10-Q

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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


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


                                    FORM 10-Q


       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 2003

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


                        Commission file number: 001-31539


                         ST. MARY LAND & EXPLORATION
                      COMPANY (Exact name of registrant as
                            specified in its charter)


            Delaware                                      41-0518430
  (State or other jurisdiction              (I.R.S. Employer Identification No.)
of incorporation or organization)

             1776 Lincoln Street, Suite 700, Denver, Colorado 80203
               (Address of principal executive offices) (Zip Code)

                                 (303) 861-8140
              (Registrant's telephone number, including area code)


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

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ |X| ] No [ ]

Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date.


As of August 8, 2003, the registrant had 31,525,297 shares of common stock, $.01
par value, outstanding.

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                     ST. MARY LAND & EXPLORATION COMPANY
                     ---------------------------------------

                                      INDEX
                                      -----

Part I.    FINANCIAL INFORMATION                                            PAGE
                                                                            ----

           Item 1.   Financial Statements (Unaudited)

                     Consolidated Balance
                     Sheets - June 30, 2003 and
                     December 31, 2002 ........................................3

                     Consolidated Statements of
                     Operations - Three and Six Months Ended
                     June 30, 2003 and 2002 ...................................4

                     Consolidated Statements of
                     Cash Flows - Six Months Ended
                     June 30, 2003 and 2002 ...................................5

                     Consolidated Statements of
                     Stockholders' Equity and
                     Comprehensive Income - June 30,
                     2003 and December 31, 2002 ...............................7

                     Notes to Consolidated Financial
                     Statements - June 30, 2003 ...............................8

           Item 2.   Management's Discussion and Analysis
                     of Financial Condition and Results
                     of Operations ...........................................15

           Item 3.   Quantitative and Qualitative Disclosures
                     About Market Risk .......................................29

           Item 4.   Controls and Procedures .................................30

Part II.   OTHER INFORMATION

           Item 1.   Legal Proceedings .......................................30

           Item 4.   Submission of Matters to a Vote of Security Holders .....31

           Item 6.   Exhibits and Reports on Form 8-K ........................31



PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

            ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS (UNAUDITED)
                      (In thousands, except share amounts)

                                                                         June 30,     December 31,
                                                                       ------------   ------------
                                              ASSETS                        2003          2002
                                                                       ------------   ------------
Current assets:
   Cash and cash equivalents                                             $   10,846     $   11,154
   Short term investments                                                     2,281          1,933
   Accounts receivable                                                       57,952         35,399
   Prepaid expenses and other                                                 6,684          6,510
   Accrued derivative asset                                                     288            -
   Refundable income taxes                                                      -            1,031
   Deferred income taxes                                                      8,204          3,520
                                                                       ------------   ------------
       Total current assets                                                  86,255         59,547
                                                                       ------------   ------------

Property and equipment (successful efforts method), at cost:
   Proved oil and gas properties                                            806,587        683,752
   Less accumulated depletion, depreciation and amortization               (283,828)      (263,436)
   Unproved oil and gas properties, net of impairment
     allowance of $9,838 in 2003 and $8,865 in 2002                          65,350         47,984
   Other property and equipment, net of accumulated depreciation
     of $4,026 in 2003 and $3,586 in 2002                                     4,263          3,639
                                                                       ------------   ------------
       Total property and equipment                                         592,372        471,939
                                                                       ------------   ------------


                                                                       ------------   ------------
Other noncurrent assets                                                       6,577          5,653
                                                                       ------------   ------------


                                                                       ------------   ------------
Total Assets                                                             $  685,204     $  537,139
                                                                       ============   ============

                                LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable and accrued expenses                                 $   63,050     $   48,790
   Accrued hedge liability                                                   21,239          8,707
                                                                       ------------   ------------
       Total current liabilities                                             84,289         57,497
                                                                       ------------   ------------

Noncurrent liabilities:
   Long-term credit facility                                                 44,000         14,000
   Convertible notes                                                         99,649         99,601
   Deferred income taxes                                                     71,538         60,156
   Asset retirement obligation liability                                     24,603            -
   Other noncurrent liabilities                                              12,375          5,727
                                                                       ------------   ------------
       Total noncurrent liabilities                                         252,165        179,484
                                                                       ------------   ------------

Commitments and contingencies

                                                                       ------------   ------------
Minority interest                                                               562            645
                                                                       ------------   ------------

Temporary equity (Note 8):
   Common stock subject to put and call options, $0.01 par value
        issued and outstanding - 3,380,818 shares in 2003 and -0-
        shares in 2002                                                       71,594            -
   Note receivable from Flying J                                            (71,594)           -
                                                                       ------------   ------------
       Total Temporary Equity                                                   -              -
                                                                       ------------   ------------

Stockholders' equity:
   Common stock, $0.01 par value: authorized - 100,000,000 shares;
        issued - 29,147,179 shares in 2003 and 28,983,110
        shares in 2002; outstanding, net of treasury shares -
        28,144,479 shares in 2003 and 27,973,210 shares in 2002                 291            290
   Additional paid-in capital                                               143,662        140,688
   Treasury stock - at cost:  1,002,700 shares in 2003 and 1,009,900
                 shares in 2002                                             (16,057)       (16,210)
   Retained earnings                                                        238,053        182,512
   Accumulated other comprehensive income (loss)                            (17,761)        (7,767)
                                                                       ------------   ------------
       Total stockholders' equity                                           348,188        299,513
                                                                       ------------   ------------

                                                                       ------------   ------------
Total Liabilities, Temporary Equity and Stockholders' Equity             $  685,204     $  537,139
                                                                       ============   ============

                   The accompanying notes are an integral part
                   of these consolidated financial statements.
                                       -3-



            ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
                    (In thousands, except per share amounts)

                                                                   For the Three Months Ended     For the Six Months Ended
                                                                            June 30,                       June 30,
                                                                   ---------------------------   ---------------------------
                                                                       2003            2002           2003           2002
                                                                   ------------   ------------   ------------   ------------
Operating revenues:
   Oil and gas production                                            $   96,134     $   46,197     $  191,822     $   87,290
   Gain on sale of proved properties                                         86            449            122            413
   Marketed gas system revenue                                            3,333          2,939          7,108          3,444
   Other oil and gas revenue                                                595            397          2,040            747
   Derivative gain                                                          -            2,327             33          1,975
   Other revenues                                                         3,638             46          3,783            907
                                                                   ------------   ------------   ------------   ------------
       Total operating revenues                                         103,786         52,355        204,908         94,776
                                                                   ------------   ------------   ------------   ------------

Operating expenses:
   Oil and gas production                                                23,260         11,531         44,390         25,561
   Depletion, depreciation and amortization                              21,601         13,279         40,486         26,333
   Exploration                                                            6,635          4,297         10,785         11,213
   Abandonment and impairment of unproved properties                        784            622          1,703          1,319
   General and administrative                                             6,018          3,015         12,164          6,156
   Derivative loss                                                           82            -              -              -
   Marketed gas system operating expense                                  3,098          2,662          6,457          3,086
   Minority interest and other                                              299            243            495            620
                                                                   ------------   ------------   ------------   ------------
       Total operating expenses                                          61,777         35,649        116,480         74,288
                                                                   ------------   ------------   ------------   ------------

Income from operations                                                   42,009         16,706         88,428         20,488

Nonoperating income (expense):
   Interest income                                                          344            170            574            280
   Interest expense                                                      (2,367)        (1,018)        (4,583)        (1,470)
                                                                   ------------   ------------   ------------   ------------

Income before income taxes and cumulative effect of change
       in accounting principle                                           39,986         15,858         84,419         19,298
Income tax expense                                                       15,669          5,269         32,740          6,391
                                                                   ------------   ------------   ------------   ------------

Income before cumulative effect of change in accounting principle        24,317         10,589         51,679         12,907
   Cumulative effect of change in accounting principle, net                 -              -            5,435            -
                                                                   ------------   ------------   ------------   ------------
Net income                                                           $   24,317     $   10,589     $   57,114     $   12,907
                                                                   ============   ============   ============   ============

Basic earnings per common share:
   Income before cumulative effect of change in accounting principle $     0.77     $     0.38     $     1.67     $     0.46
   Cumulative effect of change in accounting principle                      -              -             0.18            -
                                                                   ------------   ------------   ------------   ------------
Basic net income per common share                                    $     0.77     $     0.38     $     1.85     $     0.46
                                                                   ============   ============   ============   ============

Diluted earnings per common share:
   Income before cumulative effect of change in accounting principle $     0.71     $     0.37     $     1.52     $     0.46
   Cumulative effect of change in accounting principle                      -              -             0.15            -
                                                                   ------------   ------------   ------------   ------------
Diluted net income per common share                                  $     0.71     $     0.37     $     1.67     $     0.46
                                                                   ============   ============   ============   ============

Basic weighted average common shares outstanding                         31,482         27,825         30,921         27,805
                                                                   ============   ============   ============   ============
Diluted weighted average common shares outstanding                       35,798         28,428         35,222         28,347
                                                                   ============   ============   ============   ============

Cash dividends declared per common share                             $     0.05     $     0.05     $     0.05     $     0.05
                                                                   ============   ============   ============   ============


                   The accompanying notes are an integral part
                   of these consolidated financial statements.
                                       -4-


            ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                                 (In thousands)


                                                                        For the Six Months Ended
                                                                                June 30,
                                                                       ---------------------------
Reconciliation of net income to net cash provided                          2003            2002
      by operating activities:                                         ------------   ------------

   Net income                                                            $   57,114     $   12,907
   Adjustments to reconcile net income to net
          cash provided by operating activities:
     Gain on sale of proved properties                                         (122)          (413)
     Depletion, depreciation and amortization                                40,486         26,333
     Exploratory dry hole expense                                             1,142          6,133
     Abandonment and impairment of unproved properties                        1,703          1,319
     Unrealized derivative gain                                                 (33)        (1,975)
     Deferred income taxes                                                   10,886          4,989
     Minority interest and other                                                879           (548)
     Cumulative effect of change in accounting principle, net of tax         (5,435)           -
                                                                       ------------   ------------
                                                                            106,620         48,745
   Changes in current assets and liabilities:
     Accounts receivable                                                    (22,553)        12,490
     Prepaid expenses and other                                                (174)         8,436
     Refundable income taxes                                                  1,031            -
     Accounts payable and accrued expenses                                    5,840          6,399
                                                                       ------------   ------------
   Net cash provided by operating activities                                 90,764         76,070
                                                                       ------------   ------------

   Cash flows from investing activities:
     Proceeds from sale of oil and gas properties                             2,635            122
     Capital expenditures                                                   (45,600)       (42,577)
     Acquisition of oil and gas properties, including $71,594 note
         receivable issued to Flying J                                      (77,677)       (13,643)
     Proceeds from distribution and sale of KMOC stock                          -            3,114
     Deposits to short term investments available-for-sale                   (1,029)           -
     Proceeds from short term investments available-for-sale                    950         (9,370)
     Other                                                                      102         (2,122)
                                                                       ------------   ------------
   Net cash used in investing activities                                   (120,619)       (64,476)
                                                                       ------------   ------------

   Cash flows from financing activities:
     Proceeds from credit facility                                          108,811         16,000
     Repayment of credit facility                                           (79,820)       (80,000)
     Proceeds (costs) from issuance of convertible notes                        (73)        96,754
     Proceeds from sale of common stock                                       2,202            783
     Dividends paid                                                          (1,573)        (1,391)
                                                                       ------------   ------------
   Net cash provided by financing activities                                 29,547         32,146
                                                                       ------------   ------------

   Net change in cash and cash equivalents                                     (308)        43,740
   Cash and cash equivalents at beginning of period                          11,154          4,116
                                                                       ------------   ------------

   Cash and cash equivalents at end of period                            $   10,846     $   47,856
                                                                       ============   ============

                   The accompanying notes are an integral part
                   of these consolidated financial statements.
                                       -5-



            ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                                   (Continued)



      Supplemental schedule of additional cash flow information and noncash
investing and financing activities:

                                                                        For the Six Months Ended
                                                                                 June 30,
                                                                       ---------------------------
                                                                           2003           2002
                                                                       ------------   ------------
                                                                              In thousands)

      Cash paid for interest, including amounts capitalized              $    4,851     $      478

      Cash paid (received) for income taxes                                  16,275         (8,699)



      In January 2003 the Company issued 7,200 shares of common stock from
      treasury to its non-employee directors and recorded compensation expense
      of $153,000.

      In January 2003 the Company issued 3,380,818 shares of restricted common
      stock valued at $71,594,000 to Flying J Oil & Gas Inc. and Big West Oil &
      Gas Inc. in exchange for oil and gas properties and related assets and
      liabilities. The acquisition was accounted for as a purchase.

      In June 2002 the Company issued 800 shares of common stock to a
      non-employee director and recorded compensation expense of $14,763.

      In April 2002 the Company accepted 9,472,562 shares of common stock in
      Constellation Copper Corporation ("Constellation", formerly known as Summo
      Minerals Corporation) in lieu of cash payment for the relief of a
      $1,400,000 loan and $15,311 in interest due to the Company.

      In January 2002 the Company issued 7,200 shares of common stock to its
      non-employee directors and recorded compensation expense of $129,683.


                   The accompanying notes are an integral part
                   of these consolidated financial statements.
                                       -6-


            ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
                      (In thousands, except share amounts)


                                                                                                     Accumulated
                                         Common Stock    Additional               Treasury Stock        Other         Total
                                      ------------------   Paid-in   Retained  -------------------- Comprehensive Stockholders'
                                        Shares    Amount   Capital   Earnings    Shares     Amount  Income (Loss)    Equity
                                      ---------- ------- ---------- ---------- ---------- --------- ------------- -------------


                                      ---------- ------- ---------- ---------- ---------- --------- ------------- -------------
Balances, December 31, 2001           28,779,808  $  288  $ 137,384  $ 157,739 (1,009,900) $(16,210) $      6,916  $    286,117
                                      ---------- ------- ---------- ---------- ---------- --------- ------------- -------------

Comprehensive income:
  Net Income                                 -       -          -       27,560        -         -             -          27,560
  Unrealized net loss on marketable
     equity securities available
     for sale                                -       -          -          -          -         -            (725)         (725)
  Change in derivative instrument
     fair value                              -       -          -          -          -         -         (14,644)      (14,644)
  Reclass to earnings                        -       -          -          -          -         -           1,447         1,447
  Minimum pension liability adjustment       -       -          -          -          -         -            (761)         (761)
                                                                                                                  -------------                                                                                                                       -------------
Total comprehensive income                                                                                               12,877
                                                                                                                  -------------
Cash dividends, $ 0.10 per share             -       -          -       (2,787)       -         -             -          (2,787)
Issuance for Employee Stock Purchase
     Plan                                 18,217     -          344        -          -         -             -             344
ESPP disqualified distribution               -       -           21        -          -         -             -              21
Sale of common stock, including income
     tax  benefit of stock option
     exercises                           177,085       2      2,743        -          -         -             -           2,745
Accelerated vesing of retiring
     director options                        -       -           52        -          -         -             -              52
Directors' stock compensation              8,000     -          144        -          -         -             -             144
                                      ---------- ------- ---------- ---------- ---------- --------- ------------- -------------

Balances, December 31, 2002           28,983,110  $  290  $ 140,688  $ 182,512 (1,009,900) $(16,210) $     (7,767) $    299,513
                                      ---------- ------- ---------- ---------- ---------- --------- ------------- -------------

Comprehensive income:
  Net Income                                -        -          -       57,114        -         -             -          57,114
  Unrealized net loss on marketable
     equity securities available
     for sale                               -        -          -          -          -         -             303           303
Change in derivative instrument
     fair value                             -        -          -          -          -         -         (25,351)      (25,351)
Reclass to earnings                         -        -          -          -          -         -          15,054        15,054
                                                                                                                  -------------
Total comprehensive income                                                                                               47,120
                                                                                                                  -------------
Cash dividends, $ 0.05 per share            -        -          -       (1,573)       -         -             -          (1,573)
Issuance for Employee Stock Purchase
     Plan                                 10,018     -          213        -          -         -             -             213
Sale of common stock, including income
     tax benefit of stock option
     exercises                           154,051       1      2,761        -          -         -             -           2,762
Directors' stock compensation               -        -          -          -        7,200       153           -             153
                                      ---------- ------- ---------- ---------- ---------- --------- ------------- -------------

Balances, June 30, 2003               29,147,179  $  291  $ 143,662  $ 238,053 (1,002,700) $(16,057) $    (17,761) $    348,188
                                      ========== ======= ========== ========== ========== ========= ============= =============

                   The accompanying notes are an integral part
                   of these consolidated financial statements.
                                       -7-


            ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                         -------------------------------

                                  June 30, 2003

Note 1 - Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements of
St. Mary Land & Exploration Company and Subsidiaries ("St. Mary" or the
"Company") have been prepared in accordance with accounting principles generally
accepted in the United States for interim financial information. They do not
include all information and notes required by generally accepted accounting
principles for complete financial statements. However, except as disclosed
herein, there has been no material change in the information disclosed in the
notes to consolidated financial statements included in St. Mary's Annual Report
on Form 10-K for the year ended December 31, 2002. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the periods
presented are not necessarily indicative of the results that may be expected for
the full year.

     The accounting policies followed by the Company are set forth in Note 1 to
the Company's consolidated financial statements in the Form 10-K for the year
ended December 31, 2002. It is suggested that these unaudited condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes included in the Form 10-K.

Note 2 - Earnings Per Share

     Basic net income per common share of stock is calculated by dividing net
income by the weighted average of common shares outstanding during each period.
During the first quarter of 2003, the Company issued 3,380,818 shares of common
stock as part of an acquisition (see Note 8). These shares are considered
outstanding for purposes of calculating basic and diluted net income per common
share and are weighted accordingly in the calculation of common shares
outstanding. Additionally, these shares are included in the temporary equity
section of the accompanying consolidated balance sheets. Following is a
reconciliation of total shares outstanding as of June 30, 2003.

   Common shares outstanding in Stockholders' equity             28,144,479
   Common shares outstanding in Temporary equity                  3,380,818
                                                             --------------
   Total common shares outstanding                               31,525,297
                                                             ==============

     Diluted net income per common share of stock is calculated by dividing
adjusted net income by the weighted average of common shares outstanding and
other dilutive securities. Adjusted net income is used for the if-converted
method discussed below and is derived by subtracting interest expense paid on
the Company's 5.75% Senior Convertible Notes due 2022 (the "Convertible Notes")
from net income and then adjusting for nondiscretionary items including the
related income tax effect. Potentially dilutive securities of the Company
consist of in-the-money outstanding options to purchase the Company's common
stock, shares into which the Convertible Notes that were issued in 2002 may be
converted, and incremental shares that would be issued under the
reverse-treasury method assumptions if the put option described in Note 8 is
exercised.

     The treasury stock method is used to measure the dilutive impact of stock
options. The following table details the weighted-average dilutive and
anti-dilutive securities related to stock options for the periods presented.

                                      -8-


                           Three Months Ended            Six Months Ended
                                June 30,                      June 30,
                      ---------------------------   ---------------------------
                          2003            2002          2003           2002
                      ------------   ------------   ------------   ------------

Dilutive                469,911         439,904        454,483        403,839
Anti-dilutive           615,190         628,416        614,181        684,016

     Shares associated with the conversion feature of the Convertible Notes are
accounted for using the if-converted method. Under the if-converted method,
income used to calculate diluted earnings per share is adjusted for the interest
charges and nondiscretionary adjustments based on income that would have changed
had the Convertible Notes been converted at the beginning of the period.
Potentially dilutive shares of 3,846,153 related to the Convertible Notes were
included in the calculation of diluted net income per share for the three and
six months ended June 30, 2003. The Convertible Notes were issued in March 2002.
Shares related to the put option that was granted on January 29, 2003, are
accounted for using the reverse-treasury method. There is no dilutive effect for
the put option in the current quarter or year to date as the average market
value of the Company's stock exceeded the strike price of the put option.


Note 3 - Compensation Plans

     The Company accounts for stock-based compensation using the intrinsic value
recognition and measurement principles prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25") and
related interpretations. No stock-based employee compensation expense is
reflected in net income as all options granted under those plans had an exercise
price equal to the market value of the underlying common stock on the date of
grant. The following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions of
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," to stock-based employee compensation (in thousands,
except per share amounts).

                                    For the Three Months     For the Six Months
                                        Ended June 30,          Ended June 30,
                                   ---------------------   ---------------------
                                      2003       2002         2003       2002
                                   ---------- ----------   ---------- ----------
      Net income
              As reported           $  24,317  $  10,589    $  57,114  $  12,907
              Pro forma                22,046      8,844       54,543     10,723
      Basic earnings per share
              As reported           $    0.77  $    0.38    $    1.85  $    0.46
              Pro forma                  0.70       0.32         1.76       0.39
      Diluted earnings per share
              As reported           $    0.71  $    0.37    $    1.67  $    0.46
              Pro forma                  0.64       0.31         1.60       0.38

     For purposes of pro forma disclosures, the estimated fair values of the
options are amortized to expense over the options' vesting periods. The effects
of applying SFAS No. 123 in the pro forma disclosure are not necessarily
indicative of actual future amounts. Additional awards in future years are
anticipated.

     The fair value of options is measured at the date of grant using the
Black-Scholes option-pricing model. The fair values of options granted in 2003
and 2002 were estimated using the following weighted-average assumptions.

                                      -9-


                                   For the Three Months     For the Six Months
                                       Ended June 30,           Ended June 30,
                                   ---------------------   ---------------------
                                      2003       2002         2003        2002
                                   ---------- ----------   ---------- ----------

      Risk free interest rate           3.37%      4.29%        3.05%      4.33%
      Dividend yield                    0.38%      0.42%        0.39%      0.44%
      Volatility factor of the
          expected market price of
          the Company's common
          stock                        49.50%     45.35%       48.41%     46.73%
      Expected life of the options
         (in years)                       7.7        6.8          6.3        6.4

Note 4 - Income Taxes

     Income tax expense for the three and six months ended June 30, 2003 and
2002 differ from the amounts that would be provided by applying the statutory
U.S. Federal income tax rate to income before income taxes primarily due to the
effect of state income taxes, percentage depletion, Internal Revenue Code
Section 29 credits, valuation allowance adjustments against prior year credits,
and changes in the composition of income tax rates. For the three and six months
ended June 30, 2003, the Company's current portion of income tax expense was
$10,536,000 and $21,854,000, respectively, compared to $197,000 and $1,402,000
for the same respective periods in 2002.

Note 5 - Long-term Debt

     In January 2003 the Company entered into a new long-term revolving credit
agreement with a group of banks that replaced the prior credit agreement dated
June 30, 1998. The new credit agreement specifies a maximum loan amount of
$300,000,000 and has a maturity date of January 27, 2006. Borrowings under the
facility are secured by a pledge of collateral against certain oil and gas
properties in favor of the lenders and by common stock of material subsidiaries
of the Company. The borrowing base is currently $275,000,000 and is subject to
periodic re-determination by the lenders based on the value of St. Mary's oil
and gas properties and other assets, as determined by the bank syndicate. We
have elected an aggregate commitment amount of $150,000,000 as of June 30, 2003.
The Company must comply with certain financial and non-financial covenants.
Interest and commitment fees are accrued based on the borrowing base utilization
percentage table below. Eurodollar loans accrue interest at LIBOR plus the
applicable margin from the utilization table, and Alternative Base Rate (ABR)
loans accrue interest at Prime plus the applicable margin from the utilization
table.

       Borrowing base
        utilization percentage  <50% =>50%<75% =>75%<90%  >90%
     ---------------------------------------------------------------------------
     Eurodollar Loans             1.25%        1.50%       1.75%        2.00%
     ABR Loans                    0.00%        0.25%       0.50%        0.75%
     Commitment Fee Rate          0.30%        0.38%       0.38%        0.50%

     At June 30, 2003, the Company's borrowing base utilization percentage as
defined under the credit agreement was 29%. The Company had $44,000,000 in
Eurodollar loans and no ABR loans outstanding under its revolving credit
agreement as of June 30, 2003.

     As of June 30, 2003, the Company also had $100,000,000 in outstanding
borrowings under the Convertible Notes due 2022. The Convertible Notes carry a

                                      -10-


contingent interest provision of 0.5% based on the note price in effect over a
period of time. Accordingly, interest was accrued at a rate of 6.25% for the
quarter and six-month periods ended June 30, 2003.

     The weighted average interest rates paid for the second quarter of 2003 and
for the six months ended June 30, 2003 were 6.2% and 5.9%, respectively,
including commitment fees paid on the unused portion of the credit facility
borrowing base, amortization of deferred financing costs, and amortization of
the contingent interest embedded derivative.

Note 6 - Derivative Financial Instruments

     The Company realized a net loss of $15,069,000 from its derivative
contracts for the six months ended June 30, 2003, and a net gain of $5,460,000
for the six months ended June 30, 2002. Comparative amounts for the three months
ended June 30, 2003 and 2002 were a net loss of $4,522,000 and a net gain of
$1,981,000, respectively.

     The Convertible Notes contain a provision for payment of contingent
interest if certain conditions are met. Under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," this provision is considered an
embedded equity-related derivative that is not clearly and closely related to
the fair value of an equity interest and therefore must be separately treated as
a derivative instrument. The value of the derivative at issuance of the
Convertible Notes in March 2002 was $474,000. This amount was recorded as a
decrease to the Convertible Notes payable in the consolidated balance sheets. Of
this amount, $48,000 and $28,000 was amortized through interest expense for the
six-month periods ended June 30, 2003 and 2002, respectively. Interest expense
for each of the three-month periods ended June 30, 2003 and 2002 includes
$24,000 of amortization. Derivative gain in the consolidated statements of
operations for the six-month periods ended June 30, 2003 and 2002 includes net
losses of $14,000 and $322,000, respectively, from mark-to-market adjustments
for this derivative. Derivative loss for the three months ended June 30, 2003,
contains $141,000 of net loss from mark-to-market adjustments and derivative
gain for the three months ended June 30, 2002 contains $202,000 of net loss.

     The Company's previous fixed-rate to floating-rate interest rate swap on
$50,000,000 of the Convertible Notes did not qualify for cash flow or fair value
hedge accounting treatment under SFAS No. 133. This contract was entered into on
March 25, 2002, and was closed out on December 3, 2002. Derivative gain in the
consolidated statement of operations for the period ended June 30, 2002,
includes $2,244,000 of net unrealized mark-to-market gain from the interest rate
swap contract.

     The Company has in place derivative contracts for the sale of oil and
natural gas. These contracts include traditional swap and collar arrangements.
The Company attempts to qualify the majority of these instruments as cash flow
hedges for accounting purposes.

                                      -11-


     The following table summarizes all derivative instrument activity (in
thousands).

                                                   For the Three Months Ended    For the Six Months Ended
                                                             June 30,                    June 30,
                                                   --------------------------   --------------------------
                                                       2003          2002           2003          2002
                                                   ------------  ------------   ------------  ------------
                                                           Gain (Loss)                  Gain (Loss)
Derivative contract settlements included in
   oil and gas production revenues                      $(4,416)      $  (322)      $(15,054)       $3,513
Ineffective portion of hedges qualifying for
   hedge accounting included in derivative loss              60           133             47            54
Non-qualified derivative contracts included
    in derivative gain (loss)                              (142)        2,194            (14)        1,921
Amortization of contingent interest derivative
    through interest expense                                (24)          (24)           (48)          (28)
                                                   ------------  ------------   ------------  ------------

              Total                                     $(4,522)      $ 1,981       $(15,069)       $5,460
                                                   ============  ============   ============  ============

     On June 30, 2003, St. Mary's cash flow hedges resulted in a net pre-tax
liability of $27,490,000. The Company will reclassify $27,380,000 of this amount
to gains or losses included in oil and gas production operating revenues as the
hedged production quantity is produced. The remaining amount relates to an
undesignated collar that will be marked to market through the statement of
operations until it expires on December 31, 2003. Based on current prices the
net amount of existing unrealized after-tax loss as of June 30, 2003, to be
reclassified from accumulated other comprehensive income to oil and gas
production operating revenues in the next twelve months would be $16,587,000,
net of deferred income taxes. The Company anticipates that all original
forecasted transactions will occur by the end of the originally specified time
periods.

Note 7 - Asset Retirement Obligations

     Effective January 1, 2003, the Company adopted the provisions of SFAS No.
143, "Accounting for Asset Retirement Obligations." SFAS No. 143 generally
applies to legal obligations associated with the retirement of long-lived assets
that result from the acquisition, construction, development and/or the normal
operation of a long-lived asset. SFAS No. 143 requires the Company to recognize
an estimated liability for costs associated with the abandonment of its oil and
gas properties.

     As of January 1, 2003, the Company recognized the future cost to abandon
oil and gas properties over the estimated economic life of the oil and gas
properties in accordance with the provisions of SFAS No. 143. A liability for
the fair value of an asset retirement obligation with a corresponding increase
to the carrying value of the related long-lived asset is recorded at the time a
well is completed or acquired. The Company depletes the amount added to proved
oil & gas property costs and recognizes accretion expense in connection with
the discounted liability over the remaining life of the respective oil and gas
properties. Prior to the adoption of SFAS No. 143 the Company had recognized an
abandonment liability for its offshore wells. These offshore liabilities were
reversed upon adoption of SFAS No. 143, and the methodology described above was
used to determine the liability associated with abandoning all wells, including
those offshore.

     The estimated liability is based on historical experience in abandoning
wells, estimated economic lives, external estimates as to the cost to abandon
the wells in the future and federal and state regulatory requirements. The

                                      -12-


liability is discounted using a credit-adjusted risk-free rate of approximately
7.25%. Revisions to the liability could occur due to changes in estimated
abandonment costs or well economic lives, or if federal or state regulators
enact new requirements regarding the abandonment of wells.

     Upon adoption of SFAS No. 143, the Company recorded a discounted liability
of $21,403,000, reversed the existing offshore abandonment liability of
$9,144,000, increased property and equipment by $12,827,000, decreased
accumulated DD&A by $8,280,000 and recognized a one-time cumulative effect
gain of $5,435,000 (net of deferred tax benefit of $3,414,000). The Company
depletes the amount added to property costs and recognizes accretion expense in
connection with the discounted liability over the remaining economic lives of
the respective oil and gas properties.

     As of June 30, 2003, the Company's capitalized proved oil and gas
properties included $42,991,000 of estimated salvage value, which is excluded
from the Company's DD&A calculation.

     A reconciliation of the Company's liability for the three and six months
ended June 30, 2003, is as follows (in thousands).

                                            Three Months Ended    Six Months Ended
                                               June 30, 2003        June 30, 2003
                                            ------------------   ------------------

   Beginning Asset Retirement Obligation          $ 23,734             $    -
   Liability from SFAS 143 adoption                    -                 21,403
   Liabilities incurred                                956                2,892
   Liabilities settled                                (530)                (530)
   Accretion expense                                   443                  838
                                            ------------------   ------------------
    Ending Asset Retirement Obligation            $ 24,603             $ 24,603
                                            ==================   ==================

     The following tables illustrate the effect on the asset retirement
obligation liability, net income and earnings per share if the Company had
adopted the provisions of SFAS No. 143 on January 1, 2002. The pro forma amounts
of the liability are measured using current information, assumptions and
interest rates as of January 1, 2003 (in thousands, except per share amounts).

                                 January 1, 2002      December 31, 2002
                              --------------------   -------------------
   Asset retirement
   obligation liability               $20,358               $21,829



                               Three Months Ended     Six Months Ended
                                  June 30, 2002         June 30, 2002
                              --------------------   -------------------
   Net Income
      As reported                     $10,589               $12,907
      Pro forma                       $10,359               $12,436

   Basic EPS
      As reported                     $  0.38               $  0.46
      Pro forma                       $  0.37               $  0.45

   Diluted EPS
      As reported                     $  0.37               $  0.46
      Pro forma                       $  0.36               $  0.45

                                      -13-


Note 8 - Flying J Acquisition

     On January 29, 2003, the Company acquired oil and gas properties from
Flying J Oil & Gas Inc. and Big West Oil & Gas Inc. (collectively,
"Flying J"). St. Mary issued 3,380,818 shares of its restricted common stock
valued at $71,594,000 for proved reserves and unproved acreage, $445,000 of
other assets, a $1,936,000 asset retirement liability, a $2,012,000 hedge
liability, and $3,861,000 in cash received for net purchase price adjustments.
In addition, St. Mary made a non-recourse loan to Flying J and Big West of
$71,594,000 at LIBOR plus 2% for up to a 39-month period that is secured by a
pledge of the shares of St. Mary common stock issued to Flying J. During the
39-month loan period Flying J and Big West can elect to put their shares of St.
Mary stock to the Company for $71,594,000 plus accrued interest on the loan for
the first thirty months, and St. Mary can elect to call the shares for an amount
of $97,447,000, with the proceeds applied to the repayment of the loan and
accrued interest. The acquisition was accounted for using the purchase method of
accounting. Operating results from the acquired properties have been included in
the statements of operations only from the date of closing.

     The common stock that was issued in this transaction has been recorded as
temporary equity because the Company can be required to repurchase these shares.
The shares of common stock are considered outstanding for basic and diluted
earnings per share calculations. These shares could potentially become part of
permanent stockholders' equity in the future. The loan arising from this
transaction is considered a contra-temporary equity item on the consolidated
balance sheets, as opposed to an asset, since the loan is secured by the common
stock issued as part of this transaction. Since the loan is considered to be
contra-equity and because there are uncertainties related to how the loan will
be repaid, no interest revenue will be recorded in connection with the loan
until the Company receives such interest. At June 30, 2003, the cumulative
amount of interest receivable but not recorded as income was $1,029,000.

Note 9 - Recently Issued Accounting Standards

     In May 2003 the Financial Accounting Standards Board ("FASB") issued SFAS
No. 150, "Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity." This Statement establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity and requires that such financial
instruments be classified as a liability (or as an asset in certain
circumstances). SFAS No. 150 is effective for all freestanding instruments
entered into or modified after May 31, 2003. Otherwise, it became effective for
the Company as of July 1, 2003. St. Mary currently has no financial instruments
that fall within the scope of SFAS No. 150. As a result, the adoption of this
Statement is not expected to have an impact on the Company's financial position
or results of operations.

     In April 2003 the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." This Statement amends and
clarifies technical aspects of financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This Statement is effective for
contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003.

     The FASB and representatives of the accounting staff of the Securities and
Exchange Commission are currently engaged in discussions regarding the
application of certain provisions of SFAS No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets," to companies in the
extractive industries, including oil and gas companies. The FASB and the SEC
staff are considering whether the provisions of SFAS No. 141 and SFAS No.142
require registrants to classify costs associated with mineral rights, including
both proved and unproved lease acquisition costs, as intangible assets in the
balance sheet, apart from other capitalized oil and gas property costs, and
provide specific footnote disclosures. Historically, the Company has included
oil and gas lease acquisition costs as a component of oil and gas properties. In

                                      -14-


the event the FASB and SEC staff determine that costs associated with mineral
rights are required to be classified as intangible assets, a substantial portion
of the Company's oil and gas property acquisition costs would be separately
classified on its balance sheets as intangible assets. However, the Company's
results of operations would not be affected since such intangible assets would
continue to be depleted and assessed for impairment in accordance with existing
successful efforts accounting rules and impairment standards. Further, the
Company does not believe the classification of oil and gas lease acquisition
costs as intangible assets would have any impact on the Company's compliance
with covenants under its debt agreements.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Cautionary Note About Forward - Looking Statements

     This Quarterly Report on Form 10-Q includes certain statements that may be
deemed to be "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. All statements, other than statements of historical facts, included in
this Form 10-Q that address activities, events or developments that St. Mary
management expects, believes or anticipates will or may occur in the future are
forward-looking statements. The words "will," "believe," "anticipate," "intend,"
"estimate," "expect," "project," and similar expressions are intended to
identify forward - looking statements, although not all forward - looking
statements contain such identifying words. Examples of forward-looking
statements may include discussion of such matters as:

   o   the amount and nature of future capital, development and exploration
       expenditures,
   o   the drilling of wells,
   o   reserve estimates and the estimates of both future net revenues and
       the present value of future net revenues that are included in their
       calculation,
   o   future oil and gas production estimates,
   o   repayment of debt,
   o   business strategies,
   o   expansion and growth of operations,
   o   recent legal developments, and
   o   other similar matters.

     These statements are based on certain assumptions and analyses made by us
in light of our experience and our perception of historical trends, current
conditions, expected future developments and other factors we believe are
appropriate in the circumstances. Such statements are subject to a number of
assumptions, risks and uncertainties, including such factors as the volatility
and level of oil and natural gas prices, unexpected drilling conditions and
results, production rates and reserve replacement, reserve estimates, drilling
and operating service availability and risks, uncertainties in cash flow, the
financial strength of hedge contract counterparties, the availability of
attractive exploration, development and property acquisition opportunities,
financing requirements, expected acquisition benefits, competition, litigation,
environmental matters, the potential impact of government regulations, and other
matters discussed under the "Risk Factors" section of our 2002 Annual Report on
Form 10-K. Readers are cautioned that forward-looking statements are not
guarantees of future performance and that actual results or developments may
differ materially from those expressed or implied in the forward-looking
statements. Although we may from time to time voluntarily update our prior
forward - looking statements, we disclaim any commitment to do so except as
required by securities laws.

                                      -15-


   Financial Results

                                        Three Months Ended        Six Months Ended
                                             June 30,                  June 30,
                                      ----------------------   ----------------------
                                         2003        2002         2003        2002
                                      ----------  ----------   ----------  ----------
                                           (In thousands, except per share data)

   Oil and gas production revenues      $ 96,134    $ 46,197     $191,822    $ 87,290
   Net income                           $ 24,317    $ 10,589     $ 57,114    $ 12,907

   Per share - basic                    $   0.77    $   0.38     $   1.85    $   0.46
   Per share - diluted                  $   0.71    $   0.37     $   1.67    $   0.46

Net Income

     We generated net income of $24.3 million or $0.71 per diluted share for the
second quarter of 2003 compared with net income of $10.6 million or $0.37 per
diluted share for the same quarter of 2002. Comparing the six-months ended June
30, 2003 to June 30, 2002, net income and diluted earnings per share were $57.1
million and $1.67 per share versus $12.9 million and $0.46 per share,
respectively. Included in net income for the six-months ended June 30, 2003, is
$5.4 million, or $0.15 per diluted share, associated with the cumulative effect
of a change in accounting principle required upon the adoption of Statement of
Financial Accounting Standards No. 143 "Accounting for Asset Retirement
Obligations." The increase in net income over the comparative periods is a
result of increased oil and gas prices and higher production volumes associated
with successful drilling results, the acquisition of the Burlington properties
acquired in December 2002 and the Flying J properties acquired in January 2003.

                                      -16-


Results of Operations

     The following table sets forth selected operating data for the periods
indicated.

                                                     Three Months Ended              Six Months Ended
                                                          June 30,                        June 30,
                                                ---------------------------     ---------------------------
                                                    2003           2002             2003           2002
                                                ------------   ------------     ------------   ------------
                                                     (In thousands, except volume and per volume data)
  Oil and gas production revenues:
    Gas production                                 $  65,650      $  29,113        $ 131,581      $  53,734
    Oil production                                    30,484         17,084           60,241         33,556
                                                ------------   ------------     ------------   ------------
        Total                                      $  96,134      $  46,197        $ 191,822      $  87,290
                                                ============   ============     ============   ============

  Net production:
    Gas (MMcf)                                        13,614          9,618           25,318         19,173
    Oil (MBbls)                                        1,164            673            2,205          1,378
   MMCFE                                              20,595         13,655           38,546         27,440

  Net daily production:
    Gas (MMcf)                                         149.6          105.7            139.9          105.9
    Oil (MBbls)                                         12.8            7.4             12.2            7.6
   MMCFE                                               226.3          150.1            213.0          151.6

  Average realized sales price (1):
    Gas (per Mcf)                                  $    4.82      $    3.03        $    5.20      $    2.80
    Oil (per Bbl)                                  $   26.20      $   25.39        $   27.32      $   24.35

  Oil and gas production costs:
    Lease operating expense                        $  15,149      $   8,177        $  29,020      $  18,626
    Transportation costs                               1,941            761            3,331          1,577
    Production taxes                                   6,170          2,593           12,039          5,358
                                                ------------   ------------     ------------   ------------
      Total                                        $  23,260      $  11,531        $  44,390      $  25,561
                                                ============   ============     ============   ============

  Additional per MCFE data:
    Sales price                                    $    4.67      $    3.38        $    4.98      $    3.18
    Lease operating expense                             0.74           0.60             0.75           0.68
    Transportation costs                                0.09           0.06             0.09           0.06
    Production taxes                                    0.30           0.18             0.31           0.19
                                                ------------   ------------     ------------   ------------
      Operating margin                             $    3.54      $    2.54        $    3.83      $    2.25
                                                ============   ============     ============   ============

    Depletion, depreciation and amortization       $    1.05      $    0.97        $    1.05      $    0.96
    General and administrative                     $    0.29      $    0.22        $    0.32      $    0.22

     -----------------------
      (1)Includes the effects of St. Mary's hedging activities.

