp;&nbsp;</U></FONT></TD></TR>
</TABLE>


<p Style='page-break-before:always'>
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 <P STYLE="margin-top:0px;margin-bottom:0px">
<FONT FACE="Times New Roman" SIZE="2">modifications are not prohibited by the terms of this Note. References in this Note to Persons include their respective successors and permitted assigns.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">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. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">As used in this Note, each of the following terms shall have the meaning assigned thereto in this paragraph, unless the context otherwise requires:
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Business Day</U>&#148; shall mean a day other than a Saturday, Sunday or legal holiday for commercial banks under the laws of the
State of Texas or any other day when banking is suspended in the State of Texas. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Contract Rate</U>&#148; shall mean ten percent
(10%)&nbsp;per annum, calculated on the basis of a year of three hundred sixty five (365)&nbsp;days or three hundred sixty six (366)&nbsp;days, as the case may be, and actual days elapsed (including the first day, but excluding the last day) during
the period for which interest is payable, but in no event shall such rate exceed the Highest Lawful Rate. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Default Rate</U>&#148;
shall mean the Contract Rate plus two percent (2%), calculated on the basis of a year of three hundred sixty five (365)&nbsp;days or three hundred sixty six (366)&nbsp;days, as the case may be, and actual days elapsed (including the first day, but
excluding the last day) during the period for which interest is payable at the Default Rate, but in no event shall the Default Rate exceed the Highest Lawful Rate. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">&#147;<U>Dollars</U>&#148; and &#147;$&#148; shall mean dollars in the lawful currency of the United States of America. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">&#147;<U>Highest Lawful Rate</U>&#148; shall mean 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 laws applicable to Payee, 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. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>

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<TD VALIGN="top" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 7 -</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">Initial:<U>&nbsp;&nbsp;&nbsp;&nbsp;</U></FONT></TD></TR>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Insolvency Proceeding</U>&#148; shall mean application (whether voluntary or instituted by
another Person) for or the consent to the appointment of a receiver, trustee, conservator, custodian, or liquidator of any 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 any law of the United States of America, seeking liquidation, reorganization, or rearrangement or taking advantage of any bankruptcy, insolvency, debtor&#146;s relief, or other similar law of the
United States of America or any other jurisdiction. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Limitation Period</U>&#148; shall mean any period while any Loan Balance
remains outstanding and interest on such amount, calculated at the applicable interest rate, plus any fees or other sums payable to Payee under any Loan Document and deemed to be interest under applicable law, would exceed the amount of interest
which would accrue at the Highest Lawful Rate. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Loan Balance</U>&#148; shall mean, at any point in time, the outstanding principal
balance of this Note at such time. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Maturity Date</U>&#148; shall mean January&nbsp;1, 2010. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Person</U>&#148; shall mean an individual, corporation, partnership, limited liability company, trust, unincorporated organization, government,
any agency or political subdivision of any government, or any other form of entity. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Principal Office</U>&#148; shall mean the
principal office of Payee in Basel, Switzerland, presently located at Solothurnerstrasse 94, CH-4008 Basel, Switzerland or such other office and address for which Payee has requested in writing that payments under this Note be made by Maker.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Security Documents</U>&#148; shall mean the security documents executed by Maker from time to time in favor or for the benefit of
Payee to secure payment of this Note. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><B>T<SMALL>HIS</SMALL> N<SMALL>OTE</SMALL> <SMALL>SHALL</SMALL> <SMALL>BE</SMALL>
<SMALL>GOVERNED</SMALL> <SMALL>AND</SMALL> <SMALL>CONTROLLED</SMALL> <SMALL>BY</SMALL> <SMALL>THE</SMALL> <SMALL>LAWS</SMALL> <SMALL>OF</SMALL> <SMALL>THE</SMALL> S<SMALL>TATE</SMALL> <SMALL>OF</SMALL> T<SMALL>EXAS</SMALL> <SMALL>WITHOUT</SMALL>
<SMALL>REGARD</SMALL> <SMALL>TO</SMALL> <SMALL>PRINCIPLES</SMALL> <SMALL>OF</SMALL> <SMALL>SUCH</SMALL> <SMALL>LAWS</SMALL> <SMALL>RELATING</SMALL> <SMALL>TO</SMALL> <SMALL>CONFLICTS</SMALL> <SMALL>OF</SMALL> <SMALL>LAW</SMALL></B><SMALL></SMALL>.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Payment of this Note is secured by the Security Documents. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;
</FONT></P>

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<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 8 -</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">Initial:<U>&nbsp;&nbsp;&nbsp;&nbsp;</U></FONT></TD></TR>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Payment of this Note and the liens, security interests, assignments and pledges created by and existing
under the Security Documents are subject to the terms and provisions of that certain Intercreditor and Subordination Agreement dated effective as of March&nbsp;31, 2008 among Guaranty Bank, FSB, as Agent, Payee and Maker. </FONT></P> <P
STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P><DIV ALIGN="right">
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<TD VALIGN="top" COLSPAN="3"><FONT FACE="Times New Roman" SIZE="2">PRIME OFFSHORE L.L.C.</FONT></TD></TR>
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<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">By:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
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<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Beverly A. Cummings</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Chief Executive Officer</FONT></TD></TR>
</TABLE></DIV> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>

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<TD VALIGN="top" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 9 -</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">Initial:<U>&nbsp;&nbsp;&nbsp;&nbsp;</U></FONT></TD></TR>
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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>ANNEX A </U></FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD VALIGN="bottom" NOWRAP> <P STYLE="border-bottom:1px solid #000000;width:16pt"><FONT FACE="Times New Roman" SIZE="1"><B>Date</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"> <P STYLE="margin-top:0px;margin-bottom:1px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Principal Advanced</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"> <P STYLE="margin-top:0px;margin-bottom:1px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Principal Repaid</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"> <P STYLE="margin-top:0px;margin-bottom:1px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Loan Balance</B></FONT></P></TD></TR>
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.27.4
<SEQUENCE>4
<FILENAME>dex10274.htm
<DESCRIPTION>MORTGAGE, DEED OF TRUST, SECURITY AGREEMENT., FINANCING STATEMENT
<TEXT>
<HTML><HEAD>
<TITLE>Mortgage, Deed of Trust, Security Agreement., Financing Statement</TITLE>
</HEAD>
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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>Exhibit 10.27.4 </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2"><B><U>MORTGAGE, DEED OF TRUST, SECURITY AGREEMENT, </U></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B><U>FINANCING STATEMENT AND ASSIGNMENT OF
PRODUCTION </U></B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>(THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS) </U></FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">FROM </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>PRIME OFFSHORE L.L.C.
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Taxpayer Identification Number: 76-0688905 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">(Mortgagor and Debtor) </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">TO </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">Matthias Eckenstein, Trustee </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">for the benefit of </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"
ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>ARTIC MANAGEMENT CORPORATION </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">(Mortgagee and Secured Party) </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Effective March&nbsp;31, 2008 </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px;padding-bottom:3px;line-height:95%; vertical-align:top"><FONT
FACE="Times New Roman" SIZE="2">For purposes of filing this Deed of Trust as a financing statement, the mailing address of Mortgagor is Attn: Chief Executive Officer, 1 Landmark Square, 11</FONT><FONT FACE="Times New Roman" SIZE="1"><SUP>th</SUP>
</FONT><FONT FACE="Times New Roman" SIZE="2"> Floor, Stamford, Connecticut 06901; the mailing address of Mortgagee is Attn: Matthias Eckenstein, Solothurnerstrasse 94, CH-4008 Basel, Switzerland. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><FONT FACE="WINGDINGS">&#118;</FONT> <FONT FACE="WINGDINGS">&#118;</FONT> <FONT FACE="WINGDINGS">&#118;</FONT> <FONT FACE="WINGDINGS">&#118;</FONT> <FONT
FACE="WINGDINGS">&#118;</FONT> <FONT FACE="WINGDINGS">&#118;</FONT> <FONT FACE="WINGDINGS">&#118;</FONT> <FONT FACE="WINGDINGS">&#118;</FONT> <FONT FACE="WINGDINGS">&#118;</FONT> <FONT FACE="WINGDINGS">&#118;</FONT> <FONT FACE="WINGDINGS">&#118;
</FONT> <FONT FACE="WINGDINGS">&#118;</FONT> <FONT FACE="WINGDINGS">&#118;</FONT> <FONT FACE="WINGDINGS">&#118;</FONT> <FONT FACE="WINGDINGS">&#118;</FONT> <FONT FACE="WINGDINGS">&#118;</FONT> <FONT FACE="WINGDINGS">&#118;</FONT> </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">This instrument, prepared by David G. Dunlap, Jackson Walker L.L.P., 1401 McKinney, Suite 1900, Houston, Texas 77010, 713-752-4200, contains after-acquired property
provisions and covers future advances and proceeds to the fullest extent allowed by applicable law. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><U>ATTENTION OF RECORDING OFFICER</U>: This instrument
is a mortgage of both real and personal property and is, among other things, a Security Agreement and Financing Statement under the Uniform Commercial Code. This instrument creates a lien on rights in or relating to lands of Mortgagor which are
described in Exhibit A hereto or in documents described in Exhibit A. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">RECORDED DOCUMENT SHOULD BE RETURNED TO: </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">JACKSON WALKER L.L.P. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">1401 McKinney, Suite
1900 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Houston, Texas 77010 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman"
SIZE="2">Attn.: Donna Gatliff </FONT></P>

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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B><U>MORTGAGE, DEED OF TRUST, SECURITY AGREEMENT, </U></B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B><U>FINANCING STATEMENT AND ASSIGNMENT OF PRODUCTION </U></B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2"><U>(THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS) </U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">This Mortgage, Deed of Trust,
Security Agreement, Financing Statement, and Assignment of Production (this &#147;<U>Deed of Trust</U>&#148;) is executed pursuant to and as security for that certain Subordinated Promissory Note dated March&nbsp;31, 2008 in the face principal
amount of up to $50,000,000 executed by PRIME OFFSHORE L.L.C., a Delaware limited liability company (&#147;<U>Mortgagor</U>&#148;) and payable to ARTIC MANAGEMENT CORPORATION, a corporation incorporated under the laws of Panama
(&#147;<U>Mortgagee</U>&#148;) (the &#147;<U>Initial Note</U>&#148;) evidencing an initial loan and, possibly, one or more additional loans by Mortgagee to Mortgagor and, possibly, one or more additional Subordinated Promissory Notes hereafter
executed by Mortgagor and payable to Mortgagee (the &#147;<U>Additional Notes</U>&#148;, whether one or more, and the Initial Note and the Additional Notes, collectively, the &#147;<U>Notes</U>&#148;). Capitalized terms used but not defined herein
shall have the meanings assigned to such terms in the Notes. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%;padding-bottom:3px;line-height:95%; vertical-align:top"><FONT FACE="Times New Roman" SIZE="2">Mortgagor, acting
herein by and through its proper officer who has heretofore been duly authorized, the mailing address for which, for purposes hereof, is Attn: Chief Executive Officer, 1 Landmark Square, 11</FONT><FONT FACE="Times New Roman" SIZE="1"><SUP>th</SUP>
</FONT><FONT FACE="Times New Roman" SIZE="2"> Floor, Stamford, Connecticut 06901, hereby agrees as follows: </FONT></P> <P STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>ARTICLE 1 </U></FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>GRANT </U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">1.1 <U>Lien</U>. Mortgagor,
for valuable consideration, the receipt of which is hereby acknowledged, and in consideration of the debt and trust hereinafter mentioned, has granted, bargained, sold, conveyed, transferred and assigned, and by these presents does grant, bargain,
sell, convey, transfer and assign to Matthias Eckenstein, Trustee, whose address is Solothurnerstrasse 94, CH-4008 Basel, Switzerland, and his successors and substitutes in trust, as hereinafter provided (the &#147;<U>Trustee</U>&#148;), for the
benefit of Mortgagee, whose mailing address is Attn: Matthias Eckenstein, Solothurnerstrasse 94, CH-4008 Basel, Switzerland, the following described Property: </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(a) all right, title, and interest, whether now owned and existing or hereafter acquired or arising, of Mortgagor in and to the leases,
rights of way, easements, or other documents described in <U>Exhibit A</U> attached hereto and incorporated herein for all purposes or described or referred to in the documents described in <U>Exhibit A</U>, without regard to any surface acreage
and/or depth limitations set forth in <U>Exhibit A</U>, and all renewals and extensions thereof and all new leases, rights of way, easements, or other documents (i)&nbsp;in which an interest is acquired by Mortgagor after the termination or
expiration of any lease, right of way, easement, or other document described or referred to in <U>Exhibit A</U>, and (ii)&nbsp;that covers all or any part of the Property described in and covered by such terminated or expired lease, right of way,
easement, or other document, to the </FONT>
</P>

