<DOCUMENT>
<TYPE>EX-99.2
<SEQUENCE>4
<FILENAME>v01773exv99w2.txt
<DESCRIPTION>EXHIBIT 99.2
<TEXT>
<PAGE>
                                                                    EXHIBIT 99.2


                            SECURED PROMISSORY NOTE


$475,000                                                         August 10, 2004
                                                                 Houston, TX

        For value received, Natural Gas Systems, Inc., a Nevada corporation (the
"Company"), promises to pay to Laird Q. Cagan (the "Holder"), the principal sum
of Four Hundred Seventy Five Thousand Dollars ($475,000), pursuant to the terms
of this secured promissory note agreement ("Note"). Interest shall accrue from
the date of this Note on the unpaid principal amount at a rate equal to Ten
Percent (10%) per annum, compounded annually. This Note is subject to the
following terms and conditions:

        1. Maturity. This Note will automatically mature and be due and payable
on February 10, 2005 (the "Maturity Date"). Interest shall accrue on this Note
but shall not be due and payable until the Maturity Date. Notwithstanding the
foregoing, the entire unpaid principal sum of this Note, together with accrued
and unpaid interest thereon, shall become immediately due and payable upon: (i)
the Company's failure to make any Mandatory Prepayment Amount under Section 2(b)
hereof; (ii) the commission of any act of bankruptcy by the Company; (iii) the
execution by the Company of a general assignment for the benefit of creditors;
(iv) the filing by or against the Company of a petition in bankruptcy or any
petition for relief under the federal bankruptcy act or the continuation of such
petition without dismissal for a period of 90 days or more; or (v) the
appointment of a receiver or trustee to take possession of the property or
assets of the Company.

        2. Prepayment of Note. The Note provides for both optional and mandatory
prepayment on the following terms and conditions:

               (a) Optional Prepayment. The Company may at it option, at any
time, prepay this Note, in whole or in part, without premium or penalty. All
payments shall be made in lawful money of the United States of America at such
place as the Holder hereof may from time to time designate in writing to the
Company. Payment shall be credited first to the accrued interest then due and
payable and the remainder applied to principal.

               (b) Mandatory Prepayment. The parties agree that until the
principal under this Note and all accrued but unpaid interest has been repaid to
Holder in full, the Company shall prepay the Holder an amount equal to: (i) One
Hundred Percent (100%) of all net revenues of any kind derived from the Tullos
oil field less the sum of direct Tullos operating expenses and capital
expenditures; and (ii) Fifty Percent (50%) of the net proceeds of any unrelated
third party financings of any kind conducted by the Company, whether through the
issuance of debt or equity after the date of this Note (collectively (i) and
(ii) shall be referred hereinafter as the "Mandatory Prepayment Amount"). The
Mandatory Prepayment Amount shall be payable by the Company to the Holder or his
assignees as a mandatory prepayment of principal of the Note immediately upon
receipt of such Mandatory Prepayment Amount by the Company. Notwithstanding the
foregoing, no mandatory prepayment of the Notes shall be required in respect of
(A) any short-term (less than six months) debt, or (B) any compensation-related
equity issuance.



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        3. Transfers and Assigns. Neither party to this Note may transfer or
assign any of his rights or delegate any of its duties under this Note without
the prior written consent of the other party to this Note, except that Holder
may transfer this Note to his successors or assigns or without consent of the
Company. Despite such consent, no transfer or assignment shall release the
assignor of any of its obligations or alter any of its primary obligations to be
performed under this Note.

        4. Governing Law. Any controversy or claim arising out of or relating to
this Note or a breach hereof shall be finally settled by arbitration in Santa
Clara County, California, under the commercial rules then in effect of the
American Arbitration Association, and shall be determined in accordance with the
laws of the State of California applicable to contracts to be wholly performed
therein, without regard to principles of conflict of laws.

        5. Notices. Any notice required or permitted by this Note shall be in
writing and shall be deemed sufficient upon receipt, when delivered personally
or by courier, overnight delivery service or confirmed facsimile, or 48 hours
after being deposited in the U.S. mail as certified or registered mail with
postage prepaid, if such notice is addressed to the party to be notified at such
party's address or facsimile number as set forth below or as subsequently
modified by written notice.

        6. Amendments and Waivers. Any term of this Note may be amended only
with the written consent of the Company and the Holder. Any amendment or waiver
effected in accordance with this Section 6 shall be binding upon the Company,
the Holder and each transferee of any Note.