                                      -17-


Three-Month Comparison

     Oil and Gas Production Revenues. Our quarterly oil and gas production
revenues increased $49.9 million, or 108% to $96.1 million for the three months
ended June 30, 2003. The following table presents components of the increase in
total production revenues between 2003 and 2002.

                          Production           Price             Price
                           % Change           $ Change          % Change
                         -------------------------------------------------
   o        Natural Gas        42%            $1.80/Mcf            59%
   o        Oil                73%            $0.81/Bbl             3%

     Following is our product mix.

                                  Percentage of Revenue Percentage of Production
                                  --------------------- ------------------------
   Three Months Ended June 30       2003         2002      2003         2002
   -----------------------------------------------------------------------------
   o        Natural Gas              68%          63%       66%          70%
   o        Oil                      32%          37%       34%          30%

     Average net daily production was 226.3 MMCFE for 2003 compared with 150.1
MMCFE in 2002, an increase of 51%. Included in our 2003 production volumes are
10.5 MMcf per day and 4.8 MBbls per day from the Burlington and Flying J
acquisitions. Wells completed in 2002 and 2003 and properties acquired in the
last two quarters of 2002 and during 2003 have added revenue of $34.2 million
and average net daily production of 79.9 MMCFE in 2003 over the comparable 2002
period.

     Projections of pricing for oil and natural gas for the remainder of the
year lead us to believe that our average realized price for each product will be
higher in 2003 than for comparable periods of 2002. However, since the end of
June 2003, the forward prices have decreased relative to the prices in effect
for most of the second quarter of 2003. The prices we receive reflect the impact
of market forces, which are influenced by many factors including: political
events, economic growth, supply, fuel demand, electricity demand, weather,
Organization of Petroleum Exporting Countries policies and others.

     Information regarding the current effects of oil and gas hedging activity
is included in the table below, which reflects increased hedging of oil
production as a result of our Burlington and Flying J acquisitions.

   Three Months Ended June 30                             2003           2002
   --------------------------------------------------------------------------
   o    Percentage of oil production hedged                57%            39%
   o    Oil volumes hedged (MBbls)                         661            260
   o    Increase (decrease) in oil revenue       ($1.3 million)  $1.2 million
   o    Average realized oil price per Bbl
          without hedging                               $27.30         $23.64

   o    Percentage of gas production hedged                39%            44%
   o    Natural gas MMBtu hedged                   5.9 million    4.6 million
   o    Decrease in gas revenue                  ($2.9 million) ($1.5 million)
   o    Average realized gas price per Mcf
          without hedging                                $5.03          $3.18

     Marketed Gas Revenue and Gas System Operating Expense. As a result of our
acquisition of gas gathering system lines in Coal County, Oklahoma, in February
2002 we began taking title to and marketing natural gas for third parties. For
the three months ended June 30, 2003, we received $3.3 million from the sale of
this natural gas compared to $2.9 million for the same period in 2002. Operating
costs associated with these revenues totaled $3.1 million for the three months
ended June 30, 2003 compared to $2.7 million for the same period in 2002. The
higher natural gas prices in 2003 are the primary reason the revenues and costs

                                      -18-


are higher in 2003. Due to fluctuations in natural gas prices, cost inflation
and the variability of production from oil and gas wells, we may not always have
a positive gross margin from gas marketing.

     Oil and Gas Production Expenses. Oil and gas production costs consist of
lease operating expense, production taxes and transportation expenses. Total
production costs increased $11.7 million or 102% to $23.3 million for the three
months ended June 30, 2003, from $11.5 million in the same period of 2002. Our
acquisition of properties from Burlington and Flying J added $6.5 million of
production costs, and wells completed in later 2002 and in 2003 added $2.1
million of production costs in 2003 that were not reflected in 2002.
Additionally, we experienced a general increase in production taxes on higher
revenue from higher realized prices.

     Total oil and gas production costs per MCFE increased $0.29 to $1.13 for
the second quarter of 2003 compared with $0.84 for the second quarter of 2002.
This increase is comprised of the following:

   o  A $0.12 increase in production taxes due to higher per MCFE prices.
   o  A $0.03 increase in transportation costs.
   o  A $0.07 increase in LOE that reflects our additions of higher cost oil
      production properties in the Williston Basin through our acquisitions from
      Burlington and Flying J.
   o  A $0.07 increase in LOE due to a one-time Authorization for Expenditure
      adjustment to decrease workover expenses at the Judge Digby field that
      occurred in the second quarter of 2002.

     We continue to believe that our workover activity in the Williston Basin
will increase over the remainder of the summer. Since production increases
resulting from workover activity are not likely to appear in the period those
costs are incurred, we believe that our LOE per MCFE will increase during the
remainder of 2003. These increases could be offset in part by decreases in
production taxes due to possible decreases in oil and gas prices.

     Depreciation, Depletion, Amortization and Impairment. Depreciation,
depletion and amortization expense ("DD&A") increased $8.3 million or 63% to
$21.6 million for the three months ended June 30, 2003, from $13.3 million in
the same period of 2002. DD&A per MCFE increased by 8% to $1.05 for the
second quarter of 2003 compared with $0.97 in 2002. The increase in expense is a
result of both higher production volumes in 2003 and the higher per unit rate
which reflects acquisitions and drilling results in 2002 and 2003.

     Exploration. Exploration expense increased $2.3 million or 54% to $6.6
million for the three months ended June 30, 2003, compared with $4.3 million in
2002. In 2003 we have had a lesser ownership interest in lower cost exploratory
dry holes than in 2002, offsetting in part increased exploration overhead due to
increases in our geologic and exploration staff as a result of the acreage we
have acquired in the Williston, Green River and Powder River basins. Components
of total exploration expense are as follows (in thousands).

                                                       Three Months Ended
                                                            June 30,
                                                  ---------------------------
                                                      2003           2002
                                                  ------------   ------------
      o  Geological and geophysical expenses        $ 2,301        $   495
      o  Exploratory dry holes                          681          1,955
      o  Overhead and other expenses                  3,653          1,847
                                                  ------------   ------------
                                                    $ 6,635        $ 4,297
                                                  ============   ============

                                      -19-


     General and Administrative. General and administrative expenses increased
$3.0 million or 100% to $6.0 million for the three months ended June 30, 2003,
compared with $3.0 million in 2002. The increase in cost on a per MCFE basis is
primarily due to our compensation expense.

     Our employee count increased by 19% from June 30, 2002 to June 30, 2003.
This change has resulted in a general increase in G&A of $1.4 million
between the quarters ending on those dates. That increase plus a $3.8 million
increase in compensation expense associated with our incentive compensation
plans, a $245,000 increase in charitable contributions expense and a $117,000
increase in insurance and corporate governance costs were partially offset by a
$2.7 million increase in COPAS overhead reimbursement from operations and
G&A we allocated to exploration expense. COPAS overhead reimbursement from
operations has increased as a result of an increase in the number of properties
we operate in our Rockies region due to our Burlington and Flying J
acquisitions. The increase in compensation expense associated with our incentive
compensation plans reflects both the benefit we have received from the current
price environment for past employee performance and the performance of our
employees during the current year. As we continue our expected growth in size
and number of personnel and if oil and gas prices perform as expected, we
anticipate that G&A will continue to increase in total. However, we expect
G&A to remain relatively flat on a per MCFE basis.

     Interest Expense. Interest expense increased by $1.3 million to $2.4
million for the quarter ended June 30, 2003 compared to $1.0 million for the
quarter ended June 30, 2002. This difference reflects the benefit of an interest
rate swap on our 5.75% convertible notes that reduced interest expense by
$383,000 in 2002, the 0.5% contingent interest provision on our convertible
notes which applied in 2003 but not in 2002 and increased borrowings under our
credit facility. We anticipate that quarterly interest expense in 2003 will
continue to be higher than in 2002 due to the termination in December 2002 of
the interest rate swap.

     Income Taxes. Income tax expense totaled $15.7 million for the three months
ended June 30, 2003, and $5.3 million in 2002, resulting in effective tax rates
of 39.2% and 33.2%, respectively. The effective rate change from 2002 reflects
an increase in our highest marginal federal tax rate, the expiration of the
Section 29 tax credit, adjustments to valuation allowances to reflect the
likelihood that prior Alternative Minimum Tax credits created by Section 29
credits will not be used, changes in the composition of the highest marginal
state tax rates as a result of our recent acquisitions and the 2002 adjustment
to valuation allowances against state income taxes from net operating loss
carryovers.

Six-Month Comparison

     Oil and Gas Production Revenues. We experienced an increase in oil and gas
production revenues of $104.5 million, or 120% to $191.8 million for the six
months ended June 30, 2003, compared with $87.3 million for the same period in
2002. The following table presents the components of increases or (decreases)
between 2003 and 2002.

                           Production           Price             Price
                           % Change           $ Change          % Change
                         -------------------------------------------------
   o        Natural Gas        32%            $2.39/Mcf            85%
   o        Oil                60%            $2.97/Bbl            12%

     Following is our product mix.

                                 Percentage of Revenue  Percentage of Production
                                 ---------------------  ------------------------
   Six Months Ended June 30        2003         2002       2003         2002
   -----------------------------------------------------------------------------
   o        Natural Gas             69%          62%        66%          70%
   o        Oil                     31%          38%        34%          30%

     Average net daily production increased 40% to 213.0 MMCFE for the first six
months of 2003 compared with 151.6 MMCFE in 2002. Included in our 2003
production volumes are 9.7 MMcf per day and 4.2 Mbbls per day from the

                                      -20-


Burlington and Flying J acquisitions. Wells completed in 2002 and 2003 and
properties acquired in the last two quarters of 2002 and during 2003 have added
revenue of $70.5 million and average net daily production of 72.8 MMCFE in the
first six months of 2003 over the comparable 2002 period.

     Information regarding the current effects of oil and gas hedging activity
is included in the table below, which reflects increased hedging of oil
production as a result of our Burlington and Flying J acquisitions.

   Six Months Ended June 30                               2003           2002
   --------------------------------------------------------------------------
   o    Percentage of oil production hedged                57%            39%
   o    Oil volumes hedged (MBbls)                       1,262            542
   o    Increase (decrease) in oil revenue       ($5.2 million)  $2.6 million
   o    Average realized oil price per Bbl
          without hedging                               $29.69         $22.46

   o    Percentage of gas production hedged                35%            43%
   o    Natural gas MMBtu hedged                   9.7 million    9.0 million
   o    Decrease in gas revenue                  ($9.8 million)      $904,000
   o    Average realized gas price per Mcf
          without hedging                                $5.03          $3.18

     Marketed Gas System Revenue and Gas System Operating Expense. For the six
months ended June 30, 2003, we received $7.1 million from the sale of this
natural gas compared to $3.4 million in the same period of 2002. Operating costs
associated with these revenues totaled $6.5 million for the period ended June
30, 2003, compared to $3.1 million for the same period in 2002. Our gas
marketing activities for third parties began in February 2002. The increase in
2003 as compared to 2002 is a result of a full six months of activity and
relatively higher gas prices.

     Oil and Gas Production Expenses. Total production costs increased $18.8
million to $44.4 million for the six months ended June 30, 2003, from $25.6
million in 2002. Our acquisition of properties from Burlington and Flying J
added $11.4 million of production costs, and wells completed in 2002 and 2003
added $3.6 million of production costs in 2003 that were not reflected in 2002.
Additionally, we experienced a general increase in production taxes on higher
revenue from higher realized prices.

     Total oil and gas production costs per MCFE increased $0.22 to $1.15 for
the six months ended June 30, 2003 compared with $0.93 for 2002. This increase
is comprised of the following:

   o  A $0.12 increase in production taxes due to higher per MCFE prices.
   o  A $0.03 increase in transportation costs.
   o  A $0.07 increase in LOE that reflects our additions of higher cost oil
      properties in the Williston Basin through our acquisitions from Burlington
      and Flying J.

     Depreciation, Depletion, Amortization and Impairment. DD&A increased
$14.2 million or 54% to $40.5 million for the six months ended June 30, 2003,
from $26.3 million in 2002. DD&A per MCFE increased by 9% to $1.05 for the
six months ended June 30, 2003 compared with $0.96 in 2002. The increase in
expense is a result of both higher production volumes in 2003 and the higher per
unit rate which reflects acquisitions and drilling results in 2002 and 2003.

     Exploration. Exploration expense decreased $428,000 or 4% to $10.8 million
for the six months ended June 30, 2003, compared with $11.2 million in 2002. In
2003 we have had a lesser ownership interest in lower-cost exploratory dry holes
than in 2002, offsetting in part increased exploration overhead due to increases
in our geologic and exploration staff as a result of the acreage we have

                                      -21-


acquired in the Williston, Green River and Powder River basins. Components of
total exploration expense are as follows (in millions).

                                                        Six Months Ended
                                                            June 30,
                                                  ---------------------------
                                                      2003            2002
                                                  ------------   ------------
      o  Geological and geophysical expenses          $  3.7         $  1.3
      o  Exploratory dry holes                           1.2            6.1
      o  Overhead and other expenses                     5.9            3.8
                                                  ------------   ------------
                                                      $ 10.8         $ 11.2
                                                  ============   ============

     General and Administrative. General and administrative expenses increased
$6.0 million or 98% to $12.2 million for the six months ended June 30, 2003,
compared with $6.2 million in 2002. The increase in cost on a per MCFE basis is
primarily due to an increase in our compensation expense.

     The increase in our employee count has resulted in a general increase in
G&A of $2.7 million between six-month periods ending on June 30, 2003 and
June 30, 2002. That increase plus a $5.9 million increase in expense associated
with our incentive compensation plans, a $664,000 increase in accrued charitable
contributions expense and a $396,000 increase in insurance and corporate
governance costs were partially offset by a $3.9 million increase in COPAS
overhead reimbursement from operations and G&A we allocated to exploration
expense. COPAS overhead reimbursement from operations has increased due to an
increase in the number of properties we operate in our Rockies region as a
result of our Burlington and Flying J acquisitions. The increase in expense
associated with our incentive compensation plans reflects both the benefit we
have received from the current price environment for past employee performance
and the performance of our employees during the current year.

     Interest Expense. Interest expense increased by $3.1 million to $4.6
million for the six months ended June 30, 2003 compared to $1.5 million for the
period ended June 30, 2002. The increase reflects a full six months of accrued
interest in 2003 on our 5.75% convertible notes that were issued in March 2002,
the benefit of an interest rate swap on those notes that reduced interest
expense by $446,000 in 2002, the 0.5% contingent interest provision on the notes
which applied in 2003 but not in 2002, and increased borrowings under our credit
facility. We anticipate that interest expense in 2003 will be higher than the
2002 amount due to the termination of the interest rate swap in December 2002
and since we have increased borrowings under our credit facility in 2003.

     Income Taxes. Income tax expense totaled $32.7 million for the six months
ended June 30, 2003, and $6.4 million in 2002, resulting in effective tax rates
of 38.8% and 33.1%, respectively. The effective rate change from 2002 reflects
an increase in our highest marginal federal tax rate, the expiration of the
Section 29 tax credit, adjustments to valuation allowances to reflect the
likelihood that prior Alternative Minimum Tax credits created by Section 29
credits will not be used, changes in the composition of the highest marginal
state tax rates as a result of our recent acquisitions and the 2002 adjustment
to valuation allowances against state income taxes from net operating loss
carryovers.

     The current portion of the income tax expense in 2003 is $21.9 million
compared to $1.5 million in 2002. These amounts are 66% and 23% of the total tax
for the respective periods. The difference results from increased taxable income
caused by significantly higher oil and gas prices and production, a reduction in
the percentage of deductible intangible drilling costs relative to total income
and interest income recognized for tax purposes from our Flying J transaction.

     Cumulative Effect of Change in Accounting Principle, net. On January 1,
2003, we adopted SFAS No. 143. The impact of adoption resulted in income to us
of $8.8 million offset by the deferred income tax effect of $3.4 million. See

                                      -22-


Note 7 of the Notes to Consolidated Financial Statements under Part I, Item 1 of
this report.

Liquidity and Capital Resources

     Our primary sources of liquidity are the cash provided by operating
activities, debt financing, sales of non-strategic properties and access to the
capital markets. All of these sources can be impacted by significant
fluctuations in oil and gas prices and the availability of financing to oil and
gas producers in the market. An unexpected decrease in oil and gas prices would
reduce expected cash flow from operating activities, might reduce the borrowing
base on our credit facility, could reduce the value of our non-strategic
properties and historically has limited our industry's access to the capital
markets.

     We use cash for the acquisition, exploration and development of oil and gas
properties and for the payment of debt obligations, trade payables and
stockholder dividends. Exploration and development programs are generally
financed from internally generated cash flow, debt financing and cash and cash
equivalents on hand. Cash uses for the acquisition of oil and gas properties and
the payment of stockholder dividends are discretionary and can be reduced or
eliminated in the event of an unexpected decrease in oil and gas prices. At any
given point in time we may be obligated to pay for commitments to explore for or
develop oil and gas properties or incur trade payables. However, future
obligations can be reduced or eliminated when necessary. We are currently only
required to make interest payments on our debt obligations, although we have
voluntarily been reducing our outstanding borrowings under our revolving credit
facility. As of the date of filing this report, the outstanding balance of the
revolving credit facility was $24 million, representing a $20.0 million
reduction from the $44.0 million outstanding balance at June 30, 2003. An
unexpected increase in oil and gas prices would provide increased flexibility to
modify our uses of cash flow.

     We continually review our capital expenditure budget to reflect changes in
current and projected cash flow, drilling and acquisition opportunities, debt
requirements and other factors.

     Cash Flow. Net cash provided by operating activities increased $14.7
million or 19% to $90.8 million for the six months ended June 30, 2003 compared
with $76.1 million in 2002. Our $34.2 million increase in net income between the
two periods combined with a $13.5 million increase in the effect of non-cash
items were offset by a $43.0 million change in current assets and liabilities
relating to increased accounts receivables offset by decreased prepaid expenses,
and collections of refundable income taxes. We anticipate increased cash flow
from operations in 2003 as a result of higher oil and gas prices in 2003 and
increased production attributable to our property acquisitions and drilling
activities in late 2002 and early 2003.

     Net cash used in investing activities increased $56.1 million or 87% to
$120.6 million for the six months ended June 30, 2003, compared with net cash
used of $64.5 million in 2002. This increase results from additional capital
expenditures and acquisition costs. Total capital expenditures, including
acquisitions of oil and gas properties, in the first six months of 2003
increased $67.1 million or 119% to $123.3 million compared with $56.2 million in
the first six months of 2002. This increase reflects the utilization of $71.6
million in short term investments, cash equivalents and increased borrowings
under our credit facility to provide a loan to Flying J as part of our
acquisition of properties from Flying J in January 2003. This loan is secured by
our common stock issued in the transaction.

     Net cash provided by financing activities decreased $2.6 million to $29.5
million for the six months ended June 30, 2003, compared with $32.1 million in
2002. This decrease reflects the 2002 issuance of our 5.75% convertible notes
and the use of proceeds to pay down our credit facility, partially offset by
additional borrowing on our credit facility to fund our 2003 acquisitions.

                                      -23-


     St. Mary had $10.8 million in cash and cash equivalents and had working
capital of $2.0 million as of June 30, 2003, compared with $11.2 million in cash
and cash equivalents and working capital of $2.1 million at December 31, 2002.

     Senior Convertible Notes. In March 2002 we issued in a private placement a
total of $100.0 million of 5.75% senior convertible notes due 2022 with a 0.5
percent contingent interest provision. Interest payments are due on March 15 and
September 15 of every year. We received net proceeds of $96.8 million after
deducting the initial purchasers' discount and estimated offering expenses
payable by us. The notes are general unsecured obligations and rank on a parity
in right of payment with all our existing and future senior indebtedness and
other general unsecured obligations, and are senior in right of payment with all
our future subordinated indebtedness. The notes are convertible into our common
stock at a conversion price of $26.00 per share, subject to adjustment. We can
redeem the notes with cash in whole or in part at a repurchase price of 100% of
the principal amount plus accrued and unpaid interest including contingent
interest beginning on March 20, 2007. The note holders have the option of
requiring us to repurchase the notes for cash at 100% of the principal amount
plus accrued and unpaid interest including contingent interest upon (1) a change
in control of St. Mary or (2) on March 20, 2007, March 15, 2012 and March 15,
2017. If the note holders request repurchase on March 20, 2007, we may pay the
repurchase price with cash, shares of our common stock valued at a discount to
the market price at the time of repurchase or any combination of cash and our
discounted common stock. We are not restricted from paying dividends, incurring
debt, or issuing or repurchasing our securities under the indenture for the
notes. There are no financial covenants in the indenture. We used a portion of
the net proceeds from the notes to repay our credit facility balance and used
the remaining net proceeds to fund a portion of our 2002 capital expenditures.
On March 25, 2002, we entered into a five-year fixed-rate to floating-rate
interest rate swap on $50.0 million of the notes. The floating rate was
determined as LIBOR plus 0.36%. We elected to terminate this swap on December 3,
2002, and received proceeds of $4.0 million.

     Credit Facility. On January 29, 2003, we entered into a new $300.0 million
credit facility with Wachovia Bank as Administrative Agent and eight other
participating banks. This new credit facility replaced our previous $200.0
million credit facility and has a maturity date of January 27, 2006. The
calculated borrowing base is currently $275.0 million. We have elected a
commitment amount of $150.0 million under this facility. We believe this
commitment level is adequate for our current liquidity needs and results in
lower commitment fees payable to the bank syndicate. We are required to comply
with certain financial and non-financial covenants, and we are currently in
compliance with all covenants under the credit facility. Interest and commitment
fees are accrued based on the borrowing base utilization percentage table below.
Eurodollar loans accrue interest at LIBOR plus the applicable margin from the
utilization table, and Alternative Base Rate (ABR) loans accrue interest at
Prime plus the applicable margin from the utilization table.

     Borrowing base
        utilization percentage  <50% =>50%<75% =>75%<90%  >90%
     ---------------------------------------------------------------------------
     Eurodollar Loans            1.250%       1.500%      1.750%        2.000%
     ABR Loans                   0.000%       0.250%      0.500%        0.750%
     Commitment Fee Rate         0.300%       0.375%      0.375%        0.500%

     Our loan balance of $44.0 million is comprised of LIBOR based traunches at
June 30, 2003. Our weighted average interest rates paid for the second quarter
of 2003 and for the six months ended June 30, 2003 were 6.2% and 5.9%,
respectively, including commitment fees paid on the unused portion of the credit
facility borrowing base, amortization of deferred financing costs, and
amortization of the contingent interest embedded derivative.

                                      -24-


     Schedule of Contractual Obligations. The following table summarizes our
future estimated principal payments for the periods specified (in millions).

                                  Long-Term    Operating     Total Cash
  Contractual Obligations           Debt         Leases      Obligation
  ----------------------------  ------------  ------------  ------------

  Less than 1 year                 $    -        $   1.9       $   1.9
  1-3 years                           44.0           2.9          46.9
  4-5 years                             -            2.2           2.2
  After 5 years                      100.0           3.2         103.2
                                ------------  ------------  ------------                                                $                   $
  Total                            $ 144.0       $  10.2       $ 154.2
                                ============  ============  ============

     In the period from 1-3 years, we have one lease of office space for our
regional offices that will expire. A third lease for office space will expire in
year 4. Estimated costs to replace these leases are not included in the table
above. For purposes of the table we assume that the holders of our 5.75%
convertible notes will not exercise the conversion or redemption features until
final maturity.

     Common Stock. In 1998 St. Mary's Board of Directors authorized a stock
repurchase program whereby we may purchase from time-to-time, in open market
transactions or negotiated sales, up to two million of our common shares.
Through June 30, 2003, we have repurchased a cumulative total of 1,009,900
shares of St. Mary's common stock under the program. We anticipate that
additional purchases of shares may occur as market conditions warrant. Any
future purchases will be funded with internal cash flow and borrowings under our
credit facility.

     On January 29, 2003, we issued a total of 3,380,818 restricted shares of
our common stock valued at $71.6 million to Flying J Oil & Gas Inc. and Big
West Oil & Gas Inc. (collectively Flying J) for the acquisition of oil and
gas properties, and we made a non-recourse loan to Flying J in the amount of
$71.6 million at LIBOR plus 2% for up to a 39-month period. The loan is secured
by a pledge of the 3,380,818 shares and during the 39-month loan period Flying J
can elect to sell these shares to St. Mary for $71.6 million plus accrued
interest on the loan for up to the first 30 months, and we can elect to
repurchase the shares for $97.4 million with the proceeds applied to repayment
of the loan. The shares are subject to contractual restrictions on transfer for
a period of two years. Flying J cannot increase their ownership percentage in
St. Mary for a period of 30 months. For accounting purposes the stock and the
loan are reflected in the temporary equity section of our consolidated balance
sheets. Because the loan is reflected in temporary equity we will not record
interest income from the loan until such time as Flying J and Big West make
actual payment of the interest to us. At June 30, 2003, the cumulative amount of
interest receivable but not recorded as income by us was $1.0 million.

     Capital and Exploration Expenditures Incurred. Expenditures for exploration
and development of oil and gas properties and acquisitions are the primary use
of our capital resources. The following table sets forth certain information
regarding the costs incurred by us in our oil and gas activities during the
periods indicated. These expenditures include the value of the stock issued in
the Flying J transaction.

                                      -25-


                           Six Months Ended June 30,
                           --------------------------
                              2003            2002
                           ------------  ------------
                                 (In thousands)

   Development              $  42,164     $  30,444
   Exploration                 19,176         9,034
   Acquisitions:
     Proved                    77,676         7,040
     Unproved                   4,096         8,597
                           ------------  ------------
   Total                    $ 143,112     $  55,115
                           ============  ============

     We continuously evaluate opportunities in the marketplace for oil and gas
properties and, accordingly, may be a buyer or a seller of properties at various
times. We will continue to emphasize acquisitions in our core areas utilizing
St. Mary's technical expertise, financial flexibility and structuring
experience. In addition, we are also actively seeking larger acquisitions of
assets or companies that would afford opportunities to expand our existing core
areas, to acquire additional geoscientists or to gain a significant acreage and
production foothold in a new basin.

     St. Mary's total costs incurred in the first six months of 2003 increased
$88.0 million or 160% compared to the first six months of 2002. We spent $65.4
million in the first six months of 2003 for unproved property acquisitions and
domestic exploration and development compared to $48.1 million for the
comparable period in 2002.

     We continue to evaluate the results of our two coalbed methane pilot
programs located in the Hanging Woman Basin. On April 30, 2003, the Bureau of
Land Management issued its record of decision approving the two environmental
impact statements that considered coalbed methane development in northeast
Wyoming and southeast Montana, and the BLM is now issuing drilling permits on
federal acreage in Wyoming. We hope the two environmental impact statements will
also open the door for new coalbed methane development on federal acreage in
this area of Montana. Immediately after the decision was issued several
environmental groups filed multiple challenges. These challenges and a
previously reported environmental public interest group lawsuit by the Northern
Plains Resource Council, Inc. affect 89,700 gross acres related to this project.

     Capital Expenditure Budget. We anticipate spending approximately $233
million for capital and exploration expenditures in 2003 with $90 million
allocated for acquisitions, which includes the $71.6 million acquisition of
properties from Flying J in January 2003. Budgeted ongoing exploration and
development expenditures in 2003 for each of our core areas is as follows (in
millions).

      o         Mid-Continent region                    $  51
      o         Williston Basin                            35
      o         ArkLaTex region                            21
      o         Gulf Coast and Gulf of Mexico region       15
      o         Permian Basin                              12
      o         Other                                       9
                                                      --------
         Total                                          $ 143
                                                      ========

                                      -26-


     We believe the amount not funded from our internally generated cash flow in
2003 can be funded from our existing cash and our credit facility. The amount
and allocation of future capital and exploration expenditures will depend upon a
number of factors including the number and size of available acquisition
opportunities and our ability to assimilate these acquisitions. Also, the impact
of oil and gas prices on investment opportunities, the availability of capital
and borrowing capability and the success of our development and exploratory
activity could lead to funding requirements for further development. If
additional development or attractive acquisition opportunities arise, we may
consider other forms of financing, including the public offering or private
placement of equity or debt securities.

     Derivatives. We seek to protect our rate of return on acquisitions of
producing properties by hedging cash flow when the economic criteria from our
evaluation and pricing model indicate it would be appropriate. Management's
strategy is generally to hedge cash flows from acquisitions for up to 24 months
in order to meet minimum rate-of-return criteria. Management reviews these
hedging parameters on a quarterly basis. We may periodically hedge additional
production when we view the price environment to be favorable for hedging. We
generally limit our aggregate hedge position to no more than 50% of total
production but will hedge larger percentages of total production in certain
circumstances. We seek to minimize basis risk and index the majority of oil
hedges to NYMEX prices and the majority of gas hedges to various regional index
prices associated with pipelines in proximity to our areas of gas production.
Our policy requires that we diversify our hedge positions with various
counterparties and requires that such counterparties have clear indications of
financial strength. Including hedges entered into since June 30, 2003 we have
the following swaps and collars in place:

        Swaps
        -----                   Average          Quantity      Average Fixed
              Product        Volumes/month         Type        Contract Price      Duration
       -----------------------------------------------------------------------------------------

            Natural Gas       1,845,000            MMBtu             $4.49        07/03 - 12/03
            Natural Gas         869,000            MMBtu             $4.08        01/04 - 12/04

                Oil             202,000            Bbls             $25.57        07/03 - 12/03
                Oil             144,500            Bbls             $23.71        01/04 - 12/04

        Collars
        -------                 Average            Floor          Ceiling
              Product        Volumes/month         Price           Price           Duration
       -----------------------------------------------------------------------------------------

            Natural Gas      152,000 MMbtu         $2.50             $5.96        07/03 - 12/03

     Other Derivatives. Our 5.75% convertible notes contain a provision for
payment of contingent interest if certain conditions are met. Under SFAS No. 133
this provision is considered an embedded equity-related derivative that is not
clearly and closely related to the fair value of an equity interest and
therefore must be separated and accounted for as a derivative instrument. The
value of the derivative at issuance in March 2002 was $474,000. This amount was
recorded as a decrease to the 5.75% convertible notes payable in the
consolidated balance sheets. Of this amount, $47,000 has been amortized through
interest expense in 2003. Derivative loss in the consolidated statements of
operations includes $14,000 of net loss from mark-to-market adjustments for this
derivative at June 30, 2003, compared to a net loss of $245,000 included in
derivative loss at June 30, 2002.

Critical Accounting Policies and Estimates

     We refer you to the corresponding section of our Annual Report on Form 10-K
for the year ended December 31, 2002.

                                      -27-


Accounting Matters

New Accounting Standards

     In May 2003 the Financial Accounting Standards Board issued SFAS No. 150,
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity." This Statement establishes standards for how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity and requires that such financial instruments be
classifies as a liability (or as an asset in certain circumstances). SFAS No.
150 is effective for all freestanding instruments entered into or modified after
May 31, 2003. Otherwise, it became effective for us as of July 1, 2003. We
currently have no financial instruments that fall within the scope of SFAS No.
150. As a result, the adoption of this Statement is not expected to have an
impact on our financial position or results of operations.

     In April 2003 the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." This Statement amends and
clarifies technical aspects of financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This Statement is effective for
contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. In addition, except in certain
limited circumstances, all provisions of this Statement should be applied
prospectively.

     Effective January 1, 2003, we adopted the provisions of SFAS No. 143,
"Accounting for Asset Retirement Obligations." Upon adoption of SFAS No. 143, we
recorded a discounted liability of $21.4 million, reversed the existing offshore
abandonment liability of $9.1 million, increased net property and equipment by
$21.1 million and recognized a one-time cumulative effect gain of $5.4 million
(net of deferred tax benefit of $3.4 million). We will deplete the amount added
to property and equipment and recognize accretion expense in connection with the
discounted liability over the remaining economic lives of the respective oil and
gas properties. Prior to the adoption of SFAS No. 143, we assumed that salvage
value approximated abandonment costs and therefore salvage value was not
reflected in the DD&A calculation. As a result of adopting SFAS No. 143 and
the discounting of the asset retirement obligation, the salvage value must now
be reflected in the DD&A rate. Accordingly, $13.7 million was reversed from
accumulated DD&A and is included as a part of the increase in net property
and equipment in the cumulative effect adjustment. This adjustment to
accumulated DD&A relates to prior depletion of salvage value that would have
been excluded from the DD&A calculation if the abandonment liability had
been separately recognized. As of June 30, 2003, our capitalized proved oil and
gas properties included $43.0 million of estimated salvage value, which is not
included in our DD&A calculation.

     The FASB and representatives of the accounting staff of the Securities and
Exchange Commission are currently engaged in discussions regarding the
application of certain provisions of SFAS No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets," to companies in the
extractive industries, including oil and gas companies. The FASB and the SEC
staff are considering whether the provisions of SFAS No. 141 and SFAS No.142
require registrants to classify costs associated with mineral rights, including
both proved and unproved lease acquisition costs, as intangible assets in the
balance sheet, apart from other capitalized oil and gas property costs, and
provide specific footnote disclosures. Historically, we have included oil and
gas lease acquisition costs as a component of oil and gas properties. In the
event the FASB and SEC staff determine that costs associated with mineral rights
are required to be classified as intangible assets, a substantial portion of our
oil and gas property acquisition costs would be separately classified on our
balance sheets as intangible assets. However, our results of operations would
not be affected since such intangible assets would continue to be depleted and
assessed for impairment in accordance with existing successful efforts
accounting rules and impairment standards. Further, we do not believe the

                                      -28-


classification of oil and gas lease acquisition costs as intangible assets would
have any impact on our compliance with covenants under its debt agreements.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We hold derivative contracts and financial instruments that have cash flow
and net income exposure to changes in commodity prices or interest rates.
Financial and commodity-based derivative contracts are used to limit the risks
inherent in some crude oil and natural gas price changes that have an effect on
us.

     Our board of directors has adopted a policy regarding the use of derivative
instruments. This policy requires every derivative used by St. Mary to relate to
underlying offsetting positions, anticipated transactions or firm commitments.
It prohibits the use of speculative, highly complex or leveraged derivatives.
Under the policy, the Chief Executive Officer and Vice President - Finance must
review and approve all risk management programs that use derivatives. The board
of directors periodically reviews these programs.

     Commodity Price Risk. We use various hedging arrangements to manage our
exposure to price risk from natural gas and crude oil production. These hedging
arrangements have the effect of locking in for specified periods, at
predetermined prices or ranges of prices, the prices we will receive for the
volumes to which the hedge relates. Consequently, while these hedging
arrangements are structured to reduce our exposure to decreases in prices
associated with the hedged commodity, they also limit the benefit we might
otherwise receive from any price increases associated with the hedged commodity.
The derivative gain or loss effectively offsets the loss or gain on the
underlying commodity exposures that have been hedged. The fair value of the
swaps are estimated based on quoted market prices of comparable contracts and
approximate the net gains or losses that would have been realized if the
contracts had been closed out at quarter-end. The fair value of the futures are
based on quoted market prices obtained from the New York Mercantile Exchange and
have been adjusted for our hedging of the basis differential accorded to the
pipelines relative to our areas at production.

     A hypothetical $0.10 per MMBtu change in our quarter-end market prices for
natural gas swaps and futures contracts on a notional amount of 22.4 million
MMBtu would cause a potential $1.8 million change in net income before income
taxes over the remaining life of the contracts in place on June 30, 2003 and a
potential $875,000 change for the last six months of 2003. A hypothetical $1.00
per Bbl change in our quarter-end market prices for crude oil swaps and future
contracts on a notional amount of 2.9 million Bbls would cause a potential $2.7
million change in net income before income taxes over the remaining life of the
contracts in place on June 30, 2003 and a potential $1.2 million change for the
last six months of 2003. These hypothetical changes were discounted to present
value using a 7.5% discount rate since the latest expected maturity date of
certain swaps and futures contracts is greater than one year from the reporting
date.

     Interest Rate Risk. Market risk is estimated as the potential change in
fair value resulting from an immediate hypothetical one percentage point
parallel shift in the yield curve. A sensitivity analysis presents the
hypothetical change in fair value of those financial instruments held by St.
Mary at June 30, 2003, which are sensitive to changes in interest rates. For
fixed-rate debt, interest rate changes affect the fair market value but do not
impact results of operations or cash flows. Conversely for floating rate debt,
interest rate changes generally do not affect the fair market value but do
impact future results of operations and cash flows, assuming other factors are
held constant. The carrying amount of our floating rate debt approximates its
fair value. At June 30, 2003, we had floating rate debt of $44.0 million and
$100.0 million of fixed rate debt. Assuming constant debt levels, the impact on
results of operations and cash flows for the remainder of the year resulting
from a one-percentage-point change in interest rates would be approximately
$220,000 before taxes.

                                      -29-


ITEM 4.  CONTROLS AND PROCEDURES

     We maintain a system of disclosure controls and procedures that are
designed for the purposes of ensuring that information required to be disclosed
in our SEC reports is recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and forms, and that such information
is accumulated and communicated to our management, including the Chief Executive
Officer and the Vice-President - Finance, as appropriate to allow timely
decisions regarding required disclosure.

     We carried out an evaluation, under the supervision and with the
participation of our management, including the Chief Executive Officer and the
Vice-President - Finance, of the effectiveness of the design and operation of
our disclosure controls and procedures as of the end of the period covered by
this Quarterly Report on Form 10-Q. Based upon that evaluation, the Chief
Executive Officer and the Vice-President - Finance concluded that our disclosure
controls and procedures are effective for the purposes discussed above as of the
end of the period covered by this Quarterly Report on Form 10-Q. There was no
significant change in our internal control over financial reporting that
occurred during our most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, our internal control over financial
reporting.

PART II.  OTHER INFORMATION

ITEM 1.  Legal Proceedings
         -----------------

     The previously reported legal proceeding involving Nance Petroleum
Corporation and the Northern Plains Resource Council, Inc. in the U.S. District
Court for the District of Montana had no significant developments during the
quarterly period ended June 30, 2003. For a description of this proceeding,
please see the "Legal Proceedings" section of St. Mary's Annual Report on Form
10-K for the year ended December 31, 2002.

     On August 4, 2003, the Company received a copy of an Administrative Order
(the "Order") by the U.S. Environmental Protection Agency (Docket No.
CWA-06-2003-1995) related to certain oil and gas properties in the Gulf of
Mexico that are or were owned, operated or leased by St. Mary Energy Company.
Interests in these properties were acquired by the Company through its
acquisition of St. Mary Energy Company, formerly named King Ranch Energy, Inc.,
on December 17, 1999. The Order alleges violations of the Clean Water Act
through certain violations of EPA reporting rules with respect to such
properties under applicable EPA permits during reporting monitoring periods from
July 1, 1998 to December 31, 1999. Based on a preliminary internal review to
date, the Company believes that any reporting discrepancies were inadvertent and
did not involve any improper discharge of pollutants into the environment, and
the Company plans to fully cooperate with the EPA to appropriately correct and
remedy any reporting discrepancies. Due to the preliminary nature of this
matter, the Company cannot predict whether any monetary or other penalties will
be imposed. However, the Company does not currently expect that such penalties,
if any, would have a material effect on the Company's financial condition,
results of operations or cash flows.