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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%">
<FONT FACE="Times New Roman" SIZE="2">extent, and only to the extent, such new leases, rights of way, easements, or other documents may cover such Property (all of the foregoing in this
subsection (a)&nbsp;being the &#147;<U>Leases</U>&#148;); </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(b) all right, title, and interest, whether now owned and
existing or hereafter acquired or arising, of Mortgagor in and to the lands subject to the Leases or otherwise described or referred to in <U>Exhibit A</U>, without regard to any surface acreage and/or depth limitations set forth in <U>Exhibit A</U>
(the &#147;<U>Lands</U>&#148;), including, without limitation, the oil, gas, mineral, and leasehold estates in and to the Lands; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">(c) all right, title, and interest, whether now owned and existing or hereafter acquired or arising, of Mortgagor in and to any of the oil, gas, and minerals in, on, or under the Lands, including, without limitation, all contractual rights,
fee interests, leasehold interests, overriding royalty interests, non-participating royalty interests, mineral interests, production payments, net profits interests, or any other interest measured by or payable out of production of oil, gas, or
other minerals from the Leases and/or Lands; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(d) all of the foregoing interests of Mortgagor as such interests may be
enlarged by the discharge of any payments out of production or by the removal of any charges or encumbrances; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(e) all
right, title, and interest, whether now owned and existing or hereafter acquired or arising, of Mortgagor in, to, and under or derived from any present or future operating, farmout, bidding, pooling, unitization, and communitization agreements,
assignments, and subleases, whether or not described in <U>Exhibit A</U>, to the extent, and only to the extent, that such agreements, assignments, and subleases cover or include any right, title, and interest, whether now owned and existing or
hereafter acquired or arising, of Mortgagor in and to all or any portion of the Leases and/or the Lands, and all units created by any such pooling, unitization, and communitization agreements and all units formed under orders, regulations, rules, or
other official acts of any Governmental Authority having jurisdiction, to the extent and only to the extent that such units cover or include all or any portion of the Leases and/or the Lands; </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(f) all right, title, and interest, whether now owned and existing or hereafter acquired or arising, of Mortgagor in, to, and under or
derived from all presently existing and future advance payment agreements, oil, casinghead gas, and gas sales, exchange, and processing contracts and agreements, including, without limitation, those contracts and agreements that are described or
referred to in <U>Exhibit&nbsp;A</U>, to the extent, and only to the extent, those contracts and agreements cover or include all or any portion of the Leases and/or the Lands; and </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(g) all right, title, and interest, whether now owned and existing or hereafter acquired or arising, of Mortgagor in, to, and under or
derived from all existing and future permits, licenses, easements, and similar rights and privileges that relate to or are appurtenant to any of the Leases and/or the Lands. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">2 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">1.2 <U>Security Interest</U>. Mortgagor, for the same consideration, hereby grants to Mortgagee a
continuing security interest in all improvements and all personal Property of any kind or character defined in and subject to the provisions of the Uniform Commercial Code (&#147;<U>UCC</U>&#148;), including, but not limited to, substitutions and
replacements for, accessions to, and the proceeds and products from any and all of such improvements and personal Property, as well as any and all &#147;as-extracted collateral&#148; as such term is defined in the UCC, whether now owned and existing
or hereafter acquired or arising, and situated on any of the Lands, including, but not limited to, pipe, casing, tubing, rods, storage tanks, boilers, loading racks, pumps, foundations, warehouses, and all other personal Property and equipment of
every kind and character upon, incident, appurtenant, or belonging to and used in connection with the interest of Mortgagor, whether now owned and existing or hereafter acquired or arising, in the Lands and/or the Leases, including all oil, gas, and
other minerals produced or to be produced to the account of Mortgagor from the Lands and all accounts receivable, general intangibles, and contract rights of Mortgagor in connection with the Lands and/or the Leases and all proceeds, products,
substitutions, and exchanges thereof (the Lands, the Leases, and the real and personal Property interests described in this Section being the &#147;<U>Mortgaged Property</U>&#148;). </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">1.3 <U>Assignment of Security</U>. Mortgagor, for the same consideration, hereby grants to Mortgagee any and all rights of Mortgagor to Liens securing
payment of proceeds from the sale of production from the Mortgaged Property. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">1.4 <U>After-Acquired Property</U>. Mortgagor, for the same
consideration, hereby grants, bargains, sells, conveys, transfers, and assigns to the Trustee or grants to Mortgagee a continuing security interest in, as the case may be, all additional right, title, or interest which Mortgagor may hereafter
acquire or become entitled to in the interests, Properties, Lands, Leases, and premises aforesaid, and in the oil, gas, or other minerals in and under or produced from or attributable to any of the Lands or Leases, which additional right, title, and
interest, when acquired, shall constitute &#147;Mortgaged Property,&#148; the same as if expressly described and conveyed herein. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">1.5
<U>Habendum</U>. TO HAVE AND TO HOLD all and singular the Mortgaged Property and all other Property which, by the terms hereof, has or may hereafter become subject to the Liens of this Deed of Trust, together with all rights, hereditaments, and
appurtenances in anywise belonging thereto, to the Trustee or Mortgagee, as the case may be, or the successors or assigns of either of them forever. </FONT></P> <P STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman"
SIZE="2"><U>ARTICLE 2 </U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>INDEBTEDNESS SECURED </U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
FACE="Times New Roman" SIZE="2">This conveyance is made, IN TRUST, HOWEVER, to secure and enforce the payment of the following indebtedness, obligations, and liabilities: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
FACE="Times New Roman" SIZE="2">2.1 <U>Specific Obligations</U>. The Notes, which bear interest and are payable as provided therein and each of which matures on the Maturity Date (as defined in the Initial Note or the relevant Additional Note, as
the case may be). </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">2.2 <U>Other and Further Indebtedness</U>. This Deed of Trust is intended to secure a revolving credit
lines. If intermediate paydowns by Mortgagor reduce the outstanding indebtedness to zero, it is intended that the Liens created under this Deed of Trust shall remain in full force and effect to secure subsequent advances by Mortgagee. In addition,
it is contemplated that Mortgagor may from time to time borrow additional sums of money from or otherwise be or become obligated to Mortgagee. This Deed of Trust is given to secure any and all indebtedness of Mortgagor, present or future, either
direct or indirect, primary or secondary, fixed or contingent, which Mortgagor may now or hereafter owe, or as to which Mortgagor may in any manner become obligated to Mortgagee for payment, including, without limitation, indebtedness arising by way
of guaranty as to obligations of another to Mortgagee and indebtedness originally owed to a party other than Mortgagee but which becomes owing to Mortgagee as the result of Mortgagee having acquired the right to payment thereof. This Deed of Trust
shall likewise secure not only the above described indebtedness, but any and all renewals for any period, extensions, and rearrangements of all or any portion thereof; and the Liens under this Deed of Trust shall be cumulative of all other Liens and
security of any and every other kind or character whatsoever securing the above-described indebtedness. Notwithstanding the foregoing, it is not the intention of the parties hereto to extend the Liens of this Deed of Trust so as to violate, or give
rise to an allegation of violation of, any provision of any statute, regulation, rule, ordinance or order of any applicable jurisdiction, or any agency or subdivision of any of such jurisdictions. In this connection, this Deed of Trust shall not,
solely as to the relevant indebtedness, serve as security for any indebtedness when for it to do so would violate any provision of any statute, regulation, rule, ordinance or order of any applicable jurisdiction, or any agency or subdivision of any
of such jurisdictions. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">2.3 <U>Indebtedness</U>. The word &#147;<U>Indebtedness</U>&#148; wherever used in this Deed of Trust shall refer
to all present and future debts, obligations, and liabilities described or referred to in this Article 2, subject, however, to the limitations provided hereinabove in this Article 2. </FONT></P> <P STYLE="margin-top:24px;margin-bottom:0px"
ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>ARTICLE 3 </U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>WARRANTIES </U></FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">3.1 <U>Warranty of Title</U>. Mortgagor hereby binds itself, its legal representatives, successors, and assigns, to warrant and forever defend all and
singular the Mortgaged Property to the Trustee and the successors and assigns of the Trustee forever against every Person whomsoever lawfully claiming or to claim the same or any part thereof. Notwithstanding that this Deed of Trust covers all of
the right, title, and interest, whether now owned and existing or hereafter acquired or arising, of Mortgagor in and to the Mortgaged Property, Mortgagor, for itself, its legal representatives, successors, and assigns, further covenants, represents,
and warrants that Mortgagor has good and indefeasible title to the Mortgaged Property and that the interests of Mortgagor in and to the Leases and/or Lands described in <U>Exhibit A</U> are not greater than the working interest nor less than the net
revenue interest, overriding royalty interest, net profit interest, production payment interest, royalty interest, or other interest payable out of or </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px">
<FONT FACE="Times New Roman" SIZE="2">measured by production set forth in connection with each oil and gas well described in <U>Exhibit A</U>. In the event Mortgagor owns any other or greater
interest, such additional interest is nonetheless included in, covered by, and subject to the liens and security interests created by this Deed of Trust. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
FACE="Times New Roman" SIZE="2">3.2 <U>Additional Warranties</U>. In consideration of the Indebtedness, Mortgagor, for itself, its legal representatives, successors, and assigns, covenants, represents, and warrants that: </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(a) <U>Leases in Effect</U>. All of the Leases specifically described or referred to in <U>Exhibit A</U> are in full force and effect. All
covenants, express or implied, in respect of the Leases specifically described or referred to in <U>Exhibit A</U>, or of any assignment of any of such Leases, which may affect the validity of any of such Leases, have been performed insofar as such
Leases pertain to the Lands. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(b) <U>Interests Free of Liens</U>. The interests of Mortgagor in the Mortgaged Property are
free and clear of all Liens except for Permitted Liens. All gross production taxes and all taxes as to which non-payment could result in a Lien against any of the Mortgaged Property have been paid. </FONT></P> <P
STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>ARTICLE 4 </U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>COVENANTS OF MORTGAGOR
</U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">In consideration of the Indebtedness, Mortgagor, for itself, its legal representatives, successors, and assigns, covenants and agrees
as follows: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">4.1 <U>Maintenance of Leases</U>. Mortgagor will keep and continue all Leases, estates, and interests herein described and all
contracts and agreements relating thereto in full force and effect in accordance with the terms thereof and will not permit the same to lapse or otherwise become impaired for failure to comply with the obligations thereof, whether express or
implied. In this connection, Mortgagor shall not release any of the Leases without the prior written consent of Mortgagee. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">4.2
<U>Maintenance of Property</U>. Mortgagor will keep and maintain all improvements, personal Property, and equipment now or hereafter situated on the Lands and constituting a portion of the Mortgaged Property and used or obtained in connection
therewith in good repair and condition, ordinary wear and tear excepted, and will not tear down or remove the same or permit the same to be torn down or removed without the prior consent of Mortgagee, except in the usual course of operations as may
be required for replacement when otherwise in compliance with the provisions of this Deed of Trust. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">4.3 <U>Pooling or Unitization</U>.
Mortgagor will not, without the prior written consent of Mortgagee, pool or unitize all or any part of the Mortgaged Property where the pooling or unitization would result in the diminution of the net revenue interest of Mortgagor in production from
the pooled or unitized lands attributable to the Mortgaged Property constituting a portion of such pooled or unitized lands. Immediately after the formation of any pool or unit in accordance herewith, Mortgagor will furnish to Mortgagee a conformed
copy of the pooling </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px">
<FONT FACE="Times New Roman" SIZE="2">agreement, declaration of pooling, or other instrument creating the pool or unit. The interest of Mortgagor included in any pool or unit attributable to the
Mortgaged Property or any part thereof shall become a part of the Mortgaged Property and shall be subject to the Liens hereof in the same manner and with the same effect as though the pool or unit and the interest of Mortgagor therein were
specifically described in <U>Exhibit A</U>. In the event any proceedings of any Governmental Authority which could result in pooling or unitizing all or any part of the Mortgaged Property are commenced, Mortgagor shall give immediate written notice
thereof to Mortgagee. Any pooling or unitization of all or any part of the Mortgaged Property in violation of this Section shall be of no force or effect against the Trustee or Mortgagee. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">4.4 <U>Operation of Mortgaged Property</U>. Mortgagor will operate or, to the extent that the right of operation is vested in others, will exercise its
best efforts to require the operator to operate the Mortgaged Property and all wells now or hereafter located thereon continuously and in a prudent and workmanlike manner in accordance with the best usage of the field and in accordance with all
applicable Requirements of Law. Mortgagor will comply with all terms and conditions of the Leases and each assignment or contract obligating Mortgagor in any way with respect to the Mortgaged Property; but nothing herein shall be construed to
empower Mortgagor to bind the Trustee or Mortgagee to any contract or obligation or render the Trustee or Mortgagee in any way responsible or liable for bills or obligations incurred by Mortgagor. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">4.5 <U>Compliance with Operating Agreements</U>. Mortgagor agrees to promptly pay all bills for labor and materials incurred in the operation of the
Mortgaged Property and will promptly pay its share of all costs and expenses incurred under any joint operating agreement affecting the Mortgaged Property or any portion thereof; will furnish Mortgagee, as and when requested, full information as to
the status of any joint account maintained with others under any such operating agreement; will not take any action to incur any liability or Lien thereunder; and will not enter into any new operating agreement or any amendment of any existing
operating agreement affecting the Mortgaged Property without the prior written consent of Mortgagee. Furthermore, Mortgagor will not consent or agree to participate in any proposed operation under any presently existing operating agreement affecting
the Mortgaged Property unless Mortgagor obtains the prior written consent of Mortgagee and, if requested by Mortgagee, deposits with the operator or Mortgagee, where Mortgagor is a non-operator, or with Mortgagee, where Mortgagor is an operator,
Mortgagor&#146;s share of the estimated cost of the proposed operation prior to electing to participate in the operation. To the extent that Mortgagor is unable to consent to any proposed operation with respect to any of the Mortgaged Property,
prior to electing not to participate in the proposed operation, Mortgagor will use its best efforts, to the extent practicable and to the extent allowed to do so under the relevant operating agreement or other applicable contract, to farmout to
others acceptable to Mortgagee, on the best terms obtainable and acceptable to Mortgagee, the interest or relevant portion of the interest of Mortgagor in the proposed operation. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">4.6 <U>Access to Mortgaged Property</U>. Mortgagor will permit Mortgagee and his accredited agents, representatives, and attorneys, at the expense of
Mortgagor, at all times to go upon, examine, inspect, conduct environmental audits and other testing of, and remain on, the Mortgaged Property, and to go upon the derrick floor of any well at any time drilled or being drilled thereon, and will
furnish Mortgagee, upon request, all pertinent information regarding the development and operation of the Mortgaged Property. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">6 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">4.7 <U>Waivers</U>. Mortgagor hereby expressly waives, to the full extent permitted by applicable law,
any and all rights or privileges of marshalling of assets, sale in inverse order of alienation, notices, appraisements, redemption, and any prerequisite in the event of foreclosure of the Liens created herein. Mortgagee at all times shall have the
right to release any part of the Mortgaged Property now or hereafter subject to the Liens of this Deed of Trust, any part of the proceeds of production or other income herein or hereafter assigned or pledged, or any other security it now has or may
hereafter have securing the Indebtedness, without releasing any other part of the Mortgaged Property, proceeds, or income, and without affecting the Liens hereof as to the part or parts of the Mortgaged Property, proceeds, or income not so released
or the right to receive future proceeds and income. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">4.8 <U>Compliance with Laws</U>. Mortgagor will comply with all Requirements of Law
applicable to the Mortgaged Property and the operations conducted thereon, including, without limitation, the Natural Gas Policy Act of 1978, as amended, and Environmental Laws; and cause all employees, crew members, agents, contractors,
sub-contractors, and future lessees (pursuant to appropriate lease provisions) of Mortgagor, while such Persons are acting within the scope of their relationship with Mortgagor, to comply with all such Requirements of Law as may be necessary or
appropriate to enable Mortgagor to so comply. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2"><B></B>4.9 <U>Hazardous Substances Indemnification</U>.<B> M<SMALL>ORTGAGOR</SMALL>
<SMALL>HEREBY</SMALL> <SMALL>INDEMNIFIES</SMALL> <SMALL>AND</SMALL> <SMALL>HOLDS</SMALL> M<SMALL>ORTGAGEE</SMALL> <SMALL>AND</SMALL> <SMALL>ITS</SMALL> <SMALL>AGENTS</SMALL>, <SMALL>ATTORNEYS</SMALL>-<SMALL>IN</SMALL>-<SMALL>FACT</SMALL>,
<SMALL>AND</SMALL> <SMALL>AFFILIATES</SMALL> <SMALL>AND</SMALL> <SMALL>THE</SMALL> T<SMALL>RUSTEE</SMALL> <SMALL>HARMLESS</SMALL> <SMALL>FROM</SMALL> <SMALL>AND</SMALL> <SMALL>AGAINST</SMALL> <SMALL>ANY</SMALL> <SMALL>AND</SMALL> <SMALL>ALL</SMALL>
<SMALL>CLAIMS</SMALL>, <SMALL>LOSSES</SMALL>, <SMALL>DAMAGES</SMALL>, <SMALL>LIABILITIES</SMALL>, <SMALL>FINES</SMALL>, <SMALL>PENALTIES</SMALL>, <SMALL>CHARGES</SMALL>, <SMALL>ADMINISTRATIVE</SMALL> <SMALL>AND</SMALL> <SMALL>JUDICIAL</SMALL>
<SMALL>PROCEEDINGS</SMALL> <SMALL>AND</SMALL> <SMALL>ORDERS</SMALL>, <SMALL>JUDGMENTS</SMALL>, <SMALL>REMEDIAL</SMALL> <SMALL>ACTIONS</SMALL>, <SMALL>REQUIREMENTS</SMALL> <SMALL>AND</SMALL> <SMALL>ENFORCEMENT</SMALL> <SMALL>ACTIONS</SMALL>
<SMALL>OF</SMALL> <SMALL>ANY</SMALL> <SMALL>KIND</SMALL>, <SMALL>AND</SMALL> <SMALL>ALL</SMALL> <SMALL>COSTS</SMALL> <SMALL>AND</SMALL> <SMALL>EXPENSES</SMALL> <SMALL>INCURRED</SMALL> <SMALL>IN</SMALL> <SMALL>CONNECTION</SMALL>
<SMALL>THEREWITH</SMALL> (<SMALL>INCLUDING</SMALL>, <SMALL>WITHOUT</SMALL> <SMALL>LIMITATION</SMALL>, <SMALL>ATTORNEYS</SMALL>&#146; <SMALL>FEES</SMALL> <SMALL>AND</SMALL> <SMALL>EXPENSES</SMALL>), <SMALL>ARISING</SMALL> <SMALL>DIRECTLY</SMALL>
<SMALL>OR</SMALL> <SMALL>INDIRECTLY</SMALL>, <SMALL>IN</SMALL> <SMALL>WHOLE</SMALL> <SMALL>OR</SMALL> <SMALL>IN</SMALL> <SMALL>PART</SMALL>, <SMALL>FROM</SMALL> (<SMALL>A</SMALL>)&nbsp;<SMALL>THE</SMALL> <SMALL>PRESENCE</SMALL> <SMALL>OF</SMALL>
<SMALL>ANY</SMALL> H<SMALL>AZARDOUS</SMALL> S<SMALL>UBSTANCES</SMALL> <SMALL>ON</SMALL>, <SMALL>UNDER</SMALL>, <SMALL>OR</SMALL> <SMALL>FROM</SMALL> <SMALL>ANY</SMALL> M<SMALL>ORTGAGED</SMALL> P<SMALL>ROPERTY</SMALL>, <SMALL>WHETHER</SMALL>
<SMALL>PRIOR</SMALL> <SMALL>TO</SMALL> <SMALL>OR</SMALL> <SMALL>DURING</SMALL> <SMALL>THE</SMALL> <SMALL>TERM</SMALL> <SMALL>HEREOF</SMALL>, (<SMALL>B</SMALL>)&nbsp;<SMALL>ANY</SMALL> <SMALL>ACTIVITY</SMALL> <SMALL>CARRIED</SMALL> <SMALL>ON</SMALL>
<SMALL>OR</SMALL> <SMALL>UNDERTAKEN</SMALL> <SMALL>ON</SMALL> <SMALL>OR</SMALL> <SMALL>OFF</SMALL> <SMALL>ANY</SMALL> M<SMALL>ORTGAGED</SMALL> P<SMALL>ROPERTY</SMALL>, <SMALL>WHETHER</SMALL> <SMALL>PRIOR</SMALL> <SMALL>TO</SMALL> <SMALL>OR</SMALL>
<SMALL>DURING</SMALL> <SMALL>THE</SMALL> <SMALL>TERM</SMALL> <SMALL>HEREOF</SMALL>, <SMALL>AND</SMALL> <SMALL>WHETHER</SMALL> <SMALL>BY</SMALL> M<SMALL>ORTGAGOR</SMALL> <SMALL>OR</SMALL> <SMALL>ANY</SMALL> <SMALL>PREDECESSOR</SMALL>
<SMALL>IN</SMALL> <SMALL>TITLE</SMALL>, <SMALL>EMPLOYEE</SMALL>, <SMALL>AGENT</SMALL>, <SMALL>CONTRACTOR</SMALL>, <SMALL>OR</SMALL> <SMALL>SUBCONTRACTOR</SMALL> <SMALL>OF</SMALL> M<SMALL>ORTGAGOR</SMALL> <SMALL>OR</SMALL> <SMALL>ANY</SMALL>
<SMALL>OTHER</SMALL> P<SMALL>ERSON</SMALL> <SMALL>AT</SMALL> <SMALL>ANY</SMALL> <SMALL>TIME</SMALL> <SMALL>OCCUPYING</SMALL> <SMALL>OR</SMALL> <SMALL>PRESENT</SMALL> <SMALL>ON</SMALL> <SMALL>ANY</SMALL> M<SMALL>ORTGAGED</SMALL>
P<SMALL>ROPERTY</SMALL>, <SMALL>IN</SMALL> <SMALL>CONNECTION</SMALL> <SMALL>WITH</SMALL> <SMALL>THE</SMALL> <SMALL>HANDLING</SMALL>, <SMALL>TREATMENT</SMALL>, <SMALL>REMOVAL</SMALL>, <SMALL>STORAGE</SMALL>, <SMALL>DECONTAMINATION</SMALL>,
<SMALL>CLEANUP</SMALL>, <SMALL>TRANSPORTATION</SMALL>, <SMALL>OR</SMALL> <SMALL>DISPOSAL</SMALL> <SMALL>OF</SMALL> <SMALL>ANY</SMALL> H<SMALL>AZARDOUS</SMALL> S<SMALL>UBSTANCES</SMALL> <SMALL>AT</SMALL> <SMALL>ANY</SMALL> <SMALL>TIME</SMALL>
<SMALL>LOCATED</SMALL> <SMALL>OR</SMALL> <SMALL>PRESENT</SMALL> <SMALL>ON</SMALL> <SMALL>OR</SMALL> <SMALL>UNDER</SMALL> <SMALL>SUCH</SMALL> P<SMALL>ROPERTY</SMALL>, (<SMALL>C</SMALL>)&nbsp;<SMALL>ANY</SMALL> <SMALL>RESIDUAL</SMALL>
<SMALL>CONTAMINATION</SMALL> <SMALL>ON</SMALL> <SMALL>OR</SMALL> <SMALL>UNDER</SMALL> <SMALL>ANY</SMALL> M<SMALL>ORTGAGED</SMALL> P<SMALL>ROPERTY</SMALL>, (<SMALL>D</SMALL>)&nbsp;<SMALL>ANY</SMALL> <SMALL>CONTAMINATION</SMALL> <SMALL>OF</SMALL>
<SMALL>ANY</SMALL> M<SMALL>ORTGAGED</SMALL> P<SMALL>ROPERTY</SMALL> <SMALL>OR</SMALL> <SMALL>NATURAL</SMALL> <SMALL>RESOURCES</SMALL> <SMALL>ARISING</SMALL> <SMALL>IN</SMALL> <SMALL>CONNECTION</SMALL> <SMALL>WITH</SMALL> <SMALL>THE</SMALL>
<SMALL>GENERATION</SMALL>, <SMALL>USE</SMALL>, <SMALL>HANDLING</SMALL>, <SMALL>STORAGE</SMALL>, <SMALL>TRANSPORTATION</SMALL>, <SMALL>OR</SMALL> <SMALL>DISPOSAL</SMALL> <SMALL>OF</SMALL> <SMALL>ANY</SMALL> H<SMALL>AZARDOUS</SMALL>
S<SMALL>UBSTANCE</SMALL> <SMALL>BY</SMALL> M<SMALL>ORTGAGOR</SMALL> <SMALL>OR</SMALL> <SMALL>ANY</SMALL> <SMALL>EMPLOYEE</SMALL>, <SMALL>AGENT</SMALL>, <SMALL>CONTRACTOR</SMALL>, <SMALL>OR</SMALL> <SMALL>SUBCONTRACTOR</SMALL> <SMALL>OF</SMALL>
M<SMALL>ORTGAGOR</SMALL> <SMALL>WHILE</SMALL> <SMALL>SUCH</SMALL> P<SMALL>ERSONS</SMALL> <SMALL>ARE</SMALL> <SMALL>ACTING</SMALL> <SMALL>WITHIN</SMALL> <SMALL>THE</SMALL> <SMALL>SCOPE</SMALL> <SMALL>OF</SMALL> <SMALL>THEIR</SMALL>
<SMALL>RELATIONSHIP</SMALL> <SMALL>WITH</SMALL> M<SMALL>ORTGAGOR</SMALL>, <SMALL>IRRESPECTIVE</SMALL> <SMALL>OF</SMALL> <SMALL>WHETHER</SMALL> <SMALL>ANY</SMALL> <SMALL>OF</SMALL> <SMALL>SUCH</SMALL> <SMALL>ACTIVITIES</SMALL> <SMALL>WERE</SMALL>
<SMALL>OR</SMALL> <SMALL>WILL</SMALL> <SMALL>BE</SMALL> <SMALL>UNDERTAKEN</SMALL> <SMALL>IN</SMALL> <SMALL>ACCORDANCE</SMALL> <SMALL>WITH</SMALL> <SMALL>APPLICABLE</SMALL> R<SMALL>EQUIREMENTS</SMALL> <SMALL>OF</SMALL> L<SMALL>AW</SMALL>,
<SMALL>OR</SMALL> (<SMALL>E</SMALL>)&nbsp;<SMALL>THE</SMALL> <SMALL>PERFORMANCE</SMALL> <SMALL>AND</SMALL> <SMALL>ENFORCEMENT</SMALL> <SMALL>OF</SMALL> <SMALL>THIS</SMALL> D<SMALL>EED</SMALL> <SMALL>OF</SMALL> T<SMALL>RUST</SMALL> <SMALL>OR</SMALL>
<SMALL>ANY</SMALL> <SMALL>OTHER</SMALL> <SMALL>ACT</SMALL> <SMALL>OR</SMALL> <SMALL>OMISSION</SMALL> <SMALL>IN</SMALL> <SMALL>CONNECTION</SMALL> <SMALL>WITH</SMALL> <SMALL>OR</SMALL> <SMALL>RELATED</SMALL> <SMALL>TO</SMALL> <SMALL>THIS</SMALL>
D<SMALL>EED</SMALL> <SMALL>OF</SMALL> T<SMALL>RUST</SMALL> <SMALL>OR</SMALL> <SMALL>THE</SMALL> <SMALL>TRANSACTIONS</SMALL> <SMALL>CONTEMPLATED</SMALL> <SMALL>HEREBY</SMALL>, <SMALL>INCLUDING</SMALL>, <SMALL>WITHOUT</SMALL>
<SMALL>LIMITATION</SMALL>, <SMALL>ANY</SMALL> <SMALL>OF</SMALL> <SMALL>THE</SMALL> <SMALL>FOREGOING</SMALL> <SMALL>IN</SMALL> <SMALL>THIS</SMALL> S<SMALL>ECTION</SMALL> <SMALL>ARISING</SMALL> <SMALL>FROM</SMALL> <SMALL>NEGLIGENCE</SMALL>,
<SMALL>WHETHER</SMALL> <SMALL>SOLE</SMALL> <SMALL>OR</SMALL> <SMALL>CONCURRENT</SMALL>, <SMALL>ON</SMALL> <SMALL>THE</SMALL> <SMALL>PART</SMALL> <SMALL>OF</SMALL> M<SMALL>ORTGAGEE</SMALL> <SMALL>OR</SMALL> <SMALL>ANY</SMALL> <SMALL>OF</SMALL>
<SMALL>ITS</SMALL> <SMALL>AGENTS</SMALL> <SMALL>OR</SMALL> <SMALL>ATTORNEYS</SMALL>-<SMALL>IN</SMALL>-<SMALL>FACT</SMALL> <SMALL>OR</SMALL> <SMALL>THE</SMALL> T<SMALL>RUSTEE</SMALL>; <SMALL>WITH</SMALL> <SMALL>THE</SMALL> <SMALL>FOREGOING</SMALL>
<SMALL>INDEMNITY</SMALL> <SMALL>SURVIVING</SMALL> <SMALL>SATISFACTION</SMALL> <SMALL>OF</SMALL> <SMALL>THE</SMALL> I<SMALL>NDEBTEDNESS</SMALL> <SMALL>AND</SMALL> <SMALL>THE</SMALL> <SMALL>RELEASE</SMALL> <SMALL>OF</SMALL> <SMALL>THE</SMALL>
L<SMALL>IENS</SMALL> <SMALL>CREATED</SMALL> <SMALL>HEREBY</SMALL>. </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">4.10 <U>Site Assessments</U>. Mortgagee at any time and from time to time, either prior to or after the
occurrence of an Event of Default, may contract, at the expense of Mortgagor, for the services of Persons (the &#147;<U>Site Reviewers</U>&#148;) to perform environmental site assessments and other tests (&#147;<U>Site Assessments</U>&#148;) on all
or any portion of the Mortgaged Property for the purpose of determining whether any environmental condition exists on any Mortgaged Property which could reasonably be expected to result in any liability, cost, or expense to Mortgagee or any owner,
occupier, or operator of such Mortgaged Property. The Site Assessments may be performed at any time or times, upon reasonable notice, and under reasonable conditions established by Mortgagor which do not impede the performance of the Site
Assessments. The Site Reviewers are hereby authorized to enter upon all or any portion of the Mortgaged Property for such purposes. The Site Reviewers are further authorized to perform both above and below the ground testing for environmental damage
or the presence of Hazardous Substances on the Mortgaged Property and such other tests on the Mortgaged Property as may be necessary to conduct the Site Assessments in the reasonable opinion of the Site Reviewers. Mortgagor will supply to the Site
Reviewers such historical and operational information regarding the Mortgaged Property as may be reasonably requested by the Site Reviewers to facilitate the Site Assessments and will make available for meetings with the Site Reviewers appropriate
personnel having knowledge of such matters. On request, Mortgagee shall make the results of such Site Assessments available to Mortgagor, which, prior to an Event of Default, may at its election participate under reasonable procedures in the
direction of such Site Assessments and the description of tasks of the Site Reviewers. The cost of performing all Site Assessments shall be paid by Mortgagor upon demand of Mortgagee and any such obligations shall be Indebtedness secured by this
Deed of Trust. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">4.11 <U>Uneconomic Wells</U>. Should proceeds from the sale of production from any oil and/or gas well constituting part of
the Mortgaged Property (net of production, severance and windfall profit taxes and royalties, overriding royalties and other payments out of or measured by production) not exceed the expense of operation of such well (including, but not limited to,
operator&#146;s overhead, payments to contractors and suppliers, and annual taxes assessed on the basis of the value of the Property prorated on a monthly basis, but expressly excluding any portion of the cost of drilling or completing the relevant
well or the cost of non-routine workover or remedial operations) for a period in excess of three consecutive calendar months, then, upon receipt by Mortgagor of written notification from Mortgagee, Mortgagor will (a)&nbsp;take all necessary steps to
abandon the relevant well, or (b)&nbsp;provide from sources other than proceeds from the sale of production attributable to the Mortgaged Property (i.e., through borrowings or contractual commitments obtained from third parties not in violation of
any provision of this Deed of Trust or any other Loan Document) the funds required to pay the share of Mortgagor of the expenses associated with the continuing operation of such well. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">4.12 <U>Performance of Gas Contracts</U>. Mortgagor will perform and observe in all material respects all of its obligations under each contract relating
to the sale of gas produced from or attributable to the Mortgaged Property and will not, except in good faith and as the result of arm&#146;s length negotiations and with prior written notice to Mortgagee, change, modify, amend or waive any of the
terms or provisions of any such contract or take any other action which would release any other party from its obligations or liabilities under any such contract. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">4.13 <U>Covenants Running with the Land</U>. All covenants and agreements herein contained shall
constitute covenants running with the Land. </FONT></P> <P STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>ARTICLE 5 </U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2"><U>DEFEASANCE, FORECLOSURE </U></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>AND OTHER REMEDIES </U></FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">5.1 <U>Defeasance</U>. Should the Indebtedness be paid, then the conveyance of the Mortgaged Property shall become of no further force and effect, and,
at the request and expense of Mortgagor, the Lien granted hereunder shall be released, without recourse or warranty; otherwise, it shall remain in full force and effect. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
FACE="Times New Roman" SIZE="2">5.2 <U>Events of Default</U>. The occurrence of any Event of Default under any of the Notes shall constitute an Event of Default under this Deed of Trust. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">5.3 <U>Acceleration and Exercise of Power of Sale</U>. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">(a) Upon the occurrence of an Event of Default specified in the Intercreditor Agreement, the aggregate principal amount of all Indebtedness then outstanding and all interest accrued thereon shall automatically become
immediately due and payable, without presentment, demand, protest, notice of protest, default or dishonor, notice of intent to accelerate maturity, notice of acceleration of maturity, or other notice of any kind, all of which are hereby expressly
waived by Mortgagor to the full extent permitted by applicable law. Upon the occurrence of any other Event of Default, Mortgagee may declare the aggregate principal amount of all Indebtedness then outstanding and all interest accrued thereon
immediately due and payable, whereupon the same shall become immediately due and payable without presentment, demand, protest, notice of protest, default or dishonor, notice of intent to accelerate maturity, notice of acceleration of maturity, or
other notice of any kind, all of which are hereby expressly waived by Mortgagor to the full extent permitted by applicable law. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">(b) Upon the occurrence of any Event of Default arising from a voluntary or involuntary Insolvency Proceeding in which Mortgagor is a debtor or at any time thereafter while the Indebtedness or any part thereof remains unpaid, it shall be