        7. Stockholders, Officers and Directors Not Liable. In no event shall
any stockholder, officer or director of the Company be liable for any amounts
due or payable pursuant to this Note.

        8. Security Interest. The Company grants the Holder a continuing
security interest in all presently existing Collateral (defined below) to secure
payment and performance of the obligations of the Company to the Holder under
this Note. Any security interest will be a first priority security interest in
the Collateral, except as it relates to any pre-existing security interest in
the Collateral, in which case it shall be a second priority security interest.
Notwithstanding the foregoing, the security interest granted herein does not
extend to and the term "Collateral" does not include any license or contract
rights to the extent the granting of a security interest in it would be contrary
to applicable law. The Holder's lien and security interest in the Collateral
will continue until the Company fully satisfies its obligations under this Note.
At the request of the Holder, the Company agrees and covenants to procure,
execute and deliver from time to time any endorsements, assignments, financial
statements and other writings deemed necessary or appropriate by the Holder to
perfect, maintain and protect its security interest and the priority thereof.
The "Collateral" shall consist of all of the Company's right, title and interest
in and to all assets, wherever located, including the assets of any the
Company's wholly-owned subsidiaries. Upon the Company's repayment of the
outstanding principal balance of this Note and all interest accrued thereon, the
Holder agrees


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and covenants that it will execute and deliver any agreement, financing
statement termination or other writings necessary to release the security
interest granted pursuant to this Section 8.

        9. Counterparts. This Note may be executed in any number of
counterparts, each of which will be deemed to be an original and all of which
together will constitute a single agreement.

        10. Action to Collect on Note. If action or arbitration is instituted to
collect on this Note, the Company promises to pay all costs and expenses,
including reasonable attorney's fees, incurred in connection with such action.

        11. Loss of Note. Upon receipt by the Company of evidence satisfactory
to it of the loss, theft, destruction or mutilation of this Note or any Note
exchanged for it, and indemnity satisfactory to the Company (in case of loss,
theft or destruction) or surrender and cancellation of such Note (in the case of
mutilation), the Company will make and deliver in lieu of such Note a new Note
of like tenor.

        12. Holder's Representations. Holder acknowledges that Holder has had
full access to information about the Company, and that Holder has such knowledge
and experience in financial and business matters that Holder is capable of
evaluating the merits and risks of this transaction. Holder also represents to
the Company that Holder is purchasing the Note for his own account for
investment and with no present intention of distributing the Note.

        13. Use of Note Proceeds. The Company represents and warrants to Holder
that the use of the proceeds of funds made hereunder shall be to acquire the
Tullos oil field.

        14. Severability. 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, but this Note shall be construed
as if such invalid, illegal or unenforceable provision had never been contained
herein or therein.

        15. Confidentiality. Holder agrees that he will use his best efforts to
keep confidential and not disclose any non-public information received in
connection with the Note from the Company or any of its affiliates or
principals, except that Holder may disclose such information (i) with the
written consent of Company, (ii) to Holder's affiliates and legal counsel for
Holder and his affiliates, (iii) to auditors, accounting firms or accountants of
Holder and his affiliates as may be required in connection with any audit or
other review of the books and records of any such entity, and (iv) to any
parties as may be required by law, government regulation or order (including
without limitation, any regulation or order of an insurance regulatory agency or
body), by subpoena or by any other legal, administrative or legislative process.
Holder also acknowledges and agrees that Holder is prohibited from any buying or
selling of the Company's securities on the basis of this material non-public
information until after the information either becomes publicly available by the
Company (such as in an Amended Report on Form 8-K or in the Company's 10-KSB) or
ceases to be material, and in no event for at least thirty (30) days from the
date hereof.



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        IN WITNESS WHEREOF, the parties have executed this Note as of the date
above written,



                                    NATURAL GAS SYSTEMS, INC.


                                    By:
                                       -----------------------------------------
                                    Robert S. Herlin, CEO and President
                                    Natural Gas Systems, Inc.
                                    Two Memorial City Plaza
                                    820 Gessner, Suite 1340
                                    Houston, TX 77024
                                    Fax: 713-935-0199



AGREED TO AND ACCEPTED this 10th day of August, 2004.

LAIRD Q. CAGAN


---------------------------

10600 N. De Anza Blvd., Suite 250
Cupertino, CA 95014
Fax: 408-904-6085



          [SIGNATURE PAGE TO CAGAN NATURAL GAS SYSTEMS NOTE AGREEMENT]



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