                                      -30-


ITEM 4.  Submission of Matters to a Vote of Security Holders
         ---------------------------------------------------

     At the Company's annual stockholders' meeting on May 21, 2003, the
stockholders approved management's current slate of directors. The directors
elected and the vote tabulation for each director are as follows:

                  Director                            For           Withheld
                  --------                            ---          ---------
                  Barbara M. Baumann              28,792,078         171,902
                  Larry W. Bickle                 28,772,485         191,495
                  Ronald D. Boone                 28,772,485         191,495
                  Thomas E. Congdon               28,772,485         191,495
                  William J. Gardiner             28,772,397         191,583
                  Mark A. Hellerstein             28,772,485         191,495
                  Arend J. Sandbulte              28,435,397         528,583
                  John M. Seidl                   28,435,397         528,583

     Also at the Company's annual stockholders' meeting on May 21, 2003, the
stockholders approved an amendment to the Company's stock option plans to
increase the total number of shares issuable under those plans by 1,300,000
shares to a total of 5,600,000. The tabulation of votes for that proposal is as
follows:

                  For                           16,898,695
                  Against                       11,374,779
                  Abstain                          690,506

     Also at the Company's annual stockholders' meeting on May 21, 2003, the
stockholders approved a non-employee director stock compensation plan for the
issuance of up to a total of 30,000 shares of St. Mary common stock to
non-employee directors as part of their annual or other compensation over an
anticipated period of up to five years. The tabulation of votes for that
proposal is as follows:

                  For                           25,297,824
                  Against                        2,874,837
                  Abstain                          791,319

ITEM 6.  Exhibits and Reports on Form 8-K
         --------------------------------

        (a)    Exhibits

               The following exhibits are furnished as part of this report:

               Exhibit     Description
               -------     -----------

               10.1*       St. Mary Land & Exploration Company Non-Employee
                           Director Stock Compensation Plan as adopted on
                           March 27, 2003
               10.2        St. Mary Land & Exploration Company Stock Option
                           Plan, As Amended on March 25, 1999, January 27,
                           2000, March 29, 2001, March 27, 2003 and May 22,
                           2003 (filed as Exhibit 99.1 to registrant's

                                      -31-


               Exhibit     Description
               -------     -----------

                           Registration Statement on Form S-8 (Registration
                           No. 333-106438) and incorporated herein by
                           reference)
               10.3        St. Mary Land & Exploration Company Incentive
                           Stock Option Plan, As Amended on March 25, 1999,
                           January 27, 2000, March 29, 2001, March 27, 2003
                           and May 22, 2003 (filed as Exhibit 99.2 to
                           registrant's Registration Statement on Form S-8
                           (Registration No. 333-106438) and incorporated
                           herein by reference)
               10.4*       Guaranty Agreement by St. Mary Energy Company in
                           favor of Wachovia Bank, National Association, as
                           Administrative Agent, dated January 27, 2003
               10.5*       Guaranty Agreement by St. Mary Operating Company in
                           favor of Wachovia Bank, National Association, as
                           Administrative Agent, dated January 27, 2003
               10.6*       Guaranty Agreement by Nance Petroleum Corporation in
                           favor of Wachovia Bank, National Association, as
                           Administrative Agent, dated January 27, 2003
               10.7*       Guaranty Agreement by NPC Inc. in favor of Wachovia
                           Bank, National Association, as Administrative Agent,
                           dated January 27, 2003
               10.8*       Pledge and Security Agreement between St. Mary Land
                           & Exploration Company and Wachovia Bank, National
                           Association, as Administrative Agent, dated
                           January 27, 2003
               10.9*       Pledge and Security Agreement between Nance Petroleum
                           Corporation and Wachovia Bank, National Association,
                           as Administrative Agent, dated January 27, 2003
               10.10*      First Supplement and Amendment to Deed of Trust,
                           Mortgage, Line of Credit Mortgage, Assignment,
                           Security Agreement, Fixture Filing and Financing
                           Statement for the benefit of Wachovia Bank,
                           National Association, as Administrative Agent,
                           dated effective as of January 27, 2003
               10.11*      Deed of Trust - St. Mary Land & Exploration to
                           Wachovia Bank, National Association, as
                           Administrative Agent, dated effective as of
                           January 27, 2003
               10.12*      Deed of Trust (CO, NV, SD) to Wachovia Bank, National
                           Association, as Administrative Agent, dated effective
                           as of April 2003
               10.13*      Deed of Trust (LA, MT, ND, NM, OK, TX, UT, WY) to
                           Wachovia Bank, National Association, as
                           Administrative Agent, dated effective as of
                           April 2003
               10.14*      First Supplement and Amendment to Deed of Trust,
                           Mortgage, Line of Credit Mortgage, Assignment,
                           Security Agreement, Fixture Filing and Financing
                           Statement for the benefit of Wachovia Bank,
                           National Association, as Administrative Agent,
                           dated effective as of April 2003
               10.15*      Second Supplement and Amendment to Deed of Trust,
                           Mortgage, Line of Credit Mortgage, Assignment,
                           Security Agreement, Fixture Filing and Financing
                           Statement for the benefit of Wachovia Bank, National
                           Association, as Administrative Agent, dated effective
                           as of April 2003
               31.1*       Certification of Chief Executive Officer pursuant to
                           Section 302 of the Sarbanes - Oxley Act of 2002 31.2*
                           Certification of Vice President - Finance pursuant to
                           Section 302 of the Sarbanes - Oxley Act of 2002
               32.1*       Certification pursuant to U.S.C. Section 1350 as
                           adopted pursuant to Section 906 of the Sarbanes -
                           Oxley Act of 2002
         --------------------------
         *     Filed with this Form 10-Q.

                                      -32-





        (b)    Reports on Form 8-K

               St. Mary Land & Exploration Company filed the following
        current reports on Form 8-K during the quarter ended June 30, 2003:

          o    On April 21, 2003, we filed a current report on Form 8-K
               reporting under Item 9 pursuant to Item 12 that we had issued a
               press release announcing an update of our operations for the
               first quarter of 2003.
          o    On April 29, 2003, we filed a current report on Form 8-K
               reporting under Item 9 that we had issued a press release
               announcing a regular semi-annual 5-cent per share cash dividend.
          o    On May 7, 2003, we filed a current report on Form 8-K reporting
               under Item 9 pursuant to Item 12that we had issued a press
               release announcing our first quarter 2003 financial results and
               an updated forecast of our second quarter and full year of 2003.

                                      -33-





                                   SIGNATURES
                                   ----------

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

                                       ST. MARY LAND & EXPLORATION COMPANY



August 12, 2003                        By: /s/ MARK A. HELLERSTEIN
                                           ------------------------------------
                                           Mark A. Hellerstein
                                           President and Chief Executive Officer


August 12, 2003                        By: /s/ DAVID W. HONEYFIELD
                                           -------------------------------------
                                           David W. Honeyfield
                                           Vice President - Finance, Secretary
                                           and Treasurer


August 12, 2003                        By: /s/ GARRY A. WILKENING
                                           -------------------------------------
                                           Garry A. Wilkening
                                           Vice President - Administration and
                                           Controller

EX-10

                                                                    EXHIBIT 10.1


                       ST. MARY LAND & EXPLORATION COMPANY

                  NON-EMPLOYEE DIRECTOR STOCK COMPENSATION PLAN


                                    Article I
                            ESTABLISHMENT AND PURPOSE
                            -------------------------

     1.1  Establishment.  St. Mary Land &  Exploration  Company,  a Delaware
          -------------
corporation (the "Company"),  hereby  establishes a stock  compensation plan for
non-employee  members of the Board of Directors  of the Company  (the  "Board"),
which  plan  shall be known  as the ST.  MARY  LAND  &  EXPLORATION  COMPANY
NON-EMPLOYEE DIRECTOR STOCK COMPENSATION PLAN (the "Plan").

     1.2  Purpose.  The purpose of the Plan is to enhance  stockholder  value by
          -------
attracting,  retaining  and further  motivating  non-employee  Directors  and to
encourage  and enable such  Directors to acquire a  proprietary  interest in the
Company by issuing  shares of the  Company's  common  stock,  $.01 par value per
share (the "Stock"), to such Directors as compensation for serving as members of
the Board and the committees thereof.

                                   Article II
                          ELIGIBILITY AND PARTICIPATION
                          -----------------------------

     All  members  of the  Board who are not  employees  of the  Company  or any
subsidiary of the Company are eligible to  participate in the Plan and be issued
shares of Stock under the Plan.

                                   Article III
                                 ADMINISTRATION
                                 --------------

     The Board shall be  responsible  for  administering  the Plan. The Board is
authorized  to (i)  interpret  the Plan,  (ii)  prescribe  and revise  rules and
regulations  relating to the Plan,  (iii) provide for  conditions and assurances
deemed  necessary  or  advisable  to protect the  interests  of the Company with
respect  to the  Plan  and  (iv)  make all  other  determinations  necessary  or
advisable for the administration of the Plan. Determinations, interpretations or
other  actions made or taken by the Board with respect to the Plan and shares of
Stock  issued  under the Plan shall be final,  binding  and  conclusive  for all
purposes  and upon all  persons.  No member of the Board shall be liable for any
action or  determination  made in good  faith  with  respect  to the Plan or any
shares of Stock issued under the Plan.



                                   Article IV
                    SHARES OF STOCK AVAILABLE UNDER THE PLAN
                    ----------------------------------------

     4.1 Total Number. The total number of shares of Stock hereby made available
         ------------
and reserved for issuance under the Plan is 30,000 shares, which number shall be
subject to adjustment as provided in Section 4.2.

     4.2  Adjustment  in  Capitalization.  In the  event  of any  change  in the
          ------------------------------
outstanding  shares of Stock of the  Company  by reason of a stock  dividend  or
split, recapitalization, reclassification, or other similar change or adjustment
in capitalization,  the total number of shares of Stock set forth in Section 4.1
shall be correspondingly adjusted by the Board.

                                   Article V
                                ISSUANCE OF STOCK
                                -----------------

     5.1  Issuance  of Stock.  Subject  to Section  4.1,  shares of Stock may be
          ------------------
issued to non-employee Directors in such amounts and at such times as determined
by the Board as annual  or other  compensation  to  non-employee  Directors  for
serving as members of the Board and the committees thereof. The Board shall have
complete discretion in determining the terms and conditions and number of shares
of Stock issued to non-employee  Directors under the Plan.  Notwithstanding  the
foregoing, the number of shares of Stock issued under the Plan to a non-employee
Director  shall,  in the  good  faith  judgment  of  the  Board,  (a)  represent
reasonable  compensation for the services and responsibilities of such Director,
(b) be generally  consistent with the past practices of the Company with respect
to compensation of the non-employee Directors, as adjusted to reflect changes in
applicable  circumstances.  Shares  of  Stock  issued  under  the  Plan  may  be
previously unissued shares of Stock or previously issued shares of Stock held by
the Company as treasury shares.

     5.2 Restricted Securities.  The shares of Stock issued under the Plan shall
         ---------------------
not be registered  under the Securities Act of 1933, as amended (the "Securities
Act"), and shall be "restricted  securities" as that term is defined in Rule 144
under the Securities  Act.  Accordingly,  the shares of Stock will be subject to
restrictions on  transferability  and sale and may not be offered for sale, sold
or otherwise transferred except pursuant to an effective  registration statement
under the Securities Act or pursuant to an exemption from registration under the
Securities  Act,  the  availability  of  which  is  to  be  established  to  the
satisfaction of the Company.  Certificates  for shares of Stock issued under the
Plan shall bear a restrictive legend consistent with the foregoing.

                                        2


                                   Article VI
              AMENDMENT, MODIFICATION, AND TERMINATION OF THE PLAN
              ----------------------------------------------------

     The  Board  may at any time  terminate  and from  time to time may amend or
modify  the  Plan.  Unless  terminated  earlier  by the  Board,  the Plan  shall
terminate  upon the  expiration  of five years after the date of the adoption of
the  Plan.  Any  amendment  or  modification  of the  Plan by the  Board  may be
accomplished without approval of the stockholders of the Company, except if such
amendment  or  modification  would  increase the total number of shares of Stock
available under the Plan or otherwise require stockholder approval under any law
or regulation governing the Company or under any applicable listing standards of
national securities exchanges.

                                   Article VII
                                 TAX WITHHOLDING
                                 ---------------

     Whenever shares of Stock are to be issued under the Plan, the Company shall
have the right to require the  recipient  of the shares of Stock to remit to the
Company an amount  sufficient to satisfy federal,  state, and local  withholding
tax requirements, if any.

                                  Article VIII
                               REQUIREMENTS OF LAW
                               -------------------

     8.1  Requirements  of Law.  The  issuance of shares of Stock under the Plan
          --------------------
shall be subject to all applicable laws,  rules,  and  regulations,  and to such
approvals or authorizations by any governmental  agencies or national securities
exchanges as may be required.

     8.2  Governing  Law.  The Plan shall be construed  in  accordance  with and
          --------------
governed by the laws of the State of Colorado.

     This ST. MARY LAND &  EXPLORATION COMPANY  NON-EMPLOYEE  DIRECTOR STOCK
COMPENSATION  PLAN was adopted by the Board of  Directors of St. Mary Land &
Exploration  Company on March 27, 2003, to be effective upon adoption.  ST. MARY
LAND & EXPLORATION COMPANY



                                  By:   /s/ MARK A. HELLERSTEIN
                                        --------------------------------------
                                        Mark A. Hellerstein
                                        Chairman of the Board of Directors,
                                        President and Chief Executive Officer

                                       3

EX-10

                                                                    EXHIBIT 10.4
                               GUARANTY AGREEMENT


                                       by


                             ST. MARY ENERGY COMPANY


                                   in favor of


                      WACHOVIA BANK, NATIONAL ASSOCIATION,
                             AS ADMINISTRATIVE AGENT



                                January 27, 2003






                                TABLE OF CONTENTS
                                -----------------                           Page


ARTICLE 1 General Terms........................................................1
  Section 1.1       Terms Defined Above........................................1
  Section 1.2       Certain Definitions........................................1
  Section 1.3       Credit Agreement Definitions...............................3


ARTICLE 2 The Guaranty.........................................................3
  Section 2.1       Liabilities Guaranteed.....................................3
  Section 2.2       Nature of Guaranty.........................................3
  Section 2.3       Administrative Agent's Rights..............................4
  Section 2.4       Guarantor's Waivers........................................4
  Section 2.5       Maturity of Liabilities; Payment...........................4
  Section 2.6       Administrative Agent's Expenses............................4
  Section 2.7       Liability..................................................5
  Section 2.8       Events and Circumstances Not Reducing or Discharging
                    Guarantor's Obligations....................................5
  Section 2.9       Right of Subrogation and Contribution......................7


ARTICLE 3 Representations and Warranties.......................................7
  Section 3.1       By Guarantor...............................................7
  Section 3.2       No Representation by Lenders...............................8


ARTICLE 4 Subordination of Indebtedness........................................8
  Section 4.1       Subordination of All Guarantor Claims......................8
  Section 4.2       Claims in Bankruptcy.......................................8
  Section 4.3       Payments Held in Trust.....................................9
  Section 4.4       Liens Subordinate..........................................9
  Section 4.5       Notation of Records........................................9


ARTICLE 5 Miscellaneous........................................................9
  Section 5.1       Successors and Assigns.....................................9
  Section 5.2       Notices....................................................9
  Section 5.3       Business and Financial Information........................10
  Section 5.4       Choice of Law.............................................10
  Section 5.5       Invalidity................................................10
  SECTION 5.6       ENTIRE AGREEMENT..........................................10


                                      -i-



                               GUARANTY AGREEMENT
                               ------------------

     THIS GUARANTY AGREEMENT (this "Guaranty Agreement") made by the undersigned
                                    ------------------
guarantor  (hereinafter  called  "Guarantor"),  is in  favor of  Wachovia  Bank,
                                  ---------
National Association,  as Administrative Agent (the "Administrative  Agent") for
                                                     ---------------------
the lenders (the "Lenders") signatory to the Credit Agreement defined below.
                  -------

                                R E C I T A L S:
                                ---------------

     A. On even date  herewith,  St.  Mary Land  &  Exploration  Company,  a
Delaware corporation (hereinafter called "Borrower"),  the Administrative Agent,
and the Lenders have entered into that certain Credit Agreement (as the same may
be amended or supplemented from time to time, the "Credit Agreement"),  whereby,
                                                   ----------------
pursuant to the terms and conditions  contained  therein,  the Lenders agreed to
make loans to and extend credit on behalf of the Borrower; and

     B. One of the terms and conditions  stated in the Credit  Agreement for the
making of the loans and extensions of credit described  therein is the execution
and delivery to the Administrative  Agent for the benefit of the Lenders of this
Guaranty Agreement;

     NOW, THEREFORE, (i) in order to comply with the terms and conditions of the
Credit Agreement,  (ii) to induce the Lenders, at any time or from time to time,
to loan  monies  and extend  credit,  with or  without  security,  to or for the
account of Borrower in accordance with the terms of the Credit Agreement,  (iii)
at the special  insistence  and request of the Lenders,  and (iv) for other good
and  valuable  consideration,  the  receipt and  sufficiency  of which is hereby
acknowledged, Guarantor hereby agrees as follows:

                                    ARTICLE 1
                                    ---------
                                  General Terms
                                  -------------

     Section 1.1 Terms Defined Above.  As used in this Guaranty  Agreement,  the
                 -------------------
terms "Administrative Agent",  "Borrower",  "Credit Agreement",  "Guarantor" and
"Lenders" shall have the meanings indicated above.

     Section 1.2 Certain  Definitions.  As used in this Guaranty Agreement,  the
                 --------------------
following terms shall have the following meanings,  unless the context otherwise
requires  (terms  defined in the singular shall have the same meanings when used
in the plural and vice versa):

     "Contribution  Obligation" shall mean an amount equal, at any time and from
      ------------------------
time to time and for each respective Subsidiary Guarantor, to the product of (i)
its Contribution  Percentage times (ii) the sum of all payments made previous to
or at the time of  calculation  by all  Subsidiary  Guarantors in respect of the
Liabilities,  as a Subsidiary  Guarantor  (less the amount of any such  payments
previously  returned  to  any  Subsidiary  Guarantor  by  operation  of  law  or
otherwise,  but not including  payments received by any Subsidiary  Guarantor by
way of its rights of subrogation and contribution under Section 2.9 of any other
Guaranty Agreements);  provided,  however, such Contribution  Obligation for any
Subsidiary  Guarantor  shall  in no event  exceed  such  Subsidiary  Guarantor's
Maximum  Guaranteed  Amount, as defined in the respective  Guaranty Agreement of
such Subsidiary Guarantor.

                                      -1-


     "Contribution  Percentage" shall mean for any Subsidiary  Guarantor for any
      ------------------------
applicable date as of which such percentage is being determined, an amount equal
to the  quotient of (i) the Net Worth of such  Subsidiary  Guarantor  as of such
date, divided by (ii) the sum of the Net Worth of all the Subsidiary  Guarantors
as of such date.

     "Guarantor Claims" shall have the meaning indicated in Section 4.1 hereof.
      ----------------

     "Guaranty  Agreement"  shall mean this  Guaranty  Agreement,  and where the
      -------------------
context indicates, the "Guaranty Agreement" (as defined in the Credit Agreement)
of any other Subsidiary Guarantor, as the same may from time to time be amended,
modified or supplemented.

     "Liabilities"  shall  mean (a) any and all  Indebtedness,  obligations  and
      -----------
liabilities of the Borrower  pursuant to the Credit Agreement and any other Loan
Document,  including without limitation, the unpaid principal of and interest on
the Notes,  including without  limitation,  interest accruing  subsequent to the
filing of a petition or other  action  concerning  bankruptcy  or other  similar
proceeding;  (b) any additional  loans made by the Lenders to the Borrower;  (c)
payment of and  performance of any and all present or future  obligations of the
Borrower to any Lender or any Affiliate of such Lender under any Swap  Agreement
between the Borrower and any Lender or any Affiliate of such Lender; (d) any and
all other indebtedness,  obligations and liabilities of any kind of the Borrower
to the Lenders, now or hereafter existing, arising directly between the Borrower
and the Lenders or acquired  outright,  as a participation,  conditionally or as
collateral security from another by the Lenders,  absolute or contingent,  joint
and/or several,  secured or unsecured,  due or not due,  arising by operation of
law or otherwise, or direct or indirect, including indebtedness, obligations and
liabilities  to the  Lenders  of the  Borrower  as a member of any  partnership,
syndicate,  association or other group,  and whether incurred by the Borrower as
principal,  surety, endorser,  guarantor,  accommodation party or otherwise; and
(e)  all  renewals,  rearrangements,   increases,  extensions  for  any  period,
amendments  or  supplements  in whole or in part of the  Notes or any  documents
evidencing the above

     "Maximum  Guaranteed Amount" shall mean, for the Guarantor,  the greater of
      --------------------------
(i) the "reasonably  equivalent  value" or "fair  consideration"  (or equivalent
concept)  received by the  Guarantor  in exchange  for the  obligation  incurred
hereunder,  within the  meaning of any  applicable  state or federal  fraudulent
conveyance or transfer  laws; or (ii) the lesser of (A) the maximum  amount that
will not render the Guarantor insolvent, or (B) the maximum amount that will not
leave the Guarantor  with any property  deemed an  unreasonably  small  capital.
Clauses  (A) and  (B) are and  shall  be  determined  pursuant  to and as of the
appropriate  date  mandated  by such  applicable  state  or  federal  fraudulent
conveyance or transfer  laws and to the extent  allowed by law take into account
the rights to contribution  and  subrogation  under Section 2.9 in each Guaranty
Agreement so as to provide for the largest Maximum Guaranteed Amount possible.

     "Net  Payments"  shall mean an amount  equal,  at any time and from time to
      -------------
time and for each respective Subsidiary Guarantor,  to the difference of (i) the
sum of all  payments  made  previous  to or at the time of  calculation  by such
Subsidiary Guarantor in respect of the Liabilities,  as a Subsidiary  Guarantor,
and in respect of its  obligations  contained in this Guaranty  Agreement,  less
(ii)  the sum of all  such  payments  previously  returned  to  such  Subsidiary

                                      -2-


Guarantor by operation of law or otherwise  and including  payments  received by
such Subsidiary  Guarantor by way of its rights of subrogation and  contribution
under Section 2.9 of any other Guaranty Agreements.

     "Net  Worth"  shall  mean  for  any  Subsidiary  Guarantor,  determined  in
      ----------
accordance  with GAAP and calculated on and as of any  applicable  date on which
such amount is being determined,  the difference between (i) the sum of all such
Subsidiary  Guarantor's property, at a fair valuation and as of such date, minus
(ii) the sum of all such Subsidiary  Guarantor's  debts, at a fair valuation and
as of such date, excluding the Liabilities.

     "Subsidiary  Guarantors" shall mean the Subsidiaries or other Persons party
      ----------------------
to a Guaranty Agreement, including the Guarantor.

     Section 1.3 Credit Agreement Definitions.  Unless otherwise defined herein,
                 ----------------------------
all terms  beginning  with a capital  letter  which are  defined  in the  Credit
Agreement shall have the same meanings herein as therein.

                                    ARTICLE 2
                                    ---------
                                  The Guaranty
                                  ------------

     Section  2.1  Liabilities  Guaranteed.  Guarantor  hereby  irrevocably  and
                   -----------------------
unconditionally  guarantees  the  prompt  payment of the  Liabilities  when due,
whether at maturity  or  otherwise;  provided,  however,  that,  notwithstanding
anything  herein or in any other Loan  Document  to the  contrary,  the  maximum
liability of Guarantor hereunder shall in no event exceed the Maximum Guaranteed
Amount.

     Section 2.2 Nature of  Guaranty.  This  Guaranty  Agreement is an absolute,
                 -------------------
irrevocable,  completed and continuing guaranty of payment and not a guaranty of
collection,  and no notice of the Liabilities or any extension of credit already
or hereafter  contracted  by or extended to Borrower need be given to Guarantor.
This Guaranty Agreement may not be revoked by Guarantor and shall continue to be
effective  with respect to debt under the  Liabilities  arising or created after
any attempted  revocation by Guarantor and shall remain in full force and effect
until  the  Liabilities  are paid in full and the  Commitments  are  terminated,
notwithstanding  that from time to time  prior  thereto  no  Liabilities  may be
outstanding.  Borrower and the Lenders may modify, alter, rearrange,  extend for
any period and/or renew from time to time, the Liabilities,  and the Lenders may
waive any Default or Events of Default  without  notice to the  Guarantor and in
such event Guarantor will remain fully bound hereunder on the Liabilities.  This
Guaranty Agreement shall continue to be effective or be reinstated,  as the case
may be, if at any time any  payment  of the  Liabilities  is  rescinded  or must
otherwise be returned by any of the Lenders upon the  insolvency,  bankruptcy or
reorganization of Borrower or otherwise, all as though such payment had not been
made. This Guaranty  Agreement may be enforced by the  Administrative  Agent and
any subsequent  holder of any of the  Liabilities and shall not be discharged by
the  assignment  or  negotiation  of all or part of the  Liabilities.  Guarantor
hereby expressly waives presentment,  demand, notice of non-payment, protest and
notice of protest and dishonor, notice of Default or Event of Default, notice of
intent to accelerate the maturity and notice of acceleration of the maturity and
any  other  notice  in  connection  with the  Liabilities,  and also  notice  of
acceptance  of this  Guaranty  Agreement,  acceptance on the part of the Lenders

                                      -3-


being conclusively  presumed by the Lenders' request for this Guaranty Agreement
and delivery of the same to the Administrative Agent.

     Section  2.3  Administrative  Agent's  Rights.   Guarantor  authorizes  the
                   -------------------------------
Administrative Agent, without notice or demand and without affecting Guarantor's
liability  hereunder,  to obtain a guaranty of the  Liabilities  from any one or
more  Persons and at any time or times to  enforce,  waive,  rearrange,  modify,
limit or release any of such other  Persons  from their  obligations  under such
guaranties.

     Section 2.4 Guarantor's Waivers.
                 -------------------

          (a) General.  Guarantor waives any right to require any of the Lenders
              -------
to (i) proceed against  Borrower or any other person liable on the  Liabilities,
(ii) enforce any of their rights against any other  guarantor of the Liabilities
including but not limited to the Subsidiary  Guarantors (iii) proceed or enforce
any of their  rights  against  or  exhaust  any  security  given to  secure  the
Liabilities  (iv) have Borrower joined with Guarantor in any suit arising out of
this Guaranty  Agreement and/or the Liabilities,  or (v) pursue any other remedy
in the Lenders' powers whatsoever. The Lenders shall not be required to mitigate
damages  or take any  action to reduce,  collect  or  enforce  the  Liabilities.
Guarantor  waives  any  defense  arising  by reason of any  disability,  lack of
corporate  authority  or  power,  or other  defense  of  Borrower  or any  other
guarantor of the  Liabilities,  and shall remain  liable  hereon  regardless  of
whether  Borrower  or any other  guarantor  be found not liable  thereon for any
reason.  Whether and when to exercise any of the  remedies of the Lenders  under
any of the Loan  Documents  shall be in the sole and absolute  discretion of the
Administrative  Agent, and no delay by the Administrative Agent in enforcing any
remedy,  including delay in conducting a foreclosure sale, shall be a defense to
the Guarantor's  liability under this Guaranty Agreement.  To the extent allowed
by applicable  law, the Guarantor  hereby waives any good faith duty on the part
of the  Administrative  Agent in  exercising  any remedies  provided in the Loan
Documents.

          (b)  Subrogation.  Until the  Liabilities  have been paid in full, the
               -----------
Guarantor  waives  all  rights  of  subrogation  or  reimbursement  against  the
Borrower,  whether arising by contract or operation of law  (including,  without
limitation,  any such right  arising  under any federal or state  bankruptcy  or
insolvency  laws) and waives any right to enforce  any remedy  which the Lenders
now have or may hereafter  have against the Borrower,  and waives any benefit or
any  right  to  participate  in  any  security  now  or  hereafter  held  by the
Administrative Agent or any Lender.

     Section 2.5 Maturity of Liabilities;  Payment. Guarantor agrees that if the
                 ---------------------------------
maturity of any of the  Liabilities  is  accelerated by bankruptcy or otherwise,
such maturity shall also be deemed  accelerated for the purpose of this Guaranty
Agreement without demand or notice to Guarantor.  Guarantor will, forthwith upon
notice from the Administrative Agent, pay to the Administrative Agent the amount
due  and  unpaid  by  Borrower  and  guaranteed   hereby.  The  failure  of  the
Administrative  Agent to give this notice shall not in any way release Guarantor
hereunder.

     Section 2.6 Administrative  Agent's Expenses. If Guarantor fails to pay the
                 --------------------------------
Liabilities after notice from the Administrative  Agent of Borrower's failure to

                                      -4-


pay any  Liabilities  when due,  and if the  Administrative  Agent  obtains  the
services of an attorney for collection of amounts owing by Guarantor  hereunder,
or  obtaining  advice of  counsel  in  respect  of any  aspect of this  Guaranty
Agreement,  or if suit is  filed  to  enforce  this  Guaranty  Agreement,  or if
proceedings are had in any bankruptcy,  probate,  receivership or other judicial
proceedings for the establishment or collection of any amount owing by Guarantor
hereunder,  or if any amount owing by Guarantor  hereunder is collected  through
such  proceedings,  Guarantor  agrees  to pay to the  Administrative  Agent  the
Administrative Agent's reasonable attorneys' fees.

     Section 2.7  Liability.  It is expressly  agreed that the  liability of the
                  ---------
Guarantor for the payment of the Liabilities  guaranteed hereby shall be primary
and not secondary.

     Section  2.8  Events  and   Circumstances   Not  Reducing  or   Discharging
                   -------------------------------------------------------------
Guarantor's  Obligations.  Guarantor  hereby  consents and agrees to each of the
- ------------------------
following to the fullest  extent  permitted by law, and agrees that  Guarantor's
obligations  under this Guaranty  Agreement  shall not be released,  diminished,
impaired,  reduced or adversely affected by any of the following, and waives any
rights  (including  without  limitation  rights to notice) which Guarantor might
otherwise have as a result of or in connection with any of the following:

          (a)  Modifications,   etc.  Any  renewal,   extension,   modification,
               --------------------
increase,  decrease,  alteration  or  rearrangement  of all or any  part  of the
Liabilities,  or of the Notes,  any Loan Document or the Credit Agreement or any
instrument  executed in connection  therewith,  or any contract or understanding
between Borrower and any of the Lenders, or any other Person,  pertaining to the
Liabilities.

          (b)  Adjustment,  etc.  Any  adjustment,  indulgence,  forbearance  or
               ----------------
compromise  that might be granted or given by any of the  Lenders to Borrower or
Guarantor or any Person liable on the Liabilities.

          (c) Condition of Borrower or  Guarantor.  The  insolvency,  bankruptcy
              -----------------------------------
arrangement,  adjustment,  composition,  liquidation,  disability,  dissolution,
death or lack of power of Borrower or  Guarantor or any other Person at any time
liable for the payment of all or part of the Liabilities;  or any dissolution of
Borrower  or  Guarantor,  or any sale,  lease or  transfer  of any or all of the
assets of Borrower or Guarantor,  or any changes in the shareholders,  partners,
or members of  Borrower  or  Guarantor;  or any  reorganization  of  Borrower or
Guarantor.

          (d)  Invalidity  of  Liabilities.   The   invalidity,   illegality  or
               ---------------------------
unenforceability  of all or any  part of the  Liabilities,  or any  document  or
agreement   executed  in  connection  with  the  Liabilities,   for  any  reason
whatsoever,  including without limitation the fact that the Liabilities,  or any
part  thereof,  exceed the amount  permitted  by law,  the act of  creating  the
Liabilities or any part thereof is ultra vires, the officers or  representatives
                                   ----- -----
executing the documents or otherwise creating the Liabilities acted in excess of
their authority, the Liabilities violate applicable usury laws, the Borrower has
valid  defenses,  claims or offsets  (whether at law, in equity or by agreement)
which render the Liabilities  wholly or partially  uncollectible  from Borrower,
the creation,  performance  or repayment of the  Liabilities  (or the execution,
delivery and performance of any document or instrument  representing part of the
Liabilities or executed in connection with the  Liabilities,  or given to secure
the repayment of the Liabilities) is illegal, uncollectible,  legally impossible
or  unenforceable,  or the Credit  Agreement or other  documents or  instruments

                                      -5-


pertaining to the Liabilities have been forged or otherwise are irregular or not
genuine or authentic.

          (e) Release of Obligors.  Any full or partial release of the liability
              -------------------
of Borrower on the Liabilities or any part thereof, of any co-guarantors, or any
other Person now or hereafter liable,  whether directly or indirectly,  jointly,
severally,  or jointly and severally,  to pay, perform,  guarantee or assure the
payment  of  the  Liabilities  or  any  part  thereof,   it  being   recognized,
acknowledged  and agreed by Guarantor  that Guarantor may be required to pay the
Liabilities  in full  without  assistance  or support of any other  Person,  and
Guarantor  has not been  induced to enter into this  Guaranty  Agreement  on the
basis of a contemplation,  belief, understanding or agreement that other parties
other  than the  Borrower  will be liable to  perform  the  Liabilities,  or the
Lenders will look to other parties to perform the Liabilities.

          (f) Other  Security.  The taking or accepting  of any other  security,
              ---------------
collateral or guaranty,  or other  assurance of payment,  for all or any part of
the Liabilities.

          (g) Release of  Collateral,  etc.  Any release,  surrender,  exchange,
              ----------------------------
subordination,  deterioration,  waste,  loss or  impairment  (including  without
limitation negligent,  willful, unreasonable or unjustifiable impairment) of any
collateral,  property or security,  at any time existing in connection  with, or
assuring or securing payment of, all or any part of the Liabilities.

          (h) Care and Diligence. The failure of the Lenders or any other Person
              ------------------
to  exercise  diligence  or  reasonable  care in the  preservation,  protection,
enforcement,  sale or other  handling  or  treatment  of all or any part of such
collateral, property or security; provided, however, that Lenders shall act in a
"commercially reasonable" manner as required by applicable provisions of Article
9 of the Uniform  Commercial  Code as  presently in effect in the State of Texas
when exercising their rights under that certain Pledge and Security Agreement by
and between Borrower and Administrative Agent of even date herewith.

          (i) Status of Liens. The fact that any collateral,  security, security
              ---------------
interest or lien  contemplated  or  intended to be given,  created or granted as
security for the repayment of the Liabilities shall not be properly perfected or
created, or shall prove to be unenforceable or subordinate to any other security
interest or lien, it being  recognized and agreed by Guarantor that Guarantor is
not entering into this Guaranty Agreement in reliance on, or in contemplation of
the benefits of, the validity, enforceability, collectability or value of any of
the collateral for the Liabilities.

          (j) Payments Rescinded. Any payment by Borrower to the Lenders is held
              ------------------
to  constitute a preference  under the  bankruptcy  laws,  or for any reason the
Lenders are  required  to refund such  payment or pay such amount to Borrower or
someone else.

          (k) Other Actions Taken or Omitted.  Any other action taken or omitted
              ------------------------------
to be taken with  respect  to the  Credit  Agreement,  the  Liabilities,  or the
security  and  collateral  therefor,  whether  or not such  action  or  omission
prejudices Guarantor or increases the likelihood that Guarantor will be required
to pay the  Liabilities  pursuant to the terms hereof;  it being the unambiguous
and unequivocal  intention of Guarantor that Guarantor shall be obligated to pay

                                      -6-


the Liabilities when due, notwithstanding any occurrence,  circumstance,  event,
action, or omission  whatsoever,  whether  contemplated or  uncontemplated,  and
whether or not otherwise or particularly  described herein,  except for the full
and final payment and satisfaction of the Liabilities.

     Section 2.9 Right of Subrogation  and  Contribution.  If Guarantor  makes a
                 ---------------------------------------
payment in respect of the  Liabilities,  it shall be subrogated to the rights of
the Lenders against the Borrower with respect to such payment and shall have the
rights of  contribution  against the other  Subsidiary  Guarantors  set forth in
Section 2.9 of any other Guaranty Agreements;  provided that Guarantor shall not
enforce its rights to any payment by way of  subrogation  or by  exercising  its
rights of  contribution  or  reimbursement  or the right to  participate  in any
security now or hereafter held by or for the benefit of the Lenders until all of
the Liabilities  have been paid in full. The Guarantor agrees that after all the
Liabilities  have been paid in full if its then  current Net  Payments  are less
than the amount of its then current Contribution Obligation, Guarantor shall pay
to any  other  Subsidiary  Guarantors  an  amount  (together  with any  payments
required  of the  other  Subsidiary  Guarantors  by  Section  2.9 of each  other
Guaranty Agreement) such that the Net Payments made by all Subsidiary Guarantors
in  respect  of the  Liabilities  shall be shared  among  all of the  Subsidiary
Guarantors in a proportion  equal to their respective  Contribution  Percentage;
provided,  however, Guarantor need not make any such payment if at the time such
- --------   -------
payment is to be made Guarantor is illiquid and not making such payment will not
render any other Subsidiary Guarantor insolvent.

                                    ARTICLE 3
                                    ---------
                         Representations and Warranties
                         ------------------------------

     Section  3.1 By  Guarantor.  In order to induce the  Lenders to accept this
                  -------------
Guaranty  Agreement,  Guarantor  represents  and warrants to the Lenders  (which
representations  and warranties will survive the creation of the Liabilities and
any extension of credit thereunder) that:

          (a)  Benefit  to  Guarantor.  Guarantor's  guaranty  pursuant  to this
               ----------------------
Guaranty  Agreement   reasonably  may  be  expected  to  benefit,   directly  or
indirectly, Guarantor.

          (b)  Existence.  Guarantor is a corporation  duly  organized,  validly
               ---------
existing and in good standing under the laws of the State of Delaware.

          (c)  Power  and  Authorization.   Guarantor  is  duly  authorized  and
               -------------------------
empowered  to execute,  deliver  and perform  this  Guaranty  Agreement  and all
necessary action on Guarantor's  part requisite for the due execution,  delivery
and performance of this Guaranty Agreement has been duly and effectively taken.

          (d) Binding Obligations. This Guaranty Agreement constitutes valid and
              -------------------
binding  obligations  of Guarantor,  enforceable  in accordance  with its terms,
subject to  applicable  bankruptcy,  insolvency,  reorganization,  moratorium or
other  laws  affecting  creditors'  rights  generally  and  subject  to  general
principals of equity, regardless of whether considered in a proceeding in equity
or at law.

          (e) Governmental Approvals; No Conflicts.  This Guaranty Agreement (a)
              ------------------------------------
does not require any consent or approval of, registration or filing with, or any

                                      -7-


other action by, any Governmental  Authority,  except such as have been obtained
or made and are in full force and effect,  (b) will not  violate any  applicable
law or regulation or the charter,  by-laws or other organizational  documents of
the Guarantor or any order of any Governmental  Authority,  (c) will not violate
or result  in a  default  under any  indenture,  agreement  or other  instrument
binding upon the Guarantor or its assets,  or give rise to a right thereunder to
require any payment to be made by the Guarantor,  and (d) will not result in the
creation or imposition of any Lien on any asset of the Guarantor.

          (f)  Solvency.  The  Guarantor  hereby  represents  that (i) it is not
               --------
insolvent  as of the date hereof and will not be rendered  insolvent as a result
of  this  Guaranty  Agreement,  (ii)  it  is  not  engaged  in a  business  or a
transaction,  or about to engage in a business or a  transaction,  for which any
property or assets  remaining  with such  Guarantor  thereafter is  unreasonably
small capital,  and (iii) it does not intend to incur, or believe it will incur,
debts that will be beyond its ability to pay as such debts mature.

     Section 3.2 No Representation by Lenders. Neither the Lenders nor any other
                 ----------------------------
Person has made any  representation,  warranty or statement to the  Guarantor in
order to induce the Guarantor to execute this Guaranty Agreement.

                                    ARTICLE 4
                                    ---------
                          Subordination of Indebtedness
                          -----------------------------

     Section 4.1 Subordination of All Guarantor Claims. As used herein, the term
                 -------------------------------------
"Guarantor  Claims"  shall  mean  all  debts  and  liabilities  of  Borrower  to
Guarantor,  whether  such  debts  and  liabilities  now  exist or are  hereafter
incurred or arise,  or whether  the  obligation  of Borrower  thereon be direct,
contingent,  primary,  secondary,  several, joint and several, or otherwise, and
irrespective  of  whether  such  debts  or  liabilities  be  evidenced  by note,
contract, open account, or otherwise,  and irrespective of the person or persons
in whose favor such debts or liabilities may, at their inception,  have been, or
may hereafter be created, or the manner in which they have been or may hereafter
be acquired by Guarantor.  The Guarantor Claims shall include without limitation
all rights  and  claims of  Guarantor  against  Borrower  arising as a result of
subrogation or otherwise as a result of Guarantor's  payment of all or a portion
of the  Liabilities.  During the continuance of any Event of Default,  Guarantor
shall not receive or collect, directly or indirectly, from Borrower or any other
party any amount upon the Guarantor Claims.