the duty of the Trustee, on request of Mortgagee (which request is hereby presumed), to enforce this Trust and, after advertising the time and place of the sale for at least 21 days prior to the day of sale, by posting or causing to be posted a
written or printed notice thereof at the courthouse door and by filing a copy of such notice in the office of the county clerk of each county in which the Mortgaged Property or any part thereof may be situated, and serving written notice of the
proposed sale on each debtor obligated to pay the Indebtedness according to the records of Mortgagee, by postage prepaid, certified United States </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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<FONT FACE="Times New Roman" SIZE="2">mail, at the most recent address for such debtor as shown by the records of Mortgagee, at least 21 days prior to the day of sale, to sell the Mortgaged
Property, either as a whole or in parcels, as the Trustee may deem proper, at public venue at the courthouse of the county in which the Mortgaged Property or any part thereof may be situated (and being the county designated in the notice of sale) on
the first Tuesday of any month between the hours of 10:00 a.m. and 4:00&nbsp;p.m., to the highest bidder for cash, and after such sale to execute and deliver to the purchaser or purchasers good and sufficient deeds and assignments, conveying such
Property so sold to the purchaser or purchasers with general warranty of title made on behalf of Mortgagor. The Trustee, or his successor or substitute, is hereby authorized and empowered to appoint any one or more Persons as his attorneys-in-fact
or agents to act as Trustee under him and in his name, place and stead, such appointment to be evidenced by a written instrument executed by the Trustee, or his successor or substitute, to perform any one or more act or acts necessary or incident to
any sale under the power of sale hereunder, including, without limitation, the posting and filing of any notices, the conduct of the sale and the execution and delivery of any instruments conveying the Mortgaged Property as a result of the sale, but
in the name and on behalf of the Trustee, or his successor or substitute; and all acts done or performed by such attorneys-in-fact or agents shall be valid, lawful and binding as if done or performed by the Trustee, or his successor or substitute.
No single sale or series of sales by the Trustee shall extinguish the Lien or exhaust the power of sale hereunder except with respect to the items of Property sold, but such Lien and power shall exist for so long as and may be exercised in any
manner by law or as herein provided as often as the circumstances require to give Mortgagee full relief hereunder. The purchaser at any such sale shall not assume, nor shall the heirs, legal representatives, successors or assigns of such purchaser,
be deemed to have assumed, by reason of the acquisition of Property or rights mortgaged hereunder, any liability or obligation of any lessee or operator of the Mortgaged Property, or any part thereof, arising by reason of any occurrence taking place
prior to such sale. It shall not be necessary to have present, or to exhibit at any such sale, any of the personal Property subject to the Lien hereof. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
FACE="Times New Roman" SIZE="2">5.4 <U>Rights as Secured Party</U>. Upon the occurrence of any Event of Default, Mortgagee shall be entitled to all of the rights, powers, and remedies afforded a secured party by the UCC with respect to the personal
Property and fixtures and as-extracted collateral in which Mortgagee has been granted a security interest hereby, or Mortgagee may proceed in accordance with the provisions hereof as to both the real and personal Property covered hereby. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">5.5 <U>Application of Proceeds of Sale</U>. The Trustee is authorized to receive the proceeds of each sale of Mortgaged Property and apply the same as
follows: </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2"><U>FIRST</U>: to the payment of all necessary costs and expenses incident to the execution of this Deed of Trust, including, but
not limited to, a fee to the Trustee of 5% of the amount realized at the sale, if required by the Trustee; </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2"><U>SECOND</U>: to any and all Indebtedness then hereby secured, application to be made in such order and
in such manner as Mortgagee may, in his discretion, elect; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2"><U>THIRD</U>: the balance, if any, to Mortgagor or its successors or assigns, or
other Person legally entitled thereto. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">5.6 <U>Substitute Trustee</U>. In the event of the death of the Trustee, or his removal from the
State of Texas, or his failure, refusal, or inability for any reason to make any such sale or to perform any of the trusts herein declared, or at any time, whether with or without cause, Mortgagee may appoint, in writing, a substitute trustee who
shall thereupon succeed to all the estates, rights, powers, and trusts herein granted to and vested in the Trustee. In the same events as first above stated, and in the same manner, successive substitute Trustees may thereafter be appointed.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">5.7 <U>Statements by Trustee</U>. It is agreed that in any deed or deeds given by any Trustee any and all statements of fact or other
recitals therein made as to the identity of the holder or holders of the Indebtedness, or as to default in the payments thereof or any part thereof, or as to the breach of any covenants herein contained, or as to the request to sell, notice of sale,
time, place, terms and manner of sale, and receipt, application, and distribution of the money realized therefrom, or as to the due and proper appointment of a substitute trustee, and, without being limited by the foregoing, as to any other or
additional act or thing having been done by Mortgagee or the Trustee, shall be taken by all courts of law and equity as prima facie evidence that the statements or recitals state facts and are without further question to be so accepted. Mortgagor
does hereby ratify and confirm any and all acts that the Trustee may lawfully do in the premises by virtue of the terms and conditions of this Deed of Trust. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
FACE="Times New Roman" SIZE="2">5.8 <U>Suit to Collect and Foreclose</U>. Mortgagee, at its election, or the Trustee, upon written request of Mortgagee, may proceed by suit or suits, at law or in equity, to enforce the payment of the Indebtedness in
accordance with the terms hereof and of the notes, guaranties, or other documents evidencing it, and to foreclose the Lien of this Deed of Trust as against all or any portion of the Mortgaged Property and to have such Property sold under the
judgment or decree of a court of competent jurisdiction. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">5.9 <U>Mortgagee or Trustee as Purchaser</U>. Mortgagee or the Trustee may be a
purchaser of all or any portion of the Mortgaged Property at any sale thereof, whether such sale be under the power of sale hereinabove vested in the Trustee, upon any other foreclosure of the Lien hereof, or otherwise. Mortgagee or the Trustee so
purchasing shall, upon any such purchase, acquire title to the Mortgaged Property so purchased, free of the Lien of this Deed of Trust and free of all rights of redemption in Mortgagor. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">5.10 <U>Entry and Operation</U>. Upon the occurrence of any Event of Default, then in each and every such case and in addition to the other rights and
remedies hereunder, the Trustee or Mortgagee, whether or not the Indebtedness shall have become due and payable, may, but shall not be obligated to, enter into and upon and take possession of all or any portion of the Mortgaged Property and may
exclude Mortgagor, its agents and servants wholly therefrom and have, hold, use, operate, manage, and control all or any portion of the Mortgaged Property and </FONT>
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<FONT FACE="Times New Roman" SIZE="2">produce the oil, gas, and other minerals therefrom and market the same, all at the sole risk and expense of Mortgagor and at the expense of the Mortgaged
Property, applying the net proceeds so derived, first, to the cost of maintenance and operation of such Mortgaged Property; second, to the payment of the Indebtedness, application to be made first to interest and then to principal; and the balance
thereof, if any, shall be paid to Mortgagor. Upon such payment of all such costs and Indebtedness, the Mortgaged Property shall be returned to Mortgagor in its then condition, and neither the Trustee nor Mortgagee shall be liable to Mortgagor for
any damage or injury to the Mortgaged Property except such as may be caused through the fraud or willful misconduct of the Trustee or Mortgagee, as the case may be. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
FACE="Times New Roman" SIZE="2">5.11 <U>Power of Attorney to Mortgagee</U>. Mortgagor does hereby designate Mortgagee as the agent of Mortgagor to act in the name, place, and stead of Mortgagor in the exercise of each and every remedy set forth
herein and in conducting any and all operations and taking any and all action reasonably necessary to do so, recognizing such agency in favor of Mortgagee to be coupled with the interests of Mortgagee under this Deed of Trust and, thus, irrevocable
so long as this Deed of Trust is in force and effect. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">5.12 <U>Remedies Cumulative and Non-Exclusive</U>. The rights of entry, sale, or
suit, as hereinabove or hereinafter conferred, are cumulative of all other rights and remedies herein or by law or in equity provided, and shall not be deemed to deprive Mortgagee or the Trustee of any such other legal or equitable rights or
remedies, by judicial proceedings or otherwise, appropriate to enforce the conditions, covenants, and terms of this Deed of Trust and the other Loan Documents. The employment of any remedy hereunder or otherwise shall not prevent the concurrent or
subsequent employment of any other appropriate remedy or remedies. </FONT></P> <P STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>ARTICLE 6 </U></FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>ASSIGNMENT OF PRODUCTION </U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">6.1
<U>Assignment</U>. In addition to the conveyance to the Trustee herein made, Mortgagor does hereby transfer, assign, deliver and convey unto Mortgagee, its successors and assigns, all of the oil, gas, and other minerals produced, saved, or sold from
the Mortgaged Property and attributable to the interests of Mortgagor therein subsequent to 7:00 a.m. on the first day of the month in which this Deed of Trust is executed, together with the proceeds of any sale thereof. Mortgagor hereby directs any
purchaser now or hereafter taking any production from the Mortgaged Property to pay to Mortgagee such proceeds derived from the sale thereof and to continue to make payments directly to Mortgagee until notified in writing by Mortgagee to discontinue
the same. The purchaser of any such production shall not be required to see to the application of the proceeds thereof by Mortgagee, and payment made to Mortgagee shall be binding and conclusive as between such purchaser and Mortgagor. Mortgagor
further agrees to perform all such acts and to execute all such further assignments, transfer and division orders, and other instruments as may be required or desired by Mortgagee or any other party to have such proceeds and revenues so paid to
Mortgagee. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">6.2 <U>Postponement of Payment</U>. For its convenience, Mortgagee has elected not to exercise immediately its right to receive
payment to it directly of the proceeds of any sale of the oil , gas and other minerals produced or sold from the Mortgaged Property and the </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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<FONT FACE="Times New Roman" SIZE="2">purchasers may continue to make such payment or delivery of the proceeds to Mortgagor until such time as Mortgagor and the purchasers have received notice
that an Event of Default has occurred and is continuing, and that the purchasers are directed to make payment or delivery of the proceeds directly to Mortgagee. Such failure by Mortgagee to exercise its rights immediately shall not in any way waive
the right of Mortgagee to receive any of the proceeds, or to make any such demand, or to affect any such assignment as to any proceeds not theretofore paid or delivered to Mortgagor. In this regard, if any of the proceeds are paid or delivered
directly to Mortgagee and then, at the request of Mortgagee, the proceeds are, for a period or periods of time, paid or delivered to Mortgagor, Mortgagee shall nevertheless have the right, effective upon written notice, to require that future
proceeds be again paid or delivered directly to it. Mortgagee shall never be required to send any such notice to all purchasers, and may direct such notice only to those purchasers as it may, in its discretion, desire. It shall never be necessary
for Mortgagee to institute legal proceedings to enforce the assignment of hydrocarbons, proceeds, or other rents, profits, or income contained in this instrument. It shall not be necessary for Mortgagee to obtain possession of the Mortgaged Property
as a prerequisite to Mortgagee&#146;s right to collect or receive any hydrocarbons, other minerals, proceeds, or other rents, profits, or income assigned to Mortgagee under this instrument. Mortgagor and Mortgagee expressly agree and it is the
express intention of Mortgagor and Mortgagee that in no event will any reduction in the obligations be measured by the fair market value of the hydrocarbons, other minerals, proceeds, or other rents, profits, or income assigned to Mortgagee under
this instrument. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">6.3 <U>Change of Purchaser</U>. Should any purchaser taking the production from the Mortgaged Property fail to make
prompt payment to Mortgagee in accordance with the provisions of Section&nbsp;6.1, Mortgagee shall have the right, at the expense of Mortgagor, to demand a change of connection and to designate another purchaser with whom a new connection may be
made, without any liability on the part of Mortgagee in making such selection, so long as ordinary care is used in the making thereof. Promptly upon such demand, Mortgagor shall take all necessary and appropriate action to effect such change of
connection. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">6.4 <U>Application of Proceeds</U>. Mortgagor authorizes and empowers Mortgagee to receive, hold, and collect all sums of
money paid to Mortgagee in accordance with the provisions of Section&nbsp;6.1, and to apply the same as hereinafter provided, all without any liability or responsibility on the part of Mortgagee, save and except as to good faith in so receiving and
applying such sums. Mortgagee may apply all sums received by Mortgagee pursuant to Section&nbsp;6.1 to the payment of the Indebtedness, application to be made in such manner as Mortgagee may elect, regardless of whether the application so made shall
exceed the payments of principal and interest then due as provided in the Loan Documents. After such application has been so made by Mortgagee, the balance of any such sums shall be paid to Mortgagor. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">6.5 <U>No Postponement of Installments on Indebtedness</U>. It is understood and agreed that should such payments provided for by Section&nbsp;6.1 be
less than the sum or sums then due on the Indebtedness, such sum or sums then due shall nevertheless be paid by Mortgagor in accordance with the provisions of the Loan Documents, and neither the assignment made pursuant to Section&nbsp;6.1 nor any
other provisions hereof shall in any manner be construed to affect the terms and&nbsp;provisions of the Loan Documents. Likewise, neither the assignment made pursuant to Section&nbsp;6.1 nor any other provisions hereof shall in any manner be
construed to affect the Liens, rights, title, and remedies herein granted securing the Indebtedness or the </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px">
<FONT FACE="Times New Roman" SIZE="2">liability of Mortgagor therefor. The rights under this Article VI are cumulative of all other rights, remedies, and powers granted under this Deed of Trust
and are cumulative of any other security which Mortgagee now holds or may hereafter hold to secure the payment of the Indebtedness. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">6.6
<U>Turnover to Mortgagee</U>. Should Mortgagor receive any of the proceeds of any sale of oil, gas, or other minerals produced, saved, or sold from the Mortgaged Property, which under the terms hereof should have been remitted to Mortgagee,
Mortgagor will immediately remit same in full to Mortgagee. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">6.7 <U>Release of Proceeds Upon Payment of Indebtedness</U>. Upon payment in
full of all Indebtedness and the termination of the Commitment, the remainder of such proceeds held by Mortgagee, if any, shall be paid over to Mortgagor upon demand, and a release of the interest hereby assigned will be made, without recourse or
warranty, by Mortgagee to Mortgagor at its request and its expense. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">6.8 <U>Duty of Mortgagee</U>. Mortgagee shall not be liable for any
failure to collect, or for any failure to exercise diligence in collecting, any funds assigned hereunder. Mortgagee shall be accountable only for funds actually received. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
FACE="Times New Roman" SIZE="2">6.9 <U>Power of Attorney to Mortgagee</U>. Mortgagor does hereby designate Mortgagee as the agent of Mortgagor to act in the name, place, and stead of Mortgagor for the purpose of taking any and all actions deemed by
Mortgagee necessary for the realization by Mortgagee of the benefits of the assignment of production provided herein, recognizing such agency in favor of Mortgagee to be coupled with the interests of Mortgagee under this Deed of Trust and, thus,
irrevocable so long as this Deed of Trust is in force and effect. </FONT></P> <P STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>ARTICLE 7 </U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"
ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>MISCELLANEOUS </U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">7.1 <U>Further Assurances</U>. Upon request of Mortgagee,
Mortgagor will promptly correct any defects, errors, or omissions in the execution or acknowledgment of this Deed of Trust or any other Loan Document, and execute, acknowledge, and deliver such other assurances and instruments as shall, in the
opinion of Mortgagee, be necessary to fulfill the terms of this Deed of Trust. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">7.2 <U>Interest</U>. Any provision in any document that may
be executed in connection herewith to the contrary notwithstanding, Mortgagee shall in no event be entitled to receive or collect, nor shall any amounts received hereunder be credited so that Mortgagee shall be paid, as interest a sum greater than
that authorized by law. If any possible construction of this Deed of Trust or any Loan Document seems to indicate any possibility of a different power given to Mortgagee or any authority to ask for, demand, or receive any larger rate of interest,
this clause shall override and control, and proper adjustments shall be made accordingly. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">7.3 <U>Agreement as Entirety</U>. This Deed of
Trust, for convenience only, has been divided into Articles, Sections, and subsections. The rights, powers, privileges, duties, and </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px">
<FONT FACE="Times New Roman" SIZE="2">other legal relations of Mortgagor, the Trustee, and Mortgagee shall be determined from this Deed of Trust as an entirety and without regard to the aforesaid
division into Articles, Sections, and subsections and without regard to headings affixed to such Articles, Sections, or subsections. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">7.4
<U>Number and Gender</U>. Whenever the context requires, reference herein made to the single number shall be understood to include the plural, and the plural shall likewise be understood to include the singular. Words denoting sex shall be construed
to include the masculine, feminine, and neuter when such construction is appropriate; and specific enumeration shall not exclude the general, but shall be construed as cumulative. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">7.5 <U>Rights and Remedies Cumulative</U>. All rights, powers, immunities, remedies, and Liens of Mortgagee existing and to exist hereunder or under any
other instruments or at law or in equity and all other or additional security shall be cumulative and not exclusive, each of the other. Mortgagee shall, in addition to the rights and remedies herein expressly provided, be entitled to such other
remedies as may now or hereafter exist at law or in equity for securing and collecting the Indebtedness, for enforcing the covenants herein, and for foreclosing the Liens hereof. Resort by Mortgagee to any right or remedy provided for hereunder or
at law or in equity shall not prevent concurrent or subsequent resort to the same or any other right or remedy. No security heretofore, herewith, or subsequently taken by Mortgagee shall in any manner impair or affect the security given by this Deed
of Trust or any security by endorsement or otherwise presently or previously given; and all security shall be taken, considered, and held as cumulative. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
FACE="Times New Roman" SIZE="2">7.6 <U>Parties in Interest</U>. This Deed of Trust shall be binding upon the parties and their respective successors and assigns and shall inure to the benefit of Mortgagee and its successors and assigns. The terms
used to designate any of the parties herein shall be deemed to include the successors and assigns of such parties. The term &#147;Mortgagee&#148; shall also include any lawful owner, holder or pledgee of any Indebtedness. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">7.7 <U>Supplements</U>. Without in any manner limiting the effect of Section&nbsp;1.4 or any other provisions of this Deed of Trust as to the binding
effect of this Deed of Trust on after-acquired rights of Mortgagor, it is contemplated by the parties hereto that from time to time additional interests and properties may or will be added to the interests and properties subject to the Liens,
rights, titles, and interests created by this Deed of Trust by means of supplemental indentures identifying this Deed of Trust and describing such interests and properties to be so added and included. Upon the execution of any such supplemental
indenture, the Liens, rights, titles, and interests created herein shall immediately attach to and be effective with respect to any such interests and properties so described, the same as if such interests and properties had been specifically
described herein, and such interests and properties being included in the term &#147;Mortgaged Property,&#148; as used herein. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">7.8
<U>Invalidity</U>. In the event that any one or more of the provisions contained in this Deed of Trust shall for any reason be held invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect
any other provision of this Deed of Trust or any other Loan Document. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">15 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">7.9<U> Construction</U>. All titles or headings to Articles, Sections, subsections, or other divisions of
this Deed of Trust or the exhibits hereto are only for the convenience of the parties and shall not be construed to have any effect or meaning with respect to the other content of such Articles, Sections, subsections, or other divisions, such other
content being controlling as to the agreement among the parties hereto. Article, Section, subsection, and Exhibit references herein are to such Articles, Sections, subsections, and Exhibits of this Deed of Trust unless otherwise specified. The words
&#147;hereby,&#148; &#147;herein,&#148; &#147;hereinabove,&#148; &#147;hereinafter,&#148; &#147;hereinbelow,&#148; &#147;hereof,&#148; and &#147;hereunder&#148; when used in this Deed of Trust shall refer to this Deed of Trust as a whole and not to
any particular Article, Section, subsection, or provision of this Deed of Trust. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">7.10 <U>Fixtures, Minerals and Accounts</U>. Without in
any manner limiting the generality of any of the foregoing hereof, some portions of the personal Property described hereinabove are or are to become fixtures on the Lands. In addition, the security interest created hereby under applicable provisions
of the UCC attaches to minerals, including oil and gas, and accounts resulting from the sale thereof, at the wellhead or minehead located on the Lands. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
FACE="Times New Roman" SIZE="2">7.11 <U>Financing Statement Filings</U>. This Deed of Trust may be filed as provided in Article 9 of the UCC to assure that the security interests granted by this Deed of Trust are perfected. In this connection, this
Deed of Trust may be presented to a filing officer under the UCC to be filed in the real estate records as a Financing Statement covering minerals and fixtures. Further, Mortgagor authorizes Mortgagee to execute and file at any time and from time to
time any and all Financing Statements and amendments thereto in any UCC jurisdiction, pursuant to Article 9 of the UCC, as Mortgagee deems necessary in his sole discretion, in conjunction with this Deed of Trust, and Mortgagor expressly authorizes
execution and filing of such Financing Statements by Mortgagee without need of signature or execution by Mortgagor. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">7.12 <U>Addresses</U>.
For purposes of filing this Deed of Trust as a financing statement, the addresses for Mortgagor, as the debtor, and Mortgagee, as the secured party, are as set forth hereinabove. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">7.13 <U>Counterparts</U>. For the convenience of the parties, this Deed of Trust may be executed in multiple counterparts, each of which for all purposes
shall be deemed, and may be enforced from time to time as, a chattel mortgage, real estate mortgage, deed of trust, security agreement, assignment or contract, or as one or more thereof. For recording purposes, various counterparts have been
executed, and there may be attached to each such counterpart an <U>Exhibit A</U> containing only the description of the Mortgaged Property, or portions thereof, which relates to the county or state in which the particular counterpart is to be
recorded. A complete, original counterpart of this Deed of Trust with a complete <U>Exhibit A</U> may be obtained from Mortgagee. Each of the counterparts hereof so executed shall for all purposes be deemed to be an original, and all such
counterparts shall together constitute but one and the same instrument. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">7.14 <U>No Waiver by Mortgagee</U>. No course of dealing on the
part of Mortgagee, nor any failure or delay by Mortgagee with respect to exercising any of its rights or remedies hereunder shall operate as a waiver thereof nor shall the exercise or partial exercise of any such right or remedy shall preclude the
exercise of any other right or remedy. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">16 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">7.15 <U>Governing Agreement</U>. This Deed of Trust is made pursuant and subject to the terms and
provisions of the Notes. In the event of a conflict between the terms and provisions of this Deed of Trust and those of any of the Notes, the terms and provisions of the relevant Note shall govern and control. The inclusion in this Deed of Trust of
provisions not addressed in the relevant Note shall not be deemed a conflict, and all such additional provisions contained herein shall be given full force and effect. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
FACE="Times New Roman" SIZE="2">7.16 <U>Subordination</U>. Notwithstanding any provision of this Deed of Trust to the contrary, the liens, security interests, assignments and pledges created by and existing under this Deed of Trust are subordinate
and inferior to the liens, security interests, assignments and pledges with respect to the Mortgaged Property in favor of Guaranty Bank, FSB, as Agent for the lenders party to that certain Credit Agreement dated June&nbsp;29, 2006 among Mortgagor,
such lenders and Guaranty Bank, FSB, as Agent for such Lenders, as more fully provided in that certain Intercreditor and Subordination Agreement dated effective as of March&nbsp;31, 2008 among Guaranty Bank, FSB, as Agent, Mortgagee and Mortgagor.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>(Signature appears on following page) </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">17 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%;padding-bottom:3px;line-height:95%; vertical-align:top"><FONT FACE="Times New Roman" SIZE="2">IN WITNESS WHEREOF, this Deed of Trust is executed
on the date of the acknowledgment below but effective as of the 31</FONT><FONT FACE="Times New Roman" SIZE="1"><SUP>st</SUP></FONT><FONT FACE="Times New Roman" SIZE="2"> day of March, 2008. </FONT></P> <P
STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P><DIV ALIGN="right">
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<TR>
<TD WIDTH="6%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="93%"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>MORTGAGOR (DEBTOR):</B></FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P> <P
STYLE="margin-top:0px;margin-bottom:1px"><FONT FACE="Times New Roman" SIZE="2">PRIME OFFSHORE L.L.C.</FONT></P></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">By:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Beverly A. Cummings</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Chief Executive Officer</FONT></TD></TR>
</TABLE></DIV> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD WIDTH="66%"></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">THE STATE OF TEXAS</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">&#167;</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">&#167;</FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">COUNTY OF HARRIS</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">&#167;</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">The foregoing instrument was acknowledged before me, the undersigned authority, on this
<U>&nbsp;&nbsp;&nbsp;&nbsp;</U> day of April, 2008 by Beverly A. Cummings, Chief Executive Officer of PRIME OFFSHORE L.L.C., a Delaware limited liability company, on behalf of such limited liability company. </FONT></P> <P
STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P><DIV ALIGN="right">
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<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:0px;border-bottom:1px solid #000000">&nbsp;</P> <P STYLE="margin-top:0px;margin-bottom:1px"><FONT FACE="Times New Roman" SIZE="2">NOTARY PUBLIC in and for</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">the State of Texas</FONT></TD></TR>
</TABLE></DIV> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B><U>EXHIBIT A </U></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2"><B>TO </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>MORTGAGE, DEED OF TRUST, SECURITY AGREEMENT, </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>FINANCING STATEMENT AND ASSIGNMENT OF PRODUCTION </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
FACE="Times New Roman" SIZE="2">The designation &#147;<U>Working Interest</U>&#148; or &#147;<U>WI</U>&#148; when used in this Exhibit means an interest owned in an oil, gas, and mineral lease that determines the cost-bearing percentage of the owner
of such interest. The designation &#147;<U>Net Revenue Interest</U>&#148; or &#147;<U>NRI</U>&#148; means that portion of the production attributable to the owner of a working interest after deduction for all royalty burdens, overriding royalty
burdens or other burdens on production, except severance, production, and other similar taxes. The designation &#147;<U>Overriding Royalty Interest</U>&#148; or &#147;<U>ORRI</U>&#148; means an interest in production which is free of any obligation
for the expense of exploration, development, and production, bearing only its pro rata share of severance, production, and other similar taxes and, in instances where the document creating the overriding royalty interest so provides, costs
associated with compression, dehydration, other treating or processing, or transportation of production of oil, gas, or other minerals relating to the marketing of such production. The designation &#147;<U>Royalty Interest</U>&#148; or
&#147;<U>RI</U>&#148; means an interest in production which results from an ownership in the mineral fee estate or royalty estate in the relevant land and which is free of any obligation for the expense of exploration, development, and production,
bearing only its pro rata share of severance, production, and other similar taxes and, in instances where the document creating the royalty interest so provides, costs associated with compression, dehydration, other treating or processing or
transportation of production of oil, gas, or other minerals relating to the marketing of such production. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">Any reference in this Exhibit to
wells or units is for warranty of interest, administrative convenience, and identification and shall not limit or restrict the right, title, interest, or properties covered by this Deed of Trust. All right, title, and interest of Mortgagor in the
properties described herein are and shall be subject to this Deed of Trust, regardless of the presence of any units or wells not described herein. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman"
SIZE="2">The references to book or volume and page herein refer to the recording location of each respective Mortgaged Property described herein in the county where the land covered by the Mortgaged. </FONT></P>

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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B><U>OIL, GAS AND MINERAL INTERESTS </U></B></FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B><U>South Padre Island 1113 </U></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Oil and Gas Lease OCS-G-24302,
granted by the United States of America to F-W Oil Exploration L.L.C., dated effective November&nbsp;1, 2002, covering all of Block 1113, South Padre Island Area, OCS Leasing Map, Texas Map No.&nbsp;1, offshore Cameron County, Texas. </FONT></P> <P
STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR>
<TD WIDTH="88%"></TD>
<TD VALIGN="bottom" WIDTH="4%"></TD>
<TD></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Working Interest</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">75.0000</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net Revenue Interest</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">60.2500</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B><U>South Padre Island 1133 </U></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">1. Oil and Gas Lease OCS-G-26431, granted by the United States of America to F-W Oil Exploration L.L.C., dated effective November&nbsp;1, 2004, covering all of Block 1133, South Padre Island Area, OCS Leasing Map,
Texas Map No.&nbsp;1, offshore Cameron County, Texas. </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR>
<TD WIDTH="88%"></TD>
<TD VALIGN="bottom" WIDTH="4%"></TD>
<TD></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Working Interest</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">75.0000</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net Revenue Interest</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">60.2500</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">2. All right, title and interest in and to pipeline right-of-way assigned Pipeline right-of-way Number OCS-G28213,
Segment Number 15802, by the United States Minerals Management Service, from South Padre Island Block 1133 Well No.&nbsp;1 to South Padre Island Block 1132 subsea tie-in. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2"><B><U>North Padre Island 998 </U></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">1. Oil and Gas Lease OCS-G-23123, granted by the United States of America to Manti
Resources, Inc., dated effective October&nbsp;1, 2001, covering all of Block 998, North Padre Island Area, OCS Texas Leasing Map, TX2, Gulf of Mexico, offshore Kleberg County, Texas. </FONT></P> <P
STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="68%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="88%"></TD>
<TD VALIGN="bottom" WIDTH="4%"></TD>
<TD></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Working Interest</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">75.0000</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net Revenue Interest</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">58.5000</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">2. All right, title and interest in and to pipeline right-of-way assigned Pipeline Right-of-Way Number
OCS-G-28212, Segment Number 15801, by the United States Minerals Management Service, from Block 998 Platform A through Block 997 to an existing subsea tie-in on Block 996. </FONT></P>