     Section 4.2 Claims in Bankruptcy. In the event of receivership, bankruptcy,
                 --------------------
reorganization,  arrangement,  debtor's relief, or other insolvency  proceedings
involving  Borrower as debtor,  the Lenders  shall have the right to prove their
claim in any proceeding,  so as to establish their rights  hereunder and receive
directly  from the  receiver,  trustee or other court  custodian,  dividends and
payments which would otherwise be payable upon Guarantor  Claims. In such event,
Guarantor hereby assigns such dividends and payments to the Lenders.  Should the
Administrative   Agent  or  any  Lender  receive,   for  application   upon  the
Liabilities,  any such  dividend  or  payment  which  is  otherwise  payable  to
Guarantor,  and which,  as between  Borrower and Guarantor,  shall  constitute a
credit upon the Guarantor Claims,  then upon payment in full of the Liabilities,
Guarantor  shall  become  subrogated  to the rights of the Lenders to the extent
that such  payments to the  Lenders on the  Guarantor  Claims  have  contributed

                                      -8-


toward the liquidation of the Liabilities,  and such  subrogation  shall be with
respect to that portion of the  Liabilities  which would have been unpaid if the
Administrative Agent or a Lender had not received dividends or payments upon the
Guarantor Claims.

     Section  4.3  Payments  Held in Trust.  In the event  that  notwithstanding
                   -----------------------
Sections 4.1 and 4.2 above, Guarantor should receive any funds, payments, claims
or distributions which is prohibited by such Sections,  Guarantor agrees to hold
in trust for the Lenders an amount  equal to the amount of all funds,  payments,
claims or distributions so received, and agrees that it shall have absolutely no
dominion over the amount of such funds, payments, claims or distributions except
to pay them  promptly  to the  Administrative  Agent,  and  Guarantor  covenants
promptly to pay the same to the Administrative Agent.

     Section 4.4 Liens  Subordinate.  Guarantor agrees that any liens,  security
                 ------------------
interests,  judgment liens, charges or other encumbrances upon Borrower's assets
securing  payment  of the  Guarantor  Claims  shall be and remain  inferior  and
subordinate to any liens,  security interests,  judgment liens, charges or other
encumbrances  upon  Borrower's  assets  securing  payment  of  the  Liabilities,
regardless   of  whether  such   encumbrances   in  favor  of   Guarantor,   the
Administrative  Agent or the Lenders presently exist or are hereafter created or
attach.  Without the prior written  consent of the Lenders,  Guarantor shall not
(a) exercise or enforce any  creditor's  right it may have against the Borrower,
or (b) foreclose,  repossess, sequester or otherwise take steps or institute any
action or proceeding  (judicial or otherwise,  including without  limitation the
commencement  of or  joinder  in  any  liquidation,  bankruptcy,  rearrangement,
debtor's relief or insolvency proceeding) to enforce any lien, mortgages,  deeds
of trust, security interest,  collateral rights, judgments or other encumbrances
on assets of Borrower held by Guarantor.

     Section 4.5 Notation of Records. All promissory notes, or other instruments
                 -------------------
evidencing the Guarantor  Claims accepted by or held by Guarantor (if any) shall
contain a  specific  written  notice  thereon  that the  indebtedness  evidenced
thereby is subordinated under the terms of this Guaranty Agreement.

                                    ARTICLE 5
                                    ---------
                                  Miscellaneous
                                  -------------

     Section 5.1 Successors and Assigns. This Guaranty Agreement is and shall be
                 ----------------------
in every  particular  available to the successors and assigns of the Lenders and
is and shall  always be fully  binding  upon the legal  representatives,  heirs,
successors  and assigns of  Guarantor,  notwithstanding  that some or all of the
monies, the repayment of which this Guaranty Agreement applies,  may be actually
advanced after any bankruptcy, receivership,  reorganization,  death, disability
or other event affecting Guarantor.

     Section  5.2  Notices.  Any  notice  or  demand  to  Guarantor  under or in
                   -------
connection with this Guaranty  Agreement may be given and shall  conclusively be
deemed and considered to have been given and received in accordance with Section
12.02 of the Credit  Agreement,  addressed  to  Guarantor  at the address on the
signature  page hereof or at such other address  provided to the  Administrative
Agent in writing.

                                      -9-


     Section 5.3 Business and Financial Information. The Guarantor will promptly
                 ----------------------------------
furnish  to the  Administrative  Agent  and the  Lenders  from time to time upon
request  such  information  regarding  the  business  and affairs and  financial
condition of the Guarantor and its subsidiaries as the Administrative  Agent and
the Lenders may reasonably request.

     Section 5.4 Choice of Law.  This  Guaranty  Agreement  (including,  but not
                 -------------
limited to, the validity and  enforceability  hereof)  shall be governed by, and
construed in accordance with, the laws of the State of Texas.

     Section 5.5 Invalidity. In the event that any one or more of the provisions
                 ----------
contained in this Guaranty  Agreement  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  Guaranty
Agreement.

     Section 5.6 ENTIRE AGREEMENT.  THIS WRITTEN GUARANTY AGREEMENT EMBODIES THE
                 ----------------
ENTIRE  AGREEMENT  AND  UNDERSTANDING  BETWEEN THE LENDERS AND THE GUARANTOR AND
SUPERSEDES ALL OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING
TO THE SUBJECT  MATTER  HEREOF AND  THEREOF.  THIS  WRITTEN  GUARANTY  AGREEMENT
REPRESENTS THE FINAL  AGREEMENT  BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR,  CONTEMPORANEOUS,  OR  SUBSEQUENT  ORAL  AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.



                         [SIGNATURES BEGIN ON NEXT PAGE]


                                      -10-




         WITNESS THE EXECUTION HEREOF, effective as of the 27th day of January,
2003.


                                  ST. MARY ENERGY COMPANY


                                  By:      /s/ MILAM RANDOLHP PHARO
                                           -------------------------------------
                                           Milam Randolph Pharo
                                           Vice President - Land & Legal

                                  Address: 202 Rue Iberville, Suite 110
                                           Lafayette, LA  70508-3295

                                                with copy to:

                                           1776 Lincoln Street, Suite 700
                                           Denver, CO  80203


                                      -11-

EX-10

                                                                    EXHIBIT 10.5
                               GUARANTY AGREEMENT


                                       by


                           ST. MARY OPERATING COMPANY


                                   in favor of


                      WACHOVIA BANK, NATIONAL ASSOCIATION,
                             AS ADMINISTRATIVE AGENT



                                January 27, 2003






                                TABLE OF CONTENTS
                                -----------------

                                                                            Page


ARTICLE 1 General Terms........................................................1
  Section 1.1       Terms Defined Above........................................1
  Section 1.2       Certain Definitions........................................1
  Section 1.3       Credit Agreement Definitions...............................3


ARTICLE 2 The Guaranty.........................................................3
  Section 2.1       Liabilities Guaranteed.....................................3
  Section 2.2       Nature of Guaranty.........................................3
  Section 2.3       Administrative Agent's Rights..............................4
  Section 2.4       Guarantor's Waivers........................................4
  Section 2.5       Maturity of Liabilities; Payment...........................4
  Section 2.6       Administrative Agent's Expenses............................4
  Section 2.7       Liability..................................................5
  Section 2.8       Events and Circumstances Not Reducing or Discharging
                    Guarantor's Obligations....................................5
  Section 2.9       Right of Subrogation and Contribution......................7


ARTICLE 3 Representations and Warranties.......................................7
  Section 3.1       By Guarantor...............................................7
  Section 3.2       No Representation by Lenders...............................8


ARTICLE 4 Subordination of Indebtedness........................................8
  Section 4.1       Subordination of All Guarantor Claims......................8
  Section 4.2       Claims in Bankruptcy.......................................8
  Section 4.3       Payments Held in Trust.....................................9
  Section 4.4       Liens Subordinate..........................................9
  Section 4.5       Notation of Records........................................9


ARTICLE 5 Miscellaneous........................................................9
  Section 5.1       Successors and Assigns.....................................9
  Section 5.2       Notices....................................................9
  Section 5.3       Business and Financial Information........................10
  Section 5.4       Choice of Law.............................................10
  Section 5.5       Invalidity................................................10
  SECTION 5.6       ENTIRE AGREEMENT..........................................10


                                      -i-




                               GUARANTY AGREEMENT
                               ------------------

     THIS GUARANTY AGREEMENT (this "Guaranty Agreement") made by the undersigned
          ------------------        ------------------
guarantor  (hereinafter  called  "Guarantor"),  is in  favor of  Wachovia  Bank,
                                  ---------
National Association,  as Administrative Agent (the "Administrative  Agent") for
                                                     ---------------------
the lenders (the "Lenders") signatory to the Credit Agreement defined below.
                  -------

                                R E C I T A L S:
                                ----------------

     A. On even date  herewith,  St.  Mary Land  &  Exploration  Company,  a
Delaware corporation (hereinafter called "Borrower"),  the Administrative Agent,
                                          --------
and the Lenders have entered into that certain Credit Agreement (as the same may
be amended or supplemented from time to time, the "Credit Agreement"),  whereby,
                                                   ----------------
pursuant to the terms and conditions  contained  therein,  the Lenders agreed to
make loans to and extend credit on behalf of the Borrower; and

     B. One of the terms and conditions  stated in the Credit  Agreement for the
making of the loans and extensions of credit described  therein is the execution
and delivery to the Administrative  Agent for the benefit of the Lenders of this
Guaranty Agreement;

     NOW, THEREFORE, (i) in order to comply with the terms and conditions of the
Credit Agreement,  (ii) to induce the Lenders, at any time or from time to time,
to loan  monies  and extend  credit,  with or  without  security,  to or for the
account of Borrower in accordance with the terms of the Credit Agreement,  (iii)
at the special  insistence  and request of the Lenders,  and (iv) for other good
and  valuable  consideration,  the  receipt and  sufficiency  of which is hereby
acknowledged, Guarantor hereby agrees as follows:

                                    ARTICLE 1
                                    ---------
                                  General Terms
                                  -------------

     Section 1.1 Terms Defined Above.  As used in this Guaranty  Agreement,  the
                 -------------------
terms "Administrative Agent",  "Borrower",  "Credit Agreement",  "Guarantor" and
"Lenders" shall have the meanings indicated above.

     Section 1.2 Certain  Definitions.  As used in this Guaranty Agreement,  the
                 --------------------
following terms shall have the following meanings,  unless the context otherwise
requires  (terms  defined in the singular shall have the same meanings when used
in the plural and vice versa):
                  ---- -----

     "Contribution  Obligation" shall mean an amount equal, at any time and from
      ------------------------
time to time and for each respective Subsidiary Guarantor, to the product of (i)
its Contribution  Percentage times (ii) the sum of all payments made previous to
or at the time of  calculation  by all  Subsidiary  Guarantors in respect of the
Liabilities,  as a Subsidiary  Guarantor  (less the amount of any such  payments
previously  returned  to  any  Subsidiary  Guarantor  by  operation  of  law  or
otherwise,  but not including  payments received by any Subsidiary  Guarantor by
way of its rights of subrogation and contribution under Section 2.9 of any other
Guaranty Agreements);  provided,  however, such Contribution  Obligation for any
Subsidiary  Guarantor  shall  in no event  exceed  such  Subsidiary  Guarantor's
Maximum  Guaranteed  Amount, as defined in the respective  Guaranty Agreement of
such Subsidiary Guarantor.

                                      -1-


     "Contribution  Percentage" shall mean for any Subsidiary  Guarantor for any
      ------------------------
applicable date as of which such percentage is being determined, an amount equal
to the  quotient of (i) the Net Worth of such  Subsidiary  Guarantor  as of such
date, divided by (ii) the sum of the Net Worth of all the Subsidiary  Guarantors
as of such date.

     "Guarantor Claims" shall have the meaning indicated in Section 4.1 hereof.
      ----------------

     "Guaranty  Agreement"  shall mean this  Guaranty  Agreement,  and where the
      -------------------
context indicates, the "Guaranty Agreement" (as defined in the Credit Agreement)
of any other Subsidiary Guarantor, as the same may from time to time be amended,
modified or supplemented.

     "Liabilities"  shall  mean (a) any and all  Indebtedness,  obligations  and
      -----------
liabilities of the Borrower  pursuant to the Credit Agreement and any other Loan
Document,  including without limitation, the unpaid principal of and interest on
the Notes,  including without  limitation,  interest accruing  subsequent to the
filing of a petition or other  action  concerning  bankruptcy  or other  similar
proceeding;  (b) any additional  loans made by the Lenders to the Borrower;  (c)
payment of and  performance of any and all present or future  obligations of the
Borrower to any Lender or any Affiliate of such Lender under any Swap  Agreement
between the Borrower and any Lender or any Affiliate of such Lender; (d) any and
all other indebtedness,  obligations and liabilities of any kind of the Borrower
to the Lenders, now or hereafter existing, arising directly between the Borrower
and the Lenders or acquired  outright,  as a participation,  conditionally or as
collateral security from another by the Lenders,  absolute or contingent,  joint
and/or several,  secured or unsecured,  due or not due,  arising by operation of
law or otherwise, or direct or indirect, including indebtedness, obligations and
liabilities  to the  Lenders  of the  Borrower  as a member of any  partnership,
syndicate,  association or other group,  and whether incurred by the Borrower as
principal,  surety, endorser,  guarantor,  accommodation party or otherwise; and
(e)  all  renewals,  rearrangements,   increases,  extensions  for  any  period,
amendments  or  supplements  in whole or in part of the  Notes or any  documents
evidencing the above

     "Maximum  Guaranteed Amount" shall mean, for the Guarantor,  the greater of
      --------------------------
(i) the "reasonably  equivalent  value" or "fair  consideration"  (or equivalent
concept)  received by the  Guarantor  in exchange  for the  obligation  incurred
hereunder,  within the  meaning of any  applicable  state or federal  fraudulent
conveyance or transfer  laws; or (ii) the lesser of (A) the maximum  amount that
will not render the Guarantor insolvent, or (B) the maximum amount that will not
leave the Guarantor  with any property  deemed an  unreasonably  small  capital.
Clauses  (A) and  (B) are and  shall  be  determined  pursuant  to and as of the
appropriate  date  mandated  by such  applicable  state  or  federal  fraudulent
conveyance or transfer  laws and to the extent  allowed by law take into account
the rights to contribution  and  subrogation  under Section 2.9 in each Guaranty
Agreement so as to provide for the largest Maximum Guaranteed Amount possible.

     "Net  Payments"  shall mean an amount  equal,  at any time and from time to
      -------------
time and for each respective Subsidiary Guarantor,  to the difference of (i) the
sum of all  payments  made  previous  to or at the time of  calculation  by such
Subsidiary Guarantor in respect of the Liabilities,  as a Subsidiary  Guarantor,
and in respect of its  obligations  contained in this Guaranty  Agreement,  less
(ii)  the sum of all  such  payments  previously  returned  to  such  Subsidiary
Guarantor by operation of law or otherwise  and including  payments  received by
such Subsidiary  Guarantor by way of its rights of subrogation and  contribution

                                      -2-


under Section 2.9 of any other Guaranty Agreements.

     "Net  Worth"  shall  mean  for  any  Subsidiary  Guarantor,  determined  in
      ----------
accordance  with GAAP and calculated on and as of any  applicable  date on which
such amount is being determined,  the difference between (i) the sum of all such
Subsidiary  Guarantor's property, at a fair valuation and as of such date, minus
(ii) the sum of all such Subsidiary  Guarantor's  debts, at a fair valuation and
as of such date, excluding the Liabilities.

     "Subsidiary  Guarantors" shall mean the Subsidiaries or other Persons party
      ----------------------
to a Guaranty Agreement, including the Guarantor.

     Section 1.3 Credit Agreement Definitions.  Unless otherwise defined herein,
                 ----------------------------
all terms  beginning  with a capital  letter  which are  defined  in the  Credit
Agreement shall have the same meanings herein as therein.

                                    ARTICLE 2
                                    ---------
                                  The Guaranty
                                  ------------

     Section  2.1  Liabilities  Guaranteed.  Guarantor  hereby  irrevocably  and
                   -----------------------
unconditionally  guarantees  the  prompt  payment of the  Liabilities  when due,
whether at maturity  or  otherwise;  provided,  however,  that,  notwithstanding
anything  herein or in any other Loan  Document  to the  contrary,  the  maximum
liability of Guarantor hereunder shall in no event exceed the Maximum Guaranteed
Amount.

     Section 2.2 Nature of  Guaranty.  This  Guaranty  Agreement is an absolute,
                 -------------------
irrevocable,  completed and continuing guaranty of payment and not a guaranty of
collection,  and no notice of the Liabilities or any extension of credit already
or hereafter  contracted  by or extended to Borrower need be given to Guarantor.
This Guaranty Agreement may not be revoked by Guarantor and shall continue to be
effective  with respect to debt under the  Liabilities  arising or created after
any attempted  revocation by Guarantor and shall remain in full force and effect
until  the  Liabilities  are paid in full and the  Commitments  are  terminated,
notwithstanding  that from time to time  prior  thereto  no  Liabilities  may be
outstanding.  Borrower and the Lenders may modify, alter, rearrange,  extend for
any period and/or renew from time to time, the Liabilities,  and the Lenders may
waive any Default or Events of Default  without  notice to the  Guarantor and in
such event Guarantor will remain fully bound hereunder on the Liabilities.  This
Guaranty Agreement shall continue to be effective or be reinstated,  as the case
may be, if at any time any  payment  of the  Liabilities  is  rescinded  or must
otherwise be returned by any of the Lenders upon the  insolvency,  bankruptcy or
reorganization of Borrower or otherwise, all as though such payment had not been
made. This Guaranty  Agreement may be enforced by the  Administrative  Agent and
any subsequent  holder of any of the  Liabilities and shall not be discharged by
the  assignment  or  negotiation  of all or part of the  Liabilities.  Guarantor
hereby expressly waives presentment,  demand, notice of non-payment, protest and
notice of protest and dishonor, notice of Default or Event of Default, notice of
intent to accelerate the maturity and notice of acceleration of the maturity and
any  other  notice  in  connection  with the  Liabilities,  and also  notice  of
acceptance  of this  Guaranty  Agreement,  acceptance on the part of the Lenders

                                      -3-


being conclusively  presumed by the Lenders' request for this Guaranty Agreement
and delivery of the same to the Administrative Agent.

     Section  2.3  Administrative  Agent's  Rights.   Guarantor  authorizes  the
                   -------------------------------
Administrative Agent, without notice or demand and without affecting Guarantor's
liability  hereunder,  to obtain a guaranty of the  Liabilities  from any one or
more  Persons and at any time or times to  enforce,  waive,  rearrange,  modify,
limit or release any of such other  Persons  from their  obligations  under such
guaranties.

     Section 2.4 Guarantor's Waivers.
                 -------------------

          (a) General.  Guarantor waives any right to require any of the Lenders
              -------
to (i) proceed against  Borrower or any other person liable on the  Liabilities,
(ii) enforce any of their rights against any other  guarantor of the Liabilities
including but not limited to the Subsidiary  Guarantors (iii) proceed or enforce
any of their  rights  against  or  exhaust  any  security  given to  secure  the
Liabilities  (iv) have Borrower joined with Guarantor in any suit arising out of
this Guaranty  Agreement and/or the Liabilities,  or (v) pursue any other remedy
in the Lenders' powers whatsoever. The Lenders shall not be required to mitigate
damages  or take any  action to reduce,  collect  or  enforce  the  Liabilities.
Guarantor  waives  any  defense  arising  by reason of any  disability,  lack of
corporate  authority  or  power,  or other  defense  of  Borrower  or any  other
guarantor of the  Liabilities,  and shall remain  liable  hereon  regardless  of
whether  Borrower  or any other  guarantor  be found not liable  thereon for any
reason.  Whether and when to exercise any of the  remedies of the Lenders  under
any of the Loan  Documents  shall be in the sole and absolute  discretion of the
Administrative  Agent, and no delay by the Administrative Agent in enforcing any
remedy,  including delay in conducting a foreclosure sale, shall be a defense to
the Guarantor's  liability under this Guaranty Agreement.  To the extent allowed
by applicable  law, the Guarantor  hereby waives any good faith duty on the part
of the  Administrative  Agent in  exercising  any remedies  provided in the Loan
Documents.

          (b)  Subrogation.  Until the  Liabilities  have been paid in full, the
               -----------
Guarantor  waives  all  rights  of  subrogation  or  reimbursement  against  the
Borrower,  whether arising by contract or operation of law  (including,  without
limitation,  any such right  arising  under any federal or state  bankruptcy  or
insolvency  laws) and waives any right to enforce  any remedy  which the Lenders
now have or may hereafter  have against the Borrower,  and waives any benefit or
any  right  to  participate  in  any  security  now  or  hereafter  held  by the
Administrative Agent or any Lender.

     Section 2.5 Maturity of Liabilities;  Payment. Guarantor agrees that if the
                 ---------------------------------
maturity of any of the  Liabilities  is  accelerated by bankruptcy or otherwise,
such maturity shall also be deemed  accelerated for the purpose of this Guaranty
Agreement without demand or notice to Guarantor.  Guarantor will, forthwith upon
notice from the Administrative Agent, pay to the Administrative Agent the amount
due  and  unpaid  by  Borrower  and  guaranteed   hereby.  The  failure  of  the
Administrative  Agent to give this notice shall not in any way release Guarantor
hereunder.

     Section 2.6 Administrative  Agent's Expenses. If Guarantor fails to pay the
                 --------------------------------
Liabilities after notice from the Administrative  Agent of Borrower's failure to

                                      -4-


pay any  Liabilities  when due,  and if the  Administrative  Agent  obtains  the
services of an attorney for collection of amounts owing by Guarantor  hereunder,
or  obtaining  advice of  counsel  in  respect  of any  aspect of this  Guaranty
Agreement,  or if suit is  filed  to  enforce  this  Guaranty  Agreement,  or if
proceedings are had in any bankruptcy,  probate,  receivership or other judicial
proceedings for the establishment or collection of any amount owing by Guarantor
hereunder,  or if any amount owing by Guarantor  hereunder is collected  through
such  proceedings,  Guarantor  agrees  to pay to the  Administrative  Agent  the
Administrative Agent's reasonable attorneys' fees.

     Section 2.7  Liability.  It is expressly  agreed that the  liability of the
                  ---------
Guarantor for the payment of the Liabilities  guaranteed hereby shall be primary
and not secondary.

     Section  2.8  Events  and   Circumstances   Not  Reducing  or   Discharging
                   -------------------------------------------------------------
Guarantor's  Obligations.  Guarantor  hereby  consents and agrees to each of the
- ------------------------
following to the fullest  extent  permitted by law, and agrees that  Guarantor's
obligations  under this Guaranty  Agreement  shall not be released,  diminished,
impaired,  reduced or adversely affected by any of the following, and waives any
rights  (including  without  limitation  rights to notice) which Guarantor might
otherwise have as a result of or in connection with any of the following:

          (a)  Modifications,   etc.  Any  renewal,   extension,   modification,
               --------------------
increase,  decrease,  alteration  or  rearrangement  of all or any  part  of the
Liabilities,  or of the Notes,  any Loan Document or the Credit Agreement or any
instrument  executed in connection  therewith,  or any contract or understanding
between Borrower and any of the Lenders, or any other Person,  pertaining to the
Liabilities.

          (b)  Adjustment,  etc.  Any  adjustment,  indulgence,  forbearance  or
               ----------------
compromise  that might be granted or given by any of the  Lenders to Borrower or
Guarantor or any Person liable on the Liabilities.

          (c) Condition of Borrower or  Guarantor.  The  insolvency,  bankruptcy
              -----------------------------------
arrangement,  adjustment,  composition,  liquidation,  disability,  dissolution,
death or lack of power of Borrower or  Guarantor or any other Person at any time
liable for the payment of all or part of the Liabilities;  or any dissolution of
Borrower  or  Guarantor,  or any sale,  lease or  transfer  of any or all of the
assets of Borrower or Guarantor,  or any changes in the shareholders,  partners,
or members of  Borrower  or  Guarantor;  or any  reorganization  of  Borrower or
Guarantor.

          (d)  Invalidity  of  Liabilities.   The   invalidity,   illegality  or
               ---------------------------
unenforceability  of all or any  part of the  Liabilities,  or any  document  or
agreement   executed  in  connection  with  the  Liabilities,   for  any  reason
whatsoever,  including without limitation the fact that the Liabilities,  or any
part  thereof,  exceed the amount  permitted  by law,  the act of  creating  the
Liabilities or any part thereof is ultra vires, the officers or  representatives
                                   ----- -----
executing the documents or otherwise creating the Liabilities acted in excess of
their authority, the Liabilities violate applicable usury laws, the Borrower has
valid  defenses,  claims or offsets  (whether at law, in equity or by agreement)
which render the Liabilities  wholly or partially  uncollectible  from Borrower,
the creation,  performance  or repayment of the  Liabilities  (or the execution,
delivery and performance of any document or instrument  representing part of the
Liabilities or executed in connection with the  Liabilities,  or given to secure
the repayment of the Liabilities) is illegal, uncollectible,  legally impossible
or unenforceable, or the Credit Agreement or other documents or instruments

                                      -5-


pertaining to the Liabilities have been forged or otherwise are irregular or not
genuine or authentic.

          (e) Release of Obligors.  Any full or partial release of the liability
              -------------------
of Borrower on the Liabilities or any part thereof, of any co-guarantors, or any
other Person now or hereafter liable,  whether directly or indirectly,  jointly,
severally,  or jointly and severally,  to pay, perform,  guarantee or assure the
payment  of  the  Liabilities  or  any  part  thereof,   it  being   recognized,
acknowledged  and agreed by Guarantor  that Guarantor may be required to pay the
Liabilities  in full  without  assistance  or support of any other  Person,  and
Guarantor  has not been  induced to enter into this  Guaranty  Agreement  on the
basis of a contemplation,  belief, understanding or agreement that other parties
other  than the  Borrower  will be liable to  perform  the  Liabilities,  or the
Lenders will look to other parties to perform the Liabilities.

          (f) Other  Security.  The taking or accepting  of any other  security,
              ---------------
collateral or guaranty,  or other  assurance of payment,  for all or any part of
the Liabilities.

          (g) Release of  Collateral,  etc.  Any release,  surrender,  exchange,
              ----------------------------
subordination,  deterioration,  waste,  loss or  impairment  (including  without
limitation negligent,  willful, unreasonable or unjustifiable impairment) of any
collateral,  property or security,  at any time existing in connection  with, or
assuring or securing payment of, all or any part of the Liabilities.

          (h) Care and Diligence. The failure of the Lenders or any other Person
              ------------------
to  exercise  diligence  or  reasonable  care in the  preservation,  protection,
enforcement,  sale or other  handling  or  treatment  of all or any part of such
collateral, property or security; provided, however, that Lenders shall act in a
                                  --------  -------
"commercially reasonable" manner as required by applicable provisions of Article
9 of the Uniform  Commercial  Code as  presently in effect in the State of Texas
when exercising their rights under that certain Pledge and Security Agreement by
and between Borrower and Administrative Agent of even date herewith.

          (i) Status of Liens. The fact that any collateral,  security, security
              ---------------
interest or lien  contemplated  or  intended to be given,  created or granted as
security for the repayment of the Liabilities shall not be properly perfected or
created, or shall prove to be unenforceable or subordinate to any other security
interest or lien, it being  recognized and agreed by Guarantor that Guarantor is
not entering into this Guaranty Agreement in reliance on, or in contemplation of
the benefits of, the validity, enforceability, collectability or value of any of
the collateral for the Liabilities.

          (j) Payments Rescinded. Any payment by Borrower to the Lenders is held
              ------------------
to  constitute a preference  under the  bankruptcy  laws,  or for any reason the
Lenders are  required  to refund such  payment or pay such amount to Borrower or
someone else.

          (k) Other Actions Taken or Omitted.  Any other action taken or omitted
              ------------------------------
to be taken with  respect  to the  Credit  Agreement,  the  Liabilities,  or the
security  and  collateral  therefor,  whether  or not such  action  or  omission
prejudices Guarantor or increases the likelihood that Guarantor will be required
to pay the  Liabilities  pursuant to the terms hereof;  it being the unambiguous
and unequivocal  intention of Guarantor that Guarantor shall be obligated to pay

                                      -6-


the Liabilities when due, notwithstanding any occurrence,  circumstance,  event,
action, or omission  whatsoever,  whether  contemplated or  uncontemplated,  and
whether or not otherwise or particularly  described herein,  except for the full
and final payment and satisfaction of the Liabilities.

     Section 2.9 Right of Subrogation  and  Contribution.  If Guarantor  makes a
                 ---------------------------------------
payment in respect of the  Liabilities,  it shall be subrogated to the rights of
the Lenders against the Borrower with respect to such payment and shall have the
rights of  contribution  against the other  Subsidiary  Guarantors  set forth in
Section 2.9 of any other Guaranty Agreements;  provided that Guarantor shall not
enforce its rights to any payment by way of  subrogation  or by  exercising  its
rights of  contribution  or  reimbursement  or the right to  participate  in any
security now or hereafter held by or for the benefit of the Lenders until all of
the Liabilities  have been paid in full. The Guarantor agrees that after all the
Liabilities  have been paid in full if its then  current Net  Payments  are less
than the amount of its then current Contribution Obligation, Guarantor shall pay
to any  other  Subsidiary  Guarantors  an  amount  (together  with any  payments
required  of the  other  Subsidiary  Guarantors  by  Section  2.9 of each  other
Guaranty Agreement) such that the Net Payments made by all Subsidiary Guarantors
in  respect  of the  Liabilities  shall be shared  among  all of the  Subsidiary
Guarantors in a proportion  equal to their respective  Contribution  Percentage;
provided,  however, Guarantor need not make any such payment if at the time such
payment is to be made Guarantor is illiquid and not making such payment will not
render any other Subsidiary Guarantor insolvent.

                                    ARTICLE 3
                                    ---------
                         Representations and Warranties
                         ------------------------------

     Section  3.1 By  Guarantor.  In order to induce the  Lenders to accept this
                  -------------
Guaranty  Agreement,  Guarantor  represents  and warrants to the Lenders  (which
representations  and warranties will survive the creation of the Liabilities and
any extension of credit thereunder) that:

          (a)  Benefit  to  Guarantor.  Guarantor's  guaranty  pursuant  to this
               ----------------------
Guaranty  Agreement   reasonably  may  be  expected  to  benefit,   directly  or
indirectly, Guarantor.

          (b)  Existence.  Guarantor is a corporation  duly  organized,  validly
               ---------
existing and in good standing under the laws of the State of Colorado.

          (c)  Power  and  Authorization.   Guarantor  is  duly  authorized  and
               -------------------------
empowered  to execute,  deliver  and perform  this  Guaranty  Agreement  and all
necessary action on Guarantor's  part requisite for the due execution,  delivery
and performance of this Guaranty Agreement has been duly and effectively taken.

          (d) Binding Obligations. This Guaranty Agreement constitutes valid and
              -------------------
binding  obligations  of Guarantor,  enforceable  in accordance  with its terms,
subject to  applicable  bankruptcy,  insolvency,  reorganization,  moratorium or
other  laws  affecting  creditors'  rights  generally  and  subject  to  general
principals of equity, regardless of whether considered in a proceeding in equity
or at law.

          (e) Governmental Approvals; No Conflicts.  This Guaranty Agreement (a)
              ------------------------------------
does not require any consent or approval of, registration or filing with, or any

                                      -7-


other action by, any Governmental  Authority,  except such as have been obtained
or made and are in full force and effect,  (b) will not  violate any  applicable
law or regulation or the charter,  by-laws or other organizational  documents of
the Guarantor or any order of any Governmental  Authority,  (c) will not violate
or result  in a  default  under any  indenture,  agreement  or other  instrument
binding upon the Guarantor or its assets,  or give rise to a right thereunder to
require any payment to be made by the Guarantor,  and (d) will not result in the
creation or imposition of any Lien on any asset of the Guarantor.

          (f)  Solvency.  The  Guarantor  hereby  represents  that (i) it is not
               --------
insolvent  as of the date hereof and will not be rendered  insolvent as a result
of  this  Guaranty  Agreement,  (ii)  it  is  not  engaged  in a  business  or a
transaction,  or about to engage in a business or a  transaction,  for which any
property or assets  remaining  with such  Guarantor  thereafter is  unreasonably
small capital,  and (iii) it does not intend to incur, or believe it will incur,
debts that will be beyond its ability to pay as such debts mature.

     Section 3.2 No Representation by Lenders. Neither the Lenders nor any other
                 ----------------------------
Person has made any  representation,  warranty or statement to the  Guarantor in
order to induce the Guarantor to execute this Guaranty Agreement.

                                   ARTICLE 4
                                   ---------
                          Subordination of Indebtedness
                          -----------------------------

     Section 4.1 Subordination of All Guarantor Claims. As used herein, the term
                 -------------------------------------
"Guarantor  Claims"  shall  mean  all  debts  and  liabilities  of  Borrower  to
Guarantor,  whether  such  debts  and  liabilities  now  exist or are  hereafter
incurred or arise,  or whether  the  obligation  of Borrower  thereon be direct,
contingent,  primary,  secondary,  several, joint and several, or otherwise, and
irrespective  of  whether  such  debts  or  liabilities  be  evidenced  by note,
contract, open account, or otherwise,  and irrespective of the person or persons
in whose favor such debts or liabilities may, at their inception,  have been, or
may hereafter be created, or the manner in which they have been or may hereafter
be acquired by Guarantor.  The Guarantor Claims shall include without limitation
all rights  and  claims of  Guarantor  against  Borrower  arising as a result of
subrogation or otherwise as a result of Guarantor's  payment of all or a portion
of the  Liabilities.  During the continuance of any Event of Default,  Guarantor
shall not receive or collect, directly or indirectly, from Borrower or any other
party any amount upon the Guarantor Claims.

     Section 4.2 Claims in Bankruptcy. In the event of receivership, bankruptcy,
                 --------------------
reorganization,  arrangement,  debtor's relief, or other insolvency  proceedings
involving  Borrower as debtor,  the Lenders  shall have the right to prove their
claim in any proceeding,  so as to establish their rights  hereunder and receive
directly  from the  receiver,  trustee or other court  custodian,  dividends and
payments which would otherwise be payable upon Guarantor  Claims. In such event,
Guarantor hereby assigns such dividends and payments to the Lenders.  Should the
Administrative   Agent  or  any  Lender  receive,   for  application   upon  the
Liabilities,  any such  dividend  or  payment  which  is  otherwise  payable  to
Guarantor,  and which,  as between  Borrower and Guarantor,  shall  constitute a
credit upon the Guarantor Claims,  then upon payment in full of the Liabilities,
Guarantor  shall  become  subrogated  to the rights of the Lenders to the extent
that such  payments to the  Lenders on the  Guarantor  Claims  have  contributed
toward the liquidation of the Liabilities,  and such  subrogation  shall be with

                                      -8-


respect to that portion of the  Liabilities  which would have been unpaid if the
Administrative Agent or a Lender had not received dividends or payments upon the
Guarantor Claims.

     Section  4.3  Payments  Held in Trust.  In the event  that  notwithstanding
                   -----------------------
Sections 4.1 and 4.2 above, Guarantor should receive any funds, payments, claims
or distributions which is prohibited by such Sections,  Guarantor agrees to hold
in trust for the Lenders an amount  equal to the amount of all funds,  payments,
claims or distributions so received, and agrees that it shall have absolutely no
dominion over the amount of such funds, payments, claims or distributions except
to pay them  promptly  to the  Administrative  Agent,  and  Guarantor  covenants
promptly to pay the same to the Administrative Agent.

     Section 4.4 Liens  Subordinate.  Guarantor agrees that any liens,  security
                 ------------------
interests,  judgment liens, charges or other encumbrances upon Borrower's assets
securing  payment  of the  Guarantor  Claims  shall be and remain  inferior  and
subordinate to any liens,  security interests,  judgment liens, charges or other
encumbrances  upon  Borrower's  assets  securing  payment  of  the  Liabilities,
regardless   of  whether  such   encumbrances   in  favor  of   Guarantor,   the
Administrative  Agent or the Lenders presently exist or are hereafter created or
attach.  Without the prior written  consent of the Lenders,  Guarantor shall not
(a) exercise or enforce any  creditor's  right it may have against the Borrower,
or (b) foreclose,  repossess, sequester or otherwise take steps or institute any
action or proceeding  (judicial or otherwise,  including without  limitation the
commencement  of or  joinder  in  any  liquidation,  bankruptcy,  rearrangement,
debtor's relief or insolvency proceeding) to enforce any lien, mortgages,  deeds
of trust, security interest,  collateral rights, judgments or other encumbrances
on assets of Borrower held by Guarantor.

     Section 4.5 Notation of Records. All promissory notes, or other instruments
                 -------------------
evidencing the Guarantor  Claims accepted by or held by Guarantor (if any) shall
contain a  specific  written  notice  thereon  that the  indebtedness  evidenced
thereby is subordinated under the terms of this Guaranty Agreement.

                                    ARTICLE 5
                                    ---------
                                  Miscellaneous
                                  -------------

     Section 5.1 Successors and Assigns. This Guaranty Agreement is and shall be
                 ----------------------
in every  particular  available to the successors and assigns of the Lenders and
is and shall  always be fully  binding  upon the legal  representatives,  heirs,
successors  and assigns of  Guarantor,  notwithstanding  that some or all of the
monies, the repayment of which this Guaranty Agreement applies,  may be actually
advanced after any bankruptcy, receivership,  reorganization,  death, disability
or other event affecting Guarantor.

     Section  5.2  Notices.  Any  notice  or  demand  to  Guarantor  under or in
                   -------
connection with this Guaranty  Agreement may be given and shall  conclusively be
deemed and considered to have been given and received in accordance with Section
12.02 of the Credit  Agreement,  addressed  to  Guarantor  at the address on the
signature  page hereof or at such other address  provided to the  Administrative
Agent in writing.

                                      -9-


     Section 5.3 Business and Financial Information. The Guarantor will promptly
                 ----------------------------------
furnish  to the  Administrative  Agent  and the  Lenders  from time to time upon
request  such  information  regarding  the  business  and affairs and  financial
condition of the Guarantor and its subsidiaries as the Administrative  Agent and
the Lenders may reasonably request.

     Section 5.4 Choice of Law.  This  Guaranty  Agreement  (including,  but not
                 -------------
limited to, the validity and  enforceability  hereof)  shall be governed by, and
construed in accordance with, the laws of the State of Texas.

     Section 5.5 Invalidity. In the event that any one or more of the provisions
                 ----------
contained in this Guaranty  Agreement  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  Guaranty
Agreement.

     Section 5.6 ENTIRE AGREEMENT.  THIS WRITTEN GUARANTY AGREEMENT EMBODIES THE
                 ----------------
ENTIRE  AGREEMENT  AND  UNDERSTANDING  BETWEEN THE LENDERS AND THE GUARANTOR AND
SUPERSEDES ALL OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING
TO THE SUBJECT  MATTER  HEREOF AND  THEREOF.  THIS  WRITTEN  GUARANTY  AGREEMENT
REPRESENTS THE FINAL  AGREEMENT  BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR,  CONTEMPORANEOUS,  OR  SUBSEQUENT  ORAL  AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.



                         [SIGNATURES BEGIN ON NEXT PAGE]


                                      -10-




         WITNESS THE EXECUTION HEREOF, effective as of the 27th day of January,
2003.