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<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B><U>South Padre Island 1073 </U></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">1. Oil and Gas Lease OCS-G-23102, granted by the United States of America to Marathon Oil Company, dated effective October&nbsp;1, 2001, covering all of Block 1073, South Padre Island Area, OCS Leasing Map, Texas Map
No.&nbsp;1, Gulf of Mexico, offshore Cameron County, Texas, INSOFAR AND ONLY INSOFAR as such lease covers and affects interests from the surface down to 2,000 feet subsea TVD. </FONT></P> <P
STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="68%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="88%"></TD>
<TD VALIGN="bottom" WIDTH="4%"></TD>
<TD></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Working Interest</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">75.0000</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net Revenue Interest</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">57.2500</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">2. All right, title and interest in and to pipeline right-of-way assigned Pipeline Right-of-Way Number
OCS-G-28201, Segment Number 15747, by the United States Minerals Management Service, from South Padre Island Area Block 1073 Well &#147;A&#148; to a subsea tie-in point in South Padre Island Area Block 1072. </FONT></P> <P
STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B><U>South Padre Island 1059 </U></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">1. Oil and Gas Lease OCS-G-23100,
granted by the United States of America to Marathon Oil Company, dated effective October&nbsp;1, 2001, covering all of Block 1059, South Padre Island Area, OCS Leasing Map, Texas Map No.&nbsp;1, Gulf of Mexico, offshore Cameron County, Texas,
INSOFAR AND ONLY INSOFAR as such lease covers and affects interests from the surface down to 2,000 feet subsea TVD. </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="68%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="88%"></TD>
<TD VALIGN="bottom" WIDTH="4%"></TD>
<TD></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Working Interest</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">75.0000</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net Revenue Interest</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">57.2500</FONT></TD></TR>
</TABLE>
</BODY></HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.27.5
<SEQUENCE>5
<FILENAME>dex10275.htm
<DESCRIPTION>MORTGAGE, DEED OF TRUST, SECURITY AGREEMENT., FINANCING STATEMENT
<TEXT>
<HTML><HEAD>
<TITLE>Mortgage, Deed of Trust, Security Agreement., Financing Statement</TITLE>
</HEAD>
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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>Exhibit 10.27.5 </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2"><B><U>MORTGAGE, DEED OF TRUST, SECURITY AGREEMENT, </U></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B><U>FINANCING STATEMENT AND ASSIGNMENT OF
PRODUCTION </U></B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>(THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS) </U></FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">FROM </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>PRIME OFFSHORE L.L.C.
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Taxpayer Identification Number: 76-0688905 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">(Mortgagor and Debtor) </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">TO </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">Matthias Eckenstein, Trustee </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">for the benefit of </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"
ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>ARTIC MANAGEMENT CORPORATION </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">(Mortgagee and Secured Party) </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Effective March&nbsp;31, 2008 </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px;padding-bottom:3px;line-height:95%; vertical-align:top"><FONT
FACE="Times New Roman" SIZE="2">For purposes of filing this Deed of Trust as a financing statement, the mailing address of Mortgagor is Attn: Chief Executive Officer, 1 Landmark Square, 11</FONT><FONT FACE="Times New Roman" SIZE="1"><SUP>th</SUP>
</FONT><FONT FACE="Times New Roman" SIZE="2"> Floor, Stamford, Connecticut 06901; the mailing address of Mortgagee is Attn: Matthias Eckenstein, Solothurnerstrasse 94, CH-4008 Basel, Switzerland. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><FONT FACE="WINGDINGS">&#118;</FONT> <FONT FACE="WINGDINGS">&#118;</FONT> <FONT FACE="WINGDINGS">&#118;</FONT> <FONT FACE="WINGDINGS">&#118;</FONT> <FONT
FACE="WINGDINGS">&#118;</FONT> <FONT FACE="WINGDINGS">&#118;</FONT> <FONT FACE="WINGDINGS">&#118;</FONT> <FONT FACE="WINGDINGS">&#118;</FONT> <FONT FACE="WINGDINGS">&#118;</FONT> <FONT FACE="WINGDINGS">&#118;</FONT> <FONT FACE="WINGDINGS">&#118;
</FONT> <FONT FACE="WINGDINGS">&#118;</FONT> <FONT FACE="WINGDINGS">&#118;</FONT> <FONT FACE="WINGDINGS">&#118;</FONT> <FONT FACE="WINGDINGS">&#118;</FONT> <FONT FACE="WINGDINGS">&#118;</FONT> <FONT FACE="WINGDINGS">&#118;</FONT> </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">This instrument, prepared by David G. Dunlap, Jackson Walker L.L.P., 1401 McKinney, Suite 1900, Houston, Texas 77010, 713-752-4200, contains after-acquired property
provisions and covers future advances and proceeds to the fullest extent allowed by applicable law. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><U>ATTENTION OF RECORDING OFFICER</U>: This instrument
is a mortgage of both real and personal property and is, among other things, a Security Agreement and Financing Statement under the Uniform Commercial Code. This instrument creates a lien on rights in or relating to lands of Mortgagor which are
described in Exhibit A hereto or in documents described in Exhibit A. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">RECORDED DOCUMENT SHOULD BE RETURNED TO: </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">JACKSON WALKER L.L.P. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">1401 McKinney, Suite
1900 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Houston, Texas 77010 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman"
SIZE="2">Attn.: Donna Gatliff </FONT></P>

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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B><U>MORTGAGE, DEED OF TRUST, SECURITY AGREEMENT, </U></B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B><U>FINANCING STATEMENT AND ASSIGNMENT OF PRODUCTION </U></B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2"><U>(THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS) </U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">This Mortgage, Deed of Trust,
Security Agreement, Financing Statement, and Assignment of Production (this &#147;<U>Deed of Trust</U>&#148;) is executed pursuant to and as security for that certain Subordinated Promissory Note dated March&nbsp;31, 2008 in the face principal
amount of up to $50,000,000 executed by PRIME OFFSHORE L.L.C., a Delaware limited liability company (&#147;<U>Mortgagor</U>&#148;) and payable to ARTIC MANAGEMENT CORPORATION, a corporation incorporated under the laws of Panama
(&#147;<U>Mortgagee</U>&#148;) (the &#147;<U>Initial Note</U>&#148;) evidencing an initial loan and, possibly, one or more additional loans by Mortgagee to Mortgagor and, possibly, one or more additional Subordinated Promissory Notes hereafter
executed by Mortgagor and payable to Mortgagee (the &#147;<U>Additional Notes</U>&#148;, whether one or more, and the Initial Note and the Additional Notes, collectively, the &#147;<U>Notes</U>&#148;). Capitalized terms used but not defined herein
shall have the meanings assigned to such terms in the Notes. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%;padding-bottom:3px;line-height:95%; vertical-align:top"><FONT FACE="Times New Roman" SIZE="2">Mortgagor, acting
herein by and through its proper officer who has heretofore been duly authorized, the mailing address for which, for purposes hereof, is Attn: Chief Executive Officer, 1 Landmark Square, 11</FONT><FONT FACE="Times New Roman" SIZE="1"><SUP>th</SUP>
</FONT><FONT FACE="Times New Roman" SIZE="2"> Floor, Stamford, Connecticut 06901, hereby agrees as follows: </FONT></P> <P STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>ARTICLE 1 </U></FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>GRANT </U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">1.1 <U>Lien</U>. Mortgagor,
for valuable consideration, the receipt of which is hereby acknowledged, and in consideration of the debt and trust hereinafter mentioned, has granted, bargained, sold, conveyed, transferred and assigned, and by these presents does grant, bargain,
sell, convey, transfer and assign to Matthias Eckenstein, Trustee, whose address is Solothurnerstrasse 94, CH-4008 Basel, Switzerland, and his successors and substitutes in trust, as hereinafter provided (the &#147;<U>Trustee</U>&#148;), for the
benefit of Mortgagee, whose mailing address is Attn: Matthias Eckenstein, Solothurnerstrasse 94, CH-4008 Basel, Switzerland, the following described Property: </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(a) all right, title, and interest, whether now owned and existing or hereafter acquired or arising, of Mortgagor in and to the leases,
rights of way, easements, or other documents described in <U>Exhibit A</U> attached hereto and incorporated herein for all purposes or described or referred to in the documents described in <U>Exhibit A</U>, without regard to any surface acreage
and/or depth limitations set forth in <U>Exhibit A</U>, and all renewals and extensions thereof and all new leases, rights of way, easements, or other documents (i)&nbsp;in which an interest is acquired by Mortgagor after the termination or
expiration of any lease, right of way, easement, or other document described or referred to in <U>Exhibit A</U>, and (ii)&nbsp;that covers all or any part of the Property described in and covered by such terminated or expired lease, right of way,
easement, or other document, to the </FONT>
</P>