                               ST. MARY OPERATING COMPANY


                               By:      /s/ MILAM RANDOLPH PHARO
                                       ----------------------------------------
                                        Milam Randolph Pharo
                                        Vice President - Land & Legal

                               Address: 7060 So. Yale, Suite 800
                                                 Tulsa, OK  74136-5741

                                              with copy to:

                                        1776 Lincoln Street, Suite 700
                                        Denver, CO  80203



                                      -11-

EX-10

                                                                    EXHIBIT 10.6
                               GUARANTY AGREEMENT


                                       by


                           NANCE PETROLEUM CORPORATION


                                   in favor of


                      WACHOVIA BANK, NATIONAL ASSOCIATION,
                             AS ADMINISTRATIVE AGENT



                                January 27, 2003






                                TABLE OF CONTENTS
                                -----------------                                                                                                               Page


ARTICLE 1 General Terms........................................................1
  Section 1.1       Terms Defined Above........................................1
  Section 1.2       Certain Definitions........................................1
  Section 1.3       Credit Agreement Definitions...............................3

ARTICLE 2 The Guaranty.........................................................3
  Section 2.1       Liabilities Guaranteed.....................................3
  Section 2.2       Nature of Guaranty.........................................3
  Section 2.3       Administrative Agent's Rights..............................4
  Section 2.4       Guarantor's Waivers........................................4
  Section 2.5       Maturity of Liabilities; Payment...........................4
  Section 2.6       Administrative Agent's Expenses............................4
  Section 2.7       Liability..................................................5
  Section 2.8       Events and Circumstances Not Reducing or Discharging
                    Guarantor's Obligations..................5
  Section 2.9       Right of Subrogation and Contribution......................7


ARTICLE 3 Representations and Warranties.......................................7
  Section 3.1       By Guarantor...............................................7
  Section 3.2       No Representation by Lenders...............................8


ARTICLE 4 Subordination of Indebtedness........................................8
  Section 4.1       Subordination of All Guarantor Claims......................8
  Section 4.2       Claims in Bankruptcy.......................................8
  Section 4.3       Payments Held in Trust.....................................9
  Section 4.4       Liens Subordinate..........................................9
  Section 4.5       Notation of Records........................................9


ARTICLE 5 Miscellaneous........................................................9
  Section 5.1       Successors and Assigns.....................................9
  Section 5.2       Notices....................................................9
  Section 5.3       Business and Financial Information........................10
  Section 5.4       Choice of Law.............................................10
  Section 5.5       Invalidity................................................10
  SECTION 5.6       ENTIRE AGREEMENT..........................................10


                                      -i-




                               GUARANTY AGREEMENT
                               ------------------

     THIS GUARANTY AGREEMENT (this "Guaranty Agreement") made by the undersigned
                                    ------------------
guarantor  (hereinafter  called  "Guarantor"),  is in  favor of  Wachovia  Bank,
                                  ---------
National Association,  as Administrative Agent (the "Administrative  Agent") for
                                                     ---------------------
the lenders (the "Lenders") signatory to the Credit Agreement defined below.
                  -------

                                R E C I T A L S:
                                ---------------

     A. On even date  herewith,  St.  Mary Land  &  Exploration  Company,  a
Delaware corporation (hereinafter called "Borrower"),  the Administrative Agent,
and the Lenders have entered into that certain Credit Agreement (as the same may
be amended or supplemented from time to time, the "Credit Agreement"),  whereby,
pursuant to the terms and conditions  contained  therein,  the Lenders agreed to
make loans to and extend credit on behalf of the Borrower; and

     B. One of the terms and conditions  stated in the Credit  Agreement for the
making of the loans and extensions of credit described  therein is the execution
and delivery to the Administrative  Agent for the benefit of the Lenders of this
Guaranty Agreement;

     NOW, THEREFORE, (i) in order to comply with the terms and conditions of the
Credit Agreement,  (ii) to induce the Lenders, at any time or from time to time,
to loan  monies  and extend  credit,  with or  without  security,  to or for the
account of Borrower in accordance with the terms of the Credit Agreement,  (iii)
at the special  insistence  and request of the Lenders,  and (iv) for other good
and  valuable  consideration,  the  receipt and  sufficiency  of which is hereby
acknowledged, Guarantor hereby agrees as follows:

                                    ARTICLE I
                                    ---------
                                  General Terms
                                  -------------

     Section 1.1 Terms Defined Above.  As used in this Guaranty  Agreement,  the
                 -------------------
terms "Administrative Agent",  "Borrower",  "Credit Agreement",  "Guarantor" and
"Lenders" shall have the meanings indicated above.

     Section 1.2 Certain  Definitions.  As used in this Guaranty Agreement,  the
                 --------------------
following terms shall have the following meanings,  unless the context otherwise
requires  (terms  defined in the singular shall have the same meanings when used
in the plural and vice versa):

     "Contribution  Obligation" shall mean an amount equal, at any time and from
      ------------------------
time to time and for each respective Subsidiary Guarantor, to the product of (i)
its Contribution  Percentage times (ii) the sum of all payments made previous to
or at the time of  calculation  by all  Subsidiary  Guarantors in respect of the
Liabilities,  as a Subsidiary  Guarantor  (less the amount of any such  payments
previously  returned  to  any  Subsidiary  Guarantor  by  operation  of  law  or
otherwise,  but not including  payments received by any Subsidiary  Guarantor by
way of its rights of subrogation and contribution under Section 2.9 of any other
Guaranty Agreements);  provided,  however, such Contribution  Obligation for any
Subsidiary  Guarantor  shall  in no event  exceed  such  Subsidiary  Guarantor's
Maximum  Guaranteed  Amount, as defined in the respective  Guaranty Agreement of
such Subsidiary Guarantor.

                                      -1-


     "Contribution  Percentage" shall mean for any Subsidiary  Guarantor for any
      ------------------------
applicable date as of which such percentage is being determined, an amount equal
to the  quotient of (i) the Net Worth of such  Subsidiary  Guarantor  as of such
date, divided by (ii) the sum of the Net Worth of all the Subsidiary  Guarantors
as of such date.

     "Guarantor Claims" shall have the meaning indicated in Section 4.1 hereof.
      ----------------

     "Guaranty  Agreement"  shall mean this  Guaranty  Agreement,  and where the
      -------------------
context indicates, the "Guaranty Agreement" (as defined in the Credit Agreement)
of any other Subsidiary Guarantor, as the same may from time to time be amended,
modified or supplemented.

     "Liabilities"  shall  mean (a) any and all  Indebtedness,  obligations  and
      -----------
liabilities of the Borrower  pursuant to the Credit Agreement and any other Loan
Document,  including without limitation, the unpaid principal of and interest on
the Notes,  including without  limitation,  interest accruing  subsequent to the
filing of a petition or other  action  concerning  bankruptcy  or other  similar
proceeding;  (b) any additional  loans made by the Lenders to the Borrower;  (c)
payment of and  performance of any and all present or future  obligations of the
Borrower to any Lender or any Affiliate of such Lender under any Swap  Agreement
between the Borrower and any Lender or any Affiliate of such Lender; (d) any and
all other indebtedness,  obligations and liabilities of any kind of the Borrower
to the Lenders, now or hereafter existing, arising directly between the Borrower
and the Lenders or acquired  outright,  as a participation,  conditionally or as
collateral security from another by the Lenders,  absolute or contingent,  joint
and/or several,  secured or unsecured,  due or not due,  arising by operation of
law or otherwise, or direct or indirect, including indebtedness, obligations and
liabilities  to the  Lenders  of the  Borrower  as a member of any  partnership,
syndicate,  association or other group,  and whether incurred by the Borrower as
principal,  surety, endorser,  guarantor,  accommodation party or otherwise; and
(e)  all  renewals,  rearrangements,   increases,  extensions  for  any  period,
amendments  or  supplements  in whole or in part of the  Notes or any  documents
evidencing the above

     "Maximum  Guaranteed Amount" shall mean, for the Guarantor,  the greater of
      --------------------------
(i) the "reasonably  equivalent  value" or "fair  consideration"  (or equivalent
concept)  received by the  Guarantor  in exchange  for the  obligation  incurred
hereunder,  within the  meaning of any  applicable  state or federal  fraudulent
conveyance or transfer  laws; or (ii) the lesser of (A) the maximum  amount that
will not render the Guarantor insolvent, or (B) the maximum amount that will not
leave the Guarantor  with any property  deemed an  unreasonably  small  capital.
Clauses  (A) and  (B) are and  shall  be  determined  pursuant  to and as of the
appropriate  date  mandated  by such  applicable  state  or  federal  fraudulent
conveyance or transfer  laws and to the extent  allowed by law take into account
the rights to contribution  and  subrogation  under Section 2.9 in each Guaranty
Agreement so as to provide for the largest Maximum Guaranteed Amount possible.

     "Net  Payments"  shall mean an amount  equal,  at any time and from time to
      -------------
time and for each respective Subsidiary Guarantor,  to the difference of (i) the
sum of all  payments  made  previous  to or at the time of  calculation  by such
Subsidiary Guarantor in respect of the Liabilities,  as a Subsidiary  Guarantor,
and in respect of its  obligations  contained in this Guaranty  Agreement,  less
(ii)  the sum of all  such  payments  previously  returned  to  such  Subsidiary
Guarantor by operation of law or otherwise  and including  payments  received by
such Subsidiary  Guarantor by way of its rights of subrogation and  contribution

                                      -2-


under Section 2.9 of any other Guaranty Agreements.

     "Net  Worth"  shall  mean  for  any  Subsidiary  Guarantor,  determined  in
      ----------
accordance  with GAAP and calculated on and as of any  applicable  date on which
such amount is being determined,  the difference between (i) the sum of all such
Subsidiary  Guarantor's property, at a fair valuation and as of such date, minus
(ii) the sum of all such Subsidiary  Guarantor's  debts, at a fair valuation and
as of such date, excluding the Liabilities.

     "Subsidiary  Guarantors" shall mean the Subsidiaries or other Persons party
      ----------------------
to a Guaranty Agreement, including the Guarantor.

     Section 1.3 Credit Agreement Definitions.  Unless otherwise defined herein,
                 ----------------------------
all terms  beginning  with a capital  letter  which are  defined  in the  Credit
Agreement shall have the same meanings herein as therein.

                                    ARTICLE 2
                                    ---------
                                  The Guaranty
                                  ------------

     Section  2.1  Liabilities  Guaranteed.  Guarantor  hereby  irrevocably  and
                   -----------------------
unconditionally  guarantees  the  prompt  payment of the  Liabilities  when due,
whether at maturity  or  otherwise;  provided,  however,  that,  notwithstanding
anything  herein or in any other Loan  Document  to the  contrary,  the  maximum
liability of Guarantor hereunder shall in no event exceed the Maximum Guaranteed
Amount.

     Section 2.2 Nature of  Guaranty.  This  Guaranty  Agreement is an absolute,
                 -------------------
irrevocable,  completed and continuing guaranty of payment and not a guaranty of
collection,  and no notice of the Liabilities or any extension of credit already
or hereafter  contracted  by or extended to Borrower need be given to Guarantor.
This Guaranty Agreement may not be revoked by Guarantor and shall continue to be
effective  with respect to debt under the  Liabilities  arising or created after
any attempted  revocation by Guarantor and shall remain in full force and effect
until  the  Liabilities  are paid in full and the  Commitments  are  terminated,
notwithstanding  that from time to time  prior  thereto  no  Liabilities  may be
outstanding.  Borrower and the Lenders may modify, alter, rearrange,  extend for
any period and/or renew from time to time, the Liabilities,  and the Lenders may
waive any Default or Events of Default  without  notice to the  Guarantor and in
such event Guarantor will remain fully bound hereunder on the Liabilities.  This
Guaranty Agreement shall continue to be effective or be reinstated,  as the case
may be, if at any time any  payment  of the  Liabilities  is  rescinded  or must
otherwise be returned by any of the Lenders upon the  insolvency,  bankruptcy or
reorganization of Borrower or otherwise, all as though such payment had not been
made. This Guaranty  Agreement may be enforced by the  Administrative  Agent and
any subsequent  holder of any of the  Liabilities and shall not be discharged by
the  assignment  or  negotiation  of all or part of the  Liabilities.  Guarantor
hereby expressly waives presentment,  demand, notice of non-payment, protest and
notice of protest and dishonor, notice of Default or Event of Default, notice of
intent to accelerate the maturity and notice of acceleration of the maturity and
any  other  notice  in  connection  with the  Liabilities,  and also  notice  of
acceptance  of this  Guaranty  Agreement,  acceptance on the part of the Lenders

                                      -3-


being conclusively  presumed by the Lenders' request for this Guaranty Agreement
and delivery of the same to the Administrative Agent.

     Section  2.3  Administrative  Agent's  Rights.   Guarantor  authorizes  the
                   -------------------------------
Administrative Agent, without notice or demand and without affecting Guarantor's
liability  hereunder,  to obtain a guaranty of the  Liabilities  from any one or
more  Persons and at any time or times to  enforce,  waive,  rearrange,  modify,
limit or release any of such other  Persons  from their  obligations  under such
guaranties.

     Section 2.4 Guarantor's Waivers.
                 -------------------

          (a) General.  Guarantor waives any right to require any of the Lenders
to (i) proceed against  Borrower or any other person liable on the  Liabilities,
(ii) enforce any of their rights against any other  guarantor of the Liabilities
including but not limited to the Subsidiary  Guarantors (iii) proceed or enforce
any of their  rights  against  or  exhaust  any  security  given to  secure  the
Liabilities  (iv) have Borrower joined with Guarantor in any suit arising out of
this Guaranty  Agreement and/or the Liabilities,  or (v) pursue any other remedy
in the Lenders' powers whatsoever. The Lenders shall not be required to mitigate
damages  or take any  action to reduce,  collect  or  enforce  the  Liabilities.
Guarantor  waives  any  defense  arising  by reason of any  disability,  lack of
corporate  authority  or  power,  or other  defense  of  Borrower  or any  other
guarantor of the  Liabilities,  and shall remain  liable  hereon  regardless  of
whether  Borrower  or any other  guarantor  be found not liable  thereon for any
reason.  Whether and when to exercise any of the  remedies of the Lenders  under
any of the Loan  Documents  shall be in the sole and absolute  discretion of the
Administrative  Agent, and no delay by the Administrative Agent in enforcing any
remedy,  including delay in conducting a foreclosure sale, shall be a defense to
the Guarantor's  liability under this Guaranty Agreement.  To the extent allowed
by applicable  law, the Guarantor  hereby waives any good faith duty on the part
of the  Administrative  Agent in  exercising  any remedies  provided in the Loan
Documents.

          (b)  Subrogation.  Until the  Liabilities  have been paid in full, the
Guarantor  waives  all  rights  of  subrogation  or  reimbursement  against  the
Borrower,  whether arising by contract or operation of law  (including,  without
limitation,  any such right  arising  under any federal or state  bankruptcy  or
insolvency  laws) and waives any right to enforce  any remedy  which the Lenders
now have or may hereafter  have against the Borrower,  and waives any benefit or
any  right  to  participate  in  any  security  now  or  hereafter  held  by the
Administrative Agent or any Lender.

     Section 2.5 Maturity of Liabilities;  Payment. Guarantor agrees that if the
                 ---------------------------------
maturity of any of the  Liabilities  is  accelerated by bankruptcy or otherwise,
such maturity shall also be deemed  accelerated for the purpose of this Guaranty
Agreement without demand or notice to Guarantor.  Guarantor will, forthwith upon
notice from the Administrative Agent, pay to the Administrative Agent the amount
due  and  unpaid  by  Borrower  and  guaranteed   hereby.  The  failure  of  the
Administrative  Agent to give this notice shall not in any way release Guarantor
hereunder.

     Section 2.6 Administrative  Agent's Expenses. If Guarantor fails to pay the
                 --------------------------------
Liabilities after notice from the Administrative  Agent of Borrower's failure to
pay any  Liabilities  when due,  and if the  Administrative  Agent  obtains  the

                                      -4-


services of an attorney for collection of amounts owing by Guarantor  hereunder,
or  obtaining  advice of  counsel  in  respect  of any  aspect of this  Guaranty
Agreement,  or if suit is  filed  to  enforce  this  Guaranty  Agreement,  or if
proceedings are had in any bankruptcy,  probate,  receivership or other judicial
proceedings for the establishment or collection of any amount owing by Guarantor
hereunder,  or if any amount owing by Guarantor  hereunder is collected  through
such  proceedings,  Guarantor  agrees  to pay to the  Administrative  Agent  the
Administrative Agent's reasonable attorneys' fees.

     Section 2.7  Liability.  It is expressly  agreed that the  liability of the
                  ---------
Guarantor for the payment of the Liabilities  guaranteed hereby shall be primary
and not secondary.

     Section  2.8  Events  and   Circumstances   Not  Reducing  or   Discharging
                   -------------------------------------------------------------
Guarantor's  Obligations.  Guarantor  hereby  consents and agrees to each of the
- ------------------------
following to the fullest  extent  permitted by law, and agrees that  Guarantor's
obligations  under this Guaranty  Agreement  shall not be released,  diminished,
impaired,  reduced or adversely affected by any of the following, and waives any
rights  (including  without  limitation  rights to notice) which Guarantor might
otherwise have as a result of or in connection with any of the following:

          (a)  Modifications,   etc.  Any  renewal,   extension,   modification,
               --------------------
increase,  decrease,  alteration  or  rearrangement  of all or any  part  of the
Liabilities,  or of the Notes,  any Loan Document or the Credit Agreement or any
instrument  executed in connection  therewith,  or any contract or understanding
between Borrower and any of the Lenders, or any other Person,  pertaining to the
Liabilities.

          (b)  Adjustment,  etc.  Any  adjustment,  indulgence,  forbearance  or
               ----------------
compromise  that might be granted or given by any of the  Lenders to Borrower or
Guarantor or any Person liable on the Liabilities.

          (c) Condition of Borrower or  Guarantor.  The  insolvency,  bankruptcy
              -----------------------------------
arrangement,  adjustment,  composition,  liquidation,  disability,  dissolution,
death or lack of power of Borrower or  Guarantor or any other Person at any time
liable for the payment of all or part of the Liabilities;  or any dissolution of
Borrower  or  Guarantor,  or any sale,  lease or  transfer  of any or all of the
assets of Borrower or Guarantor,  or any changes in the shareholders,  partners,
or members of  Borrower  or  Guarantor;  or any  reorganization  of  Borrower or
Guarantor.

          (d)  Invalidity  of  Liabilities.   The   invalidity,   illegality  or
               ---------------------------
unenforceability  of all or any  part of the  Liabilities,  or any  document  or
agreement   executed  in  connection  with  the  Liabilities,   for  any  reason
whatsoever,  including without limitation the fact that the Liabilities,  or any
part  thereof,  exceed the amount  permitted  by law,  the act of  creating  the
Liabilities or any part thereof is ultra vires, the officers or  representatives
                                   ----- -----
executing the documents or otherwise creating the Liabilities acted in excess of
their authority, the Liabilities violate applicable usury laws, the Borrower has
valid  defenses,  claims or offsets  (whether at law, in equity or by agreement)
which render the Liabilities  wholly or partially  uncollectible  from Borrower,
the creation,  performance  or repayment of the  Liabilities  (or the execution,
delivery and performance of any document or instrument  representing part of the
Liabilities or executed in connection with the  Liabilities,  or given to secure
the repayment of the Liabilities) is illegal, uncollectible,  legally impossible
or  unenforceable,  or the Credit  Agreement or other  documents or  instruments

                                      -5-


pertaining to the Liabilities have been forged or otherwise are irregular or not
genuine or authentic.

          (e) Release of Obligors.  Any full or partial release of the liability
              -------------------
of Borrower on the Liabilities or any part thereof, of any co-guarantors, or any
other Person now or hereafter liable,  whether directly or indirectly,  jointly,
severally,  or jointly and severally,  to pay, perform,  guarantee or assure the
payment  of  the  Liabilities  or  any  part  thereof,   it  being   recognized,
acknowledged  and agreed by Guarantor  that Guarantor may be required to pay the
Liabilities  in full  without  assistance  or support of any other  Person,  and
Guarantor  has not been  induced to enter into this  Guaranty  Agreement  on the
basis of a contemplation,  belief, understanding or agreement that other parties
other  than the  Borrower  will be liable to  perform  the  Liabilities,  or the
Lenders will look to other parties to perform the Liabilities.

          (f) Other  Security.  The taking or accepting  of any other  security,
              ---------------
collateral o guaranty, or other assurance of payment, for all or any part of the
Liabilities.

          (g) Release of  Collateral,  etc.  Any release,  surrender,  exchange,
              ----------------------------
subordination,  deterioration,  waste,  loss or  impairment  (including  without
limitation negligent,  willful, unreasonable or unjustifiable impairment) of any
collateral,  property or security,  at any time existing in connection  with, or
assuring or securing payment of, all or any part of the Liabilities.

          (h) Care and Diligence. The failure of the Lenders or any other Person
              ------------------
to  exercise  diligence  or  reasonable  care in the  preservation,  protection,
enforcement,  sale or other  handling  or  treatment  of all or any part of such
collateral, property or security; provided, however, that Lenders shall act in a
                                  --------  -------
"commercially reasonable" manner as required by applicable provisions of Article
9 of the Uniform  Commercial  Code as  presently in effect in the State of Texas
when exercising their rights under that certain Pledge and Security Agreement by
and between Borrower and Administrative Agent of even date herewith.

          (i) Status of Liens. The fact that any collateral,  security, security
              ---------------
interest or lien  contemplated  or  intended to be given,  created or granted as
security for the repayment of the Liabilities shall not be properly perfected or
created, or shall prove to be unenforceable or subordinate to any other security
interest or lien, it being  recognized and agreed by Guarantor that Guarantor is
not entering into this Guaranty Agreement in reliance on, or in contemplation of
the benefits of, the validity, enforceability, collectability or value of any of
the collateral for the Liabilities.

          (j) Payments Rescinded. Any payment by Borrower to the Lenders is held
              ------------------
to  constitute a preference  under the  bankruptcy  laws,  or for any reason the
Lenders are  required  to refund such  payment or pay such amount to Borrower or
someone else.

          (k) Other Actions Taken or Omitted.  Any other action taken or omitted
              ------------------------------
to be taken with  respect  to the  Credit  Agreement,  the  Liabilities,  or the
security  and  collateral  therefor,  whether  or not such  action  or  omission
prejudices Guarantor or increases the likelihood that Guarantor will be required
to pay the  Liabilities  pursuant to the terms hereof;  it being the unambiguous
and unequivocal  intention of Guarantor that Guarantor shall be obligated to pay

                                      -6-


the Liabilities when due, notwithstanding any occurrence,  circumstance,  event,
action, or omission  whatsoever,  whether  contemplated or  uncontemplated,  and
whether or not otherwise or particularly  described herein,  except for the full
and final payment and satisfaction of the Liabilities.

     Section 2.9 Right of Subrogation  and  Contribution.  If Guarantor  makes a
                 ---------------------------------------
payment in respect of the  Liabilities,  it shall be subrogated to the rights of
the Lenders against the Borrower with respect to such payment and shall have the
rights of  contribution  against the other  Subsidiary  Guarantors  set forth in
Section 2.9 of any other Guaranty Agreements;  provided that Guarantor shall not
enforce its rights to any payment by way of  subrogation  or by  exercising  its
rights of  contribution  or  reimbursement  or the right to  participate  in any
security now or hereafter held by or for the benefit of the Lenders until all of
the Liabilities  have been paid in full. The Guarantor agrees that after all the
Liabilities  have been paid in full if its then  current Net  Payments  are less
than the amount of its then current Contribution Obligation, Guarantor shall pay
to any  other  Subsidiary  Guarantors  an  amount  (together  with any  payments
required  of the  other  Subsidiary  Guarantors  by  Section  2.9 of each  other
Guaranty Agreement) such that the Net Payments made by all Subsidiary Guarantors
in  respect  of the  Liabilities  shall be shared  among  all of the  Subsidiary
Guarantors in a proportion  equal to their respective  Contribution  Percentage;
provided,  however, Guarantor need not make any such payment if at the time such
payment is to be made Guarantor is illiquid and not making such payment will not
render any other Subsidiary Guarantor insolvent.

                                    ARTICLE 3
                                    ---------
                         Representations and Warranties
                         ------------------------------

     Section  3.1 By  Guarantor.  In order to induce the  Lenders to accept this
                  -------------
Guaranty  Agreement,  Guarantor  represents  and warrants to the Lenders  (which
representations  and warranties will survive the creation of the Liabilities and
any extension of credit thereunder) that:

          (a)  Benefit  to  Guarantor.  Guarantor's  guaranty  pursuant  to this
               ----------------------
Guaranty  Agreement   reasonably  may  be  expected  to  benefit,   directly  or
indirectly, Guarantor.

          (b)  Existence.  Guarantor is a corporation  duly  organized,  validly
               ---------
existing and in good standing under the laws of the State of Montana.

          (c)  Power  and  Authorization.   Guarantor  is  duly  authorized  and
               -------------------------
empowered  to execute,  deliver  and perform  this  Guaranty  Agreement  and all
necessary action on Guarantor's  part requisite for the due execution,  delivery
and performance of this Guaranty Agreement has been duly and effectively taken.

          (d) Binding Obligations. This Guaranty Agreement constitutes valid and
              -------------------
binding  obligations  of Guarantor,  enforceable  in accordance  with its terms,
subject to  applicable  bankruptcy,  insolvency,  reorganization,  moratorium or
other  laws  affecting  creditors'  rights  generally  and  subject  to  general
principals of equity, regardless of whether considered in a proceeding in equity
or at law.

          (e) Governmental Approvals; No Conflicts.  This Guaranty Agreement (a)
              ------------------------------------
does not require any consent or approval of, registration or filing with, or any

                                      -7-


other action by, any Governmental  Authority,  except such as have been obtained
or made and are in full force and effect,  (b) will not  violate any  applicable
law or regulation or the charter,  by-laws or other organizational  documents of
the Guarantor or any order of any Governmental  Authority,  (c) will not violate
or result  in a  default  under any  indenture,  agreement  or other  instrument
binding upon the Guarantor or its assets,  or give rise to a right thereunder to
require any payment to be made by the Guarantor,  and (d) will not result in the
creation or imposition of any Lien on any asset of the Guarantor.

          (f)  Solvency.  The  Guarantor  hereby  represents  that (i) it is not
               --------
insolvent  as of the date hereof and will not be rendered  insolvent as a result
of  this  Guaranty  Agreement,  (ii)  it  is  not  engaged  in a  business  or a
transaction,  or about to engage in a business or a  transaction,  for which any
property or assets  remaining  with such  Guarantor  thereafter is  unreasonably
small capital,  and (iii) it does not intend to incur, or believe it will incur,
debts that will be beyond its ability to pay as such debts mature.

     Section 3.2 No Representation by Lenders. Neither the Lenders nor any other
                 ----------------------------
Person has made any  representation,  warranty or statement to the  Guarantor in
order to induce the Guarantor to execute this Guaranty Agreement.

                                    ARTICLE 4
                                    ---------
                          Subordination of Indebtedness
                          -----------------------------

     Section 4.1 Subordination of All Guarantor Claims. As used herein, the term
                 -------------------------------------
"Guarantor  Claims"  shall  mean  all  debts  and  liabilities  of  Borrower  to
Guarantor,  whether  such  debts  and  liabilities  now  exist or are  hereafter
incurred or arise,  or whether  the  obligation  of Borrower  thereon be direct,
contingent,  primary,  secondary,  several, joint and several, or otherwise, and
irrespective  of  whether  such  debts  or  liabilities  be  evidenced  by note,
contract, open account, or otherwise,  and irrespective of the person or persons
in whose favor such debts or liabilities may, at their inception,  have been, or
may hereafter be created, or the manner in which they have been or may hereafter
be acquired by Guarantor.  The Guarantor Claims shall include without limitation
all rights  and  claims of  Guarantor  against  Borrower  arising as a result of
subrogation or otherwise as a result of Guarantor's  payment of all or a portion
of the  Liabilities.  During the continuance of any Event of Default,  Guarantor
shall not receive or collect, directly or indirectly, from Borrower or any other
party any amount upon the Guarantor Claims.

     Section 4.2 Claims in Bankruptcy. In the event of receivership, bankruptcy,
                 --------------------
reorganization,  arrangement,  debtor's relief, or other insolvency  proceedings
involving  Borrower as debtor,  the Lenders  shall have the right to prove their
claim in any proceeding,  so as to establish their rights  hereunder and receive
directly  from the  receiver,  trustee or other court  custodian,  dividends and
payments which would otherwise be payable upon Guarantor  Claims. In such event,
Guarantor hereby assigns such dividends and payments to the Lenders.  Should the
Administrative   Agent  or  any  Lender  receive,   for  application   upon  the
Liabilities,  any such  dividend  or  payment  which  is  otherwise  payable  to
Guarantor,  and which,  as between  Borrower and Guarantor,  shall  constitute a
credit upon the Guarantor Claims,  then upon payment in full of the Liabilities,
Guarantor  shall  become  subrogated  to the rights of the Lenders to the extent
that such  payments to the  Lenders on the  Guarantor  Claims  have  contributed
toward the liquidation of the Liabilities,  and such  subrogation  shall be with

                                      -8-


respect to that portion of the  Liabilities  which would have been unpaid if the
Administrative Agent or a Lender had not received dividends or payments upon the
Guarantor Claims.

     Section  4.3  Payments  Held in Trust.  In the event  that  notwithstanding
                   -----------------------
Sections 4.1 and 4.2 above, Guarantor should receive any funds, payments, claims
or distributions which is prohibited by such Sections,  Guarantor agrees to hold
in trust for the Lenders an amount  equal to the amount of all funds,  payments,
claims or distributions so received, and agrees that it shall have absolutely no
dominion over the amount of such funds, payments, claims or distributions except
to pay them  promptly  to the  Administrative  Agent,  and  Guarantor  covenants
promptly to pay the same to the Administrative Agent.

     Section 4.4 Liens  Subordinate.  Guarantor agrees that any liens,  security
                 ------------------
interests,  judgment liens, charges or other encumbrances upon Borrower's assets
securing  payment  of the  Guarantor  Claims  shall be and remain  inferior  and
subordinate to any liens,  security interests,  judgment liens, charges or other
encumbrances  upon  Borrower's  assets  securing  payment  of  the  Liabilities,
regardless   of  whether  such   encumbrances   in  favor  of   Guarantor,   the
Administrative  Agent or the Lenders presently exist or are hereafter created or
attach.  Without the prior written  consent of the Lenders,  Guarantor shall not
(a) exercise or enforce any  creditor's  right it may have against the Borrower,
or (b) foreclose,  repossess, sequester or otherwise take steps or institute any
action or proceeding  (judicial or otherwise,  including without  limitation the
commencement  of or  joinder  in  any  liquidation,  bankruptcy,  rearrangement,
debtor's relief or insolvency proceeding) to enforce any lien, mortgages,  deeds
of trust, security interest,  collateral rights, judgments or other encumbrances
on assets of Borrower held by Guarantor.

     Section 4.5 Notation of Records. All promissory notes, or other instruments
                 -------------------
evidencing the Guarantor  Claims accepted by or held by Guarantor (if any) shall
contain a  specific  written  notice  thereon  that the  indebtedness  evidenced
thereby is subordinated under the terms of this Guaranty Agreement.

                                    ARTICLE 5
                                    ---------
                                  Miscellaneous
                                  -------------

     Section 5.1 Successors and Assigns. This Guaranty Agreement is and shall be
                 ----------------------
in every  particular  available to the successors and assigns of the Lenders and
is and shall  always be fully  binding  upon the legal  representatives,  heirs,
successors  and assigns of  Guarantor,  notwithstanding  that some or all of the
monies, the repayment of which this Guaranty Agreement applies,  may be actually
advanced after any bankruptcy, receivership,  reorganization,  death, disability
or other event affecting Guarantor.

     Section  5.2  Notices.  Any  notice  or  demand  to  Guarantor  under or in
                   -------
connection with this Guaranty  Agreement may be given and shall  conclusively be
deemed and considered to have been given and received in accordance with Section
12.02 of the Credit  Agreement,  addressed  to  Guarantor  at the address on the
signature  page hereof or at such other address  provided to the  Administrative
Agent in writing.

                                      -9-


     Section 5.3 Business and Financial Information. The Guarantor will promptly
                 ----------------------------------
furnish  to the  Administrative  Agent  and the  Lenders  from time to time upon
request  such  information  regarding  the  business  and affairs and  financial
condition of the Guarantor and its subsidiaries as the Administrative  Agent and
the Lenders may reasonably request.

     Section 5.4 Choice of Law.  This  Guaranty  Agreement  (including,  but not
                 -------------
limited to, the validity and  enforceability  hereof)  shall be governed by, and
construed in accordance with, the laws of the State of Texas.

     Section 5.5 Invalidity. In the event that any one or more of the provisions
                 ----------
contained in this Guaranty  Agreement  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  Guaranty
Agreement.

     Section 5.6 ENTIRE AGREEMENT.  THIS WRITTEN GUARANTY AGREEMENT EMBODIES THE
                 ----------------
ENTIRE  AGREEMENT  AND  UNDERSTANDING  BETWEEN THE LENDERS AND THE GUARANTOR AND
SUPERSEDES ALL OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING
TO THE SUBJECT  MATTER  HEREOF AND  THEREOF.  THIS  WRITTEN  GUARANTY  AGREEMENT
REPRESENTS THE FINAL  AGREEMENT  BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR,  CONTEMPORANEOUS,  OR  SUBSEQUENT  ORAL  AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.



                         [SIGNATURES BEGIN ON NEXT PAGE]


                                      -10-




         WITNESS THE EXECUTION HEREOF, effective as of the 27th day of January,
2003.


                                     NANCE PETROLEUM CORPORATION


                                     By:  /s/ ROBERT T. HANLEY
                                         ---------------------------------------
                                          Robert T. Hanley
                                          Vice President and Treasurer

                                     Address: 550 N. 31st Street, Suite 500
                                              Billings, MT  59103

                                      -11-

EX-10

                                                                    EXHIBIT 10.7
                               GUARANTY AGREEMENT


                                       by


                                    NPC INC.


                                   in favor of


                      WACHOVIA BANK, NATIONAL ASSOCIATION,
                             AS ADMINISTRATIVE AGENT



                                January 27, 2003






                                TABLE OF CONTENTS
                                -----------------

                                                                                                                                   Page


ARTICLE 1 General Terms........................................................1
  Section 1.1       Terms Defined Above........................................1
  Section 1.2       Certain Definitions........................................1
  Section 1.3       Credit Agreement Definitions...............................3


ARTICLE 2 The Guaranty.........................................................3
  Section 2.1       Liabilities Guaranteed.....................................3
  Section 2.2       Nature of Guaranty.........................................3
  Section 2.3       Administrative Agent's Rights..............................4
  Section 2.4       Guarantor's Waivers........................................4
  Section 2.5       Maturity of Liabilities; Payment...........................4
  Section 2.6       Administrative Agent's Expenses............................4
  Section 2.7       Liability..................................................5
  Section 2.8       Events and Circumstances Not Reducing or Discharging
                    Guarantor's Obligations....................................5
  Section 2.9       Right of Subrogation and Contribution......................7


ARTICLE 3 Representations and Warranties.......................................7
  Section 3.1       By Guarantor...............................................7
  Section 3.2       No Representation by Lenders...............................8


ARTICLE 4 Subordination of Indebtedness........................................8
  Section 4.1       Subordination of All Guarantor Claims......................8
  Section 4.2       Claims in Bankruptcy.......................................8
  Section 4.3       Payments Held in Trust.....................................9
  Section 4.4       Liens Subordinate..........................................9
  Section 4.5       Notation of Records........................................9


ARTICLE 5 Miscellaneous........................................................9
  Section 5.1       Successors and Assigns.....................................9
  Section 5.2       Notices....................................................9
  Section 5.3       Business and Financial Information........................10
  Section 5.4       Choice of Law.............................................10
  Section 5.5       Invalidity................................................10
  SECTION 5.6       ENTIRE AGREEMENT..........................................10



                                      -i-




                               GUARANTY AGREEMENT
                               ------------------

     THIS GUARANTY AGREEMENT (this "Guaranty Agreement") made by the undersigned
                                    ------------------
guarantor  (hereinafter  called  "Guarantor"),  is in  favor of  Wachovia  Bank,
                                  ---------
National Association,  as Administrative Agent (the "Administrative  Agent") for
                                                     ---------------------
the lenders (the "Lenders") signatory to the Credit Agreement defined below.
                  -------

                                R E C I T A L S:
                                ---------------

     A. On even date  herewith,  St.  Mary Land  &  Exploration  Company,  a
Delaware corporation (hereinafter called "Borrower"),  the Administrative Agent,
and the Lenders have entered into that certain Credit Agreement (as the same may
be amended or supplemented from time to time, the "Credit Agreement"),  whereby,
                                                   ----------------
pursuant to the terms and conditions  contained  therein,  the Lenders agreed to
make loans to and extend credit on behalf of the Borrower; and

     B. One of the terms and conditions  stated in the Credit  Agreement for the
making of the loans and extensions of credit described  therein is the execution
and delivery to the Administrative  Agent for the benefit of the Lenders of this
Guaranty Agreement;

     NOW, THEREFORE, (i) in order to comply with the terms and conditions of the
Credit Agreement,  (ii) to induce the Lenders, at any time or from time to time,
to loan  monies  and extend  credit,  with or  without  security,  to or for the
account of Borrower in accordance with the terms of the Credit Agreement,  (iii)
at the special  insistence  and request of the Lenders,  and (iv) for other good
and  valuable  consideration,  the  receipt and  sufficiency  of which is hereby
acknowledged, Guarantor hereby agrees as follows:

                                    ARTICLE 1
                                    ---------
                                  General Terms
                                  -------------

     Section 1.1 Terms Defined Above.  As used in this Guaranty  Agreement,  the
                 -------------------
terms "Administrative Agent",  "Borrower",  "Credit Agreement",  "Guarantor" and
"Lenders" shall have the meanings indicated above.

     Section 1.2 Certain  Definitions.  As used in this Guaranty Agreement,  the
                 --------------------
following terms shall have the following meanings,  unless the context otherwise
requires  (terms  defined in the singular shall have the same meanings when used
in the plural and vice versa):
                  ---- -----

     "Contribution  Obligation" shall mean an amount equal, at any time and from
      ------------------------
time to time and for each respective Subsidiary Guarantor, to the product of (i)
its Contribution  Percentage times (ii) the sum of all payments made previous to
or at the time of  calculation  by all  Subsidiary  Guarantors in respect of the
Liabilities,  as a Subsidiary  Guarantor  (less the amount of any such  payments
previously  returned  to  any  Subsidiary  Guarantor  by  operation  of  law  or
otherwise,  but not including  payments received by any Subsidiary  Guarantor by
way of its rights of subrogation and contribution under Section 2.9 of any other
Guaranty Agreements);  provided,  however, such Contribution  Obligation for any
Subsidiary  Guarantor  shall  in no event  exceed  such  Subsidiary  Guarantor's
Maximum  Guaranteed  Amount, as defined in the respective  Guaranty Agreement of
such Subsidiary Guarantor.

                                      -1-


     "Contribution  Percentage" shall mean for any Subsidiary  Guarantor for any
      ------------------------
applicable date as of which such percentage is being determined, an amount equal
to the  quotient of (i) the Net Worth of such  Subsidiary  Guarantor  as of such
date, divided by (ii) the sum of the Net Worth of all the Subsidiary  Guarantors
as of such date.

     "Guarantor Claims" shall have the meaning indicated in Section 4.1 hereof.
      ----------------

     "Guaranty  Agreement"  shall mean this  Guaranty  Agreement,  and where the
      -------------------
context indicates, the "Guaranty Agreement" (as defined in the Credit Agreement)
of any other Subsidiary Guarantor, as the same may from time to time be amended,
modified or supplemented.