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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%">
<FONT FACE="Times New Roman" SIZE="2">extent, and only to the extent, such new leases, rights of way, easements, or other documents may cover such Property (all of the foregoing in this
subsection (a)&nbsp;being the &#147;<U>Leases</U>&#148;); </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(b) all right, title, and interest, whether now owned and
existing or hereafter acquired or arising, of Mortgagor in and to the lands subject to the Leases or otherwise described or referred to in <U>Exhibit A</U>, without regard to any surface acreage and/or depth limitations set forth in <U>Exhibit A</U>
(the &#147;<U>Lands</U>&#148;), including, without limitation, the oil, gas, mineral, and leasehold estates in and to the Lands; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">(c) all right, title, and interest, whether now owned and existing or hereafter acquired or arising, of Mortgagor in and to any of the oil, gas, and minerals in, on, or under the Lands, including, without limitation, all contractual rights,
fee interests, leasehold interests, overriding royalty interests, non-participating royalty interests, mineral interests, production payments, net profits interests, or any other interest measured by or payable out of production of oil, gas, or
other minerals from the Leases and/or Lands; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(d) all of the foregoing interests of Mortgagor as such interests may be
enlarged by the discharge of any payments out of production or by the removal of any charges or encumbrances; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(e) all
right, title, and interest, whether now owned and existing or hereafter acquired or arising, of Mortgagor in, to, and under or derived from any present or future operating, farmout, bidding, pooling, unitization, and communitization agreements,
assignments, and subleases, whether or not described in <U>Exhibit A</U>, to the extent, and only to the extent, that such agreements, assignments, and subleases cover or include any right, title, and interest, whether now owned and existing or
hereafter acquired or arising, of Mortgagor in and to all or any portion of the Leases and/or the Lands, and all units created by any such pooling, unitization, and communitization agreements and all units formed under orders, regulations, rules, or
other official acts of any Governmental Authority having jurisdiction, to the extent and only to the extent that such units cover or include all or any portion of the Leases and/or the Lands; </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(f) all right, title, and interest, whether now owned and existing or hereafter acquired or arising, of Mortgagor in, to, and under or
derived from all presently existing and future advance payment agreements, oil, casinghead gas, and gas sales, exchange, and processing contracts and agreements, including, without limitation, those contracts and agreements that are described or
referred to in <U>Exhibit&nbsp;A</U>, to the extent, and only to the extent, those contracts and agreements cover or include all or any portion of the Leases and/or the Lands; and </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(g) all right, title, and interest, whether now owned and existing or hereafter acquired or arising, of Mortgagor in, to, and under or
derived from all existing and future permits, licenses, easements, and similar rights and privileges that relate to or are appurtenant to any of the Leases and/or the Lands. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">2 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">1.2 <U>Security Interest</U>. Mortgagor, for the same consideration, hereby grants to Mortgagee a
continuing security interest in all improvements and all personal Property of any kind or character defined in and subject to the provisions of the Uniform Commercial Code (&#147;<U>UCC</U>&#148;), including, but not limited to, substitutions and
replacements for, accessions to, and the proceeds and products from any and all of such improvements and personal Property, as well as any and all &#147;as-extracted collateral&#148; as such term is defined in the UCC, whether now owned and existing
or hereafter acquired or arising, and situated on any of the Lands, including, but not limited to, pipe, casing, tubing, rods, storage tanks, boilers, loading racks, pumps, foundations, warehouses, and all other personal Property and equipment of
every kind and character upon, incident, appurtenant, or belonging to and used in connection with the interest of Mortgagor, whether now owned and existing or hereafter acquired or arising, in the Lands and/or the Leases, including all oil, gas, and
other minerals produced or to be produced to the account of Mortgagor from the Lands and all accounts receivable, general intangibles, and contract rights of Mortgagor in connection with the Lands and/or the Leases and all proceeds, products,
substitutions, and exchanges thereof (the Lands, the Leases, and the real and personal Property interests described in this Section being the &#147;<U>Mortgaged Property</U>&#148;). </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">1.3 <U>Assignment of Security</U>. Mortgagor, for the same consideration, hereby grants to Mortgagee any and all rights of Mortgagor to Liens securing
payment of proceeds from the sale of production from the Mortgaged Property. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">1.4 <U>After-Acquired Property</U>. Mortgagor, for the same
consideration, hereby grants, bargains, sells, conveys, transfers, and assigns to the Trustee or grants to Mortgagee a continuing security interest in, as the case may be, all additional right, title, or interest which Mortgagor may hereafter
acquire or become entitled to in the interests, Properties, Lands, Leases, and premises aforesaid, and in the oil, gas, or other minerals in and under or produced from or attributable to any of the Lands or Leases, which additional right, title, and
interest, when acquired, shall constitute &#147;Mortgaged Property,&#148; the same as if expressly described and conveyed herein. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">1.5
<U>Habendum</U>. TO HAVE AND TO HOLD all and singular the Mortgaged Property and all other Property which, by the terms hereof, has or may hereafter become subject to the Liens of this Deed of Trust, together with all rights, hereditaments, and
appurtenances in anywise belonging thereto, to the Trustee or Mortgagee, as the case may be, or the successors or assigns of either of them forever. </FONT></P> <P STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman"
SIZE="2"><U>ARTICLE 2 </U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>INDEBTEDNESS SECURED </U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
FACE="Times New Roman" SIZE="2">This conveyance is made, IN TRUST, HOWEVER, to secure and enforce the payment of the following indebtedness, obligations, and liabilities: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT
FACE="Times New Roman" SIZE="2">2.1 <U>Specific Obligations</U>. The Notes, which bear interest and are payable as provided therein and each of which matures on the Maturity Date (as defined in the Initial Note or the relevant Additional Note, as
the case may be). </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">3 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">2.2 <U>Other and Further Indebtedness</U>. This Deed of Trust is intended to secure a revolving credit
lines. If intermediate paydowns by Mortgagor reduce the outstanding indebtedness to zero, it is intended that the Liens created under this Deed of Trust shall remain in full force and effect to secure subsequent advances by Mortgagee. In addition,
it is contemplated that Mortgagor may from time to time borrow additional sums of money from or otherwise be or become obligated to Mortgagee. This Deed of Trust is given to secure any and all indebtedness of Mortgagor, present or future, either
direct or indirect, primary or secondary, fixed or contingent, which Mortgagor may now or hereafter owe, or as to which Mortgagor may in any manner become obligated to Mortgagee for payment, including, without limitation, indebtedness arising by way
of guaranty as to obligations of another to Mortgagee and indebtedness originally owed to a party other than Mortgagee but which becomes owing to Mortgagee as the result of Mortgagee having acquired the right to payment thereof. This Deed of Trust
shall likewise secure not only the above described indebtedness, but any and all renewals for any period, extensions, and rearrangements of all or any portion thereof; and the Liens under this Deed of Trust shall be cumulative of all other Liens and
security of any and every other kind or character whatsoever securing the above-described indebtedness. Notwithstanding the foregoing, it is not the intention of the parties hereto to extend the Liens of this Deed of Trust so as to violate, or give
rise to an allegation of violation of, any provision of any statute, regulation, rule, ordinance or order of any applicable jurisdiction, or any agency or subdivision of any of such jurisdictions. In this connection, this Deed of Trust shall not,
solely as to the relevant indebtedness, serve as security for any indebtedness when for it to do so would violate any provision of any statute, regulation, rule, ordinance or order of any applicable jurisdiction, or any agency or subdivision of any
of such jurisdictions. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">2.3 <U>Indebtedness</U>. The word &#147;<U>Indebtedness</U>&#148; wherever used in this Deed of Trust shall refer to
all present and future debts, obligations, and liabilities described or referred to in this Article 2, subject, however, to the limitations provided hereinabove in this Article 2. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"
ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>ARTICLE 3 </U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>WARRANTIES </U></FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">3.1 <U>Warranty of Title</U>. Mortgagor hereby binds itself, its legal representatives, successors, and assigns, to warrant and forever defend all and
singular the Mortgaged Property to the Trustee and the successors and assigns of the Trustee forever against every Person whomsoever lawfully claiming or to claim the same or any part thereof. Notwithstanding that this Deed of Trust covers all of
the right, title, and interest, whether now owned and existing or hereafter acquired or arising, of Mortgagor in and to the Mortgaged Property, Mortgagor, for itself, its legal representatives, successors, and assigns, further covenants, represents,
and warrants that Mortgagor has good and indefeasible title to the Mortgaged Property and that the interests of Mortgagor in and to the Leases and/or Lands described in <U>Exhibit A</U> are not greater than the working interest nor less than the net
revenue interest, overriding royalty interest, net profit interest, production payment interest, royalty interest, or other interest payable out of or </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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<FONT FACE="Times New Roman" SIZE="2">measured by production set forth in connection with each oil and gas well described in <U>Exhibit A</U>. In the event Mortgagor owns any other or greater
interest, such additional interest is nonetheless included in, covered by, and subject to the liens and security interests created by this Deed of Trust. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
FACE="Times New Roman" SIZE="2">3.2 <U>Additional Warranties</U>. In consideration of the Indebtedness, Mortgagor, for itself, its legal representatives, successors, and assigns, covenants, represents, and warrants that: </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(a) <U>Leases in Effect</U>. All of the Leases specifically described or referred to in <U>Exhibit A</U> are in full force and effect. All
covenants, express or implied, in respect of the Leases specifically described or referred to in <U>Exhibit A</U>, or of any assignment of any of such Leases, which may affect the validity of any of such Leases, have been performed insofar as such
Leases pertain to the Lands. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(b) <U>Interests Free of Liens</U>. The interests of Mortgagor in the Mortgaged Property are
free and clear of all Liens except for Permitted Liens. All gross production taxes and all taxes as to which non-payment could result in a Lien against any of the Mortgaged Property have been paid. </FONT></P> <P
STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>ARTICLE 4 </U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>COVENANTS OF MORTGAGOR
</U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">In consideration of the Indebtedness, Mortgagor, for itself, its legal representatives, successors, and assigns, covenants and agrees
as follows: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">4.1 <U>Maintenance of Leases</U>. Mortgagor will keep and continue all Leases, estates, and interests herein described and all
contracts and agreements relating thereto in full force and effect in accordance with the terms thereof and will not permit the same to lapse or otherwise become impaired for failure to comply with the obligations thereof, whether express or
implied. In this connection, Mortgagor shall not release any of the Leases without the prior written consent of Mortgagee. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">4.2
<U>Maintenance of Property</U>. Mortgagor will keep and maintain all improvements, personal Property, and equipment now or hereafter situated on the Lands and constituting a portion of the Mortgaged Property and used or obtained in connection
therewith in good repair and condition, ordinary wear and tear excepted, and will not tear down or remove the same or permit the same to be torn down or removed without the prior consent of Mortgagee, except in the usual course of operations as may
be required for replacement when otherwise in compliance with the provisions of this Deed of Trust. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">4.3 <U>Pooling or Unitization</U>.
Mortgagor will not, without the prior written consent of Mortgagee, pool or unitize all or any part of the Mortgaged Property where the pooling or unitization would result in the diminution of the net revenue interest of Mortgagor in production from
the pooled or unitized lands attributable to the Mortgaged Property constituting a portion of such pooled or unitized lands. Immediately after the formation of any pool or unit in accordance herewith, Mortgagor will furnish to Mortgagee a conformed
copy of the pooling </FONT>
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<FONT FACE="Times New Roman" SIZE="2">agreement, declaration of pooling, or other instrument creating the pool or unit. The interest of Mortgagor included in any pool or unit attributable to the
Mortgaged Property or any part thereof shall become a part of the Mortgaged Property and shall be subject to the Liens hereof in the same manner and with the same effect as though the pool or unit and the interest of Mortgagor therein were
specifically described in <U>Exhibit A</U>. In the event any proceedings of any Governmental Authority which could result in pooling or unitizing all or any part of the Mortgaged Property are commenced, Mortgagor shall give immediate written notice
thereof to Mortgagee. Any pooling or unitization of all or any part of the Mortgaged Property in violation of this Section shall be of no force or effect against the Trustee or Mortgagee. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">4.4 <U>Operation of Mortgaged Property</U>. Mortgagor will operate or, to the extent that the right of operation is vested in others, will exercise its
best efforts to require the operator to operate the Mortgaged Property and all wells now or hereafter located thereon continuously and in a prudent and workmanlike manner in accordance with the best usage of the field and in accordance with all
applicable Requirements of Law. Mortgagor will comply with all terms and conditions of the Leases and each assignment or contract obligating Mortgagor in any way with respect to the Mortgaged Property; but nothing herein shall be construed to
empower Mortgagor to bind the Trustee or Mortgagee to any contract or obligation or render the Trustee or Mortgagee in any way responsible or liable for bills or obligations incurred by Mortgagor. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">4.5 <U>Compliance with Operating Agreements</U>. Mortgagor agrees to promptly pay all bills for labor and materials incurred in the operation of the
Mortgaged Property and will promptly pay its share of all costs and expenses incurred under any joint operating agreement affecting the Mortgaged Property or any portion thereof; will furnish Mortgagee, as and when requested, full information as to
the status of any joint account maintained with others under any such operating agreement; will not take any action to incur any liability or Lien thereunder; and will not enter into any new operating agreement or any amendment of any existing
operating agreement affecting the Mortgaged Property without the prior written consent of Mortgagee. Furthermore, Mortgagor will not consent or agree to participate in any proposed operation under any presently existing operating agreement affecting
the Mortgaged Property unless Mortgagor obtains the prior written consent of Mortgagee and, if requested by Mortgagee, deposits with the operator or Mortgagee, where Mortgagor is a non-operator, or with Mortgagee, where Mortgagor is an operator,
Mortgagor&#146;s share of the estimated cost of the proposed operation prior to electing to participate in the operation. To the extent that Mortgagor is unable to consent to any proposed operation with respect to any of the Mortgaged Property,
prior to electing not to participate in the proposed operation, Mortgagor will use its best efforts, to the extent practicable and to the extent allowed to do so under the relevant operating agreement or other applicable contract, to farmout to
others acceptable to Mortgagee, on the best terms obtainable and acceptable to Mortgagee, the interest or relevant portion of the interest of Mortgagor in the proposed operation. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">4.6 <U>Access to Mortgaged Property</U>. Mortgagor will permit Mortgagee and its accredited agents, representatives, and attorneys, at the expense of
Mortgagor, at all times to go upon, examine, inspect, conduct environmental audits and other testing of, and remain on, the Mortgaged Property, and to go upon the derrick floor of any well at any time drilled or being drilled thereon, and will
furnish Mortgagee, upon request, all pertinent information regarding the development and operation of the Mortgaged Property. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">4.7 <U>Waivers</U>. Mortgagor hereby expressly waives, to the full extent permitted by applicable law,
any and all rights or privileges of marshalling of assets, sale in inverse order of alienation, notices, appraisements, redemption, and any prerequisite in the event of foreclosure of the Liens created herein. Mortgagee at all times shall have the
right to release any part of the Mortgaged Property now or hereafter subject to the Liens of this Deed of Trust, any part of the proceeds of production or other income herein or hereafter assigned or pledged, or any other security it now has or may
hereafter have securing the Indebtedness, without releasing any other part of the Mortgaged Property, proceeds, or income, and without affecting the Liens hereof as to the part or parts of the Mortgaged Property, proceeds, or income not so released
or the right to receive future proceeds and income. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">4.8 <U>Compliance with Laws</U>. Mortgagor will comply with all Requirements of Law
applicable to the Mortgaged Property and the operations conducted thereon, including, without limitation, the Natural Gas Policy Act of 1978, as amended, and Environmental Laws; and cause all employees, crew members, agents, contractors,
sub-contractors, and future lessees (pursuant to appropriate lease provisions) of Mortgagor, while such Persons are acting within the scope of their relationship with Mortgagor, to comply with all such Requirements of Law as may be necessary or
appropriate to enable Mortgagor to so comply. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">4.9 <U>Hazardous Substances Indemnification</U>.
<B>M<SMALL>ORTGAGOR</SMALL></B><SMALL></SMALL> <B><SMALL>HEREBY</SMALL> <SMALL>INDEMNIFIES</SMALL> <SMALL>AND</SMALL> <SMALL>HOLDS</SMALL> M<SMALL>ORTGAGEE</SMALL> <SMALL>AND</SMALL> <SMALL>ITS</SMALL> <SMALL>AGENTS</SMALL>,
<SMALL>ATTORNEYS</SMALL>-<SMALL>IN</SMALL>-<SMALL>FACT</SMALL>, <SMALL>AND</SMALL> <SMALL>AFFILIATES</SMALL> <SMALL>AND</SMALL> <SMALL>THE</SMALL> T<SMALL>RUSTEE</SMALL> <SMALL>HARMLESS</SMALL> <SMALL>FROM</SMALL> <SMALL>AND</SMALL>
<SMALL>AGAINST</SMALL> <SMALL>ANY</SMALL> <SMALL>AND</SMALL> <SMALL>ALL</SMALL> <SMALL>CLAIMS</SMALL>, <SMALL>LOSSES</SMALL>, <SMALL>DAMAGES</SMALL>, <SMALL>LIABILITIES</SMALL>, <SMALL>FINES</SMALL>, <SMALL>PENALTIES</SMALL>, <SMALL>CHARGES</SMALL>,
<SMALL>ADMINISTRATIVE</SMALL> <SMALL>AND</SMALL> <SMALL>JUDICIAL</SMALL> <SMALL>PROCEEDINGS</SMALL> <SMALL>AND</SMALL> <SMALL>ORDERS</SMALL>, <SMALL>JUDGMENTS</SMALL>, <SMALL>REMEDIAL</SMALL> <SMALL>ACTIONS</SMALL>, <SMALL>REQUIREMENTS</SMALL>
<SMALL>AND</SMALL> <SMALL>ENFORCEMENT</SMALL> <SMALL>ACTIONS</SMALL> <SMALL>OF</SMALL> <SMALL>ANY</SMALL> <SMALL>KIND</SMALL>, <SMALL>AND</SMALL> <SMALL>ALL</SMALL> <SMALL>COSTS</SMALL> <SMALL>AND</SMALL> <SMALL>EXPENSES</SMALL>
<SMALL>INCURRED</SMALL> <SMALL>IN</SMALL> <SMALL>CONNECTION</SMALL> <SMALL>THEREWITH</SMALL> (<SMALL>INCLUDING</SMALL>, <SMALL>WITHOUT</SMALL> <SMALL>LIMITATION</SMALL>, <SMALL>ATTORNEYS</SMALL>&#146; <SMALL>FEES</SMALL> <SMALL>AND</SMALL>
<SMALL>EXPENSES</SMALL>), <SMALL>ARISING</SMALL> <SMALL>DIRECTLY</SMALL> <SMALL>OR</SMALL> <SMALL>INDIRECTLY</SMALL>, <SMALL>IN</SMALL> <SMALL>WHOLE</SMALL> <SMALL>OR</SMALL> <SMALL>IN</SMALL> <SMALL>PART</SMALL>, <SMALL>FROM</SMALL>
(<SMALL>A</SMALL>)&nbsp;<SMALL>THE</SMALL> <SMALL>PRESENCE</SMALL> <SMALL>OF</SMALL> <SMALL>ANY</SMALL> H<SMALL>AZARDOUS</SMALL> S<SMALL>UBSTANCES</SMALL> <SMALL>ON</SMALL>, <SMALL>UNDER</SMALL>, <SMALL>OR</SMALL> <SMALL>FROM</SMALL>
<SMALL>ANY</SMALL> M<SMALL>ORTGAGED</SMALL> P<SMALL>ROPERTY</SMALL>, <SMALL>WHETHER</SMALL> <SMALL>PRIOR</SMALL> <SMALL>TO</SMALL> <SMALL>OR</SMALL> <SMALL>DURING</SMALL> <SMALL>THE</SMALL> <SMALL>TERM</SMALL> <SMALL>HEREOF</SMALL>,
(<SMALL>B</SMALL>)&nbsp;<SMALL>ANY</SMALL> <SMALL>ACTIVITY</SMALL> <SMALL>CARRIED</SMALL> <SMALL>ON</SMALL> <SMALL>OR</SMALL> <SMALL>UNDERTAKEN</SMALL> <SMALL>ON</SMALL> <SMALL>OR</SMALL> <SMALL>OFF</SMALL> <SMALL>ANY</SMALL>
M<SMALL>ORTGAGED</SMALL> P<SMALL>ROPERTY</SMALL>, <SMALL>WHETHER</SMALL> <SMALL>PRIOR</SMALL> <SMALL>TO</SMALL> <SMALL>OR</SMALL> <SMALL>DURING</SMALL> <SMALL>THE</SMALL> <SMALL>TERM</SMALL> <SMALL>HEREOF</SMALL>, <SMALL>AND</SMALL>
<SMALL>WHETHER</SMALL> <SMALL>BY</SMALL> M<SMALL>ORTGAGOR</SMALL> <SMALL>OR</SMALL> <SMALL>ANY</SMALL> <SMALL>PREDECESSOR</SMALL> <SMALL>IN</SMALL> <SMALL>TITLE</SMALL>, <SMALL>EMPLOYEE</SMALL>, <SMALL>AGENT</SMALL>, <SMALL>CONTRACTOR</SMALL>,
<SMALL>OR</SMALL> <SMALL>SUBCONTRACTOR</SMALL> <SMALL>OF</SMALL> M<SMALL>ORTGAGOR</SMALL> <SMALL>OR</SMALL> <SMALL>ANY</SMALL> <SMALL>OTHER</SMALL> P<SMALL>ERSON</SMALL> <SMALL>AT</SMALL> <SMALL>ANY</SMALL> <SMALL>TIME</SMALL>
<SMALL>OCCUPYING</SMALL> <SMALL>OR</SMALL> <SMALL>PRESENT</SMALL> <SMALL>ON</SMALL> <SMALL>ANY</SMALL> M<SMALL>ORTGAGED</SMALL> P<SMALL>ROPERTY</SMALL>, <SMALL>IN</SMALL> <SMALL>CONNECTION</SMALL> <SMALL>WITH</SMALL> <SMALL>THE</SMALL>
<SMALL>HANDLING</SMALL>, <SMALL>TREATMENT</SMALL>, <SMALL>REMOVAL</SMALL>, <SMALL>STORAGE</SMALL>, <SMALL>DECONTAMINATION</SMALL>, <SMALL>CLEANUP</SMALL>, <SMALL>TRANSPORTATION</SMALL>, <SMALL>OR</SMALL> <SMALL>DISPOSAL</SMALL> <SMALL>OF</SMALL>
<SMALL>ANY</SMALL> H<SMALL>AZARDOUS</SMALL> S<SMALL>UBSTANCES</SMALL> <SMALL>AT</SMALL> <SMALL>ANY</SMALL> <SMALL>TIME</SMALL> <SMALL>LOCATED</SMALL> <SMALL>OR</SMALL> <SMALL>PRESENT</SMALL> <SMALL>ON</SMALL> <SMALL>OR</SMALL> <SMALL>UNDER</SMALL>
<SMALL>SUCH</SMALL> P<SMALL>ROPERTY</SMALL>, (<SMALL>C</SMALL>)&nbsp;<SMALL>ANY</SMALL> <SMALL>RESIDUAL</SMALL> <SMALL>CONTAMINATION</SMALL> <SMALL>ON</SMALL> <SMALL>OR</SMALL> <SMALL>UNDER</SMALL> <SMALL>ANY</SMALL> M<SMALL>ORTGAGED</SMALL>
P<SMALL>ROPERTY</SMALL>, (<SMALL>D</SMALL>)&nbsp;<SMALL>ANY</SMALL> <SMALL>CONTAMINATION</SMALL> <SMALL>OF</SMALL> <SMALL>ANY</SMALL> M<SMALL>ORTGAGED</SMALL> P<SMALL>ROPERTY</SMALL> <SMALL>OR</SMALL> <SMALL>NATURAL</SMALL> <SMALL>RESOURCES</SMALL>
<SMALL>ARISING</SMALL> <SMALL>IN</SMALL> <SMALL>CONNECTION</SMALL> <SMALL>WITH</SMALL> <SMALL>THE</SMALL> <SMALL>GENERATION</SMALL>, <SMALL>USE</SMALL>, <SMALL>HANDLING</SMALL>, <SMALL>STORAGE</SMALL>, <SMALL>TRANSPORTATION</SMALL>,
<SMALL>OR</SMALL> <SMALL>DISPOSAL</SMALL> <SMALL>OF</SMALL> <SMALL>ANY</SMALL> H<SMALL>AZARDOUS</SMALL> S<SMALL>UBSTANCE</SMALL> <SMALL>BY</SMALL> M<SMALL>ORTGAGOR</SMALL> <SMALL>OR</SMALL> <SMALL>ANY</SMALL> <SMALL>EMPLOYEE</SMALL>,
<SMALL>AGENT</SMALL>, <SMALL>CONTRACTOR</SMALL>, <SMALL>OR</SMALL> <SMALL>SUBCONTRACTOR</SMALL> <SMALL>OF</SMALL> M<SMALL>ORTGAGOR</SMALL> <SMALL>WHILE</SMALL> <SMALL>SUCH</SMALL> P<SMALL>ERSONS</SMALL> <SMALL>ARE</SMALL> <SMALL>ACTING</SMALL>
<SMALL>WITHIN</SMALL> <SMALL>THE</SMALL> <SMALL>SCOPE</SMALL> <SMALL>OF</SMALL> <SMALL>THEIR</SMALL> <SMALL>RELATIONSHIP</SMALL> <SMALL>WITH</SMALL> M<SMALL>ORTGAGOR</SMALL>, <SMALL>IRRESPECTIVE</SMALL> <SMALL>OF</SMALL> <SMALL>WHETHER</SMALL>
<SMALL>ANY</SMALL> <SMALL>OF</SMALL> <SMALL>SUCH</SMALL> <SMALL>ACTIVITIES</SMALL> <SMALL>WERE</SMALL> <SMALL>OR</SMALL> <SMALL>WILL</SMALL> <SMALL>BE</SMALL> <SMALL>UNDERTAKEN</SMALL> <SMALL>IN</SMALL> <SMALL>ACCORDANCE</SMALL> <SMALL>WITH</SMALL>
<SMALL>APPLICABLE</SMALL> R<SMALL>EQUIREMENTS</SMALL> <SMALL>OF</SMALL> L<SMALL>AW</SMALL>, <SMALL>OR</SMALL> (<SMALL>E</SMALL>)&nbsp;<SMALL>THE</SMALL> <SMALL>PERFORMANCE</SMALL> <SMALL>AND</SMALL> <SMALL>ENFORCEMENT</SMALL> <SMALL>OF</SMALL>
<SMALL>THIS</SMALL> D<SMALL>EED</SMALL> <SMALL>OF</SMALL> T<SMALL>RUST</SMALL> <SMALL>OR</SMALL> <SMALL>ANY</SMALL> <SMALL>OTHER</SMALL> <SMALL>ACT</SMALL> <SMALL>OR</SMALL> <SMALL>OMISSION</SMALL> <SMALL>IN</SMALL> <SMALL>CONNECTION</SMALL>
<SMALL>WITH</SMALL> <SMALL>OR</SMALL> <SMALL>RELATED</SMALL> <SMALL>TO</SMALL> <SMALL>THIS</SMALL> D<SMALL>EED</SMALL> <SMALL>OF</SMALL> T<SMALL>RUST</SMALL> <SMALL>OR</SMALL> <SMALL>THE</SMALL> <SMALL>TRANSACTIONS</SMALL>
<SMALL>CONTEMPLATED</SMALL> <SMALL>HEREBY</SMALL>, <SMALL>INCLUDING</SMALL>, <SMALL>WITHOUT</SMALL> <SMALL>LIMITATION</SMALL>, <SMALL>ANY</SMALL> <SMALL>OF</SMALL> <SMALL>THE</SMALL> <SMALL>FOREGOING</SMALL> <SMALL>IN</SMALL> <SMALL>THIS</SMALL>
S<SMALL>ECTION</SMALL> <SMALL>ARISING</SMALL> <SMALL>FROM</SMALL> <SMALL>NEGLIGENCE</SMALL>, <SMALL>WHETHER</SMALL> <SMALL>SOLE</SMALL> <SMALL>OR</SMALL> <SMALL>CONCURRENT</SMALL>, <SMALL>ON</SMALL> <SMALL>THE</SMALL> <SMALL>PART</SMALL>
<SMALL>OF</SMALL> M<SMALL>ORTGAGEE</SMALL> <SMALL>OR</SMALL> <SMALL>ANY</SMALL> <SMALL>OF</SMALL> <SMALL>ITS</SMALL> <SMALL>AGENTS</SMALL> <SMALL>OR</SMALL> <SMALL>ATTORNEYS</SMALL>-<SMALL>IN</SMALL>-<SMALL>FACT</SMALL> </B><B><SMALL>OR</SMALL>
<SMALL>THE</SMALL> T<SMALL>RUSTEE</SMALL>; <SMALL>WITH</SMALL> <SMALL>THE</SMALL> <SMALL>FOREGOING</SMALL> <SMALL>INDEMNITY</SMALL> <SMALL>SURVIVING</SMALL> <SMALL>SATISFACTION</SMALL> <SMALL>OF</SMALL> <SMALL>THE</SMALL> I<SMALL>NDEBTEDNESS</SMALL>
<SMALL>AND</SMALL> <SMALL>THE</SMALL> <SMALL>RELEASE</SMALL> <SMALL>OF</SMALL> <SMALL>THE</SMALL> L<SMALL>IENS</SMALL> <SMALL>CREATED</SMALL> <SMALL>HEREBY</SMALL>.</B> </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;
</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">4.10 <U>Site Assessments</U>. Mortgagee at any time and from time to time, either prior to or after the
occurrence of an Event of Default, may contract, at the expense of Mortgagor, for the services of Persons (the &#147;<U>Site Reviewers</U>&#148;) to perform environmental site assessments and other tests (&#147;<U>Site Assessments</U>&#148;) on all
or any portion of the Mortgaged Property for the purpose of determining whether any environmental condition exists on any Mortgaged Property which could reasonably be expected to result in any liability, cost, or expense to Mortgagee or any owner,
occupier, or operator of such Mortgaged Property. The Site Assessments may be performed at any time or times, upon reasonable notice, and under reasonable conditions established by Mortgagor which do not impede the performance of the Site
Assessments. The Site Reviewers are hereby authorized to enter upon all or any portion of the Mortgaged Property for such purposes. The Site Reviewers are further authorized to perform both above and below the ground testing for environmental damage
or the presence of Hazardous Substances on the Mortgaged Property and such other tests on the Mortgaged Property as may be necessary to conduct the Site Assessments in the reasonable opinion of the Site Reviewers. Mortgagor will supply to the Site
Reviewers such historical and operational information regarding the Mortgaged Property as may be reasonably requested by the Site Reviewers to facilitate the Site Assessments and will make available for meetings with the Site Reviewers appropriate
personnel having knowledge of such matters. On request, Mortgagee shall make the results of such Site Assessments available to Mortgagor, which, prior to an Event of Default, may at its election participate under reasonable procedures in the
direction of such Site Assessments and the description of tasks of the Site Reviewers. The cost of performing all Site Assessments shall be paid by Mortgagor upon demand of Mortgagee and any such obligations shall be Indebtedness secured by this
Deed of Trust. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">4.11 <U>Uneconomic Wells</U>. Should proceeds from the sale of production from any oil and/or gas well constituting part of
the Mortgaged Property (net of production, severance and windfall profit taxes and royalties, overriding royalties and other payments out of or measured by production) not exceed the expense of operation of such well (including, but not limited to,
operator&#146;s overhead, payments to contractors and suppliers, and annual taxes assessed on the basis of the value of the Property prorated on a monthly basis, but expressly excluding any portion of the cost of drilling or completing the relevant
well or the cost of non-routine workover or remedial operations) for a period in excess of three consecutive calendar months, then, upon receipt by Mortgagor of written notification from Mortgagee, Mortgagor will (a)&nbsp;take all necessary steps to
abandon the relevant well, or (b)&nbsp;provide from sources other than proceeds from the sale of production attributable to the Mortgaged Property (<I>i.e.</I>, through borrowings or contractual commitments obtained from third parties not in
violation of any provision of this Deed of Trust or any other Loan Document) the funds required to pay the share of Mortgagor of the expenses associated with the continuing operation of such well. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">4.12 <U>Performance of Gas Contracts</U>. Mortgagor will perform and observe in all material respects all of its obligations under each contract relating
to the sale of gas produced from or attributable to the Mortgaged Property and will not, except in good faith and as the result of arm&#146;s length negotiations and with prior written notice to Mortgagee, change, modify, amend or waive any of the
terms or provisions of any such contract or take any other action which would release any other party from its obligations or liabilities under any such contract. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">4.13 <U>Covenants Running with the Land</U>. All covenants and agreements herein contained shall
constitute covenants running with the Land. </FONT></P> <P STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>ARTICLE 5 </U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2"><U>DEFEASANCE, FORECLOSURE </U></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>AND OTHER REMEDIES </U></FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">5.1 <U>Defeasance</U>. Should the Indebtedness be paid, then the conveyance of the Mortgaged Property shall become of no further force and effect, and,
at the request and expense of Mortgagor, the Lien granted hereunder shall be released, without recourse or warranty; otherwise, it shall remain in full force and effect. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
FACE="Times New Roman" SIZE="2">5.2 <U>Events of Default</U>. The occurrence of any Event of Default under any of the Notes shall constitute an Event of Default under this Deed of Trust. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">5.3 <U>Acceleration and Exercise of Power of Sale</U>. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">(a) Upon the occurrence of an Event of Default specified in the Intercreditor Agreement, the aggregate principal amount of all Indebtedness then outstanding and all interest accrued thereon shall automatically become
immediately due and payable, without presentment, demand, protest, notice of protest, default or dishonor, notice of intent to accelerate maturity, notice of acceleration of maturity, or other notice of any kind, all of which are hereby expressly
waived by Mortgagor to the full extent permitted by applicable law. Upon the occurrence of any other Event of Default, Mortgagee may declare the aggregate principal amount of all Indebtedness then outstanding and all interest accrued thereon
immediately due and payable, whereupon the same shall become immediately due and payable without presentment, demand, protest, notice of protest, default or dishonor, notice of intent to accelerate maturity, notice of acceleration of maturity, or
other notice of any kind, all of which are hereby expressly waived by Mortgagor to the full extent permitted by applicable law. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">(b) Upon the occurrence of any Event of Default arising from a voluntary or involuntary Insolvency Proceeding in which Mortgagor is a debtor or at any time thereafter while the Indebtedness or any part thereof remains unpaid, it shall be
the duty of the Trustee, on request of Mortgagee (which request is hereby presumed), to enforce this Trust and, after advertising the time and place of the sale for at least 21 days prior to the day of sale, by posting or causing to be posted a
written or printed notice thereof at the courthouse door and by filing a copy of such notice in the office of the county clerk of each county in which the Mortgaged Property or any part thereof may be situated, and serving written notice of the
proposed sale on each debtor obligated to pay the Indebtedness according to the records of Mortgagee, by postage prepaid, certified United States </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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<FONT FACE="Times New Roman" SIZE="2">mail, at the most recent address for such debtor as shown by the records of Mortgagee, at least 21 days prior to the day of sale, to sell the Mortgaged
Property, either as a whole or in parcels, as the Trustee may deem proper, at public venue at the courthouse of the county in which the Mortgaged Property or any part thereof may be situated (and being the county designated in the notice of sale) on
the first Tuesday of any month between the hours of 10:00 a.m. and 4:00&nbsp;p.m., to the highest bidder for cash, and after such sale to execute and deliver to the purchaser or purchasers good and sufficient deeds and assignments, conveying such
Property so sold to the purchaser or purchasers with general warranty of title made on behalf of Mortgagor. The Trustee, or his successor or substitute, is hereby authorized and empowered to appoint any one or more Persons as his attorneys-in-fact
or agents to act as Trustee under him and in his name, place and stead, such appointment to be evidenced by a written instrument executed by the Trustee, or his successor or substitute, to perform any one or more act or acts necessary or incident to
any sale under the power of sale hereunder, including, without limitation, the posting and filing of any notices, the conduct of the sale and the execution and delivery of any instruments conveying the Mortgaged Property as a result of the sale, but
in the name and on behalf of the Trustee, or his successor or substitute; and all acts done or performed by such attorneys-in-fact or agents shall be valid, lawful and binding as if done or performed by the Trustee, or his successor or substitute.
No single sale or series of sales by the Trustee shall extinguish the Lien or exhaust the power of sale hereunder except with respect to the items of Property sold, but such Lien and power shall exist for so long as and may be exercised in any
manner by law or as herein provided as often as the circumstances require to give Mortgagee full relief hereunder. The purchaser at any such sale shall not assume, nor shall the heirs, legal representatives, successors or assigns of such purchaser,
be deemed to have assumed, by reason of the acquisition of Property or rights mortgaged hereunder, any liability or obligation of any lessee or operator of the Mortgaged Property, or any part thereof, arising by reason of any occurrence taking place
prior to such sale. It shall not be necessary to have present, or to exhibit at any such sale, any of the personal Property subject to the Lien hereof. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
FACE="Times New Roman" SIZE="2">5.4 <U>Rights as Secured Party</U>. Upon the occurrence of any Event of Default, Mortgagee shall be entitled to all of the rights, powers, and remedies afforded a secured party by the UCC with respect to the personal
Property and fixtures and as-extracted collateral in which Mortgagee has been granted a security interest hereby, or Mortgagee may proceed in accordance with the provisions hereof as to both the real and personal Property covered hereby. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">5.5 <U>Application of Proceeds of Sale</U>. The Trustee is authorized to receive the proceeds of each sale of Mortgaged Property and apply the same as
follows: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2"><U>FIRST</U>: to the payment of all necessary costs and expenses incident to the execution of this Deed of Trust, including, but
not limited to, a fee to the Trustee of 5% of the amount realized at the sale, if required by the Trustee; </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2"><U>SECOND</U>: to any and all Indebtedness then hereby secured, application to be made in such order and
in such manner as Mortgagee may, in its discretion, elect; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2"><U>THIRD</U>: the balance, if any, to Mortgagor or its successors or assigns, or
other Person legally entitled thereto. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">5.6 <U>Substitute Trustee</U>. In the event of the death of the Trustee, or his removal from the
State of Texas, or his failure, refusal, or inability for any reason to make any such sale or to perform any of the trusts herein declared, or at any time, whether with or without cause, Mortgagee may appoint, in writing, a substitute trustee who
shall thereupon succeed to all the estates, rights, powers, and trusts herein granted to and vested in the Trustee. In the same events as first above stated, and in the same manner, successive substitute Trustees may thereafter be appointed.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">5.7 <U>Statements by Trustee</U>. It is agreed that in any deed or deeds given by any Trustee any and all statements of fact or other
recitals therein made as to the identity of the holder or holders of the Indebtedness, or as to default in the payments thereof or any part thereof, or as to the breach of any covenants herein contained, or as to the request to sell, notice of sale,
time, place, terms and manner of sale, and receipt, application, and distribution of the money realized therefrom, or as to the due and proper appointment of a substitute trustee, and, without being limited by the foregoing, as to any other or
additional act or thing having been done by Mortgagee or the Trustee, shall be taken by all courts of law and equity as prima facie evidence that the statements or recitals state facts and are without further question to be so accepted. Mortgagor
does hereby ratify and confirm any and all acts that the Trustee may lawfully do in the premises by virtue of the terms and conditions of this Deed of Trust. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
FACE="Times New Roman" SIZE="2">5.8 <U>Suit to Collect and Foreclose</U>. Mortgagee, at its election, or the Trustee, upon written request of Mortgagee, may proceed by suit or suits, at law or in equity, to enforce the payment of the Indebtedness in
accordance with the terms hereof and of the notes, guaranties, or other documents evidencing it, and to foreclose the Lien of this Deed of Trust as against all or any portion of the Mortgaged Property and to have such Property sold under the
judgment or decree of a court of competent jurisdiction. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">5.9 <U>Mortgagee or Trustee as Purchaser</U>. Mortgagee or the Trustee may be a
purchaser of all or any portion of the Mortgaged Property at any sale thereof, whether such sale be under the power of sale hereinabove vested in the Trustee, upon any other foreclosure of the Lien hereof, or otherwise. Mortgagee or the Trustee so
purchasing shall, upon any such purchase, acquire title to the Mortgaged Property so purchased, free of the Lien of this Deed of Trust and free of all rights of redemption in Mortgagor. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">5.10 <U>Entry and Operation</U>. Upon the occurrence of any Event of Default, then in each and every such case and in addition to the other rights and
remedies hereunder, the Trustee or Mortgagee, whether or not the Indebtedness shall have become due and payable, may, but shall not be obligated to, enter into and upon and take possession of all or any portion of the Mortgaged Property and may
exclude Mortgagor, its agents and servants wholly therefrom and have, hold, use, operate, manage, and control all or any portion of the Mortgaged Property and </FONT>
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<FONT FACE="Times New Roman" SIZE="2">produce the oil, gas, and other minerals therefrom and market the same, all at the sole risk and expense of Mortgagor and at the expense of the Mortgaged
Property, applying the net proceeds so derived, first, to the cost of maintenance and operation of such Mortgaged Property; second, to the payment of the Indebtedness, application to be made first to interest and then to principal; and the balance
thereof, if any, shall be paid to Mortgagor. Upon such payment of all such costs and Indebtedness, the Mortgaged Property shall be returned to Mortgagor in its then condition, and neither the Trustee nor Mortgagee shall be liable to Mortgagor for
any damage or injury to the Mortgaged Property except such as may be caused through the fraud or willful misconduct of the Trustee or Mortgagee, as the case may be. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
FACE="Times New Roman" SIZE="2">5.11 <U>Power of Attorney to Mortgagee</U>. Mortgagor does hereby designate Mortgagee as the agent of Mortgagor to act in the name, place, and stead of Mortgagor in the exercise of each and every remedy set forth
herein and in conducting any and all operations and taking any and all action reasonably necessary to do so, recognizing such agency in favor of Mortgagee to be coupled with the interests of Mortgagee under this Deed of Trust and, thus, irrevocable
so long as this Deed of Trust is in force and effect. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">5.12 <U>Remedies Cumulative and Non-Exclusive</U>. The rights of entry, sale, or
suit, as hereinabove or hereinafter conferred, are cumulative of all other rights and remedies herein or by law or in equity provided, and shall not be deemed to deprive Mortgagee or the Trustee of any such other legal or equitable rights or
remedies, by judicial proceedings or otherwise, appropriate to enforce the conditions, covenants, and terms of this Deed of Trust and the other Loan Documents. The employment of any remedy hereunder or otherwise shall not prevent the concurrent or
subsequent employment of any other appropriate remedy or remedies. </FONT></P> <P STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>ARTICLE 6 </U></FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>ASSIGNMENT OF PRODUCTION </U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">6.1
<U>Assignment</U>. In addition to the conveyance to the Trustee herein made, Mortgagor does hereby transfer, assign, deliver and convey unto Mortgagee, its successors and assigns, all of the oil, gas, and other minerals produced, saved, or sold from
the Mortgaged Property and attributable to the interests of Mortgagor therein subsequent to 7:00 a.m. on the first day of the month in which this Deed of Trust is executed, together with the proceeds of any sale thereof. Mortgagor hereby directs any
purchaser now or hereafter taking any production from the Mortgaged Property to pay to Mortgagee such proceeds derived from the sale thereof and to continue to make payments directly to Mortgagee until notified in writing by Mortgagee to discontinue
the same. The purchaser of any such production shall not be required to see to the application of the proceeds thereof by Mortgagee, and payment made to Mortgagee shall be binding and conclusive as between such purchaser and Mortgagor. Mortgagor
further agrees to perform all such acts and to execute all such further assignments, transfer and division orders, and other instruments as may be required or desired by Mortgagee or any other party to have such proceeds and revenues so paid to
Mortgagee. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">6.2 <U>Postponement of Payment</U>. For its convenience, Mortgagee has elected not to exercise immediately its right to receive
payment to it directly of the proceeds of any sale of the oil , gas and other minerals produced or sold from the Mortgaged Property and the </FONT>
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<FONT FACE="Times New Roman" SIZE="2">purchasers may continue to make such payment or delivery of the proceeds to Mortgagor until such time as Mortgagor and the purchasers have received notice
that an Event of Default has occurred and is continuing, and that the purchasers are directed to make payment or delivery of the proceeds directly to Mortgagee. Such failure by Mortgagee to exercise its rights immediately shall not in any way waive
the right of Mortgagee to receive any of the proceeds, or to make any such demand, or to affect any such assignment as to any proceeds not theretofore paid or delivered to Mortgagor. In this regard, if any of the proceeds are paid or delivered
directly to Mortgagee and then, at the request of Mortgagee, the proceeds are, for a period or periods of time, paid or delivered to Mortgagor, Mortgagee shall nevertheless have the right, effective upon written notice, to require that future
proceeds be again paid or delivered directly to it. Mortgagee shall never be required to send any such notice to all purchasers, and may direct such notice only to those purchasers as it may, in its discretion, desire. It shall never be necessary
for Mortgagee to institute legal proceedings to enforce the assignment of hydrocarbons, proceeds, or other rents, profits, or income contained in this instrument. It shall not be necessary for Mortgagee to obtain possession of the Mortgaged Property
as a prerequisite to Mortgagee&#146;s right to collect or receive any hydrocarbons, other minerals, proceeds, or other rents, profits, or income assigned to Mortgagee under this instrument. Mortgagor and Mortgagee expressly agree and it is the
express intention of Mortgagor and Mortgagee that in no event will any reduction in the obligations be measured by the fair market value of the hydrocarbons, other minerals, proceeds, or other rents, profits, or income assigned to Mortgagee under
this instrument. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">6.3 <U>Change of Purchaser</U>. Should any purchaser taking the production from the Mortgaged Property fail to make
prompt payment to Mortgagee in accordance with the provisions of Section&nbsp;6.1, Mortgagee shall have the right, at the expense of Mortgagor, to demand a change of connection and to designate another purchaser with whom a new connection may be
made, without any liability on the part of Mortgagee in making such selection, so long as ordinary care is used in the making thereof. Promptly upon such demand, Mortgagor shall take all necessary and appropriate action to effect such change of
connection. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">6.4 <U>Application of Proceeds</U>. Mortgagor authorizes and empowers Mortgagee to receive, hold, and collect all sums of
money paid to Mortgagee in accordance with the provisions of Section&nbsp;6.1, and to apply the same as hereinafter provided, all without any liability or responsibility on the part of Mortgagee, save and except as to good faith in so receiving and
applying such sums. Mortgagee may apply all sums received by Mortgagee pursuant to Section&nbsp;6.1 to the payment of the Indebtedness, application to be made in such manner as Mortgagee may elect, regardless of whether the application so made shall
exceed the payments of principal and interest then due as provided in the Loan Documents. After such application has been so made by Mortgagee, the balance of any such sums shall be paid to Mortgagor. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">6.5 <U>No Postponement of Installments on Indebtedness</U>. It is understood and agreed that should such payments provided for by Section&nbsp;6.1 be
less than the sum or sums then due on the Indebtedness, such sum or sums then due shall nevertheless be paid by Mortgagor in accordance with the provisions of the Loan Documents, and neither the assignment made pursuant to Section&nbsp;6.1 nor any
other provisions hereof shall in any manner be construed to affect the terms and&nbsp;provisions of the Loan Documents. Likewise, neither the assignment made pursuant to Section&nbsp;6.1 nor any other provisions hereof shall in any manner be
construed to affect the Liens, rights, title, and remedies herein granted securing the Indebtedness or the </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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<FONT FACE="Times New Roman" SIZE="2">liability of Mortgagor therefor. The rights under this Article VI are cumulative of all other rights, remedies, and powers granted under this Deed of Trust
and are cumulative of any other security which Mortgagee now holds or may hereafter hold to secure the payment of the Indebtedness. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">6.6
<U>Turnover to Mortgagee</U>. Should Mortgagor receive any of the proceeds of any sale of oil, gas, or other minerals produced, saved, or sold from the Mortgaged Property, which under the terms hereof should have been remitted to Mortgagee,
Mortgagor will immediately remit same in full to Mortgagee. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">6.7 <U>Release of Proceeds Upon Payment of Indebtedness</U>. Upon payment in
full of all Indebtedness and the termination of the Commitment, the remainder of such proceeds held by Mortgagee, if any, shall be paid over to Mortgagor upon demand, and a release of the interest hereby assigned will be made, without recourse or
warranty, by Mortgagee to Mortgagor at its request and its expense. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">6.8 <U>Duty of Mortgagee</U>. Mortgagee shall not be liable for any
failure to collect, or for any failure to exercise diligence in collecting, any funds assigned hereunder. Mortgagee shall be accountable only for funds actually received. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
FACE="Times New Roman" SIZE="2">6.9 <U>Power of Attorney to Mortgagee</U>. Mortgagor does hereby designate Mortgagee as the agent of Mortgagor to act in the name, place, and stead of Mortgagor for the purpose of taking any and all actions deemed by
Mortgagee necessary for the realization by Mortgagee of the benefits of the assignment of production provided herein, recognizing such agency in favor of Mortgagee to be coupled with the interests of Mortgagee under this Deed of Trust and, thus,
irrevocable so long as this Deed of Trust is in force and effect. </FONT></P> <P STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>ARTICLE 7 </U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"
ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>MISCELLANEOUS </U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">7.1 <U>Further Assurances</U>. Upon request of Mortgagee,
Mortgagor will promptly correct any defects, errors, or omissions in the execution or acknowledgment of this Deed of Trust or any other Loan Document, and execute, acknowledge, and deliver such other assurances and instruments as shall, in the
opinion of Mortgagee, be necessary to fulfill the terms of this Deed of Trust. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">7.2 <U>Interest</U>. Any provision in any document that may
be executed in connection herewith to the contrary notwithstanding, Mortgagee shall in no event be entitled to receive or collect, nor shall any amounts received hereunder be credited so that Mortgagee shall be paid, as interest a sum greater than
that authorized by law. If any possible construction of this Deed of Trust or any Loan Document seems to indicate any possibility of a different power given to Mortgagee or any authority to ask for, demand, or receive any larger rate of interest,
this clause shall override and control, and proper adjustments shall be made accordingly. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">7.3 <U>Agreement as Entirety</U>. This Deed of
Trust, for convenience only, has been divided into Articles, Sections, and subsections. The rights, powers, privileges, duties, and </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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<FONT FACE="Times New Roman" SIZE="2">other legal relations of Mortgagor, the Trustee, and Mortgagee shall be determined from this Deed of Trust as an entirety and without regard to the aforesaid
division into Articles, Sections, and subsections and without regard to headings affixed to such Articles, Sections, or subsections. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">7.4
<U>Number and Gender</U>. Whenever the context requires, reference herein made to the single number shall be understood to include the plural, and the plural shall likewise be understood to include the singular. Words denoting sex shall be construed
to include the masculine, feminine, and neuter when such construction is appropriate; and specific enumeration shall not exclude the general, but shall be construed as cumulative. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">7.5 <U>Rights and Remedies Cumulative</U>. All rights, powers, immunities, remedies, and Liens of Mortgagee existing and to exist hereunder or under any
other instruments or at law or in equity and all other or additional security shall be cumulative and not exclusive, each of the other. Mortgagee shall, in addition to the rights and remedies herein expressly provided, be entitled to such other
remedies as may now or hereafter exist at law or in equity for securing and collecting the Indebtedness, for enforcing the covenants herein, and for foreclosing the Liens hereof. Resort by Mortgagee to any right or remedy provided for hereunder or
at law or in equity shall not prevent concurrent or subsequent resort to the same or any other right or remedy. No security heretofore, herewith, or subsequently taken by Mortgagee shall in any manner impair or affect the security given by this Deed
of Trust or any security by endorsement or otherwise presently or previously given; and all security shall be taken, considered, and held as cumulative. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
FACE="Times New Roman" SIZE="2">7.6 <U>Parties in Interest</U>. This Deed of Trust shall be binding upon the parties and their respective successors and assigns and shall inure to the benefit of Mortgagee and its successors, and assigns. The terms
used to designate any of the parties herein shall be deemed to include the successors and assigns of such parties. The term &#147;Mortgagee&#148; shall also include any lawful owner, holder or pledgee of any Indebtedness. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">7.7 <U>Supplements</U>. Without in any manner limiting the effect of Section&nbsp;1.4 or any other provisions of this Deed of Trust as to the binding
effect of this Deed of Trust on after-acquired rights of Mortgagor, it is contemplated by the parties hereto that from time to time additional interests and properties may or will be added to the interests and properties subject to the Liens,
rights, titles, and interests created by this Deed of Trust by means of supplemental indentures identifying this Deed of Trust and describing such interests and properties to be so added and included. Upon the execution of any such supplemental
indenture, the Liens, rights, titles, and interests created herein shall immediately attach to and be effective with respect to any such interests and properties so described, the same as if such interests and properties had been specifically
described herein, and such interests and properties being included in the term &#147;Mortgaged Property,&#148; as used herein. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">7.8
<U>Invalidity</U>. In the event that any one or more of the provisions contained in this Deed of Trust shall for any reason be held invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect
any other provision of this Deed of Trust or any other Loan Document. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">15 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">7.9 <U>Construction</U>. All titles or headings to Articles, Sections, subsections, or other divisions of
this Deed of Trust or the exhibits hereto are only for the convenience of the parties and shall not be construed to have any effect or meaning with respect to the other content of such Articles, Sections, subsections, or other divisions, such other
content being controlling as to the agreement among the parties hereto. Article, Section, subsection, and Exhibit references herein are to such Articles, Sections, subsections, and Exhibits of this Deed of Trust unless otherwise specified. The words
&#147;hereby,&#148; &#147;herein,&#148; &#147;hereinabove,&#148; &#147;hereinafter,&#148; &#147;hereinbelow,&#148; &#147;hereof,&#148; and &#147;hereunder&#148; when used in this Deed of Trust shall refer to this Deed of Trust as a whole and not to
any particular Article, Section, subsection, or provision of this Deed of Trust. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">7.10 <U>Fixtures, Minerals and Accounts</U>. Without in
any manner limiting the generality of any of the foregoing hereof, some portions of the personal Property described hereinabove are or are to become fixtures on the Lands. In addition, the security interest created hereby under applicable provisions
of the UCC attaches to minerals, including oil and gas, and accounts resulting from the sale thereof, at the wellhead or minehead located on the Lands. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
FACE="Times New Roman" SIZE="2">7.11 <U>Financing Statement Filings</U>. This Deed of Trust may be filed as provided in Article 9 of the UCC to assure that the security interests granted by this Deed of Trust are perfected. In this connection, this
Deed of Trust may be presented to a filing officer under the UCC to be filed in the real estate records as a Financing Statement covering minerals and fixtures. Further, Mortgagor authorizes Mortgagee to execute and file at any time and from time to
time any and all Financing Statements and amendments thereto in any UCC jurisdiction, pursuant to Article 9 of the UCC, as Mortgagee deems necessary in its sole discretion, in conjunction with this Deed of Trust, and Mortgagor expressly authorizes
execution and filing of such Financing Statements by Mortgagee without need of signature or execution by Mortgagor. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">7.12 <U>Addresses</U>.
For purposes of filing this Deed of Trust as a financing statement, the addresses for Mortgagor, as the debtor, and Mortgagee, as the secured party, are as set forth hereinabove. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">7.13 <U>Counterparts</U>. For the convenience of the parties, this Deed of Trust may be executed in multiple counterparts, each of which for all purposes
shall be deemed, and may be enforced from time to time as, a chattel mortgage, real estate mortgage, deed of trust, security agreement, assignment or contract, or as one or more thereof. For recording purposes, various counterparts have been
executed, and there may be attached to each such counterpart an <U>Exhibit A</U> containing only the description of the Mortgaged Property, or portions thereof, which relates to the county or state in which the particular counterpart is to be
recorded. A complete, original counterpart of this Deed of Trust with a complete <U>Exhibit A</U> may be obtained from Mortgagee. Each of the counterparts hereof so executed shall for all purposes be deemed to be an original, and all such
counterparts shall together constitute but one and the same instrument. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">16 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">7.14 <U>No Waiver by Mortgagee</U>. No course of dealing on the part of Mortgagee, nor any failure or
delay by Mortgagee with respect to exercising any of its rights or remedies hereunder shall operate as a waiver thereof nor shall the exercise or partial exercise of any such right or remedy shall preclude the exercise of any other right or remedy.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">7.15 <U>Governing Agreement</U>. This Deed of Trust is made pursuant and subject to the terms and provisions of the Notes. In the event of
a conflict between the terms and provisions of this Deed of Trust and those of any of the Notes, the terms and provisions of the relevant Note shall govern and control. The inclusion in this Deed of Trust of provisions not addressed in the relevant
Note shall not be deemed a conflict, and all such additional provisions contained herein shall be given full force and effect. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman"
SIZE="2"><B>(Signature appears on following page) </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">17 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%;padding-bottom:3px;line-height:95%; vertical-align:top"><FONT FACE="Times New Roman" SIZE="2">IN WITNESS WHEREOF, this Deed of Trust is executed
on the date of the acknowledgment below but effective as of the 31</FONT><FONT FACE="Times New Roman" SIZE="1"><SUP>st</SUP></FONT><FONT FACE="Times New Roman" SIZE="2"> day of March, 2008. </FONT></P> <P
STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P><DIV ALIGN="right">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="40%" BORDER="0">