     "Liabilities"  shall  mean (a) any and all  Indebtedness,  obligations  and
      -----------
liabilities of the Borrower  pursuant to the Credit Agreement and any other Loan
Document,  including without limitation, the unpaid principal of and interest on
the Notes,  including without  limitation,  interest accruing  subsequent to the
filing of a petition or other  action  concerning  bankruptcy  or other  similar
proceeding;  (b) any additional  loans made by the Lenders to the Borrower;  (c)
payment of and  performance of any and all present or future  obligations of the
Borrower to any Lender or any Affiliate of such Lender under any Swap  Agreement
between the Borrower and any Lender or any Affiliate of such Lender; (d) any and
all other indebtedness,  obligations and liabilities of any kind of the Borrower
to the Lenders, now or hereafter existing, arising directly between the Borrower
and the Lenders or acquired  outright,  as a participation,  conditionally or as
collateral security from another by the Lenders,  absolute or contingent,  joint
and/or several,  secured or unsecured,  due or not due,  arising by operation of
law or otherwise, or direct or indirect, including indebtedness, obligations and
liabilities  to the  Lenders  of the  Borrower  as a member of any  partnership,
syndicate,  association or other group,  and whether incurred by the Borrower as
principal,  surety, endorser,  guarantor,  accommodation party or otherwise; and
(e)  all  renewals,  rearrangements,   increases,  extensions  for  any  period,
amendments  or  supplements  in whole or in part of the  Notes or any  documents
evidencing the above

     "Maximum  Guaranteed Amount" shall mean, for the Guarantor,  the greater of
      --------------------------
(i) the "reasonably  equivalent  value" or "fair  consideration"  (or equivalent
concept)  received by the  Guarantor  in exchange  for the  obligation  incurred
hereunder,  within the  meaning of any  applicable  state or federal  fraudulent
conveyance or transfer  laws; or (ii) the lesser of (A) the maximum  amount that
will not render the Guarantor insolvent, or (B) the maximum amount that will not
leave the Guarantor  with any property  deemed an  unreasonably  small  capital.
Clauses  (A) and  (B) are and  shall  be  determined  pursuant  to and as of the
appropriate  date  mandated  by such  applicable  state  or  federal  fraudulent
conveyance or transfer  laws and to the extent  allowed by law take into account
the rights to contribution  and  subrogation  under Section 2.9 in each Guaranty
Agreement so as to provide for the largest Maximum Guaranteed Amount possible.

     "Net  Payments"  shall mean an amount  equal,  at any time and from time to
      -------------
time and for each respective Subsidiary Guarantor,  to the difference of (i) the
sum of all  payments  made  previous  to or at the time of  calculation  by such
Subsidiary Guarantor in respect of the Liabilities,  as a Subsidiary  Guarantor,
and in respect of its  obligations  contained in this Guaranty  Agreement,  less
(ii)  the sum of all  such  payments  previously  returned  to  such  Subsidiary
Guarantor by operation of law or otherwise  and including  payments  received by

                                      -2-


such Subsidiary  Guarantor by way of its rights of subrogation and  contribution
under Section 2.9 of any other Guaranty Agreements.

     "Net  Worth"  shall  mean  for  any  Subsidiary  Guarantor,  determined  in
      ----------
accordance  with GAAP and calculated on and as of any  applicable  date on which
such amount is being determined,  the difference between (i) the sum of all such
Subsidiary  Guarantor's property, at a fair valuation and as of such date, minus
(ii) the sum of all such Subsidiary  Guarantor's  debts, at a fair valuation and
as of such date, excluding the Liabilities.

     "Subsidiary  Guarantors" shall mean the Subsidiaries or other Persons party
      ----------------------
to a Guaranty Agreement, including the Guarantor.

     Section 1.3 Credit Agreement Definitions.  Unless otherwise defined herein,
                 ----------------------------
all terms  beginning  with a capital  letter  which are  defined  in the  Credit
Agreement shall have the same meanings herein as therein.

                                    ARTICLE 2
                                    ---------
                                  The Guaranty
                                  ------------

     Section  2.1  Liabilities  Guaranteed.  Guarantor  hereby  irrevocably  and
                   -----------------------
unconditionally  guarantees  the  prompt  payment of the  Liabilities  when due,
whether at maturity  or  otherwise;  provided,  however,  that,  notwithstanding
anything  herein or in any other Loan  Document  to the  contrary,  the  maximum
liability of Guarantor hereunder shall in no event exceed the Maximum Guaranteed
Amount.

     Section 2.2 Nature of  Guaranty.  This  Guaranty  Agreement is an absolute,
                 -------------------
irrevocable,  completed and continuing guaranty of payment and not a guaranty of
collection,  and no notice of the Liabilities or any extension of credit already
or hereafter  contracted  by or extended to Borrower need be given to Guarantor.
This Guaranty Agreement may not be revoked by Guarantor and shall continue to be
effective  with respect to debt under the  Liabilities  arising or created after
any attempted  revocation by Guarantor and shall remain in full force and effect
until  the  Liabilities  are paid in full and the  Commitments  are  terminated,
notwithstanding  that from time to time  prior  thereto  no  Liabilities  may be
outstanding.  Borrower and the Lenders may modify, alter, rearrange,  extend for
any period and/or renew from time to time, the Liabilities,  and the Lenders may
waive any Default or Events of Default  without  notice to the  Guarantor and in
such event Guarantor will remain fully bound hereunder on the Liabilities.  This
Guaranty Agreement shall continue to be effective or be reinstated,  as the case
may be, if at any time any  payment  of the  Liabilities  is  rescinded  or must
otherwise be returned by any of the Lenders upon the  insolvency,  bankruptcy or
reorganization of Borrower or otherwise, all as though such payment had not been
made. This Guaranty  Agreement may be enforced by the  Administrative  Agent and
any subsequent  holder of any of the  Liabilities and shall not be discharged by
the  assignment  or  negotiation  of all or part of the  Liabilities.  Guarantor
hereby expressly waives presentment,  demand, notice of non-payment, protest and
notice of protest and dishonor, notice of Default or Event of Default, notice of
intent to accelerate the maturity and notice of acceleration of the maturity and
any  other  notice  in  connection  with the  Liabilities,  and also  notice  of
acceptance  of this  Guaranty  Agreement,  acceptance on the part of the Lenders

                                      -3-


being conclusively  presumed by the Lenders' request for this Guaranty Agreement
and delivery of the same to the Administrative Agent.

     Section  2.3  Administrative  Agent's  Rights.   Guarantor  authorizes  the
                   -------------------------------
Administrative Agent, without notice or demand and without affecting Guarantor's
liability  hereunder,  to obtain a guaranty of the  Liabilities  from any one or
more  Persons and at any time or times to  enforce,  waive,  rearrange,  modify,
limit or release any of such other  Persons  from their  obligations  under such
guaranties.

     Section 2.4 Guarantor's Waivers.
                 -------------------

          (a) General.  Guarantor waives any right to require any of the Lenders
              -------
to (i) proceed against  Borrower or any other person liable on the  Liabilities,
(ii) enforce any of their rights against any other  guarantor of the Liabilities
including but not limited to the Subsidiary  Guarantors (iii) proceed or enforce
any of their  rights  against  or  exhaust  any  security  given to  secure  the
Liabilities  (iv) have Borrower joined with Guarantor in any suit arising out of
this Guaranty  Agreement and/or the Liabilities,  or (v) pursue any other remedy
in the Lenders' powers whatsoever. The Lenders shall not be required to mitigate
damages  or take any  action to reduce,  collect  or  enforce  the  Liabilities.
Guarantor  waives  any  defense  arising  by reason of any  disability,  lack of
corporate  authority  or  power,  or other  defense  of  Borrower  or any  other
guarantor of the  Liabilities,  and shall remain  liable  hereon  regardless  of
whether  Borrower  or any other  guarantor  be found not liable  thereon for any
reason.  Whether and when to exercise any of the  remedies of the Lenders  under
any of the Loan  Documents  shall be in the sole and absolute  discretion of the
Administrative  Agent, and no delay by the Administrative Agent in enforcing any
remedy,  including delay in conducting a foreclosure sale, shall be a defense to
the Guarantor's  liability under this Guaranty Agreement.  To the extent allowed
by applicable  law, the Guarantor  hereby waives any good faith duty on the part
of the  Administrative  Agent in  exercising  any remedies  provided in the Loan
Documents.

          (b)  Subrogation.  Until the  Liabilities  have been paid in full, the
               -----------
Guarantor  waives  all  rights  of  subrogation  or  reimbursement  against  the
Borrower,  whether arising by contract or operation of law  (including,  without
limitation,  any such right  arising  under any federal or state  bankruptcy  or
insolvency  laws) and waives any right to enforce  any remedy  which the Lenders
now have or may hereafter  have against the Borrower,  and waives any benefit or
any  right  to  participate  in  any  security  now  or  hereafter  held  by the
Administrative Agent or any Lender.

     Section 2.5 Maturity of Liabilities;  Payment. Guarantor agrees that if the
                 ---------------------------------
maturity of any of the  Liabilities  is  accelerated by bankruptcy or otherwise,
such maturity shall also be deemed  accelerated for the purpose of this Guaranty
Agreement without demand or notice to Guarantor.  Guarantor will, forthwith upon
notice from the Administrative Agent, pay to the Administrative Agent the amount
due  and  unpaid  by  Borrower  and  guaranteed   hereby.  The  failure  of  the
Administrative  Agent to give this notice shall not in any way release Guarantor
hereunder.

     Section 2.6 Administrative  Agent's Expenses. If Guarantor fails to pay the
                 --------------------------------
Liabilities after notice from the Administrative  Agent of Borrower's failure to
pay any  Liabilities  when due,  and if the  Administrative  Agent  obtains  the

                                      -4-


services of an attorney for collection of amounts owing by Guarantor  hereunder,
or  obtaining  advice of  counsel  in  respect  of any  aspect of this  Guaranty
Agreement,  or if suit is  filed  to  enforce  this  Guaranty  Agreement,  or if
proceedings are had in any bankruptcy,  probate,  receivership or other judicial
proceedings for the establishment or collection of any amount owing by Guarantor
hereunder,  or if any amount owing by Guarantor  hereunder is collected  through
such  proceedings,  Guarantor  agrees  to pay to the  Administrative  Agent  the
Administrative Agent's reasonable attorneys' fees.

     Section 2.7  Liability.  It is expressly  agreed that the  liability of the
                  ---------
Guarantor for the payment of the Liabilities  guaranteed hereby shall be primary
and not secondary.

     Section  2.8  Events  and   Circumstances   Not  Reducing  or   Discharging
                   -------------------------------------------------------------
Guarantor's  Obligations.  Guarantor  hereby  consents and agrees to each of the
- ------------------------
following to the fullest  extent  permitted by law, and agrees that  Guarantor's
obligations  under this Guaranty  Agreement  shall not be released,  diminished,
impaired,  reduced or adversely affected by any of the following, and waives any
rights  (including  without  limitation  rights to notice) which Guarantor might
otherwise have as a result of or in connection with any of the following:

          (a)  Modifications,   etc.  Any  renewal,   extension,   modification,
               --------------------
increase,  decrease,  alteration  or  rearrangement  of all or any  part  of the
Liabilities,  or of the Notes,  any Loan Document or the Credit Agreement or any
instrument  executed in connection  therewith,  or any contract or understanding
between Borrower and any of the Lenders, or any other Person,  pertaining to the
Liabilities.

          (b)  Adjustment,  etc.  Any  adjustment,  indulgence,  forbearance  or
               ----------------
compromise  that might be granted or given by any of the  Lenders to Borrower or
Guarantor or any Person liable on the Liabilities.

          (c) Condition of Borrower or  Guarantor.  The  insolvency,  bankruptcy
              -----------------------------------
arrangement,  adjustment,  composition,  liquidation,  disability,  dissolution,
death or lack of power of Borrower or  Guarantor or any other Person at any time
liable for the payment of all or part of the Liabilities;  or any dissolution of
Borrower  or  Guarantor,  or any sale,  lease or  transfer  of any or all of the
assets of Borrower or Guarantor,  or any changes in the shareholders,  partners,
or members of  Borrower  or  Guarantor;  or any  reorganization  of  Borrower or
Guarantor.

          (d)  Invalidity  of  Liabilities.   The   invalidity,   illegality  or
               ---------------------------
unenforceability  of all or any  part of the  Liabilities,  or any  document  or
agreement   executed  in  connection  with  the  Liabilities,   for  any  reason
whatsoever,  including without limitation the fact that the Liabilities,  or any
part  thereof,  exceed the amount  permitted  by law,  the act of  creating  the
Liabilities or any part thereof is ultra vires, the officers or  representatives
executing the documents or otherwise creating the Liabilities acted in excess of
their authority, the Liabilities violate applicable usury laws, the Borrower has
valid  defenses,  claims or offsets  (whether at law, in equity or by agreement)
which render the Liabilities  wholly or partially  uncollectible  from Borrower,
the creation,  performance  or repayment of the  Liabilities  (or the execution,
delivery and performance of any document or instrument  representing part of the
Liabilities or executed in connection with the  Liabilities,  or given to secure
the repayment of the Liabilities) is illegal, uncollectible,  legally impossible
or unenforceable, or the Credit Agreement or other documents or instruments

                                      -5-


pertaining to the Liabilities have been forged or otherwise are irregular or not
genuine or authentic.

          (e) Release of Obligors.  Any full or partial release of the liability
              -------------------
of Borrower on the Liabilities or any part thereof, of any co-guarantors, or any
other Person now or hereafter liable,  whether directly or indirectly,  jointly,
severally,  or jointly and severally,  to pay, perform,  guarantee or assure the
payment  of  the  Liabilities  or  any  part  thereof,   it  being   recognized,
acknowledged  and agreed by Guarantor  that Guarantor may be required to pay the
Liabilities  in full  without  assistance  or support of any other  Person,  and
Guarantor  has not been  induced to enter into this  Guaranty  Agreement  on the
basis of a contemplation,  belief, understanding or agreement that other parties
other  than the  Borrower  will be liable to  perform  the  Liabilities,  or the
Lenders will look to other parties to perform the Liabilities.

          (f) Other  Security.  The taking or accepting  of any other  security,
              ---------------
collateral or guaranty,  or other  assurance of payment,  for all or any part of
the Liabilities.

          (g) Release of  Collateral,  etc.  Any release,  surrender,  exchange,
              ----------------------------
subordination,  deterioration,  waste,  loss or  impairment  (including  without
limitation negligent,  willful, unreasonable or unjustifiable impairment) of any
collateral,  property or security,  at any time existing in connection  with, or
assuring or securing payment of, all or any part of the Liabilities.

          (h) Care and Diligence. The failure of the Lenders or any other Person
              ------------------
to  exercise  diligence  or  reasonable  care in the  preservation,  protection,
enforcement,  sale or other  handling  or  treatment  of all or any part of such
collateral, property or security; provided, however, that Lenders shall act in a
                                  --------  -------
"commercially reasonable" manner as required by applicable provisions of Article
9 of the Uniform  Commercial  Code as  presently in effect in the State of Texas
when exercising their rights under that certain Pledge and Security Agreement by
and between Borrower and Administrative Agent of even date herewith.

          (i) Status of Liens. The fact that any collateral,  security, security
              ---------------
interest or lien  contemplated  or  intended to be given,  created or granted as
security for the repayment of the Liabilities shall not be properly perfected or
created, or shall prove to be unenforceable or subordinate to any other security
interest or lien, it being  recognized and agreed by Guarantor that Guarantor is
not entering into this Guaranty Agreement in reliance on, or in contemplation of
the benefits of, the validity, enforceability, collectability or value of any of
the collateral for the Liabilities.

          (j) Payments Rescinded. Any payment by Borrower to the Lenders is held
              ------------------
to  constitute a preference  under the  bankruptcy  laws,  or for any reason the
Lenders are  required  to refund such  payment or pay such amount to Borrower or
someone else.

          (k) Other Actions Taken or Omitted.  Any other action taken or omitted
              ------------------------------
to be taken with  respect  to the  Credit  Agreement,  the  Liabilities,  or the
security  and  collateral  therefor,  whether  or not such  action  or  omission
prejudices Guarantor or increases the likelihood that Guarantor will be required
to pay the  Liabilities  pursuant to the terms hereof;  it being the unambiguous
and unequivocal  intention of Guarantor that Guarantor shall be obligated to pay

                                      -6-


the Liabilities when due, notwithstanding any occurrence,  circumstance,  event,
action, or omission  whatsoever,  whether  contemplated or  uncontemplated,  and
whether or not otherwise or particularly  described herein,  except for the full
and final payment and satisfaction of the Liabilities.

     Section 2.9 Right of Subrogation  and  Contribution.  If Guarantor  makes a
                 ---------------------------------------
payment in respect of the  Liabilities,  it shall be subrogated to the rights of
the Lenders against the Borrower with respect to such payment and shall have the
rights of  contribution  against the other  Subsidiary  Guarantors  set forth in
Section 2.9 of any other Guaranty Agreements;  provided that Guarantor shall not
enforce its rights to any payment by way of  subrogation  or by  exercising  its
rights of  contribution  or  reimbursement  or the right to  participate  in any
security now or hereafter held by or for the benefit of the Lenders until all of
the Liabilities  have been paid in full. The Guarantor agrees that after all the
Liabilities  have been paid in full if its then  current Net  Payments  are less
than the amount of its then current Contribution Obligation, Guarantor shall pay
to any  other  Subsidiary  Guarantors  an  amount  (together  with any  payments
required  of the  other  Subsidiary  Guarantors  by  Section  2.9 of each  other
Guaranty Agreement) such that the Net Payments made by all Subsidiary Guarantors
in  respect  of the  Liabilities  shall be shared  among  all of the  Subsidiary
Guarantors in a proportion  equal to their respective  Contribution  Percentage;
provided,  however, Guarantor need not make any such payment if at the time such
- --------   -------
payment is to be made Guarantor is illiquid and not making such payment will not
render any other Subsidiary Guarantor insolvent.

                                    ARTICLE 3
                                    ---------
                         Representations and Warranties
                         ------------------------------

     Section  3.1 By  Guarantor.  In order to induce the  Lenders to accept this
                  -------------
Guaranty  Agreement,  Guarantor  represents  and warrants to the Lenders  (which
representations  and warranties will survive the creation of the Liabilities and
any extension of credit thereunder) that:

          (a)  Benefit  to  Guarantor.  Guarantor's  guaranty  pursuant  to this
               ----------------------
Guaranty  Agreement   reasonably  may  be  expected  to  benefit,   directly  or
indirectly, Guarantor.

          (b)  Existence.  Guarantor is a corporation  duly  organized,  validly
               ---------
existing and in good standing under the laws of the State of Colorado.

          (c)  Power  and  Authorization.   Guarantor  is  duly  authorized  and
               -------------------------
empowered  to execute,  deliver  and perform  this  Guaranty  Agreement  and all
necessary action on Guarantor's  part requisite for the due execution,  delivery
and performance of this Guaranty Agreement has been duly and effectively taken.

          (d) Binding Obligations. This Guaranty Agreement constitutes valid and
              -------------------
binding  obligations  of Guarantor,  enforceable  in accordance  with its terms,
subject to  applicable  bankruptcy,  insolvency,  reorganization,  moratorium or
other  laws  affecting  creditors'  rights  generally  and  subject  to  general
principals of equity, regardless of whether considered in a proceeding in equity
or at law.

          (e) Governmental Approvals; No Conflicts.  This Guaranty Agreement (a)
              ------------------------------------
does not require any consent or approval of, registration or filing with, or any

                                      -7-


other action by, any Governmental  Authority,  except such as have been obtained
or made and are in full force and effect,  (b) will not  violate any  applicable
law or regulation or the charter,  by-laws or other organizational  documents of
the Guarantor or any order of any Governmental  Authority,  (c) will not violate
or result  in a  default  under any  indenture,  agreement  or other  instrument
binding upon the Guarantor or its assets,  or give rise to a right thereunder to
require any payment to be made by the Guarantor,  and (d) will not result in the
creation or imposition of any Lien on any asset of the Guarantor.

          (f)  Solvency.  The  Guarantor  hereby  represents  that (i) it is not
               --------
insolvent  as of the date hereof and will not be rendered  insolvent as a result
of  this  Guaranty  Agreement,  (ii)  it  is  not  engaged  in a  business  or a
transaction,  or about to engage in a business or a  transaction,  for which any
property or assets  remaining  with such  Guarantor  thereafter is  unreasonably
small capital,  and (iii) it does not intend to incur, or believe it will incur,
debts that will be beyond its ability to pay as such debts mature.

     Section 3.2 No Representation by Lenders. Neither the Lenders nor any other
                 ----------------------------
Person has made any  representation,  warranty or statement to the  Guarantor in
order to induce the Guarantor to execute this Guaranty Agreement.

                                    ARTICLE 4
                                    ---------
                          Subordination of Indebtedness
                          -----------------------------

     Section 4.1 Subordination of All Guarantor Claims. As used herein, the term
                 -------------------------------------
"Guarantor  Claims"  shall  mean  all  debts  and  liabilities  of  Borrower  to
Guarantor,  whether  such  debts  and  liabilities  now  exist or are  hereafter
incurred or arise,  or whether  the  obligation  of Borrower  thereon be direct,
contingent,  primary,  secondary,  several, joint and several, or otherwise, and
irrespective  of  whether  such  debts  or  liabilities  be  evidenced  by note,
contract, open account, or otherwise,  and irrespective of the person or persons
in whose favor such debts or liabilities may, at their inception,  have been, or
may hereafter be created, or the manner in which they have been or may hereafter
be acquired by Guarantor.  The Guarantor Claims shall include without limitation
all rights  and  claims of  Guarantor  against  Borrower  arising as a result of
subrogation or otherwise as a result of Guarantor's  payment of all or a portion
of the  Liabilities.  During the continuance of any Event of Default,  Guarantor
shall not receive or collect, directly or indirectly, from Borrower or any other
party any amount upon the Guarantor Claims.

     Section 4.2 Claims in Bankruptcy. In the event of receivership, bankruptcy,
                 --------------------
reorganization,  arrangement,  debtor's relief, or other insolvency  proceedings
involving  Borrower as debtor,  the Lenders  shall have the right to prove their
claim in any proceeding,  so as to establish their rights  hereunder and receive
directly  from the  receiver,  trustee or other court  custodian,  dividends and
payments which would otherwise be payable upon Guarantor  Claims. In such event,
Guarantor hereby assigns such dividends and payments to the Lenders.  Should the
Administrative   Agent  or  any  Lender  receive,   for  application   upon  the
Liabilities,  any such  dividend  or  payment  which  is  otherwise  payable  to
Guarantor,  and which,  as between  Borrower and Guarantor,  shall  constitute a
credit upon the Guarantor Claims,  then upon payment in full of the Liabilities,
Guarantor  shall  become  subrogated  to the rights of the Lenders to the extent
that such  payments to the  Lenders on the  Guarantor  Claims  have  contributed

                                      -8-


toward the liquidation of the Liabilities,  and such  subrogation  shall be with
respect to that portion of the  Liabilities  which would have been unpaid if the
Administrative Agent or a Lender had not received dividends or payments upon the
Guarantor Claims.

     Section  4.3  Payments  Held in Trust.  In the event  that  notwithstanding
                   -----------------------
Sections 4.1 and 4.2 above, Guarantor should receive any funds, payments, claims
or distributions which is prohibited by such Sections,  Guarantor agrees to hold
in trust for the Lenders an amount  equal to the amount of all funds,  payments,
claims or distributions so received, and agrees that it shall have absolutely no
dominion over the amount of such funds, payments, claims or distributions except
to pay them  promptly  to the  Administrative  Agent,  and  Guarantor  covenants
promptly to pay the same to the Administrative Agent.

     Section 4.4 Liens  Subordinate.  Guarantor agrees that any liens,  security
                 ------------------
interests,  judgment liens, charges or other encumbrances upon Borrower's assets
securing  payment  of the  Guarantor  Claims  shall be and remain  inferior  and
subordinate to any liens,  security interests,  judgment liens, charges or other
encumbrances  upon  Borrower's  assets  securing  payment  of  the  Liabilities,
regardless   of  whether  such   encumbrances   in  favor  of   Guarantor,   the
Administrative  Agent or the Lenders presently exist or are hereafter created or
attach.  Without the prior written  consent of the Lenders,  Guarantor shall not
(a) exercise or enforce any  creditor's  right it may have against the Borrower,
or (b) foreclose,  repossess, sequester or otherwise take steps or institute any
action or proceeding  (judicial or otherwise,  including without  limitation the
commencement  of or  joinder  in  any  liquidation,  bankruptcy,  rearrangement,
debtor's relief or insolvency proceeding) to enforce any lien, mortgages,  deeds
of trust, security interest,  collateral rights, judgments or other encumbrances
on assets of Borrower held by Guarantor.

     Section 4.5 Notation of Records. All promissory notes, or other instruments
                 -------------------
evidencing the Guarantor  Claims accepted by or held by Guarantor (if any) shall
contain a  specific  written  notice  thereon  that the  indebtedness  evidenced
thereby is subordinated under the terms of this Guaranty Agreement.

                                    ARTICLE 5
                                    ---------
                                  Miscellaneous
                                  -------------

     Section 5.1 Successors and Assigns. This Guaranty Agreement is and shall b
                 ----------------------
in every  particular  available to the successors and assigns of the Lenders and
is and shall  always be fully  binding  upon the legal  representatives,  heirs,
successors  and assigns of  Guarantor,  notwithstanding  that some or all of the
monies, the repayment of which this Guaranty Agreement applies,  may be actually
advanced after any bankruptcy, receivership,  reorganization,  death, disability
or other event affecting Guarantor.

     Section  5.2  Notices.  Any  notice  or  demand  to  Guarantor  under or in
                   -------
connection with this Guaranty  Agreement may be given and shall  conclusively be
deemed and considered to have been given and received in accordance with Section
12.02 of the Credit  Agreement,  addressed  to  Guarantor  at the address on the
signature  page hereof or at such other address  provided to the  Administrative
Agent in writing.

                                      -9-


     Section 5.3 Business and Financial Information. The Guarantor will promptly
                 ----------------------------------
furnish  to the  Administrative  Agent  and the  Lenders  from time to time upon
request  such  information  regarding  the  business  and affairs and  financial
condition of the Guarantor and its subsidiaries as the Administrative  Agent and
the Lenders may reasonably request.

     Section 5.4 Choice of Law.  This  Guaranty  Agreement  (including,  but not
                 -------------
limited to, the validity and  enforceability  hereof)  shall be governed by, and
construed in accordance with, the laws of the State of Texas.

     Section 5.5 Invalidity. In the event that any one or more of the provisions
                 ----------
contained in this Guaranty  Agreement  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  Guaranty
Agreement.

     Section 5.6 ENTIRE AGREEMENT.  THIS WRITTEN GUARANTY AGREEMENT EMBODIES THE
                 ----------------
ENTIRE  AGREEMENT  AND  UNDERSTANDING  BETWEEN THE LENDERS AND THE GUARANTOR AND
SUPERSEDES ALL OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING
TO THE SUBJECT  MATTER  HEREOF AND  THEREOF.  THIS  WRITTEN  GUARANTY  AGREEMENT
REPRESENTS THE FINAL  AGREEMENT  BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR,  CONTEMPORANEOUS,  OR  SUBSEQUENT  ORAL  AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.



                         [SIGNATURES BEGIN ON NEXT PAGE]


                                      -10-




         WITNESS THE EXECUTION HEREOF, effective as of the 27th day of January,
2003.


                                    NPC INC.


                                    By:      /s/ ROBERT T. HANLEY
                                             -----------------------------------
                                             Robert T. Hanley
                                             Vice President and Treasurer

                                    Address: 550 N. 31st Street, Suite 500
                                             Billings, MT  59103-7168


                                      -11-

EX-10

                                                                    EXHIBIT 10.8
- --------------------------------------------------------------------------------







                          PLEDGE AND SECURITY AGREEMENT



                                     Between

                    ST. MARY LAND & EXPLORATION COMPANY,
                                   as Pledgor



                                       and



          WACHOVIA BANK, NATIONAL ASSOCIATION, as Administrative Agent,
                                as Secured Party



                        Effective as of January 27, 2003








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




                          PLEDGE AND SECURITY AGREEMENT
                          -----------------------------

     THIS PLEDGE AND  SECURITY  AGREEMENT  is made  effective  as of January 27,
2003, by ST. MARY LAND &  EXPLORATION  COMPANY, a Delaware  corporation with
principal  offices at 1776 Lincoln Street,  Suite 1100,  Denver,  Colorado 80203
("Pledgor"),  in favor of WACHOVIA BANK, NATIONAL ASSOCIATION (formerly known as
  -------
First Union National Bank), a national  banking  association with offices at 301
South College Street,  Charlotte,  North Carolina 28288, as Administrative Agent
(in such capacity,  the "Secured  Party") for the benefit of the several lenders
                         --------------
now  or  hereafter   parties  to  the  hereinafter   defined  Credit   Agreement
(individually, a "Lender" and collectively, the "Lenders").
                  ------                         -------

                                    RECITALS
                                    --------

     A. Pledgor,  Secured Party and the Lenders have executed a Credit Agreement
dated as of even  date  herewith  (such  agreement,  as may from time to time be
amended  or  supplemented,  being  hereinafter  called the  "Credit  Agreement")
                                                             -----------------
pursuant to which,  upon the terms and conditions  stated  therein,  the Lenders
agree to make loans to and extend credit on behalf of Pledgor.

     B. The Lenders  conditioned  their  obligations  under the Credit Agreement
upon the execution and delivery by Pledgor of this Pledge and Security Agreement
and  Pledgor  has  agreed to  execute  and  deliver  this  Pledge  and  Security
Agreement.

     C.  Therefore,  for  good  and  valuable  consideration,  the  receipt  and
sufficiency of which are hereby acknowledged, Pledgor hereby agrees with Secured
Party as follows:

                                    ARTICLE 1

                                SECURITY INTEREST
                                -----------------

     Section 1.01 Pledge. Pledgor hereby pledges,  assigns and grants to Secured
                  ------
Party a security interest in and right of set-off against the assets referred to
in Section 1.02 (the  "Collateral") to secure the prompt payment and performance
                       ----------
of the "Obligations" (as defined in Section 2.02) and the performance by Pledgor
        -----------
of this Pledge and Security Agreement.

     Section 1.02 Collateral.  The Collateral consists of the following types or
                  ----------
items of property which are owned by Pledgor:

          (a) The  securities  described  or  referred  to in Exhibit A attached
     hereto and made a part hereof.

          (b) (i) The  certificates or instruments,  if any,  representing  such
     membership  interests and such units,  (ii) all dividends  (cash,  stock or
     otherwise),  cash, instruments,  rights to subscribe,  purchase or sell and
     all other rights and property  from time to time  received,  receivable  or
     otherwise  distributed  in respect of or in exchange for any or all of such
     membership   interests   or  such  units,   (iii)  all   replacements   and
     substitutions  for any of the property  referred to in this  Section  1.02,

                                       1


     including,  without limitation,  claims against third parties, and (iv) the
     proceeds,  interest,  profits and other income of or on any of the property
     referred to in this Section 1.02.

It is expressly  contemplated  that additional  securities or other property may
from time to time be pledged, assigned or granted to Secured Party as additional
security for the Obligations,  and the term "Collateral" as used herein shall be
                                             ----------
deemed  for all  purposes  hereof  to  include  all such  additional  membership
interests,  units and property,  together  with all other  property of the types
described above related thereto.

     Section  1.03  Transfer of  Collateral.  All  certificates  or  instruments
                    -----------------------
representing or evidencing the Pledged Securities shall be delivered to and held
pursuant  hereto by Secured  Party or a Person  designated  by Secured Party and
shall be in suitable form for transfer by delivery,  or shall be  accompanied by
duly executed instruments of transfer or assignment in blank, or (in the case of
either certificated or uncertificated  securities) Secured Party shall have been
provided with evidence that the Pledged Securities have been otherwise delivered
to Secured Party in accordance  with Section 8.301 of the Code,  all in form and
substance satisfactory to Secured Party. Notwithstanding the preceding sentence,
at Secured  Party's  discretion,  all Pledged  Securities  must be  delivered or
transferred in such manner as to permit  Secured Party to meet the  requirements
of  Section  8.303(a)(3)  of the Code to the  extent of its  security  interest.
Secured Party shall have the right,  at any time in its  discretion  and without
notice to Pledgor, to transfer to or to register in the name of Secured Party or
any of its  nominees any or all of the Pledged  Securities,  subject only to the
revocable  rights  specified in Section 4.02.  In addition,  Secured Party shall
have the right at any time to exchange certificates or instruments  representing
or evidencing  Pledged  Securities for certificates or instruments of smaller or
larger denominations.

                                    ARTICLE 2

                                   DEFINITIONS
                                   -----------

     Section  2.01 Terms  Defined  Above.  As used in this  Pledge and  Security
                   ---------------------
Agreement, the terms defined above shall have the meanings respectively assigned
to them.

     Section  2.02  Certain  Definitions.  As used in this  Pledge and  Security
                    --------------------
Agreement,  the following  terms shall have the following  meanings,  unless the
context otherwise requires:

          "Agreement" means this Pledge and Security Agreement,  as the same may
           ---------
     from time to time be amended, supplemented or otherwise modified.

          "Code" means the Uniform Commercial Code as presently in effect in the
           ----
     State of Texas,  Articles 1 through 9. Unless  otherwise  indicated  by the
     context herein, all uncapitalized terms which are defined in the Code shall
     have their respective meanings as used in Articles 8 and 9 of the Code.

          "Event of Default" means any event specified in Section 6.01.
           ----------------

                                       2


          "Obligations" means the collective  reference to (a) all indebtedness,
           -----------
     obligations and liabilities of Pledgor under or in connection with the Loan
     Documents,  including,  without  limitation,  the unpaid  principal  of and
     interest on the Loans and the LC  Exposure  and all other  obligations  and
     liabilities of Pledgor (including, without limitation, interest accruing at
     the then  applicable  rate  provided  in the  Credit  Agreement  after  the
     maturity of the Loans and the LC Exposure and interest accruing at the then
     applicable  rate provided in the Credit  Agreement  after the filing of any
     petition  in   bankruptcy,   or  the   commencement   of  any   insolvency,
     reorganization  or like proceeding,  relating to Pledgor,  whether or not a
     claim  for  post-filing  or  post-petition  interest  is  allowed  in  such
     proceeding)  to Secured  Party or any Lender  (or,  in the case of any Swap
     Agreement  referred to below, any Affiliate of any Lender),  whether direct
     or indirect,  absolute or contingent, due or to become due, or now existing
     or  hereafter  incurred,  which may arise under,  out of, or in  connection
     with, the Credit Agreement,  the other Loan Documents or any Swap Agreement
     entered into by Pledgor  with any Lender (or any  Affiliate of any Lender),
     or any other document made, delivered or given in connection therewith,  in
     each  case  whether  on  account  of  principal,  interest,   reimbursement
     obligations,  fees,  indemnities,  costs, expenses or otherwise (including,
     without  limitation,  all reasonable fees and  disbursements  of counsel to
     Secured  Party or to the  Lenders  that are  required to be paid by Pledgor
     pursuant  to the  terms of any of the  foregoing  agreements),  and (b) all
     obligations  of Pledgor  which may arise under or in  connection  with this
     Agreement or any other Loan Document to which Pledgor is a party.

          The term  "Obligations"  shall mean all indebtedness,  obligations and
                     -----------
     liabilities  described,   referred  to  or  mentioned  in  the  immediately
     preceding paragraph of this definition,  and all renewals,  rearrangements,
     increases,   substitutions  and  extensions  for  any  period  thereof  and
     amendments, supplements or modifications thereto, in whole or in part.

          "Obligor"  means any  Person,  other  than  Pledgor,  liable  (whether
           -------
     directly  or  indirectly,  primarily  or  secondarily)  for the  payment or
     performance of any of the Obligations whether as maker, co-maker, endorser,
     guarantor, accommodation party, general partner or otherwise.

          "Pledged  Securities"  means all of the  securities and other property
           -------------------
     (whether or not the same  constitutes a "security" under the Code) referred
     to in Section  1.02(a) or 1.02(b) and all  additional  securities,  if any,
     constituting Collateral under this Agreement.

     Section 2.03 Credit Agreement Terms. Unless otherwise defined herein, terms
                  ----------------------
defined in the Credit Agreement and used herein shall have the meanings given to
them in the Credit Agreement.

     Section 2.04 Section References.  Unless otherwise provided for herein, all
                  ------------------
references herein to Sections are to Sections of this Agreement.

                                        3


                                    ARTICLE 3

                         REPRESENTATIONS AND WARRANTIES
                         ------------------------------

     In  order to  induce  Secured  Party  to  accept  this  Agreement,  Pledgor
represents and warrants to Secured Party (which  representations  and warranties
will survive the creation and payment of the Obligations) that:

     Section 3.01  Ownership of  Collateral;  Encumbrances.  Except as otherwise
                   ---------------------------------------
permitted by the Credit Agreement, Pledgor is the record and beneficial owner of
the  Collateral  free and clear of any Lien  except  for the  security  interest
created by this  Agreement,  and Pledgor has full right,  power and authority to
pledge, assign and grant a security interest in the Collateral to Secured Party.

     Section 3.02 No Required Consent.  No authorization,  consent,  approval or
                  -------------------
other action by, and no notice to or filing with, any governmental  authority or
regulatory body (other than the filing of financing  statements) is required for
(i) the due execution,  delivery and  performance by Pledgor of this  Agreement,
(ii) the grant by Pledgor of the security  interest granted by this Agreement or
(iii) the perfection of such security interest.

     Section  3.03 Pledged  Securities.  The Pledged  Securities  have been duly
                   -------------------
authorized and validly issued, and are fully paid and non-assessable.

     Section  3.04  First  Priority  Security  Interest.  The  pledge of Pledged
                    -----------------------------------
Securities  pursuant to this  Agreement,  the  delivery to Secured  Party of the
certificates  representing  the Pledged  Securities  accompanied by stock powers
duly executed in blank and the filing of appropriate financing statements in the
relevant locations create a valid and perfected first priority security interest
in the  Collateral,  enforceable  against  Pledgor  and all  third  parties  and
securing payment of the Obligations.

                                    ARTICLE 4

                            COVENANTS AND AGREEMENTS
                            ------------------------

     Pledgor  will  at all  times  comply  with  the  covenants  and  agreements
contained in this Article 4, from the date hereof and for so long as any part of
the Obligations  (other than any indemnity which is not yet due and payable) are
outstanding.

     Section 4.01 Sale,  Disposition or  Encumbrance  of  Collateral.  Except as
                  --------------------------------------------------
otherwise not prohibited by the Credit Agreement or this Agreement, Pledgor will
not in any way  encumber any of the  Collateral  (or permit or suffer any of the
Collateral to be encumbered) or sell, pledge,  assign, lend or otherwise dispose
of or transfer  any of the  Collateral  to or in favor of any Person  other than
Secured Party.

     Section 4.02 Voting Rights;  Dividends or Distributions.  Until both (i) an
                  ------------------------------------------
Event of Default shall have  occurred and be continuing  and (ii) either (a) the
Loans have become due and  payable at their  stated  maturity  and have not been
paid, (b) the Loans have been declared due and payable  pursuant to Article X of

                                        4


the  Credit  Agreement,  or (c)  Secured  Party has given  notice to  Pledgor of
Secured Party's intent to exercise its rights under Section 6.02:

               (a) Pledgor  shall be  entitled  to exercise  any and all voting,
          management  and/or other  consensual  rights and powers  inuring to an
          owner  of the  Collateral  or any part  thereof  for any  purpose  not
          inconsistent  with the  terms of this  Agreement  and the  other  Loan
          Documents.

               (b) Pledgor  shall be  entitled  to receive and retain  (free and
          clear of and no longer  subject to this  Agreement or the Lien created
          pursuant to this Agreement) any and all dividends,  distributions  and
          interest paid in respect of the Collateral,  provided,  however,  that
          any and all

                    (i)  dividends  and interest  paid or payable  other than in
               cash in respect of, and instruments and other property  received,
               receivable or otherwise distributed in respect of, or in exchange
               for (including,  without  limitation,  any certificate,  share or
               interest purchased or exchanged in connection with a tender offer
               or merger agreement), any Collateral,

                    (ii)  dividends and other  distributions  paid or payable in
               cash in respect of any Collateral in connection with a partial or
               total liquidation or dissolution, or reclassification, and

                    (iii) cash paid, payable or otherwise distributed in respect
               of principal  of, or in  redemption  of, or in exchange  for, any
               Collateral,

shall  be,  and  shall  be  promptly  delivered  to  Secured  Party  to hold as,
Collateral  and shall,  if  received  by  Pledgor,  be received in trust for the
benefit of Secured  Party,  be  segregated  from the other  property or funds of
Pledgor,  and be promptly  delivered to Secured  Party as Collateral in the same
form as so  received  (with any  necessary  endorsement)  ),  provided  further,
                                                              --------  -------
however,  in no event shall the foregoing  proviso be applicable  to, or prevent
- -------
the Pledgor from receiving and retaining any securities  that are not pledged or
intended or required to be pledged to the Secured Party pursuant to any Security
Instrument, including this Agreement.

     Section  4.03  Records and  Information.  Pledgor  shall keep  accurate and
                    ------------------------
complete records of the Collateral (including proceeds, payments, distributions,
income and profits).  Pledgor will promptly  provide  written  notice to Secured
Party of all  information  which in any way affects the filing of any  financing
statement or other public notices or recordings  pertaining to the perfection of
a security  interest in the Collateral,  or the delivery and possession of items
of  Collateral  for  the  purpose  of  perfecting  a  security  interest  in the
Collateral.

     Section 4.04 Certain Liabilities.  Pledgor hereby assumes all liability for
                  -------------------
the Collateral, the security interest created hereunder and any use, possession,
maintenance,  management,  enforcement  or  collection  of  any  or  all  of the
Collateral.

     Section 4.05 Further Assurances. Upon the request of Secured Party, Pledgor
                  ------------------
shall  (at  Pledgor's   expense)  execute  and  deliver  all  such  assignments,
certificates,  instruments,  securities, financing statements,  notifications to

                                       5


financial intermediaries,  clearing corporations, issuers of securities or other
third parties or other  documents and give further  assurances  and do all other
acts and  things as Secured  Party may  reasonably  request  to perfect  Secured
Party's  interest in the Collateral or to protect,  enforce or otherwise  effect
Secured Party's rights and remedies hereunder.

     Section 4.06 Rights to Sell. If Secured  Party shall  determine to exercise
                  --------------
its  rights  to  sell  all  or  any of the  Collateral  pursuant  to its  rights
hereunder,  Pledgor agrees that, upon request of Secured Party, Pledgor will, at
its own expense:

          (a) execute and deliver,  and use all reasonable efforts to cause each
     issuer of the  Collateral  contemplated  to be sold and the  directors  and
     officers  thereof  to  execute  and  deliver,   all  such  instruments  and
     documents,  and do or cause to be done all such other acts and  things,  as
     may be necessary or, in the reasonable opinion of Secured Party,  advisable
     to register such  Collateral  under the provisions of the Securities Act of
     1933,  as  from  time to  time  amended  (the  "Securities  Act"),  if such
     registration is, in the reasonable  opinion of Secured Party,  necessary or
     advisable to effect a public  distribution of the Collateral,  and to cause
     the  registration  statement  relating  thereto to become  effective and to
     remain  effective for such period as prospectuses are required by law to be
     furnished,  and to make all amendments and  supplements  thereto and to the
     related  prospectus which, in the reasonable  opinion of Secured Party, are
     necessary or advisable,  all in  conformity  with the  requirements  of the
     Securities Act and the rules and regulations of the Securities and Exchange
     Commission applicable thereto;

          (b) use all  reasonable  efforts to qualify the  Collateral  under the
     state   securities   or  "Blue  Sky"  laws  and  to  obtain  all  necessary
     governmental  approvals  for the sale of the  Collateral,  as  requested by
     Secured Party;

          (c) use all  reasonable  efforts  to cause  each  such  issuer to make
     available  to its security  holders,  as soon as  practicable,  an earnings
     statement  which  will  satisfy  the  provisions  of  Section  11(a) of the
     Securities Act; and

          (d) use all  reasonable  efforts  to do or  cause  to be done all such
     others  acts  and  things  as may be  necessary  to make  such  sale of the
     Collateral  or any part thereof  valid and binding and in  compliance  with
     applicable law.

Pledgor further  acknowledges  the  impossibility  of ascertaining the amount of
damages  which would be  suffered  by Secured  Party by reason of the failure by
Pledgor to perform  any of the  covenants  contained  in this  Section  4.06 and
consequently agrees that if Pledgor shall fail to perform any of such covenants,
it shall pay (to the extent permitted by law), as liquidated damages, and not as
penalty,  an  amount  (in no event to exceed  the  amount  of  Obligations  then
outstanding) equal to the value of the Collateral  affected by Pledgor's failure
to perform any of the  covenants  contained in this Section 4.06 on the date the
Secured Party shall demand compliance with this Section 4.06.

                                        6


                                    ARTICLE 5

                   RIGHTS, DUTIES AND POWERS OF SECURED PARTY
                   ------------------------------------------

     The following  rights,  duties and powers of Secured  Party are  applicable
irrespective of whether an Event of Default occurs and is continuing:

     Section  5.01  Discharge  Encumbrances.  Secured  Party may, at its option,
                    -----------------------
three (3) Business Days after  receipt by Pledgor of prior  written  notice from
Secured Party of its intent to do so,  discharge any Liens at any time levied or
placed on the Collateral  that are  prohibited by the Credit  Agreement and that
are not being contested in good faith by appropriate proceedings. Pledgor agrees
to reimburse  Secured Party within five (5) days after demand for any payment so
made, plus interest  thereon from the date of Secured Party's demand at the rate
per  annum  equal to 2% plus the rate  applicable  to ABR Loans as  provided  in
Section 3.02(a) of the Credit Agreement.

     Section  5.02  Transfer of  Collateral.  Subject to the terms of the Credit
                    -----------------------
Agreement,  Secured Party may transfer any or all of the  Obligations,  and upon
any such  transfer  Secured Party may transfer its interest in any or all of the
Collateral and shall be fully discharged thereafter from all liability therefor.
Any transferee of the Collateral shall be vested with all rights, powers, duties
and remedies of Secured Party hereunder.

     Section 5.03 Cumulative and Other Rights.  The rights,  powers and remedies
                  ---------------------------
of Secured Party  hereunder  are in addition to all rights,  powers and remedies
given by law or in equity.  The exercise by Secured  Party of any one or more of
the rights, powers and remedies herein shall not be construed as a waiver of any
other rights,  powers and remedies,  including,  without  limitation,  any other
rights of set-off.

     Section  5.04  Disclaimer  of Certain  Duties.  The powers  conferred  upon
                    ------------------------------
Secured Party by this  Agreement  are to protect its interest in the  Collateral
and shall not impose any duty upon  Secured  Party to exercise  any such powers.
Pledgor  hereby agrees that Secured Party shall not be liable for, nor shall the
indebtedness  evidenced by the  Obligations be diminished  by,  Secured  Party's
delay or  failure  to collect  upon,  foreclose,  sell,  take  possession  of or
otherwise obtain value for the Collateral.

     Sectopm 5.05 Custody and  Preservation  of the  Collateral.  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 comparable  secured parties accord
comparable  collateral,  it being understood and agreed,  however,  that Secured
Party shall not have  responsibility  for (i) 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 (ii) taking any necessary  steps to preserve
rights against Persons or entities with respect to any Collateral.

                                       7


                                    ARTICLE 6

                                EVENTS OF DEFAULT
                                -----------------

     Section  6.01  Events.  An "Event of  Default"  (as  defined  in the Credit
                    ------
Agreement)  which has occurred and is  continuing  shall  constitute an Event of
Default under this Agreement.

     Section 6.02 Remedies.  Upon the  occurrence and during the  continuance of
                  --------
any Event of Default, Secured Party may take any or all of the following actions
without notice or demand to Pledgor (except that Secured Party will not take any
action in the case of paragraphs  (b) and (f) below until five (5) Business Days
after  receipt by Pledgor of written  notice from Secured Party of its intent to
do so):

          (a)  Subject  to  applicable   provisions   contained  in  the  Credit
     Agreement,  declare  all  or  part  of  the  indebtedness  pursuant  to the
     Obligations  immediately due and payable and enforce payment of the same by
     Pledgor or any Obligor.

          (b)  Sell,  in one or  more  sales  and in  one or  more  parcels,  or
     otherwise  dispose  of any or all  of the  Collateral  in any  commercially
     reasonable  manner as  Secured  Party  may  elect,  in a public or  private
     transaction,  at any location as deemed  reasonable by Secured Party either
     for cash or credit or for future  delivery  at such price as Secured  Party
     may reasonably deem fair, and (unless  prohibited by the Uniform Commercial
     Code, as adopted in any applicable  jurisdiction)  Secured Party may be the
     purchaser of any or all  Collateral so sold and may apply upon the purchase
     price therefor any Obligations secured hereby. Any such sale or transfer by
     Secured  Party either to itself or to any other Person shall be  absolutely
     free from any claim of right by Pledgor,  including  any equity or right of
     redemption,  stay or appraisal which Pledgor has or may have under any rule
     of law,  regulation or statute now existing or hereafter adopted.  Upon any
     such sale or  transfer,  Secured  Party  shall  have the right to  deliver,
     assign and transfer to the purchaser or transferee  thereof the  Collateral
     so sold or transferred.  If Secured Party  reasonably deems it advisable to
     do so,  it may  restrict  the  bidders  or  purchasers  of any such sale or
     transfer to Persons or entities who will  represent and agree that they are
     purchasing  the  Collateral  for their own account and not with the view to
     the distribution or resale of any of the Collateral.  Secured Party may, at
     its  discretion,  provide for a public sale, and any such public sale shall
     be held at such time or times within  ordinary  business  hours and at such
     place or  places as  Secured  Party  may fix in the  notice  of such  sale.
     Secured  Party shall not be obligated to make any sale pursuant to any such
     notice.  Secured  Party may,  without  notice or  publication,  adjourn any
     public or private sale by announcement at any time and place fixed for such
     sale,  and such sale may be made at any time or place to which the same may
     be so  adjourned.  In the  event  any  sale or  transfer  hereunder  is not
     completed  or is defective  in the opinion of Secured  Party,  such sale or
     transfer  shall not  exhaust  the rights of Secured  Party  hereunder,  and
     Secured Party shall have the right to cause one or more subsequent sales or
     transfers to be made  hereunder.  If only part of the Collateral is sold or
     transferred  such that the Obligations  remain  outstanding (in whole or in
     part),   Secured  Party's  rights  and  remedies  hereunder  shall  not  be

                                       8


     exhausted,  waived or modified, and Secured Party is specifically empowered
     to make one or more successive  sales or transfers until all the Collateral
     shall be sold or transferred and all the Obligations are paid. In the event
     that Secured Party elects not to sell the Collateral, Secured Party retains
     its rights to dispose of or  utilize  the  Collateral  or any part or parts
     thereof in any manner  authorized or permitted by law or in equity,  and to
     apply the proceeds of the same towards payment of the Obligations.

          (c)  Apply  proceeds  of  the  disposition  of the  Collateral  to the
     Obligations  in any manner  elected by Secured  Party and  permitted by the
     Code or  otherwise  permitted  by law or in equity.  Such  application  may
     include,  without  limitation,  the  reasonable  attorneys'  fees and legal
     expenses incurred by Secured Party.

          (d) Appoint  any Person as agent to perform any act or acts  necessary
     or incident to any sale or transfer by Secured Party of the Collateral.

          (e) Receive, change the address for delivery, open and dispose of mail
     addressed to Pledgor,  and to execute,  assign and endorse  negotiable  and
     other  instruments  for the payment of money,  documents  of title or other
     evidences  of payment,  shipment or storage for any form of  Collateral  on
     behalf of and in the name of Pledgor.

          (f)  Exercise  all other  rights and  remedies  permitted by law or in
     equity.

     Section 6.03 Attorney-in-Fact.  Pledgor hereby irrevocably appoints Secured
                  ----------------
Party as Pledgor's attorney-in-fact,  with full authority in the place and stead
of Pledgor and in the name of Pledgor or otherwise, from time to time in Secured
Party's discretion upon the occurrence and during the continuance of an Event of
Default,  but at  Pledgor's  cost and  expense,  three (3)  Business  Days after
receipt by Pledgor of written  notice from Secured Party of its intent to do so,
to take  any  action  and to  execute  any  assignment,  certificate,  financing
statement, stock power, notification, document or 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,  interest  payment or other
distribution  in respect of the  Collateral or any part thereof and to give full
discharge for the same.

     Section 6.04 Liability for Deficiency.  If any sale or other disposition of
                  ------------------------
Collateral by Secured Party in compliance with the Loan Documents and applicable
law or any other action of Secured Party  hereunder in compliance  with the Loan
Documents  and  applicable  law results in  reduction of the  Obligations,  such
action will not release  Pledgor  from its  liability  to Secured  Party for any
unpaid  Obligations,  including (to the extent permitted by law) costs,  charges
and expenses  incurred in the liquidation of Collateral,  together with interest
thereon until paid at the rate per annum equal to 2% plus the rate applicable to
ABR Loans as provided in Section 3.02(a) of the Credit  Agreement,  and the same
shall be immediately due and payable to Secured Party at Secured Party's address
set forth in the opening paragraph hereof.

     Section 6.05  Reasonable  Notice.  If any  applicable  provision of any law
                   ------------------
requires  Secured Party to give reasonable  notice of any sale or disposition or
other action,  Pledgor  hereby agrees that ten days' prior written  notice shall
constitute  reasonable notice thereof.  Such notice, in the case of public sale,

                                       9


shall  state the time and place  fixed for such sale and, in the case of private
sale, the time after which such sale is to be made.

     Section 6.06 Pledged  Securities.  Upon both (i) the  occurrence and during
                  -------------------
the  continuance  of an Event of Default and (ii) either (a) the Loans  becoming
due and  payable at their  stated  maturity  and not paid,  (b) the Loans  being
declared due and payable pursuant to Article X of the Credit  Agreement,  or (c)
Secured Party giving prior written  notice to Pledgor of Secured  Party's intent
to exercise its rights under Section 6.02:

          (a) All  rights of  Pledgor  to receive  the  dividends  and  interest
     payments  which it would  otherwise  be  authorized  to receive  and retain
     pursuant to Section 4.02 shall cease,  and all such rights shall  thereupon
     become vested in Secured Party who shall  thereupon  have the sole right to
     receive and hold as Collateral  such dividends and interest  payments,  but
     Secured  Party  shall have no duty to receive and hold such  dividends  and
     interest  payments and shall not be responsible for any failure to do so or
     delay in so doing.

          (b) All dividends and interest  payments which are received by Pledgor
     contrary to the  provisions of this Section 6.06 shall be received in trust
     for the benefit of Secured Party,  shall be segregated  from other funds of
     Pledgor and shall be promptly  paid over to Secured  Party as Collateral in
     the same form as so received (with any necessary endorsement).

          (c)  Secured  Party may  exercise  any and all  rights of  conversion,
     exchange,   subscription  or  any  other  rights,   privileges  or  options
     pertaining  to any of the  Pledged  Securities  as if it were the  absolute
     owner thereof,  including without limitation,  the right to exchange at its
     discretion,  any  and  all of  the  Pledged  Securities  upon  the  merger,
     consolidation,  reorganization,  recapitalization  or other readjustment of
     any issuer of such  Pledged  Securities  or upon the  exercise  by any such
     issuer or Secured Party of any right, privilege or option pertaining to any
     of the  Pledged  Securities  and in  connection  therewith,  to deposit and
     deliver  any  and  all  of  the  Pledged  Securities  with  any  committee,
     depository,  transfer agent, registrar or other designated agency upon such
     terms and conditions as it may determine,  all without  liability except to
     account for property  actually received by it, but Secured Party shall have
     no duty to exercise any of the aforesaid rights,  privileges or options and
     shall not be responsible for any failure to do so or delay in so doing.

     Section  6.07  Non-judicial  Enforcement.  To the extent  permitted by law,
                    -------------------------
Secured Party may enforce its rights hereunder without prior judicial process or
judicial  hearing,  and to the extent permitted by law Pledgor  expressly waives
any and all legal rights which might otherwise  require Secured Party to enforce
its rights by judicial process.

                                    ARTICLE 7

                            MISCELLANEOUS PROVISIONS
                            ------------------------

     Section 7.01 Notices. Any notice required or permitted to be given under or
                  -------
in  connection  with this  Agreement  shall be in writing and shall be mailed by
first  class or  express  mail,  postage  prepaid,  or sent by telex,  telegram,
telecopy or other  similar  form of rapid  written  transmission  or  personally

                                       10


delivered to the receiving party. All such communications  shall be mailed, sent
or delivered  at the address  respectively  indicated  in the opening  paragraph
hereof or at such other  address as either  party may have  furnished  the other
party in writing.  Any  communication so addressed and mailed shall be deemed to
be given  three  days  after so  mailed,  any  notice  so sent by rapid  written
transmission  shall be deemed to be given when receipt of such  transmission  is
acknowledged by the receiving  operator or equipment,  and any  communication so
delivered in person shall be deemed to be given when  receipted  for or actually
received by Pledgor or Secured Party, as the case may be.

     Section 7.02 Amendments and Waivers.  Secured Party's acceptance of partial
                  ----------------------
or delinquent payments or any forbearance,  failure or delay by Secured Party in
exercising any right,  power or remedy hereunder shall not be deemed a waiver of
any  obligation of Pledgor or any Obligor,  or of any right,  power or remedy of
Secured  Party;  and no partial  exercise  of any right,  power or remedy  shall
preclude any other or further  exercise  thereof.  Secured  Party may remedy any
Event of Default hereunder or in connection with the Obligations without waiving
the Event of Default so remedied.  Pledgor  hereby  agrees that if Secured Party
agrees to a waiver of any provision  hereunder,  or an exchange of or release of
the Collateral,  or the addition or release of any Obligor or other Person,  any
such action shall not constitute a waiver of any of Secured Party's other rights
or of Pledgor's obligations hereunder.  This Agreement may be amended only by an
instrument in writing  executed  jointly by Pledgor and Secured Party and may be
supplemented  only by documents  delivered or to be delivered in accordance with
the express terms hereof.

     Section 7.03 Copy as Financing Statement. A photocopy or other reproduction
                  ---------------------------
of this  Agreement may be delivered by Pledgor or Secured Party to any financial
intermediary  or other third party for the purpose of transferring or perfecting
any or all of the  Pledged  Securities  to  Secured  Party  or its  designee  or
assignee.

     Section 7.04  Possession  of  Collateral.  Secured Party shall be deemed to
                   --------------------------
have  possession of any  Collateral in transit to it or set apart for it (or, in
either case, any of its agents, affiliates or correspondents).

     Section  7.05  Redelivery  of  Collateral.  If  any  sale  or  transfer  of
                    --------------------------
Collateral by Secured Party results in full satisfaction of the Obligations, and
after such sale or transfer and  discharge  there remains a surplus of proceeds,
Secured  Party will  deliver to Pledgor such excess  proceeds in a  commercially
reasonable  time;  provided,  however,  that  Secured  Party  shall not have any
liability  for any  interest,  cost or expense in  connection  with any delay in
delivering such proceeds to Pledgor.

     Section 7.06 Governing Law;  Jurisdiction.  This Agreement and the security
                  ----------------------------
interest  granted  hereby shall be construed in accordance  with and governed by
the laws of the State of Texas  (except to the extent that the laws of any other
jurisdiction  govern the  perfection  and  priority  of the  security  interests
granted hereby).

                                       11


     Section 7.07 Continuing Security Agreement.

          (a) Except as otherwise provided by applicable law (including, without
     limitation,  Section 9.620 of the Code), no action taken or omission to act
     by Secured Party hereunder,  including, without limitation, any exercise of
     voting or  consensual  rights  pursuant to Section 6.06 or any other action
     taken or inaction pursuant to Section 6.02, shall be deemed to constitute a
     retention of the Collateral in satisfaction of the Obligations or otherwise
     to be in full  satisfaction of the Obligations,  and the Obligations  shall
     remain in full force and effect,  until  Secured  Party shall have  applied
     payments  (including,  without  limitation,  collections  from  Collateral)
     towards the  Obligations in the full amount then  outstanding or until such
     subsequent time as is hereinafter provided in subsection (b) below.

          (b) To the extent that any payments on the  Obligations or proceeds of
     the Collateral are subsequently  invalidated,  declared to be fraudulent or
     preferential,  set aside or required  to be repaid to a trustee,  debtor in
     possession,  receiver or other Person under any bankruptcy  law, common law
     or equitable cause,  then to such extent the Obligations so satisfied shall
     be  revived  and  continue  as if such  payment  or  proceeds  had not been
     received by Secured Party, and Secured Party's security interests,  rights,
     powers and remedies  hereunder shall continue in full force and effect.  In
     such event,  this Agreement shall be  automatically  reinstated if it shall
     theretofore have been terminated pursuant to Section 7.08.

     Section 7.08 Termination.  The grant of a security  interest  hereunder and
all of Secured Party's rights, powers and remedies in connection therewith shall
remain in full force and effect until  Secured Party has (i)  retransferred  and
delivered  all  Collateral  in its  possession  to Pledgor,  and (ii) executed a
written  release or  termination  statement and  reassigned  to Pledgor  without
recourse or warranty any remaining  Collateral and all rights  conveyed  hereby.
Upon (i) the complete payment of the Obligations (other than any indemnity which
is not yet due and payable),  (ii) the expiration of all outstanding  Letters of
Credit,  and (iii) the  termination of the  Commitments,  Secured Party,  at the
written request and expense of Pledgor, will release,  reassign and transfer the
Collateral  to Pledgor and declare this  Agreement to be of no further  force or
effect.  Notwithstanding  the  foregoing,  Section  4.04 and the  provisions  of
subsection 7.07(b) shall survive the termination of this Agreement.

     Section 7.09 Counterparts; Effectiveness. This Agreement may be executed in
two or more counterparts.  Each counterpart is deemed an original,  but all such
counterparts  taken  together  constitute  one and  the  same  instrument.  This
Agreement becomes effective upon the execution hereof by Pledgor and delivery of
the same to Secured Party,  and it is not necessary for Secured Party to execute
any acceptance hereof or otherwise signify or express its acceptance hereof.

     Section 7.10 Limitation by Law. All rights, remedies and powers provided in
this  Agreement  may be exercised  only to the extent that the exercise  thereof
does not violate any applicable provision of law, and all the provisions of this
Agreement are intended to be subject to all applicable  mandatory  provisions of
law which may be controlling  and to be limited to the extent  necessary so that
they shall not render  this  Agreement  invalid,  unenforceable,  in whole or in
part, or not entitled to be recorded,  registered or filed under the  provisions
of any applicable law.

                                       12


     Section 7.11 Interest. It is the intention of the parties hereto to conform
                  --------
strictly to usury laws  applicable to Secured Party or any Lender.  Accordingly,
if the transactions contemplated hereby would be usurious under applicable state
or federal law, then, notwithstanding anything to the contrary in this Agreement
or in any other Loan Document, it is agreed as follows: (i) the aggregate of all
consideration  which constitutes  interest under law applicable to Secured Party
or any Lender that is contracted for, taken, reserved, charged or received under
the Obligations, this Agreement or under any other Loan Document or otherwise in
connection with the Obligations shall under no circumstances  exceed the maximum
amount  allowed by such  applicable  law, (ii) in the event that the maturity of
the Obligations is accelerated  for any reason,  or in the event of any required
or permitted prepayment, then such consideration that constitutes interest under
law  applicable  to Secured Party or any Lender may never include more than such
maximum  amount,  and  (iii)  excess  interest,  if  any,  provided  for in this
Agreement, any other Loan Document or otherwise shall be cancelled automatically
and, if  theretofore  paid,  shall be credited by Secured Party on the principal
amount of the  Obligations  (or, to the extent that the principal  amount of the
Obligations  shall  have  been or would  thereby  be paid in full,  refunded  by
Secured  Party  to  Pledgor).  The  right  to  accelerate  the  maturity  of the
Obligations  does not include the right to accelerate any interest which has not
otherwise  accrued on the date of such  acceleration,  and neither Secured Party
nor any  Lender  intend  to  collect  any  unearned  interest  in the  event  of
acceleration.  All sums paid or agreed to be paid to Secured Party or any Lender
for  the  use,  forbearance  or  detention  of  sums  included  in  the  initial
Obligations  shall,  to the extent  permitted by  applicable  law, be amortized,
prorated, allocated and spread throughout the full term of the Obligations until
payment in full so that the rate or amount of interest on account of the initial
Obligations does not exceed the applicable usury ceiling, if any.








                         [Signatures begin on next page]

                                       13





PLEDGOR:                          ST. MARY LAND & EXPLORATION COMPANY
- -------


                                  By:  /s/ MILAM RANDOLPH PHARO
                                      ----------------------------------------
                                      Milam Randolph Pharo
                                      Vice President - Land & Legal




                                       14

EX-10

                                                                    EXHIBIT 10.9
- --------------------------------------------------------------------------------







                          PLEDGE AND SECURITY AGREEMENT
                          -----------------------------



                                     Between

                          NANCE PETROLEUM CORPORATION,
                                   as Pledgor



                                       and



          WACHOVIA BANK, NATIONAL ASSOCIATION, as Administrative Agent,
                                as Secured Party



                        Effective as of January 27, 2003








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







                          PLEDGE AND SECURITY AGREEMENT
                          -----------------------------

     THIS PLEDGE AND  SECURITY  AGREEMENT  is made  effective  as of January 27,
2003, by NANCE  PETROLEUM  CORPORATION,  a Montana  corporation  with  principal
offices  at  550  N.  31st  Street,  Suite  500,  Billings,  Montana  59103-7168
("Pledgor"),  in favor of WACHOVIA BANK, NATIONAL ASSOCIATION (formerly known as
  -------
First Union National Bank), a national  banking  association with offices at 301
South College Street,  Charlotte,  North Carolina 28288, as Administrative Agent
(in such capacity,  the "Secured  Party") for the benefit of the several lenders
                         --------------
now  or  hereafter   parties  to  the  hereinafter   defined  Credit   Agreement
(individually, a "Lender" and collectively, the "Lenders").
                  ------                         -------

                                    RECITALS
                                    --------

     A.  St.  Mary  Land  &  Exploration  Company,  a  Delaware  corporation
("Parent"), Secured Party and the Lenders have executed a Credit Agreement dated
  ------
as of even date herewith (such agreement, as may from time to time be amended or
supplemented,  being  hereinafter  called the  "Credit  Agreement")  pursuant to
                                                -----------------
which, upon the terms and conditions  stated therein,  the Lenders agree to make
loans to and extend credit on behalf of Parent.

     B. Pledgor, among others, has guaranteed the prompt payment and performance
of all  indebtedness,  obligations  and liabilities of the Parent to the Lenders
and/or Secured Party under or in connection with the Credit  Agreement  pursuant
to the terms and  conditions  of the  "Guaranty  Agreement"  (as  defined in the
Credit Agreement).

     C. The Lenders  conditioned  their  obligations  under the Credit Agreement
upon the execution and delivery by Pledgor of this Pledge and Security Agreement
and  Pledgor  has  agreed to  execute  and  deliver  this  Pledge  and  Security
Agreement.

     D.  Therefore,  for  good  and  valuable  consideration,  the  receipt  and
sufficiency of which are hereby acknowledged, Pledgor hereby agrees with Secured
Party as follows:

                                     ARTICLE

                                SECURITY INTEREST
                                -----------------

     Section 1.01 Pledge. Pledgor hereby pledges,  assigns and grants to Secured
                  ------
Party a security interest in and right of set-off against the assets referred to
in Section 1.02 (the  "Collateral") to secure the prompt payment and performance
                       ----------
of the "Obligations" (as defined in Section 2.02) and the performance by Pledgor
        -----------
of this Pledge and Security Agreement.

     Section 1.02 Collateral.  The Collateral consists of the following types or
                  ----------
items of property which are owned by Pledgor:

          (a) The  securities  described  or  referred  to in Exhibit A attached
     hereto and made a part hereof.

                                       1


          (b) (i) The  certificates or instruments,  if any,  representing  such
     membership  interests and such units,  (ii) all dividends  (cash,  stock or
     otherwise),  cash, instruments,  rights to subscribe,  purchase or sell and
     all other rights and property  from time to time  received,  receivable  or
     otherwise  distributed  in respect of or in exchange for any or all of such
     membership   interests   or  such  units,   (iii)  all   replacements   and
     substitutions  for any of the property  referred to in this  Section  1.02,
     including,  without limitation,  claims against third parties, and (iv) the
     proceeds,  interest,  profits and other income of or on any of the property
     referred to in this Section 1.02.

It is expressly  contemplated  that additional  securities or other property may
from time to time be pledged, assigned or granted to Secured Party as additional
security for the Obligations,  and the term "Collateral" as used herein shall be
                                             ----------
deemed  for all  purposes  hereof  to  include  all such  additional  membership
interests,  units and property,  together  with all other  property of the types
described above related thereto.

     Section  1.03  Transfer of  Collateral.  All  certificates  or  instruments
                    -----------------------
representing or evidencing the Pledged Securities shall be delivered to and held
pursuant  hereto by Secured  Party or a Person  designated  by Secured Party and
shall be in suitable form for transfer by delivery,  or shall be  accompanied by
duly executed instruments of transfer or assignment in blank, or (in the case of
either certificated or uncertificated  securities) Secured Party shall have been
provided with evidence that the Pledged Securities have been otherwise delivered
to Secured Party in accordance  with Section 8.301 of the Code,  all in form and
substance satisfactory to Secured Party. Notwithstanding the preceding sentence,
at Secured  Party's  discretion,  all Pledged  Securities  must be  delivered or
transferred in such manner as to permit  Secured Party to meet the  requirements
of  Section  8.303(a)(3)  of the Code to the  extent of its  security  interest.
Secured Party shall have the right,  at any time in its  discretion  and without
notice to Pledgor, to transfer to or to register in the name of Secured Party or
any of its  nominees any or all of the Pledged  Securities,  subject only to the
revocable  rights  specified in Section 4.02.  In addition,  Secured Party shall
have the right at any time to exchange certificates or instruments  representing
or evidencing  Pledged  Securities for certificates or instruments of smaller or
larger denominations.

                                    ARTICLE 2

                                   DEFINITIONS
                                   -----------

     Section  2.01 Terms  Defined  Above.  As used in this  Pledge and  Security
                   ---------------------
Agreement, the terms defined above shall have the meanings respectively assigned
to them.

     Section  2.02  Certain  Definitions.  As used in this  Pledge and  Security
                    --------------------
Agreement,  the following  terms shall have the following  meanings,  unless the
context otherwise requires:

          "Agreement" means this Pledge and Security Agreement,  as the same may
           ---------
     from time to time be amended, supplemented or otherwise modified.

                                       2


          "Code" means the Uniform Commercial Code as presently in effect in the
           ----
     State of Texas,  Articles 1 through 9. Unless  otherwise  indicated  by the
     context herein, all uncapitalized terms which are defined in the Code shall
     have their respective meanings as used in Articles 8 and 9 of the Code.

          "Event of Default" means any event specified in Section 6.01.
           ----------------

          "Obligations" means the collective  reference to (a) all indebtedness,
           -----------
     obligations  and liabilities of Parent under or in connection with the Loan
     Documents,  including,  without  limitation,  the unpaid  principal  of and
     interest on the Loans and the LC  Exposure  and all other  obligations  and
     liabilities of Parent (including, without limitation,  interest accruing at
     the then  applicable  rate  provided  in the  Credit  Agreement  after  the
     maturity of the Loans and the LC Exposure and interest accruing at the then
     applicable  rate provided in the Credit  Agreement  after the filing of any
     petition  in   bankruptcy,   or  the   commencement   of  any   insolvency,
     reorganization  or like  proceeding,  relating to Parent,  whether or not a
     claim  for  post-filing  or  post-petition  interest  is  allowed  in  such
     proceeding)  to Secured  Party or any Lender  (or,  in the case of any Swap
     Agreement  referred to below, any Affiliate of any Lender),  whether direct
     or indirect,  absolute or contingent, due or to become due, or now existing
     or  hereafter  incurred,  which may arise under,  out of, or in  connection
     with, the Credit Agreement,  the other Loan Documents or any Swap Agreement
     entered into by Parent with any Lender (or any Affiliate of any Lender), or
     any other document  made,  delivered or given in connection  therewith,  in
     each  case  whether  on  account  of  principal,  interest,   reimbursement
     obligations,  fees,  indemnities,  costs, expenses or otherwise (including,
     without  limitation,  all reasonable fees and  disbursements  of counsel to
     Secured  Party or to the  Lenders  that are  required  to be paid by Parent
     pursuant  to  the  terms  of  any of the  foregoing  agreements),  (b)  all
     indebtedness, obligations and liabilities of Pledgor under or in connection
     with the Guaranty  Agreement and (c) all  obligations  of Pledgor which may
     arise under or in connection with this Agreement or any other Loan Document
     to which Pledgor is a party.

          The term  "Obligations"  shall mean all indebtedness,  obligations and
                     -----------
     liabilities  described,   referred  to  or  mentioned  in  the  immediately
     preceding paragraph of this definition,  and all renewals,  rearrangements,
     increases,   substitutions  and  extensions  for  any  period  thereof  and
     amendments, supplements or modifications thereto, in whole or in part.

          "Obligor"  means any  Person,  other  than  Pledgor,  liable  (whether
           -------
     directly  or  indirectly,  primarily  or  secondarily)  for the  payment or
     performance of any of the Obligations whether as maker, co-maker, endorser,
     guarantor, accommodation party, general partner or otherwise.

          "Pledged  Securities"  means all of the  securities and other property
           -------------------
     (whether or not the same  constitutes a "security" under the Code) referred
     to in Section  1.02(a) or 1.02(b) and all  additional  securities,  if any,
     constituting Collateral under this Agreement.

                                       3


     Section 2.03 Credit Agreement Terms. Unless otherwise defined herein, terms
                  ----------------------
defined in the Credit Agreement and used herein shall have the meanings given to
them in the Credit Agreement.

     Section 2.04 Section References.  Unless otherwise provided for herein, all
                  ------------------
references herein to Sections are to Sections of this Agreement.

                                    ARTICLE 3

                         REPRESENTATIONS AND WARRANTIES
                         ------------------------------

     In  order to  induce  Secured  Party  to  accept  this  Agreement,  Pledgor
represents and warrants to Secured Party (which  representations  and warranties
will survive the creation and payment of the Obligations) that:

     Section 3.01  Ownership of  Collateral;  Encumbrances.  Except as otherwise
                   ---------------------------------------
permitted by the Credit Agreement, Pledgor is the record and beneficial owner of
the  Collateral  free and clear of any Lien  except  for the  security  interest
created by this  Agreement,  and Pledgor has full right,  power and authority to
pledge, assign and grant a security interest in the Collateral to Secured Party.

     Section 3.02 No Required Consent.  No authorization,  consent,  approval or
                  -------------------
other action by, and no notice to or filing with, any governmental  authority or
regulatory body (other than the filing of financing  statements) is required for
(i) the due execution,  delivery and  performance by Pledgor of this  Agreement,
(ii) the grant by Pledgor of the security  interest granted by this Agreement or
(iii) the perfection of such security interest.

     Section  3.03 Pledged  Securities.  The Pledged  Securities  have been duly
                   -------------------
authorized and validly issued, and are fully paid and non-assessable.

     Section  3.04  First  Priority  Security  Interest.  The  pledge of Pledged
                    -----------------------------------
Securities  pursuant to this  Agreement,  the  delivery to Secured  Party of the
certificates  representing  the Pledged  Securities  accompanied by stock powers
duly executed in blank and the filing of appropriate financing statements in the
relevant locations create a valid and perfected first priority security interest
in the  Collateral,  enforceable  against  Pledgor  and all  third  parties  and
securing payment of the Obligations.

                                   ARTICLE 4

                            COVENANTS AND AGREEMENTS
                            ------------------------

     Pledgor  will  at all  times  comply  with  the  covenants  and  agreements
contained in this Article 4, from the date hereof and for so long as any part of
the Obligations  (other than any indemnity which is not yet due and payable) are
outstanding.

     Section 4.01 Sale,  Disposition or  Encumbrance  of  Collateral.  Except as
                  --------------------------------------------------
otherwise not prohibited by the Credit Agreement or this Agreement, Pledgor will
not in any way  encumber any of the  Collateral  (or permit or suffer any of the

                                       4


Collateral to be encumbered) or sell, pledge,  assign, lend or otherwise dispose
of or transfer  any of the  Collateral  to or in favor of any Person  other than
Secured Party.

     Section 4.02 Voting Rights;  Dividends or Distributions.  Until both (i) an
                  ------------------------------------------
Event of Default shall have  occurred and be continuing  and (ii) either (a) the
Loans have become due and  payable at their  stated  maturity  and have not been
paid, (b) the Loans have been declared due and payable  pursuant to Article X of
the  Credit  Agreement,  or (c)  Secured  Party has given  notice to  Pledgor of
Secured Party's intent to exercise its rights under Section 6.02:

          (a)  Pledgor  shall  be  entitled  to  exercise  any and  all  voting,
     management and/or other consensual rights and powers inuring to an owner of
     the  Collateral or any part thereof for any purpose not  inconsistent  with
     the terms of this Agreement and the other Loan Documents.

          (b) Pledgor shall be entitled to receive and retain (free and clear of
     and no longer  subject to this  Agreement or the Lien  created  pursuant to
     this Agreement) any and all dividends,  distributions  and interest paid in
     respect of the Collateral, provided, however, that any and all
                                --------  -------

               (i)  dividends and interest paid or payable other than in cash in
          respect of, and instruments and other property received, receivable or
          otherwise  distributed  in respect of, or in exchange for  (including,
          without  limitation,  any certificate,  share or interest purchased or
          exchanged in connection with a tender offer or merger agreement),  any
          Collateral,

               (ii) dividends and other distributions paid or payable in cash in
          respect  of any  Collateral  in  connection  with a  partial  or total
          liquidation or dissolution, or reclassification, and

               (iii) cash paid,  payable or otherwise  distributed in respect of
          principal of, or in redemption of, or in exchange for, any Collateral,

shall  be,  and  shall  be  promptly  delivered  to  Secured  Party  to hold as,
Collateral  and shall,  if  received  by  Pledgor,  be received in trust for the
benefit of Secured  Party,  be  segregated  from the other  property or funds of
Pledgor,  and be promptly  delivered to Secured  Party as Collateral in the same
form as so  received  (with any  necessary  endorsement)  ),  provided  further,
                                                              --------  -------
however,  in no event shall the foregoing  proviso be applicable  to, or prevent
- -------
the Pledgor from receiving and retaining any securities  that are not pledged or
intended or required to be pledged to the Secured Party pursuant to any Security
Instrument, including this Agreement.

     Section  4.03  Records and  Information.  Pledgor  shall keep  accurate and
                    ------------------------
complete records of the Collateral (including proceeds, payments, distributions,
income and profits).  Pledgor will promptly  provide  written  notice to Secured
Party of all  information  which in any way affects the filing of any  financing
statement or other public notices or recordings  pertaining to the perfection of

                                       5


a security  interest in the Collateral,  or the delivery and possession of items
of  Collateral  for  the  purpose  of  perfecting  a  security  interest  in the
Collateral.

     Section 4.04 Certain Liabilities.  Pledgor hereby assumes all liability for
                  -------------------
the Collateral, the security interest created hereunder and any use, possession,
maintenance,  management,  enforcement  or  collection  of  any  or  all  of the
Collateral.

     Section 4.05 Further Assurances. Upon the request of Secured Party, Pledgor
                  ------------------
shall  (at  Pledgor's   expense)  execute  and  deliver  all  such  assignments,
certificates,  instruments,  securities, financing statements,  notifications to
financial intermediaries,  clearing corporations, issuers of securities or other
third parties or other  documents and give further  assurances  and do all other
acts and  things as Secured  Party may  reasonably  request  to perfect  Secured
Party's  interest in the Collateral or to protect,  enforce or otherwise  effect
Secured Party's rights and remedies hereunder.