<TR>
<TD WIDTH="6%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD WIDTH="92%"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"><FONT FACE="Times New Roman" SIZE="2"><B>MORTGAGOR (DEBTOR):</B></FONT></TD></TR>
<TR>
<TD HEIGHT="16" COLSPAN="3"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"><FONT FACE="Times New Roman" SIZE="2">PRIME OFFSHORE L.L.C.</FONT></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">By:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Beverly A. Cummings</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Chief Executive Officer</FONT></TD></TR>
</TABLE></DIV> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="40%" BORDER="0">

<TR>
<TD WIDTH="88%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="11%"></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">THE STATE OF TEXAS</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&#167;</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&#167;</FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">COUNTY OF HARRIS</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&#167;</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">The foregoing instrument was acknowledged before me, the undersigned authority, on this
<U>&nbsp;&nbsp;&nbsp;&nbsp;</U> day of April, 2008 by Beverly A. Cummings, Chief Executive Officer of PRIME OFFSHORE L.L.C., a Delaware limited liability company, on behalf of such limited liability company. </FONT></P> <P
STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P><DIV ALIGN="right">
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<TR>
<TD WIDTH="100%"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">NOTARY PUBLIC in and for</FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">the State of Texas</FONT></TD></TR>
</TABLE></DIV> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">18 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B><U>EXHIBIT A </U></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2"><B>TO </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>MORTGAGE, DEED OF TRUST, SECURITY AGREEMENT, </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>FINANCING STATEMENT AND ASSIGNMENT OF PRODUCTION </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
FACE="Times New Roman" SIZE="2">The designation &#147;<U>Working Interest</U>&#148; or &#147;<U>WI</U>&#148; when used in this Exhibit means an interest owned in an oil, gas, and mineral lease that determines the cost-bearing percentage of the owner
of such interest. The designation &#147;<U>Net Revenue Interest</U>&#148; or &#147;<U>NRI</U>&#148; means that portion of the production attributable to the owner of a working interest after deduction for all royalty burdens, overriding royalty
burdens or other burdens on production, except severance, production, and other similar taxes. The designation &#147;<U>Overriding Royalty Interest</U>&#148; or &#147;<U>ORRI</U>&#148; means an interest in production which is free of any obligation
for the expense of exploration, development, and production, bearing only its pro rata share of severance, production, and other similar taxes and, in instances where the document creating the overriding royalty interest so provides, costs
associated with compression, dehydration, other treating or processing, or transportation of production of oil, gas, or other minerals relating to the marketing of such production. The designation &#147;<U>Royalty Interest</U>&#148; or
&#147;<U>RI</U>&#148; means an interest in production which results from an ownership in the mineral fee estate or royalty estate in the relevant land and which is free of any obligation for the expense of exploration, development, and production,
bearing only its pro rata share of severance, production, and other similar taxes and, in instances where the document creating the royalty interest so provides, costs associated with compression, dehydration, other treating or processing or
transportation of production of oil, gas, or other minerals relating to the marketing of such production. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">Any reference in this Exhibit to
wells or units is for warranty of interest, administrative convenience, and identification and shall not limit or restrict the right, title, interest, or properties covered by this Deed of Trust. All right, title, and interest of Mortgagor in the
properties described herein are and shall be subject to this Deed of Trust, regardless of the presence of any units or wells not described herein. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman"
SIZE="2">The references to book or volume and page herein refer to the recording location of each respective Mortgaged Property described herein in the county where the land covered by the Mortgaged. </FONT></P>

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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B><U>OIL, GAS AND MINERAL INTERESTS </U></B></FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B><U>Loop Pipeline </U></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px;padding-bottom:3px;line-height:95%; vertical-align:top"><FONT FACE="Times New Roman"
SIZE="2">A 12-<FONT SIZE="1"><SUP>&nbsp;3</SUP></FONT><FONT SIZE="2">/</FONT><FONT SIZE="1">4</FONT><FONT FACE="Times New Roman" SIZE="2"> inch pipeline 13.14 miles in length to transport gas and condensate from a 12-inch sub-sea tie-in in North
Padre Island Area Block 996 (Segment Number 15073) through North Padre Island Blocks 997, 989, 976, 977, and 968 to a 10-inch sub-sea tie-in in North Padre Island Area Block 967 (Segment Number 5990). </FONT></FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Assigned Right-of-Way Number OCS-G26982 </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Assigned Segment Number: 15636
</FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B><U>South Padre Island 1111 </U></B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Oil and Gas Lease
OCS-G-24300, granted by the United States of America to F-W Oil Exploration L.L.C., dated effective November&nbsp;1, 2002, covering all of Block 1111, South Padre Island Area, OCS Leasing Map, Texas Map No.&nbsp;1, offshore Cameron County, Texas.
</FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR>
<TD WIDTH="20%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD WIDTH="69%"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Working Interest</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">100.0000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net Revenue Interest</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">80.3333</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
</TABLE>
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.27.6
<SEQUENCE>6
<FILENAME>dex10276.htm
<DESCRIPTION>PLEDGE AGREEMENT
<TEXT>
<HTML><HEAD>
<TITLE>Pledge Agreement</TITLE>
</HEAD>
 <BODY BGCOLOR="WHITE">

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>Exhibit 10.27.6 </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2"><B><U>PLEDGE AGREEMENT </U></B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><B>THIS PLEDGE AGREEMENT</B> (this &#147;<U>Agreement</U>&#148;), is made
as of March&nbsp;31, 2008, by and between <B>ARTIC MANAGEMENT CORPORATION</B>, a corporation incorporated under the laws of Panama (&#147;<U>Secured Party</U>&#148;), and <B>PRIME OFFSHORE L.L.C.</B>, a Delaware limited liability company
(&#147;<U>Pledgor</U>&#148;), with reference to the following: </FONT></P> <P STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>RECITALS: </U></FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">A. Pledgor has executed in favor of Secured Party that certain Subordinated Promissory Note dated March&nbsp;31, 2008 in the face principal amount of up
to $50,000,000 (the &#147;<U>Initial Note</U>&#148;) to evidence an initial loan by Secured Party to Pledgor in the amount of $20,000,000 and, possibly, further loans by Secured Party to Pledgor and Pledgor may execute one or more additional
Subordinated Promissory Notes in favor of Secured Party (the &#147;<U>Additional Notes</U>&#148;, whether one or more, and the Initial Note and the Additional Notes, collectively, the &#147;<U>Notes</U>&#148;). </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">B. Pledgor owns 100% of the general partner interest in FWOE Partners L.P., a Delaware limited partnership (the &#147;<U>Partnership</U>&#148;).
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">C. Secured Party has conditioned loans under the Notes upon, among other things, the execution and delivery of this Agreement by Pledgor.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">D. Terms used herein but not otherwise defined herein shall have the meanings ascribed to them in the Notes. </FONT></P> <P
STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>AGREEMENTS: </U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">NOW, THEREFORE, in
consideration of the premises and the mutual covenants, representations, warranties and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Pledgor hereby agrees with,
and for the benefit of, Secured Party as follows: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">SECTION 1. <U>Grant of Pledge Interest</U>. As security for the obligations specified in
Section&nbsp;2 hereof, Pledgor hereby grants to Secured Party a continuing security interest in all of its right, title and interest in and to the following described property, all of which is hereinafter collectively referred to as the
&#147;<U>Collateral</U>&#148;: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(a) <U>Partnership Interests</U>. Pledgor&#146;s entire general partner interest in the
Partnership, which currently consists of 100% of the general partnership interest in the Partnership. Without limiting the generality of the foregoing, Secured Party is hereby granted a security interest in all of Pledgor&#146;s right, title and
interest arising under that certain Amended and Restated Agreement of Limited Partnership dated August&nbsp;22, 2005 (the &#147;<U>Partnership Agreement</U>&#148;) including, without limitation, all rights of Pledgor to receive any and all monies,
properties, payments and distributions thereunder, whether in respect of operating profits, sales, exchanges, condemnations or insured losses of any of Partnership&#146;s assets, the liquidation of any of Partnership&#146;s assets and affairs,
guaranteed payments, reimbursement of expenses, or otherwise (collectively the &#147;<U>Distributions</U>&#148;); all rights, powers </FONT>
</P>

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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%">
<FONT FACE="Times New Roman" SIZE="2">and prerogatives of Pledgor arising under the Partnership Agreement or under law relating to the general partnership interest of Pledgor, including, without
limitation, all rights of Pledgor, if any, to control and manage the business of the Partnership and to vote on any matter specified therein or under law; all rights of Pledgor to cause an assignee to be substituted in the Partnership as a partner
in the place and stead of Pledgor; all rights and claims of Pledgor for damages arising out of or for breach of or default under the Partnership Agreement; all rights of Pledgor to access to the books and records of the Partnership and to other
information concerning or affecting the Partnership and all rights of Pledgor to terminate the Partnership Agreement, if any, to perform thereunder, to compel performance and otherwise to exercise all remedies thereunder; in each of the foregoing
cases, whether such rights, interests and assets are now owned or hereafter acquired and including all of Pledgor&#146;s interest in any partnership or other entity which is a successor to or continuation of either Partnership. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(b) <U>Proceeds, Substitutions, Etc</U>. To the extent not included in the items of Collateral set forth in paragraph (a)&nbsp;above, any
and all proceeds, products, increases, substitutions, replacements, repairs, additions and accessions to or of such items of Collateral, including, without limitation, all insurance and the proceeds thereof, all condemnation proceeds or the proceeds
of any other form of taking thereof and all real property, equipment, inventory, accounts, general intangibles, contract rights, documents, instruments, chattel paper, money, deposit accounts and other tangible or intangible property received upon
the sale or disposition of any of the foregoing now existing or hereafter arising. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">With respect to each particular item of
Collateral, the security interest herein granted shall attach immediately upon Pledgor&#146;s execution hereof or as soon as Pledgor acquires rights in and to such item of Collateral, whichever is later. Nothing in this Agreement shall be deemed to
constitute an assumption by Secured Party of any liability or obligation of Pledgor with respect to any of the Collateral. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">SECTION 2.
<U>Obligations Secured</U>. This Agreement secures and the Collateral is security for the prompt payment or performance in full when due, whether at stated maturity, by acceleration or otherwise (including, without limitation, the payment of amounts
which would become due but for the operation of the automatic stay under Section&nbsp;362(a) of the Bankruptcy Code, 11 U.S.C. &#167; 362(a)) of (a)&nbsp;all indebtedness now or hereafter existing, whether for principal or interest (including,
without limitation, interest which, but for the filing of a petition in bankruptcy with respect to Pledgor, would accrue on such obligations), or payments of fees, expenses or otherwise, under the Notes and (b)&nbsp;all obligations, indebtedness and
liabilities of Pledgor now or hereafter existing under this Agreement or any other security document securing payment of the Notes (all such obligations, indebtedness and liabilities referred to in (a)&nbsp;and (b)&nbsp;of this Section being the
&#147;<U>Secured Obligations</U>&#148;). </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">SECTION 3. <U>Assignment of Partnership Interest</U>. Concurrently herewith Pledgor shall execute
and deliver to Secured Party a fully executed Subordinated Assignment of Partnership Interest in the form attached hereto as <U>Exhibit &#147;A&#148;</U> with respect to the Partnership. Pledgor hereby authorizes Secured Party, after the occurrence
of an Event of Default, after the expiration of any applicable cure period therefor and upon the completion of a sale conducted pursuant to Article 9 of </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 2 - </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px">
<FONT FACE="Times New Roman" SIZE="2">the Uniform Commercial Code (the &#147;<U>Code</U>&#148;) in effect in the State of Texas at that time, to complete the Assignment of Partnership Interest,
and if the assignee is not Secured Party to fill in the name of the purchaser of the Collateral at a sale conducted pursuant to Article 9 of the Code as the assignee, and the date on which such sale was conducted, and, thereafter, to deliver one
fully executed original to the other partners of the Partnership. Pledgor agrees that the Partnership and its constituent partners shall be entitled to rely conclusively on such Subordinated Assignment of Partnership Interest and shall have no
liability to Pledgor for any loss or damage which Pledgor may incur by reason of said reliance, this provision being expressly for the benefit of such partners. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">SECTION 4. <U>Pledgor Remains Liable</U>. Anything herein to the contrary notwithstanding, unless and until an Event of Default shall have occurred and the Collateral is sold at a foreclosure sale, Pledgor shall
remain liable under the Partnership Agreement to perform all of Pledgor&#146;s obligations thereunder to the same extent as if this Agreement had not been executed, and the exercise by Secured Party of any of its rights hereunder shall not release
Pledgor from any of Pledgor&#146;s obligations under the Partnership Agreement except as expressly otherwise provided by law. Unless and until the Collateral is sold to Secured Party at a foreclosure sale, Secured Party shall not have any obligation
or liability under the Partnership Agreement by reason of this Agreement, nor shall Secured Party be obligated to perform any of the obligations of Pledgor thereunder or to take any action to collect or to enforce any claim for payment assigned
hereunder. From and after the date the Collateral is sold at a foreclosure sale, the purchaser thereof shall be bound by all applicable provisions of the Partnership Agreement. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">SECTION 5. <U>Representations and Warranties</U>. Pledgor hereby represents and warrants to Secured Party that: </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(a) Pledgor is duly organized, existing and in good standing in its jurisdiction of organization and has full power and authority to make
and deliver this Agreement. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(b) The execution, delivery and performance of this Agreement by the Pledgor have been duly
authorized by all necessary organizational action and do not and will not violate the provisions of, or constitute a default under, any presently applicable law or its organizational documents or any agreement presently binding on it. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(c) This Agreement has been duly executed and delivered by the authorized officers, partners, managers or members, as the case may be, of
Pledgor and constitutes its lawful, binding and legally enforceable obligation, subject, as to enforcement, only to bankruptcy, insolvency, reorganization, moratorium or similar laws then in effect affecting the rights of creditors generally and
general equitable principles. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(d) The authorization, execution, delivery and performance of this Agreement does not require
notification to, registration with, or consent or approval by, any federal, state or local regulatory body or administrative agency. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">(e) Pledgor&#146;s rights to the Distributions are valid, enforceable under the Partnership Agreement in accordance with its terms and are not subject to any defense, offset, counterclaim or contingency whatsoever, except as provided in the
Partnership Agreement. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 3 - </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(f) Except for the security interest granted herein, Pledgor has, and will at all times
during the term hereof have, valid title to all and every part of the Collateral, free and clear of any lien or security interest. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">(g) Upon the execution and delivery of this Agreement by Pledgor and the filing of appropriate financing statements with the appropriate governmental agencies or, as applicable, upon Secured Party&#146;s taking possession of the Collateral,
Secured Party shall have a perfected security interest in and to the Collateral having first priority for the full amount of all of the Secured Obligations, subject, however, to <U>Section&nbsp;24</U> below. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(h) Neither the execution and delivery of this Agreement by Pledgor nor the lawful exercise by Secured Party of any of its rights and
remedies hereunder, whether upon default or otherwise, will result in a breach of or constitute a default under the Partnership Agreement or any other agreement or instrument to which Pledgor is a party or by which any of the Collateral is bound,
nor violate any law or any rule or regulation of any administrative agency or any order, writ, injunction or decree of any court or administrative agency binding upon Pledgor, nor does any of the foregoing require the consent of any person, entity
or governmental agency or any notice or filing with any governmental or regulatory body (except as may be required in connection with any sale or disposition of the Collateral by laws affecting the offering and sale of securities generally).
</FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(i) There is no action nor legal, administrative or other proceeding pending or, to the best of Pledgor&#146;s knowledge,
threatened which affects Pledgor&#146;s title to the Collateral or Pledgor&#146;s grant of a security interest hereunder, nor does Pledgor know of any basis for the assertion of any such claim. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(j) The place where Pledgor keeps its books and records concerning the Collateral and a true, complete and conformed copy of each
Partnership Agreement is and will remain 9821 Katy Freeway, Suite 1050, Houston, Texas 77024, or at such other address as Pledgor may designate in writing to Secured Party. None of the Collateral is evidenced by a promissory note or other
instrument. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(k) Any and all information heretofore furnished to Secured Party by Pledgor in connection with the financial
condition, assets, liabilities, business or prospects of the Partnership or the value or condition of the Collateral is true and correct in all material respects when furnished, and all such information hereafter furnished to Secured Party by
Pledgor will be true and correct in all material respects when furnished. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">SECTION 6. <U>Further Assurances</U>. Pledgor agrees at any time
and from time to time, at the expense of Pledgor, promptly to execute and to deliver all further instruments and documents, and to take all further action, that may be necessary as reasonably requested by Secured Party in order to perfect and to
protect any security interest granted or purported to be granted hereby or to enable Secured Party to exercise and to enforce its rights and remedies hereunder with respect to any of the Collateral. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 4 - </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">SECTION 7. <U>Affirmative and Negative Covenants</U>. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(a) Pledgor shall not (i)&nbsp;sell, assign, transfer, exchange, lease, lend or dispose of (directly, indirectly, or voluntarily), or
grant any option with respect to, any of the Collateral, or (ii)&nbsp;create or permit to exist any security interest or lien in or with respect to the Collateral, except for the security interest in favor of Secured Party. The inclusion of
&#147;proceeds&#148; as a component of the Collateral shall not be deemed a consent by Secured Party or the Lenders to any sale, assignment, transfer, exchange, lease, loan, granting of an option with respect to or disposition of all or any part of
the Collateral. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(b) Pledgor shall not take any action in Pledgor&#146;s capacity as general partner of the Partnership to
(i)&nbsp;cause or permit the Partnership Agreement to be amended or terminated; (ii)&nbsp;waive, postpone or modify Pledgor&#146;s rights to receive any Distributions under the Partnership Agreement; or (iii)&nbsp;waive any default or breach of the
Partnership Agreement. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(c) Pledgor shall, at its own expense, perform and observe all of the terms and provisions of the
Partnership Agreement to be performed or observed by Pledgor, maintain the Partnership Agreement in full force and effect, and enforce Pledgor&#146;s rights under the Partnership Agreement in accordance with its terms. Pledgor shall promptly deliver
to Secured Party any notice of default which Pledgor receives with respect to the Partnership Agreement. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(d) Pledgor shall
comply with all laws, statutes and regulations pertaining to its ownership of the Collateral. Pledgor shall pay or cause to be paid all taxes and other levies with respect to the Collateral when the same become due and payable except such as are
being contested in good faith by appropriate proceedings, where the effect of such proceedings is to stay any enforcement in respect of such unpaid taxes. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">(e) Pledgor shall promptly notify Secured Party in writing of any event which materially adversely affects the value of the Collateral, the ability of Pledgor or Secured Party to dispose of the Collateral or the
rights and remedies of Secured Party in relation thereto, including, but not limited to, the levy of any legal process against the Collateral and the adoption of any order, arrangement or procedure affecting the Collateral, whether governmental or
otherwise. Pledgor shall also promptly notify Secured Party in writing of any event which adversely affects the financial condition, assets, liabilities, business, operations or prospects of the Partnership in any material respect. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">SECTION 8. <U>Rights of Pledgor with Respect to Collateral</U>. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(a) So long as no Event of Default shall have occurred and be continuing, Pledgor shall be entitled to exercise any and all voting and
other consensual and other rights pertaining to the Collateral, or any part thereof, for any purpose not inconsistent with the terms of this Agreement (including, without limitation, Section&nbsp;7(b) hereof) or the Note; provided, however, that
Pledgor shall not exercise or shall refrain from exercising any such right if it would result in an Event of Default. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 5 - </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(b) Upon the occurrence and during the continuance of an Event of Default: </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(i) Secured Party shall have the right to have the Collateral transferred into the name of Secured Party pursuant to Section&nbsp;3
hereof. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(ii) All rights of Pledgor to exercise the voting and other consensual rights which Pledgor would otherwise be
entitled to exercise pursuant to Section&nbsp;8(a) above and to receive Distributions shall cease, and all such rights shall thereupon become vested in Secured Party, who shall thereafter upon notice to Pledgor have the sole right to exercise such
voting and other consensual rights and to receive 100% of all Distributions, which shall be promptly applied by Secured Party against the Secured Obligations in the order and manner specified in Section&nbsp;12(d) hereof. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(iii) All Distributions which are received by Pledgor contrary to the provisions of Section&nbsp;8(b)(ii) shall be received in trust for
the benefit of Secured Party, shall be segregated from other funds of Pledgor, and forthwith shall be paid over to Secured Party as pledged Collateral in the same form as received (with any necessary endorsements). </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">SECTION 9. <U>Secured Party May Perform</U>. If Pledgor fails to perform any agreement contained herein, Secured Party may itself perform or cause the
performance of such agreement, and the expenses of Secured Party incurred in connection therewith shall be payable by Pledgor under Section&nbsp;16. However, nothing in this Agreement shall obligate Secured Party to act. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">SECTION 10. <U>Secured Party Appointed Attorney-in-Fact</U>. Pledgor hereby appoints Secured Party Pledgor&#146;s attorney-in-fact with full authority in
the place and stead of Pledgor and in the name of Pledgor or otherwise, from time to time (but only upon an Event of Default) in Secured Party&#146;s discretion, to take any action and to execute any instrument which Secured Party may deem necessary
or advisable to accomplish the purposes of this Agreement, including, without limitation, to receive, endorse and collect all instruments made payable to Pledgor representing any dividend or other Distribution in respect of the Collateral or any
part thereof and to give full discharge for the same. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">SECTION 11. <U>Reasonable Care</U>. Secured Party shall be deemed to have exercised
reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which Secured Party accords its own property, it being understood that Secured Party shall not
have responsibility for (a)&nbsp;ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not Secured Party has or is deemed to have knowledge of such
matters, or (b)&nbsp;taking any necessary steps to preserve rights against any parties with respect to any Collateral. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">SECTION 12.
<U>Remedies Upon Default</U>. If any Event of Default shall have occurred and be continuing, Secured Party is, subject to the Credit Agreement, entitled to exercise any one or more of the following remedies: </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(a) Secured Party may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise
available to it, all the rights and </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 6 - </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%">
<FONT FACE="Times New Roman" SIZE="2">remedies of a secured party under the Code, and Secured Party may also without notice except as specified below sell the Collateral or any part thereof in
one or more parcels at public or private sale, at any exchange, broker&#146;s board or at any of Secured Party&#146;s offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as Secured Party in its sole discretion
may deem commercially reasonable. Pledgor agrees that at least 20 days&#146; written notice to Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. Secured
Party shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to which it was so adjourned. Pledgor hereby waives any claims against Secured Party arising by reason of the fact that the price at which any Collateral may have been sold at such a private
sale was less than the price which might have been obtained at a public sale. To the extent permitted by law, Secured Party may be the purchaser of the Collateral. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(b) Pledgor recognizes that, by reason of certain prohibitions contained in the Securities Act of 1933, as amended (the
&#147;<U>Securities Act</U>&#148;), and applicable state securities laws, Secured Party may be compelled, with respect to any sale of all or any part of the Collateral, to limit purchasers to those who will agree, among other things, to acquire the
Collateral for their own account, for investment and not with a view to the distribution or resale thereof Pledgor acknowledges that any such private placement, whether through public or private sale under the Code, may be at prices and on terms
less favorable to Secured Party than those obtainable through a public offering made pursuant to a registration statement under the Securities Act, and, notwithstanding such circumstances, agrees that any such private placement, whether through
public or private sale under the Code, shall be deemed to have been made in a commercially reasonable manner and that Secured Party shall have no obligation to engage in a public offering and no obligation to delay the sale of any Collateral for the
period of time necessary to permit the issuer thereof to register it for a form of public offering requiring registration under the Securities Act or under applicable state securities laws, even if Pledgor would agree to do so. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(c) If Secured Party decides to exercise its right to sell any or all of the Collateral, upon written request, Pledgor shall furnish to
Secured Party all such information as Secured Party may reasonably request in order to determine the Collateral which may be sold by Secured Party as exempt transactions under the Securities Act and the rules of the Securities and Exchange
Commission thereunder, as the same are from time to time in effect. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(d) Any cash held by Secured Party as Collateral and
all cash proceeds received by Secured Party in respect of any sale of, collection from, or other realization upon all or any part of the Collateral shall be promptly applied (after payment of any amounts payable to Secured Party pursuant to
Section&nbsp;16) in whole or in part by Secured Party against all or any part of the Secured Obligations in such manner as Secured Party may elect. Any surplus of such cash or cash proceeds held by Secured Party and remaining after payment in full
of all the Secured Obligations shall be paid over to Pledgor or to whomsoever may be lawfully entitled to receive such surplus. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 7 - </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(e) Secured Party shall not be obligated to resort to its rights or remedies with respect
to any other security for or guaranty of payment of the Secured Obligations before resorting to its rights and remedies against Pledgor hereunder. All rights and remedies of Secured Party shall be cumulative and not in the alternative. </FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(f) To the extent the Collateral consists of Pledgor&#146;s entire interest in the Partnership, Secured Party may pursue and enforce
its rights and remedies only as to the Distributions, reserving the discretion to pursue or not pursue its rights as to the balance of the Collateral at a later date. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(g) To the extent the exercise by Secured Party of any remedy afforded herein requires the consent or approval of any governmental agency
or regulatory body, the right of Secured Party to exercise such remedy shall be conditioned upon receipt by Secured Party of such consent or approval. In furtherance of the exercise by Secured Party of the power of sale granted to it herein, Pledgor
agrees that, upon request of Secured Party and without expense to Secured Party, Pledgor shall use its reasonable best efforts to obtain all necessary approvals from all applicable federal, state and local governmental agencies, authorities and
instrumentalities for the sale by Secured Party of the Collateral, or any part thereof, or the transfer to the successful bidder or prospective purchaser of any governmental licenses or franchise necessary to allow it to conduct the business or
activities for which the Collateral is intended. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">SECTION 13. <U>No Partner</U>. Notwithstanding anything to the contrary contained herein,
until such time, if any, as Secured Party or a successor thereto acquires the Collateral following the occurrence of an Event of Default, neither Secured Party nor any successor-in-interest thereof shall be deemed to be a partner in the Partnership.
The security interests granted to Secured Party herein are collateral assignments only, serving as security for the Secured Obligations. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2"><B></B>SECTION 14.<B> <U>L<SMALL>IABILITY</SMALL> <SMALL>AND</SMALL> I<SMALL>NDEMNIFICATION</SMALL></U><SMALL></SMALL>. S<SMALL>ECURED</SMALL> P<SMALL>ARTY</SMALL> <SMALL>SHALL</SMALL> <SMALL>NOT</SMALL> <SMALL>BE</SMALL>
<SMALL>LIABLE</SMALL> <SMALL>TO</SMALL> <SMALL>PLEDGOR</SMALL> <SMALL>FOR</SMALL> <SMALL>ANY</SMALL> <SMALL>ACT</SMALL> <SMALL>OR</SMALL> <SMALL>OMISSION</SMALL> <SMALL>BY</SMALL> S<SMALL>ECURED</SMALL> P<SMALL>ARTY</SMALL> <SMALL>UNLESS</SMALL>
S<SMALL>ECURED</SMALL> P<SMALL>ARTY</SMALL>&#146;<SMALL>S</SMALL> <SMALL>CONDUCT</SMALL> <SMALL>CONSTITUTES</SMALL> <SMALL>WILLFUL</SMALL> <SMALL>MISCONDUCT</SMALL> <SMALL>OR</SMALL> <SMALL>GROSS</SMALL> <SMALL>NEGLIGENCE</SMALL>.
P<SMALL>LEDGOR</SMALL> <SMALL>AGREES</SMALL> <SMALL>TO</SMALL> <SMALL>INDEMNIFY</SMALL> <SMALL>AND</SMALL> <SMALL>TO</SMALL> <SMALL>HOLD</SMALL> S<SMALL>ECURED</SMALL> P<SMALL>ARTY</SMALL> <SMALL>HARMLESS</SMALL> <SMALL>FROM</SMALL>
<SMALL>AND</SMALL> <SMALL>AGAINST</SMALL> <SMALL>ALL</SMALL> <SMALL>LOSSES</SMALL>, <SMALL>LIABILITIES</SMALL>, <SMALL>CLAIMS</SMALL>, <SMALL>DAMAGES</SMALL>, <SMALL>REASONABLE</SMALL> <SMALL>COSTS</SMALL> <SMALL>AND</SMALL> <SMALL>EXPENSES</SMALL>
(<SMALL>INCLUDING</SMALL> <SMALL>REASONABLE</SMALL> <SMALL>ATTORNEYS</SMALL>&#146; <SMALL>FEES</SMALL> <SMALL>AND</SMALL> <SMALL>DISBURSEMENTS</SMALL>) <SMALL>WITH</SMALL> <SMALL>RESPECT</SMALL> <SMALL>TO</SMALL>
(<SMALL>I</SMALL>)&nbsp;<SMALL>ANY</SMALL> <SMALL>ACTION</SMALL> <SMALL>TAKEN</SMALL> <SMALL>OR</SMALL> <SMALL>ANY</SMALL> <SMALL>OMISSION</SMALL> <SMALL>BY</SMALL> S<SMALL>ECURED</SMALL> P<SMALL>ARTY</SMALL> <SMALL>WITH</SMALL>
<SMALL>RESPECT</SMALL> <SMALL>TO</SMALL> <SMALL>THIS</SMALL> A<SMALL>GREEMENT</SMALL>, <SMALL>PROVIDED</SMALL> <SMALL>THAT</SMALL> S<SMALL>ECURED</SMALL> P<SMALL>ARTY</SMALL>&#146;<SMALL>S</SMALL> <SMALL>CONDUCT</SMALL> <SMALL>DOES</SMALL>
<SMALL>NOT</SMALL> <SMALL>CONSTITUTE</SMALL> <SMALL>WILLFUL</SMALL> <SMALL>MISCONDUCT</SMALL> <SMALL>OR</SMALL> <SMALL>NEGLIGENCE</SMALL>, (<SMALL>II</SMALL>)&nbsp;<SMALL>ANY</SMALL> <SMALL>CLAIMS</SMALL> <SMALL>ARISING</SMALL> <SMALL>OUT</SMALL>
<SMALL>OF</SMALL> P<SMALL>LEDGOR</SMALL>&#146;<SMALL>S</SMALL> <SMALL>OWNERSHIP</SMALL> <SMALL>OF</SMALL> <SMALL>THE</SMALL> <SMALL>COLLATERAL</SMALL> <SMALL>OR</SMALL> S<SMALL>ECURED</SMALL> P<SMALL>ARTY</SMALL>&#146;<SMALL>S</SMALL>
<SMALL>SECURITY</SMALL> <SMALL>INTEREST</SMALL> <SMALL>THEREIN</SMALL>, <SMALL>OR</SMALL> (<SMALL>III</SMALL>)&nbsp;S<SMALL>ECURED</SMALL> P<SMALL>ARTY</SMALL>&#146;<SMALL>S</SMALL> <SMALL>ENFORCING</SMALL> <SMALL>THIS</SMALL>
A<SMALL>GREEMENT</SMALL> <SMALL>AGAINST</SMALL> P<SMALL>LEDGOR</SMALL> <SMALL>WHETHER</SMALL> <SMALL>OR</SMALL> <SMALL>NOT</SMALL> <SMALL>SUIT</SMALL> <SMALL>IS</SMALL> <SMALL>FILED</SMALL>, <SMALL>INCLUDING</SMALL>, <SMALL>WITHOUT</SMALL>
<SMALL>LIMITATION</SMALL>, <SMALL>ALL</SMALL> <SMALL>REASONABLE</SMALL> <SMALL>COSTS</SMALL>, <SMALL>REASONABLE</SMALL> <SMALL>ATTORNEYS</SMALL>&#146; <SMALL>FEES</SMALL> <SMALL>AND</SMALL> <SMALL>EXPENSES</SMALL> <SMALL>ACTUALLY</SMALL>
<SMALL>EXPENDED</SMALL> <SMALL>OR</SMALL> <SMALL>INCURRED</SMALL> <SMALL>BY</SMALL> S<SMALL>ECURED</SMALL> P<SMALL>ARTY</SMALL> <SMALL>IN</SMALL> <SMALL>CONNECTION</SMALL> <SMALL>WITH</SMALL>, <SMALL>OR</SMALL> <SMALL>IN</SMALL>
<SMALL>DEFENSE</SMALL> <SMALL>OF</SMALL>, <SMALL>ANY</SMALL> <SMALL>INSOLVENCY</SMALL>, <SMALL>BANKRUPTCY</SMALL>, <SMALL>REORGANIZATION</SMALL>, <SMALL>ARRANGEMENT</SMALL> <SMALL>OR</SMALL> <SMALL>OTHER</SMALL> <SMALL>SIMILAR</SMALL>
<SMALL>PROCEEDING</SMALL> <SMALL>INVOLVING</SMALL> <SMALL>PLEDGOR</SMALL> <SMALL>WHICH</SMALL> <SMALL>IN</SMALL> <SMALL>ANY</SMALL> <SMALL>WAY</SMALL> <SMALL>AFFECTS</SMALL> <SMALL>THE</SMALL> <SMALL>EXERCISE</SMALL> <SMALL>BY</SMALL>
S<SMALL>ECURED</SMALL> P<SMALL>ARTY</SMALL> <SMALL>OF</SMALL> <SMALL>ITS</SMALL> <SMALL>RIGHTS</SMALL> <SMALL>AND</SMALL> <SMALL>REMEDIES</SMALL> <SMALL>HEREUNDER</SMALL>. </B></FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">SECTION 15. <U>Continuing Security Interest; Assignment of Obligations</U>. This Agreement shall create a continuing security interest in the Collateral
and shall (a)&nbsp;remain in full force and effect </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 8 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px">
<FONT FACE="Times New Roman" SIZE="2">until payment in full of the Secured Obligations or the written termination of this Agreement by Secured Party, (b)&nbsp;be binding upon Pledgor, its
successors and assigns, (c)&nbsp;inure, together with the rights and remedies of Secured Party hereunder, to the benefit of Secured Party and its heirs, devisees, personal representatives and permitted assigns, (d)&nbsp;constitute, along with the
other documents referred to herein, the entire agreement between Pledgor and Secured Party with respect to the subject matter hereof, and (e)&nbsp;be severable in the event that one or more of the provisions herein is determined to be illegal or
unenforceable. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">SECTION 16. <U>Expenses</U>. Pledgor will, upon demand, pay to Secured Party all reasonable expenses, including the
reasonable fees and expenses of its counsel and of any experts and agents, which Secured Party may incur in connection with (a)&nbsp;the administration of this Agreement, (b)&nbsp;the custody or preservation of, or the sale of, collection from, or
other realization upon, any of the Collateral, (c)&nbsp;the exercise or enforcement of any of the rights of Secured Party hereunder, and (d)&nbsp;the failure by Pledgor to perform or to observe any of the provisions hereof. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">SECTION 17. <U>Obligations Unconditional</U>. The obligations of Pledgor under this Agreement shall be absolute and unconditional and shall not be
released, discharged, reduced, or in any way impaired by any circumstance whatsoever, including, without limitation, any amendment, modification, extension or renewal of this Agreement, the Secured Obligations, or any document or instrument
evidencing, securing or otherwise relating to the Secured Obligations, or any release, subordination, or impairment of collateral, or any waiver, consent, extension, indulgence, compromise, settlement, or other action or inaction in respect of this
Agreement, the Secured Obligations or any document or instrument evidencing, securing or otherwise relating to the Secured Obligations, or any exercise or failure to exercise any right, remedy, power or privilege in respect of the Secured
Obligations. No failure on the part of Secured Party to exercise and no delay in exercising, and no course of dealing with respect to, any right, power, or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights provided for in this Agreement are cumulative and not exclusive
of any rights and remedies provided by law. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">SECTION 18. <U>Return of Collateral</U>. Subject to any duty imposed by law or by contract to
the holder of any subordinate lien on the Collateral known to Secured Party, and subject to the direction of a court of competent jurisdiction, upon payment in full of the Secured Obligations, Pledgor shall be entitled to return of the Collateral in
the possession of Secured Party; provided, however that Secured Party shall not be obligated to return to Pledgor or deliver to the holder of any subordinate lien any such Collateral until such time, but in no event to exceed ninety days after
payment in full of the Secured Obligations, as Secured Party is reasonably satisfied that the payment of the Secured Obligations is not subject to being recaptured under applicable bankruptcy laws. The return of Collateral, however effected, shall
be without recourse to Secured Party. The return of Collateral shall be effected without representation or warranty and shall entitle Pledgor to all necessary endorsements, without recourse or warranty. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">SECTION 19. <U>Amendments, Waiver</U>. No amendment or waiver of any provision of this Agreement nor consent to any departure by Pledgor herefrom shall
in any event be effective unless the same shall be in writing and signed by Secured Party and Pledgor, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 9 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">SECTION 20. <U>Notices</U>. All notices, requests, demands, directions and other communications provided
for hereunder must be in writing and must be mailed, certified or registered mail, return receipt requested, telegraphed, telecopied, delivered or sent by cable or electronic mail to the appropriate party (and to the persons so designated to receive
copies thereof) at the addresses set forth below. Any notice, request, demand, direction or other communication required or permitted hereunder which is given by mail will be effective on the earlier of receipt or the third business day after
deposit in the United States mail with certified or registered postage prepaid; if given by telegraph or cable, when delivered to the telegraph company with charges prepaid; if given by telecopier, when received; or if given by personal delivery,
when delivered. Notices shall be addressed as follows: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="92%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="17%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="82%"></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">If to Pledgor:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Prime Offshore L.L.C.</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Attn: Beverly A.
Cummings</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">1 Landmark Square, 11</FONT><FONT FACE="Times New Roman" SIZE="1"><SUP>th</SUP></FONT><FONT FACE="Times New Roman" SIZE="2"> Floor</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Stamford, Connecticut 06901</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Facsimile: (713)&nbsp;461-9396</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:1px"><FONT FACE="Times New Roman" SIZE="2">E-mail: <U>bcummings@primeenergy.com</U></FONT></P></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">If to Secured Party:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Artic Management Corporation</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Attn: Matthias
Eckenstein</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Solothurnerstrasse 94</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">CH-4008 Basel, Switzerland
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Facsimile: 011-4161-361-7139</FONT></P> <P STYLE="margin-top:0px;margin-bottom:1px"><FONT FACE="Times New Roman" SIZE="2">E-mail: None</FONT></P></TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Addresses for notices, requests, demands, directions and other communications provided for hereunder, and/or the
persons so designated to receive copies thereof, may be redesignated by a party by a written notice sent to all of the other parties hereunder. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">SECTION 21. <U>Counterparts</U>. This Agreement may be executed by one or more of the parties hereto in any number of separate counterparts, and all of such counterparts taken together shall be deemed to constitute one and the same
instrument and shall be enforceable upon the execution of one or more counterparts hereof by each of the parties hereto. In this regard, each of the parties hereto acknowledges that a counterpart of this Agreement containing a set of counterpart
execution pages reflecting the execution of each party hereto shall be sufficient to reflect the execution of this Agreement by each necessary party hereto and shall constitute one instrument. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">SECTION 22. <U>Governing Law</U>. <B>T<SMALL>HIS</SMALL> A<SMALL>GREEMENT</SMALL> <SMALL>IS</SMALL> <SMALL>TO</SMALL> <SMALL>BE</SMALL>
<SMALL>GOVERNED</SMALL> <SMALL>BY</SMALL> <SMALL>AND</SMALL> <SMALL>CONSTRUED</SMALL> <SMALL>IN</SMALL> <SMALL>ACCORDANCE</SMALL> <SMALL>WITH</SMALL> <SMALL>THE</SMALL> <SMALL>INTERNAL</SMALL> <SMALL>LAWS</SMALL> <SMALL>OF</SMALL> <SMALL>THE</SMALL>
S<SMALL>TATE</SMALL> <SMALL>OF</SMALL> T<SMALL>EXAS</SMALL></B><SMALL></SMALL>. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">SECTION 23. <U>Reinstatement of Rights</U>. Secured
Party&#146;s rights hereunder shall be reinstated and revived, and the enforceability of this Agreement shall continue, with respect to any amount at any time paid on account of the Secured Obligations which thereafter shall be required to be
restored or returned by Secured Party upon the bankruptcy, insolvency or reorganization of Pledgor, or any other person, all as though such amount had not been paid. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 10 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first
above written. </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P><DIV ALIGN="right">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="40%" BORDER="0">

<TR>
<TD WIDTH="6%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD WIDTH="92%"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"><FONT FACE="Times New Roman" SIZE="2"><U>SECURED PARTY:</U></FONT></TD></TR>
<TR>
<TD HEIGHT="16" COLSPAN="3"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"><FONT FACE="Times New Roman" SIZE="2">ARTIC MANAGEMENT CORPORATION</FONT></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">By:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Matthias Eckenstein</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">President</FONT></TD></TR>
</TABLE></DIV> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>(Signatures continue on following page) </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 11 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">

<DIV ALIGN="right">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="40%" BORDER="0">

<TR>
<TD WIDTH="6%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD WIDTH="92%"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"><FONT FACE="Times New Roman" SIZE="2"><U>PLEDGOR:</U></FONT></TD></TR>
<TR>
<TD HEIGHT="16" COLSPAN="3"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"><FONT FACE="Times New Roman" SIZE="2">PRIME OFFSHORE L.L.C.</FONT></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">By:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Beverly A. Cummings</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Chief Executive Officer</FONT></TD></TR>
</TABLE></DIV> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 12 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>EXHIBIT &#147;A&#148; </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2"><B><U>ASSIGNMENT OF PARTNERSHIP INTEREST </U></B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">For good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Prime Offshore L.L.C., a Delaware limited liability company (&#147;<U>Assignor</U>&#148;), hereby sells, assigns, transfers and conveys to
<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> (&#147;<U>Assignee</U>&#148;), all of its right, title and interest in and to its partnership interest in FWOE Partners L.P., a Delaware limited
partnership (the &#147;<U>Partnership</U>&#148;), including, without limitation, Assignor&#146;s right to receive from the Partnership all amounts payable to Assignor from and after the date hereof in consideration of the foregoing transfer.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Assignee agrees that, subject to the immediately preceding sentence, it shall be bound by all of the terms and provisions of the
partnership agreement governing the Partnership and shall perform and observe all of the covenants, duties and obligations contained therein from and after the date of Assignee&#146;s admission as a partner in the Partnership. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">IN WITNESS WHEREOF, this Assignment of Partnership Interest is executed as of
<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>, 20<U>&nbsp;&nbsp;&nbsp;&nbsp;</U>. </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P><DIV
ALIGN="right">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="40%" BORDER="0">

<TR>
<TD WIDTH="6%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="93%"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"><FONT FACE="Times New Roman" SIZE="2"><B><U>ASSIGNOR:</U></B></FONT></TD></TR>
<TR>
<TD HEIGHT="16" COLSPAN="3"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"><FONT FACE="Times New Roman" SIZE="2"><B>PRIME OFFSHORE L.L.C.</B></FONT></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">By:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Beverly A. Cummings</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Chief Executive Officer</FONT></TD></TR>
<TR>
<TD HEIGHT="16" COLSPAN="3"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"><FONT FACE="Times New Roman" SIZE="2"><B><U>ASSIGNEE:</U></B></FONT></TD></TR>
</TABLE></DIV> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">A-i </FONT></P>

</BODY></HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>7
<FILENAME>dex311.htm
<DESCRIPTION>SECTION 302 CERTIFICATION - CEO
<TEXT>
<HTML><HEAD>
<TITLE>Section 302 Certification - CEO</TITLE>
</HEAD>
 <BODY BGCOLOR="WHITE">

 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Exhibit 31.1 CERTIFICATIONS </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">I, Charles E. Drimal, Jr., Chief Executive Officer of PrimeEnergy Corporation, certify that: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">1. I have reviewed this Form 10-Q for the quarter
ended June&nbsp;30, 2008 of PrimeEnergy Corporation; </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">4. The registrant&#146;s other
certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this report is being prepared; </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">(c) Evaluated the effectiveness of the registrant&#146;s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">(d) Disclosed in
this report any change in the registrant&#146;s internal control over financial reporting that occurred during the registrant&#146;s most recent fiscal quarter (the registrant&#146;s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant&#146;s internal control over financial reporting; and </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">5. The
registrant&#146;s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant&#146;s auditors and the audit committee of the registrant&#146;s board of
directors (or persons performing the equivalent functions): </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">(a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant&#146;s ability to record, process, summarize and report financial information; and </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant&#146;s internal control over financial reporting. </FONT></P> <P
STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="49%"></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">August&nbsp;14, 2008</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">/s/ Charles E. Drimal Jr.</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Charles E. Drimal Jr</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Chief Executive Officer</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">PrimeEnergy Corporation</FONT></TD></TR>
</TABLE>
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>8
<FILENAME>dex312.htm
<DESCRIPTION>SECTION 302 CERTIFICATION - CFO
<TEXT>
<HTML><HEAD>
<TITLE>Section 302 Certification - CFO</TITLE>
</HEAD>
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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Exhibit 31.2 CERTIFICATIONS </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">I, Beverly A. Cummings, Chief Financial Officer of PrimeEnergy Corporation, certify that: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">1. I have reviewed the Form 10-Q for the quarter ended
June&nbsp;30, 2008 of PrimeEnergy Corporation; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">4. The registrant&#146;s other
certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this report is being prepared; </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">(c) Evaluated the effectiveness of the registrant&#146;s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">(d) Disclosed in
this report any change in the registrant&#146;s internal control over financial reporting that occurred during the registrant&#146;s most recent fiscal quarter (the registrant&#146;s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant&#146;s internal control over financial reporting; and </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">5. The
registrant&#146;s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant&#146;s auditors and the audit committee of the registrant&#146;s board of
directors (or persons performing the equivalent functions): </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">(a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant&#146;s ability to record, process, summarize and report financial information; and </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant&#146;s internal control over financial reporting. </FONT></P> <P
STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR>
<TD WIDTH="50%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="49%"></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">August&nbsp;14, 2008</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">/s/ Beverly A. Cummings.</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Beverly A. Cummings</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Chief Financial Officer</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">PrimeEnergy Corporation</FONT></TD></TR>
</TABLE>
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>9
<FILENAME>dex321.htm
<DESCRIPTION>SECTION 906 CERTIFICATION - CEO
<TEXT>
<HTML><HEAD>
<TITLE>Section 906 Certification - CEO</TITLE>
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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">EXHIBIT 32.1 </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman"
SIZE="2">CERTIFICATION PURSUANT TO </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">18 U.S.C. SECTION 1350, </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">AS ADOPTED PURSUANT TO </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In connection with the Quarterly Report of PrimeEnergy Corporation (the &#147;Company&#148;) on Form 10-Q for the period ending June&nbsp;30, 2008, as filed with the
Securities and Exchange Commission on the date hereof (the &#147;Report&#148;), I, Charles E. Drimal Jr., Chief Executive Officer of PrimeEnergy Corporation, certify, pursuant to 18 U.S.C. Section&nbsp;1350, as adopted pursuant to Section&nbsp;906
of the Sarbanes-Oxley Act of 2002, that: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of
1934; and </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the
Company. </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD WIDTH="100%"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">/s/ Charles E. Drimal Jr.</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Chief Executive Officer</FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">August&nbsp;14, 2008</FONT></TD></TR>
</TABLE>
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.2
<SEQUENCE>10
<FILENAME>dex322.htm
<DESCRIPTION>SECTION 906 CERTIFICATION - CFO
<TEXT>
<HTML><HEAD>
<TITLE>Section 906 Certification - CFO</TITLE>
</HEAD>
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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">EXHIBIT 32.2 </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman"
SIZE="2">CERTIFICATION PURSUANT TO </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">18 U.S.C. SECTION 1350, </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">AS ADOPTED PURSUANT TO </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In connection with the Quarterly Report of PrimeEnergy Corporation (the &#147;Company&#148;) on Form 10-Q for the period ending June&nbsp;30, 2008, as filed with the
Securities and Exchange Commission on the date hereof (the &#147;Report&#148;), I, Beverly A. Cummings, Chief Financial Officer of PrimeEnergy Corporation, certify, pursuant to 18 U.S.C. Section&nbsp;1350, as adopted pursuant to Section&nbsp;906 of
the Sarbanes-Oxley Act of 2002, that: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the
Corporation. </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">/s/ Beverly A. Cummings</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Chief Financial Officer</FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">August&nbsp;14, 2008</FONT></TD></TR>
</TABLE>
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</SEC-DOCUMENT>
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