     Section 4.06 Rights to Sell. If Secured  Party shall  determine to exercise
                  --------------
its  rights  to  sell  all  or  any of the  Collateral  pursuant  to its  rights
hereunder,  Pledgor agrees that, upon request of Secured Party, Pledgor will, at
its own expense:

          (a) execute and deliver,  and use all reasonable efforts to cause each
     issuer of the  Collateral  contemplated  to be sold and the  directors  and
     officers  thereof  to  execute  and  deliver,   all  such  instruments  and
     documents,  and do or cause to be done all such other acts and  things,  as
     may be necessary or, in the reasonable opinion of Secured Party,  advisable
     to register such  Collateral  under the provisions of the Securities Act of
     1933,  as  from  time to  time  amended  (the  "Securities  Act"),  if such
     registration is, in the reasonable  opinion of Secured Party,  necessary or
     advisable to effect a public  distribution of the Collateral,  and to cause
     the  registration  statement  relating  thereto to become  effective and to
     remain  effective for such period as prospectuses are required by law to be
     furnished,  and to make all amendments and  supplements  thereto and to the
     related  prospectus which, in the reasonable  opinion of Secured Party, are
     necessary or advisable,  all in  conformity  with the  requirements  of the
     Securities Act and the rules and regulations of the Securities and Exchange
     Commission applicable thereto;

          (b) use all  reasonable  efforts to qualify the  Collateral  under the
     state   securities   or  "Blue  Sky"  laws  and  to  obtain  all  necessary
     governmental  approvals  for the sale of the  Collateral,  as  requested by
     Secured Party;

          (c) use all  reasonable  efforts  to cause  each  such  issuer to make
     available  to its security  holders,  as soon as  practicable,  an earnings
     statement  which  will  satisfy  the  provisions  of  Section  11(a) of the
     Securities Act; and

          (d) use all  reasonable  efforts  to do or  cause  to be done all such
     others  acts  and  things  as may be  necessary  to make  such  sale of the
     Collateral  or any part thereof  valid and binding and in  compliance  with
     applicable law.

Pledgor further  acknowledges  the  impossibility  of ascertaining the amount of
damages  which would be  suffered  by Secured  Party by reason of the failure by
Pledgor to perform  any of the  covenants  contained  in this  Section  4.06 and

                                        6


consequently agrees that if Pledgor shall fail to perform any of such covenants,
it shall pay (to the extent permitted by law), as liquidated damages, and not as
penalty,  an  amount  (in no event to exceed  the  amount  of  Obligations  then
outstanding) equal to the value of the Collateral  affected by Pledgor's failure
to perform any of the  covenants  contained in this Section 4.06 on the date the
Secured Party shall demand compliance with this Section 4.06.

                                   ARTICLE 5

                   RIGHTS, DUTIES AND POWERS OF SECURED PARTY
                   ------------------------------------------

     The following  rights,  duties and powers of Secured  Party are  applicable
irrespective of whether an Event of Default occurs and is continuing:

     Section  5.01  Discharge  Encumbrances.  Secured  Party may, at its option,
                    -----------------------
three (3) Business Days after  receipt by Pledgor of prior  written  notice from
Secured Party of its intent to do so,  discharge any Liens at any time levied or
placed on the Collateral  that are  prohibited by the Credit  Agreement and that
are not being contested in good faith by appropriate proceedings. Pledgor agrees
to reimburse  Secured Party within five (5) days after demand for any payment so
made, plus interest  thereon from the date of Secured Party's demand at the rate
per  annum  equal to 2% plus the rate  applicable  to ABR Loans as  provided  in
Section 3.02(a) of the Credit Agreement.

     Section  5.02  Transfer of  Collateral.  Subject to the terms of the Credit
                    -----------------------
Agreement,  Secured Party may transfer any or all of the  Obligations,  and upon
any such  transfer  Secured Party may transfer its interest in any or all of the
Collateral and shall be fully discharged thereafter from all liability therefor.
Any transferee of the Collateral shall be vested with all rights, powers, duties
and remedies of Secured Party hereunder.

     Section 5.03 Cumulative and Other Rights.  The rights,  powers and remedies
                  ---------------------------
of Secured Party  hereunder  are in addition to all rights,  powers and remedies
given by law or in equity.  The exercise by Secured  Party of any one or more of
the rights, powers and remedies herein shall not be construed as a waiver of any
other rights,  powers and remedies,  including,  without  limitation,  any other
rights of set-off.

     Section  5.04  Disclaimer  of Certain  Duties.  The powers  conferred  upon
                    ------------------------------
Secured Party by this  Agreement  are to protect its interest in the  Collateral
and shall not impose any duty upon  Secured  Party to exercise  any such powers.
Pledgor  hereby agrees that Secured Party shall not be liable for, nor shall the
indebtedness  evidenced by the  Obligations be diminished  by,  Secured  Party's
delay or  failure  to collect  upon,  foreclose,  sell,  take  possession  of or
otherwise obtain value for the Collateral.

     5.5 Custody and  Preservation  of the  Collateral.  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 comparable  secured parties accord comparable
collateral,  it being understood and agreed,  however,  that Secured Party shall
not have  responsibility  for (i)  ascertaining or taking action with respect to

                                       7


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 (ii) taking any necessary  steps to preserve rights against
Persons or entities with respect to any Collateral.

                                    ARTICLE 6

                                EVENTS OF DEFAULT
                                -----------------

     Section  6.01  Events.  An "Event of  Default"  (as  defined  in the Credit
                    ------
Agreement)  which has occurred and is  continuing  shall  constitute an Event of
Default under this Agreement.

     Section 6.02 Remedies.  Upon the  occurrence and during the  continuance of
                  --------
any Event of Default, Secured Party may take any or all of the following actions
without notice or demand to Pledgor (except that Secured Party will not take any
action in the case of paragraphs  (b) and (f) below until five (5) Business Days
after  receipt by Pledgor of written  notice from Secured Party of its intent to
do so):

          (a)  Subject  to  applicable   provisions   contained  in  the  Credit
     Agreement,  declare  all  or  part  of  the  indebtedness  pursuant  to the
     Obligations  immediately due and payable and enforce payment of the same by
     Pledgor or any Obligor.

          (b)  Sell,  in one or  more  sales  and in  one or  more  parcels,  or
     otherwise  dispose  of any or all  of the  Collateral  in any  commercially
     reasonable  manner as  Secured  Party  may  elect,  in a public or  private
     transaction,  at any location as deemed  reasonable by Secured Party either
     for cash or credit or for future  delivery  at such price as Secured  Party
     may reasonably deem fair, and (unless  prohibited by the Uniform Commercial
     Code, as adopted in any applicable  jurisdiction)  Secured Party may be the
     purchaser of any or all  Collateral so sold and may apply upon the purchase
     price therefor any Obligations secured hereby. Any such sale or transfer by
     Secured  Party either to itself or to any other Person shall be  absolutely
     free from any claim of right by Pledgor,  including  any equity or right of
     redemption,  stay or appraisal which Pledgor has or may have under any rule
     of law,  regulation or statute now existing or hereafter adopted.  Upon any
     such sale or  transfer,  Secured  Party  shall  have the right to  deliver,
     assign and transfer to the purchaser or transferee  thereof the  Collateral
     so sold or transferred.  If Secured Party  reasonably deems it advisable to
     do so,  it may  restrict  the  bidders  or  purchasers  of any such sale or
     transfer to Persons or entities who will  represent and agree that they are
     purchasing  the  Collateral  for their own account and not with the view to
     the distribution or resale of any of the Collateral.  Secured Party may, at
     its  discretion,  provide for a public sale, and any such public sale shall
     be held at such time or times within  ordinary  business  hours and at such
     place or  places as  Secured  Party  may fix in the  notice  of such  sale.
     Secured  Party shall not be obligated to make any sale pursuant to any such
     notice.  Secured  Party may,  without  notice or  publication,  adjourn any
     public or private sale by announcement at any time and place fixed for such
     sale,  and such sale may be made at any time or place to which the same may
     be so  adjourned.  In the  event  any  sale or  transfer  hereunder  is not
     completed  or is defective  in the opinion of Secured  Party,  such sale or
     transfer  shall not  exhaust  the rights of Secured  Party  hereunder,  and

                                       8


     Secured Party shall have the right to cause one or more subsequent sales or
     transfers to be made  hereunder.  If only part of the Collateral is sold or
     transferred  such that the Obligations  remain  outstanding (in whole or in
     part),   Secured  Party's  rights  and  remedies  hereunder  shall  not  be
     exhausted,  waived or modified, and Secured Party is specifically empowered
     to make one or more successive  sales or transfers until all the Collateral
     shall be sold or transferred and all the Obligations are paid. In the event
     that Secured Party elects not to sell the Collateral, Secured Party retains
     its rights to dispose of or  utilize  the  Collateral  or any part or parts
     thereof in any manner  authorized or permitted by law or in equity,  and to
     apply the proceeds of the same towards payment of the Obligations.

          (c)  Apply  proceeds  of  the  disposition  of the  Collateral  to the
     Obligations  in any manner  elected by Secured  Party and  permitted by the
     Code or  otherwise  permitted  by law or in equity.  Such  application  may
     include,  without  limitation,  the  reasonable  attorneys'  fees and legal
     expenses incurred by Secured Party.

          (d) Appoint  any Person as agent to perform any act or acts  necessary
     or incident to any sale or transfer by Secured Party of the Collateral.

          (e) Receive, change the address for delivery, open and dispose of mail
     addressed to Pledgor,  and to execute,  assign and endorse  negotiable  and
     other  instruments  for the payment of money,  documents  of title or other
     evidences  of payment,  shipment or storage for any form of  Collateral  on
     behalf of and in the name of Pledgor.

          (f)  Exercise  all other  rights and  remedies  permitted by law or in
     equity.

     Section 6.03 Attorney-in-Fact.  Pledgor hereby irrevocably appoints Secured
                  ----------------
Party as Pledgor's attorney-in-fact,  with full authority in the place and stead
of Pledgor and in the name of Pledgor or otherwise, from time to time in Secured
Party's discretion upon the occurrence and during the continuance of an Event of
Default,  but at  Pledgor's  cost and  expense,  three (3)  Business  Days after
receipt by Pledgor of written  notice from Secured Party of its intent to do so,
to take  any  action  and to  execute  any  assignment,  certificate,  financing
statement, stock power, notification, document or 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,  interest  payment or other
distribution  in respect of the  Collateral or any part thereof and to give full
discharge for the same.

     Section 6.04 Liability for Deficiency.  If any sale or other disposition of
                  ------------------------
Collateral by Secured Party in compliance with the Loan Documents and applicable
law or any other action of Secured Party  hereunder in compliance  with the Loan
Documents  and  applicable  law results in  reduction of the  Obligations,  such
action will not release  Pledgor  from its  liability  to Secured  Party for any
unpaid  Obligations,  including (to the extent permitted by law) costs,  charges
and expenses  incurred in the liquidation of Collateral,  together with interest
thereon until paid at the rate per annum equal to 2% plus the rate applicable to
ABR Loans as provided in Section 3.02(a) of the Credit  Agreement,  and the same
shall be immediately due and payable to Secured Party at Secured Party's address
set forth in the opening paragraph hereof.

                                       9


     Section 6.05  Reasonable  Notice.  If any  applicable  provision of any law
                   ------------------
requires  Secured Party to give reasonable  notice of any sale or disposition or
other action,  Pledgor  hereby agrees that ten days' prior written  notice shall
constitute  reasonable notice thereof.  Such notice, in the case of public sale,
shall  state the time and place  fixed for such sale and, in the case of private
sale, the time after which such sale is to be made.

     Section 6.06 Pledged  Securities.  Upon both (i) the  occurrence and during
                  -------------------
the  continuance  of an Event of Default and (ii) either (a) the Loans  becoming
due and  payable at their  stated  maturity  and not paid,  (b) the Loans  being
declared due and payable pursuant to Article X of the Credit  Agreement,  or (c)
Secured Party giving prior written  notice to Pledgor of Secured  Party's intent
to exercise its rights under Section 6.02:

          (a) All  rights of  Pledgor  to receive  the  dividends  and  interest
     payments  which it would  otherwise  be  authorized  to receive  and retain
     pursuant to Section 4.02 shall cease,  and all such rights shall  thereupon
     become vested in Secured Party who shall  thereupon  have the sole right to
     receive and hold as Collateral  such dividends and interest  payments,  but
     Secured  Party  shall have no duty to receive and hold such  dividends  and
     interest  payments and shall not be responsible for any failure to do so or
     delay in so doing.

          (b) All dividends and interest  payments which are received by Pledgor
     contrary to the  provisions of this Section 6.06 shall be received in trust
     for the benefit of Secured Party,  shall be segregated  from other funds of
     Pledgor and shall be promptly  paid over to Secured  Party as Collateral in
     the same form as so received (with any necessary endorsement).

          (c)  Secured  Party may  exercise  any and all  rights of  conversion,
     exchange,   subscription  or  any  other  rights,   privileges  or  options
     pertaining  to any of the  Pledged  Securities  as if it were the  absolute
     owner thereof,  including without limitation,  the right to exchange at its
     discretion,  any  and  all of  the  Pledged  Securities  upon  the  merger,
     consolidation,  reorganization,  recapitalization  or other readjustment of
     any issuer of such  Pledged  Securities  or upon the  exercise  by any such
     issuer or Secured Party of any right, privilege or option pertaining to any
     of the  Pledged  Securities  and in  connection  therewith,  to deposit and
     deliver  any  and  all  of  the  Pledged  Securities  with  any  committee,
     depository,  transfer agent, registrar or other designated agency upon such
     terms and conditions as it may determine,  all without  liability except to
     account for property  actually received by it, but Secured Party shall have
     no duty to exercise any of the aforesaid rights,  privileges or options and
     shall not be responsible for any failure to do so or delay in so doing.

     Section  6.07  Non-judicial  Enforcement.  To the extent  permitted by law,
                    -------------------------
Secured Party may enforce its rights hereunder without prior judicial process or
judicial  hearing,  and to the extent permitted by law Pledgor  expressly waives
any and all legal rights which might otherwise  require Secured Party to enforce
its rights by judicial process.

                                       10


                                   ARTICLE 7

                            MISCELLANEOUS PROVISIONS
                            ------------------------

     Section 7.01 Notices. Any notice required or permitted to be given under or
                  -------
in  connection  with this  Agreement  shall be in writing and shall be mailed by
first  class or  express  mail,  postage  prepaid,  or sent by telex,  telegram,
telecopy or other  similar  form of rapid  written  transmission  or  personally
delivered to the receiving party. All such communications  shall be mailed, sent
or delivered  at the address  respectively  indicated  in the opening  paragraph
hereof or at such other  address as either  party may have  furnished  the other
party in writing.  Any  communication so addressed and mailed shall be deemed to
be given  three  days  after so  mailed,  any  notice  so sent by rapid  written
transmission  shall be deemed to be given when receipt of such  transmission  is
acknowledged by the receiving  operator or equipment,  and any  communication so
delivered in person shall be deemed to be given when  receipted  for or actually
received by Pledgor or Secured Party, as the case may be.

     Section 7.02 Amendments and Waivers.  Secured Party's acceptance of partial
                  ----------------------
or delinquent payments or any forbearance,  failure or delay by Secured Party in
exercising any right,  power or remedy hereunder shall not be deemed a waiver of
any  obligation of Pledgor or any Obligor,  or of any right,  power or remedy of
Secured  Party;  and no partial  exercise  of any right,  power or remedy  shall
preclude any other or further  exercise  thereof.  Secured  Party may remedy any
Event of Default hereunder or in connection with the Obligations without waiving
the Event of Default so remedied.  Pledgor  hereby  agrees that if Secured Party
agrees to a waiver of any provision  hereunder,  or an exchange of or release of
the Collateral,  or the addition or release of any Obligor or other Person,  any
such action shall not constitute a waiver of any of Secured Party's other rights
or of Pledgor's obligations hereunder.  This Agreement may be amended only by an
instrument in writing  executed  jointly by Pledgor and Secured Party and may be
supplemented  only by documents  delivered or to be delivered in accordance with
the express terms hereof.

     Section 7.03 Copy as Financing Statement. A photocopy or other reproduction
                  ---------------------------
of this  Agreement may be delivered by Pledgor or Secured Party to any financial
intermediary  or other third party for the purpose of transferring or perfecting
any or all of the  Pledged  Securities  to  Secured  Party  or its  designee  or
assignee.

     Section 7.04  Possession  of  Collateral.  Secured Party shall be deemed to
                   --------------------------
have  possession of any  Collateral in transit to it or set apart for it (or, in
either case, any of its agents, affiliates or correspondents).

     Section  7.05  Redelivery  of  Collateral.  If  any  sale  or  transfer  of
                    --------------------------
Collateral by Secured Party results in full satisfaction of the Obligations, and
after such sale or transfer and  discharge  there remains a surplus of proceeds,
Secured  Party will  deliver to Pledgor such excess  proceeds in a  commercially
reasonable  time;  provided,  however,  that  Secured  Party  shall not have any
liability  for any  interest,  cost or expense in  connection  with any delay in
delivering such proceeds to Pledgor.

     Section 7.06 Governing Law;  Jurisdiction.  This Agreement and the security
                  ----------------------------
interest  granted  hereby shall be construed in accordance  with and governed by
the laws of the State of Texas  (except to the extent that the laws of any other

                                       11


jurisdiction  govern the  perfection  and  priority  of the  security  interests
granted hereby).

     Section 7.07 Continuing Security Agreement.

     (a) Except as otherwise  provided by  applicable  law  (including,  without
limitation,  Section  9.620 of the Code),  no action taken or omission to act by
Secured Party hereunder,  including,  without limitation, any exercise of voting
or  consensual  rights  pursuant to Section  6.06 or any other  action  taken or
inaction  pursuant to Section 6.02, shall be deemed to constitute a retention of
the  Collateral in  satisfaction  of the  Obligations or otherwise to be in full
satisfaction of the Obligations,  and the Obligations shall remain in full force
and effect, until Secured Party shall have applied payments (including,  without
limitation,  collections  from  Collateral)  towards the Obligations in the full
amount then outstanding or until such subsequent time as is hereinafter provided
in subsection (b) below.

     (b) To the extent that any payments on the  Obligations  or proceeds of the
Collateral  are   subsequently   invalidated,   declared  to  be  fraudulent  or
preferential,  set  aside or  required  to be  repaid  to a  trustee,  debtor in
possession,  receiver or other Person under any  bankruptcy  law,  common law or
equitable  cause,  then to such extent the  Obligations  so  satisfied  shall be
revived and  continue as if such  payment or proceeds  had not been  received by
Secured  Party,  and Secured  Party's  security  interests,  rights,  powers and
remedies  hereunder shall continue in full force and effect. In such event, this
Agreement shall be  automatically  reinstated if it shall  theretofore have been
terminated pursuant to Section 7.08.

     Section 7.08 Termination.  The grant of a security  interest  hereunder and
                  -----------
all of Secured Party's rights, powers and remedies in connection therewith shall
remain in full force and effect until  Secured Party has (i)  retransferred  and
delivered  all  Collateral  in its  possession  to Pledgor,  and (ii) executed a
written  release or  termination  statement and  reassigned  to Pledgor  without
recourse or warranty any remaining  Collateral and all rights  conveyed  hereby.
Upon (i) the complete payment of the Obligations (other than any indemnity which
is not yet due and payable),  (ii) the expiration of all outstanding  Letters of
Credit,  and (iii) the  termination of the  Commitments,  Secured Party,  at the
written request and expense of Pledgor, will release,  reassign and transfer the
Collateral  to Pledgor and declare this  Agreement to be of no further  force or
effect.  Notwithstanding  the  foregoing,  Section  4.04 and the  provisions  of
subsection 7.07(b) shall survive the termination of this Agreement.

     Section 7.09 Counterparts; Effectiveness. This Agreement may be executed in
                  ---------------------------
two or more counterparts.  Each counterpart is deemed an original,  but all such
counterparts  taken  together  constitute  one and  the  same  instrument.  This
Agreement becomes effective upon the execution hereof by Pledgor and delivery of
the same to Secured Party,  and it is not necessary for Secured Party to execute
any acceptance hereof or otherwise signify or express its acceptance hereof.

     Section 7.10 Limitation by Law. All rights, remedies and powers provided in
                  -----------------
this  Agreement  may be exercised  only to the extent that the exercise  thereof
does not violate any applicable provision of law, and all the provisions of this
Agreement are intended to be subject to all applicable  mandatory  provisions of
law which may be controlling  and to be limited to the extent  necessary so that

                                       12


they shall not render  this  Agreement  invalid,  unenforceable,  in whole or in
part, or not entitled to be recorded,  registered or filed under the  provisions
of any applicable law.

     Section 7.11 Interest. It is the intention of the parties hereto to conform
                  --------
strictly to usury laws  applicable to Secured Party or any Lender.  Accordingly,
if the transactions contemplated hereby would be usurious under applicable state
or federal law, then, notwithstanding anything to the contrary in this Agreement
or in any other Loan Document, it is agreed as follows: (i) the aggregate of all
consideration  which constitutes  interest under law applicable to Secured Party
or any Lender that is contracted for, taken, reserved, charged or received under
the Obligations, this Agreement or under any other Loan Document or otherwise in
connection with the Obligations shall under no circumstances  exceed the maximum
amount  allowed by such  applicable  law, (ii) in the event that the maturity of
the Obligations is accelerated  for any reason,  or in the event of any required
or permitted prepayment, then such consideration that constitutes interest under
law  applicable  to Secured Party or any Lender may never include more than such
maximum  amount,  and  (iii)  excess  interest,  if  any,  provided  for in this
Agreement, any other Loan Document or otherwise shall be cancelled automatically
and, if  theretofore  paid,  shall be credited by Secured Party on the principal
amount of the  Obligations  (or, to the extent that the principal  amount of the
Obligations  shall  have  been or would  thereby  be paid in full,  refunded  by
Secured  Party to Pledgor,  or to the  Company,  as  appropriate).  The right to
accelerate  the  maturity  of the  Obligations  does not  include  the  right to
accelerate  any  interest  which has not  otherwise  accrued on the date of such
acceleration,  and neither  Secured  Party nor any Lender  intend to collect any
unearned  interest in the event of  acceleration.  All sums paid or agreed to be
paid to Secured  Party or any Lender for the use,  forbearance  or  detention of
sums  included in the initial  Obligations  shall,  to the extent  permitted  by
applicable law, be amortized, prorated, allocated and spread throughout the full
term of the  Obligations  until  payment  in full so that the rate or  amount of
interest on account of the initial  Obligations  does not exceed the  applicable
usury ceiling, if any.








                         [Signatures begin on next page]

                                       13




PLEDGOR:                                   NANCE PETROLEUM CORPORATION
- -------


                                           By:   /s/ ROBERT T. HANLEY
                                               ---------------------------------
                                                 Robert T. Hanley
                                                 Vice President and Treasurer




                                       14

EX-10

                                                                   EXHIBIT 10.10

           FIRST SUPPLEMENT AND AMENDMENT TO DEED OF TRUST, MORTGAGE,
            LINE OF CREDIT MORTGAGE, ASSIGNMENT, SECURITY AGREEMENT,
                     FIXTURE FILING AND FINANCING STATEMENT


     THIS FIRST  SUPPLEMENT  AND AMENDMENT TO DEED OF TRUST,  MORTGAGE,  LINE OF
CREDIT MORTGAGE,  ASSIGNMENT,  SECURITY AGREEMENT,  FIXTURE FILING AND FINANCING
STATEMENT (this  "Supplement") is entered into as of the effective time and date
hereinafter  stated (the  "Effective  Date") by ST. MARY LAND &  EXPLORATION
COMPANY ("Parent"),  a Delaware corporation (Taxpayer I.D. No. 41-0518430);  ST.
MARY ENERGY  COMPANY  ("Energy"),  a Delaware  corporation  (Taxpayer  I.D.  No.
76-0554924);  NANCE  PETROLEUM  CORPORATION  ("Nance"),  a  Montana  corporation
(Taxpayer I.D. No. 81-0309883);  ST. MARY MINERALS INC. ("Minerals"), a Colorado
corporation (Taxpayer I.D. No. 84-1200318); ROSWELL, L.L.C. ("Roswell"), a Texas
limited liability company (Taxpayer I.D. No. 74-2788509); and ST. MARY OPERATING
COMPANY  ("Operating"),  a Colorado  corporation  (Taxpayer I.D. No. 84-0723492)
(individually and collectively called "Mortgagor"); to Jay Chernosky, as Trustee
with respect to Property located in the State of Texas, whose address for notice
is 1001 Fannin  Street,  Suite 2255,  Houston,  Texas 77002,  and First American
Title  Company of Utah,  as Trustee for  Property  located in the State of Utah,
whose address for notice is 3300 East 400 South,  Salt Lake City, Utah 84111, in
both  cases  for  the  benefit  of  WACHOVIA  BANK,  NATIONAL  ASSOCIATION,   as
Administrative   Agent  (in  such   capacity,   the  "Agent")  for  the  lenders
(collectively, the "Lenders") party to the hereinafter defined Credit Agreement.

                                    RECITALS

     A. Parent,  Bank of America,  N.A.,  as Agent (the "Former  Agent") and the
"Former  Lenders" (as  hereinafter  defined)  entered  into that certain  Credit
Agreement dated as of June 30, 1998, by and among Parent,  the Former Agent, and
each of the lenders  (collectively the "Former Lenders") party thereto (together
with all  amendments  or  modifications  thereof  and  supplements  thereto  the
"Existing Credit Agreement").

     B. The  indebtedness of the Parent under or in connection with the Existing
Credit Agreement is secured by, among other things,  that certain Deed of Trust,
Mortgage,  Line of Credit  Mortgage,  Assignment,  Security  Agreement,  Fixture
Filing and  Financing  Statement  dated May 2,  2002,  from  Mortgagor  to Agent
(together with all supplements and amendments thereto, the "Mortgage").

     C. The  Mortgage  was duly  recorded  as set forth on  Schedule  I attached
hereto and made a part hereof for all purposes.

     D. By separate  Assignment  of Note and Liens dated of even date  herewith,
each of the Former  Lenders  assigned to the Former  Agent all  indebtedness  of
Parent  owing to such Former  Lender  under or in  connection  with the Existing
Credit  Agreement (all such  indebtedness  herein and in the Mortgage called the
"Assigned Indebtedness"),  together with their beneficial interest in and to all

                                      -1-


liens securing the payment  thereof  including,  without  limitation,  the liens
created by and existing under the Mortgage.

     E. By  Assignment  of  Undivided  Interest in Notes and Liens dated of even
date herewith,  the Former Agent has assigned to Agent the Assigned Indebtedness
and all liens securing the payment thereof including,  without  limitation,  the
liens created by and existing under the Mortgage.

     F. Parent,  Agent and the Lenders  have  entered  into that certain  Credit
Agreement  dated  of  even  date  herewith  (together  with  all  amendments  or
modifications  thereof and supplements  thereto,  the "Credit  Agreement"),  the
initial  advance  of loan  proceeds  thereunder  to be used  to  renew,  extend,
rearrange and modify the Assigned Indebtedness.

     G. Energy,  Nance and  Operating  have  guaranteed  the prompt  payment and
performance of all  indebtedness,  obligations  and liabilities of the Parent to
the Lenders  and/or Agent  pursuant to the terms and conditions of the "Guaranty
Agreement" (as defined in the Credit Agreement).

     H. In  view of the  foregoing,  Mortgagor  and  Agent  mutually  desire  to
supplement and amend the Mortgage as hereinafter provided.

     NOW,  THEREFORE,  for  good  and  valuable  consideration  in hand  paid by
Mortgagor  to Agent and in  consideration  of the debts and  trusts  hereinafter
mentioned,  the receipt and sufficiency of all of which is hereby  acknowledged,
Mortgagor and Agent do hereby agree as follows:

     1.  All  capitalized  terms  used but not  defined  herein  shall  have the
meanings  assigned to such terms in the Mortgage,  as  supplemented  and amended
hereby.

     2. All  references  in the  Mortgage  to  "this  Mortgage"  shall  mean the
Mortgage as  supplemented  and  amended  hereby and as the same may from time to
time be further amended or supplemented.

     3. All  references  in the  Mortgage to "Credit  Agreement"  shall mean the
Credit Agreement (as defined in the Recitals hereto).

     4. All  references  in the Mortgage to "Agent"  shall mean  Wachovia  Bank,
National Association, as Administrative Agent for the Lenders.

     5. All  references in the Mortgage to "Lenders"  shall mean the Lenders now
or hereafter party to the Credit Agreement.

     6. All references in the Mortgage to "Trustee"  shall mean (a) with respect
to Property  located in the State of Texas,  Jay  Chernosky,  as Trustee for the
benefit of Agent,  whose address for notice is 1001 Fannin  Street,  Suite 2255,
Houston,  Texas 77002,  and (b) with respect to Property located in the State of
Utah, First American Title Company of Utah, as Trustee for the benefit of Agent,

                                      -2-


whose address for notice is 3300 East 400 South, Salt Lake City, Utah 84111.

     7. All references in the Mortgage to "secured  indebtedness" shall mean all
indebtedness,  obligations and  liabilities of Mortgagor  referred to in Section
1.3 of the Mortgage,  as amended and supplemented hereby,  together with any and
all renewals, rearrangements, modifications, increases and extensions thereof.

     8. All  references  in the  Mortgage to "Notes"  shall mean the  promissory
notes  issued,  executed and  delivered  by the Parent to the Lenders  under the
Credit   Agreement,   together  with  any  and  all  renewals,   rearrangements,
modifications, increases and extensions thereof.

     9. All references in the Mortgage to "Loan  Documents"  shall mean the Loan
Documents (as defined in the Credit Agreement).

     10.  Section 1.3 of the Mortgage is hereby  amended in its entirety to read
as follows:

          "Section  1.3 Secured  Indebtedness.  This  Mortgage  is executed  and
                        ---------------------
     delivered  by  the   Mortgagor  to  secure  and  enforce  the  payment  and
     performance of the following:

               (a)  Payment  of and  performance  of any and  all  indebtedness,
          obligations and liabilities,  including interest  (including,  without
          limitation,  interest  accruing  after the maturity of the "Loans" (as
          defined in the  hereinafter  defined  Credit  Agreement)  made by each
          Lender  and  interest  accruing  after the filing of any  petition  in
          bankruptcy,  or the commencement of any insolvency,  reorganization or
          like  proceeding,  relating to the Parent,  whether or not a claim for
          post-filing or  post-petition  interest is allowed in such proceeding)
          of the Parent  whether now existing or hereafter  arising  under or in
          connection with that certain Credit  Agreement dated as of January 27,
          2003, by and among Parent, Agent and the Lenders (as the same may from
          time to time be amended or  supplemented,  the "Credit  Agreement") or
          any other  "Loan  Document"  (as  defined  in the  Credit  Agreement),
          including,  without limitation,  the "Notes" (as defined in the Credit
          Agreement) in the aggregate  original principal amount of $300,000,000
          with final  maturity on or before  January 27, 2006. To the extent set
          forth in the Credit  Agreement,  the Loans made by the  Lenders to the
          Parent  under the Credit  Agreement  represent  a renewal,  extension,
          rearrangement and modification of the Assigned Indebtedness.

               (b)  Payment  and  performance  of  any  and  all   indebtedness,
          obligations and liabilities of Energy, Nance and Operating whether now
          existing  or  hereafter  arising  under  or  in  connection  with  the

                                      -3-


          "Guaranty Agreement" (as defined in the Credit Agreement).

               (c) Any sums  which may be  advanced  or paid by the Agent or any
          Lender under the terms  hereof or of the Credit  Agreement or any Loan
          Document on account of the failure of the Mortgagor to comply with the
          covenants of the Mortgagor contained herein or in the Credit Agreement
          or  any  other  Loan  Document;  and  all  other  indebtedness  of the
          Mortgagor arising pursuant to the provisions of this Mortgage.

               (d) Payment of and  performance  of any and all present or future
          obligations of the Mortgagor  according to the terms of any present or
          future  interest rate or currency  swap,  rate cap,  rate floor,  rate
          collar,  forward rate agreement or other  exchange or rate  protection
          agreements  or any option  with  respect to any such  transaction  now
          existing or  hereafter  entered  into  between the  Mortgagor  and any
          Lender (or any Affiliate of such Lender).

               (e) Payment of and  performance  of any and all present or future
          obligations of the Mortgagor  according to the terms of any present or
          future swap agreements, cap, floor, collar, forward agreement or other
          exchange or protection  agreements  relating to crude oil, natural gas
          or  other  hydrocarbons  or  any  option  with  respect  to  any  such
          transaction  now  existing  or  hereafter  entered  into  between  the
          Mortgagor and any Lender (or any Affiliate of such Lender).

               (f) Performance of all "Letter of Credit  Agreements" (as defined
          in the Credit  Agreement)  executed from time to time by the Parent or
          any Subsidiary of the Parent under or pursuant to the Credit Agreement
          and all reimbursement  obligations for drawn or undrawn portions under
          any  "Letter of Credit"  (as  defined  in the  Credit  Agreement)  now
          outstanding  or  hereafter  issued  under or  pursuant  to the  Credit
          Agreement."

     11.  Mortgagor hereby confirms that it has heretofore  granted,  bargained,
sold, conveyed,  transferred,  assigned, set over, mortgaged, warranted, pledged
and  hypothecated  to the Former Agent,  and granted a security  interest to the
Former Agent in, the  "Property"  (as defined in the  Mortgage),  and  Mortgagor
hereby further grants, bargains, sells, conveys, transfers,  assigns, sets over,
mortgages,  warrants,  pledges and  hypothecates to Agent, and grants a security
interest to Agent in, the Property, to secure the payment and performance of the
"secured indebtedness" (as such term has been amended hereby).

     12.  Mortgagor  hereby  confirms  that  it has  heretofore  absolutely  and
unconditionally  assigned,  transferred and set over and does hereby  absolutely

                                      -4-


and unconditionally  assign,  transfer and set over to Agent, its successors and
assigns,  all of the  "Production" (as defined in the Mortgage) which accrues to
Mortgagor's  interest in the Mortgaged  Properties,  and all Production Proceeds
(as defined in the Mortgage),  together with the immediate and continuing  right
to collect and receive all such Production Proceeds.

     13.  The  parties  hereto  hereby  acknowledge  and  agree  that  except as
specifically  amended,  changed or modified hereby, the Mortgage shall remain in
full force and effect in accordance with its terms.  None of the rights,  titles
and  interests  existing and to exist under the  Mortgage  are hereby  released,
diminished  or  impaired,   and  Mortgagor   hereby   reaffirms  all  covenants,
representations and warranties made in the Mortgage.

     14. This  Supplement  may be executed in two or more  counterparts,  and it
shall not be necessary that the signatures of all parties hereto be contained on
any one counterpart hereof.

     15.  For  purposes  of  Louisiana  law,  including  but not  limited to the
availability  of executory  process,  Mortgagor has appeared on this date before
the undersigned Notary Public and witnesses in order to execute this Supplement.
Mortgagor  attaches,  as Annex  I, to  counterparts  hereof  being  recorded  in
Louisiana  certified  resolutions  of its  Board of  Directors  authorizing  the
execution  and  delivery  of  this  Mortgage.  Mortgagor  acknowledges  that  no
promissory note or other instrument has been presented to the undersigned Notary
Public to be paraphed for identification herewith.



                          [SIGNATURES BEGIN NEXT PAGE]



                                      -5-




     THUS DONE AND  PASSED  this 24th day of  January,  2003,  to be  effective,
however,  as of January  27,  2003,  in my presence  and in the  presence of the
undersigned competent witnesses who hereunto sign their names with Mortgagor and
me, Notary, after reading of the whole.

WITNESSES:                              ST. MARY LAND & EXPLORATION
/s/ KAREN M. POLLY                      COMPANY
- -----------------------------------
Name:   Karen M. Polly
       ----------------------------
                                        By:  /s/ MILAM RANDOLPH PHARO
                                            ------------------------------------
                                             Milam Randolph Pharo
/s/ ROBERT T. HANLEY                         Vice President - Land & Legal
- -----------------------------------
Name:   Robert T. Hanley
       ----------------------------

                             /s/ JAMES C. ROBERTSON
                    -----------------------------------------
                                  NOTARY PUBLIC

The address and tax identification number of Parent are:

1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(Denver County)
Taxpayer ID. No. 41-05 18430

The  address of Agent is:
201 South College Street
8th Floor NC 0680
Charlotte, NC 28288

The addresses of Trustees are:
Jay Chernosky
1001 Fannin Street, Suite 2255
Houston, Texas 77002

The First American Title Company of Utah
3300 East 400 South
Salt Lake City, Utah 84111

This instrument prepared by:
Craig W. Murray
Vinson & Elkins L.L.P.
1001 Fannin, Suite 2300
Houston, TX  77002

                                      -6-


STATE OF COLORADO                 ss.
                                          ss.
COUNTY OF DENVER                  ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby certify that, on this 24th day of January,  2003, THERE
personally  appeared before me: Milam Randolph Pharo,  the Vice President - Land
& Legal of St. Mary Land &  Exploration Company, a Delaware corporation,
known to me to be such officer,  such corporation being a party to the foregoing
instrument.

MONTANA, NEW        The foregoing instrument  was acknowledged before me on this
MEXICO, NORTH       day, by  such  person, the above  designated  officer of the
DAKOTA              corporation  specified  following  such  person's  name,  on
OKLAHOMA, TEXAS,    behalf of said corporation.
UTAH, WYOMING and
LOUISIANA           On  this  date   before  me,  the   undersigned   authority,
                    personally  came and appeared such person,  to me personally
                    known  and  known  by me  to be  the  person  whose  genuine
                    signature is affixed to the foregoing  document as the above
                    designated  officer of the corporation  specified  following
                    such person's  name,  who signed said document  before me in
                    the presence of the two  witnesses,  whose names are thereto
                    subscribed  as  such,  being  competent  witnesses,  and who
                    acknowledged,  in my  presence  and in the  presence of said
                    witnesses,  that he signed the above and foregoing  document
                    as his own free act and deed on behalf  of such  corporation
                    by authority  of its board of directors  and as the free act
                    and deed of such  corporation  and for the uses and purposes
                    therein set forth and apparent.

     IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in the
City of Denver, Denver County, Colorado on the day and year first above written.
                                    /s/ JAMES C. ROBERTSON
                                 -----------------------------------------------
                                 NOTARY PUBLIC, in and for the State of Colorado
                                        James C. Robertson
                                 -----------------------------------------------
My commission expires:           (printed name)
Feb. 14, 2005
- ---------------------

[SEAL]

                                      -7-




     THUS  DONE AND  PASSED  this 24th day of  January, 2003,  to be  effective,
however,  as of January  27,  2003,  in my presence  and in the  presence of the
undersigned competent witnesses who hereunto sign their names with Mortgagor and
me, Notary, after reading of the whole.

WITNESSES:                               ST. MARY ENERGY COMPANY
/s/ KAREN M. POLLY
- -----------------------------------
Name:   Karen M. Polly
       ----------------------------
                                         By:   /s/ MILAM RANDOLPH PHARO
                                              ----------------------------------
                                               Milam Randolph Pharo
/s/ ROBERT T. HANLEY                           Vice President - Land & Legal
- -----------------------------------
Name:   Robert T. Hanley
       ----------------------------
                             /s/ JAMES C. ROBERTSON
                   ------------------------------------------
                                  NOTARY PUBLIC


The address and tax identification number of Energy are:

1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(Denver County)
Taxpayer ID. No. 76-0554924


STATE OF COLORADO            ss.
                             ss.
COUNTY OF DENVER             ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby certify that, on this 24th day of January, 2003,  there
personally  appeared before me: Milam Randolph Pharo,  the Vice President - Land
& Legal of St. Mary Energy Company, a Delaware  corporation,  known to me to
be such officer, such corporation being a party to the foregoing instrument.

MONTANA, NEW        The foregoing  instrument was acknowledged before me on this
MEXICO, NORTH       day, by  such  person, the  above  designated officer of the
DAKOTA              corporation  specified  following  such  person's  name,  on
OKLAHOMA, TEXAS,    behalf of said corporation.
UTAH, WYOMING and
LOUISIANA           On  this  date   before  me,  the   undersigned   authority,
                    personally  came and appeared such person,  to me personally
                    known  and  known  by me  to be  the  person  whose  genuine
                    signature is affixed to the foregoing document as tile above
                    designated  officer of the corporation  specified  following

                                      -8-


                    such person's  name,  who signed said document  before me in
                    the presence of the two  witnesses,  whose names are thereto
                    subscribed  as  such,  being  competent  witnesses,  and who
                    acknowledged,  in my presence  and in tile  presence of said
                    witnesses,  that he signed the above and foregoing  document
                    as his own free act and deed on behalf  of such  corporation
                    by authority  of its board of directors  and as the free act
                    and deed of such  corporation  and for the uses and purposes
                    therein set forth and apparent.

     IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in the
City of Denver, Denver County, Colorado on the day and year first above written.
                                /s/ JAMES C. ROBERTSON
                               -------------------------------------------------
                               NOTARY PUBLIC, in and for the State of Colorado
                                   James C. Robertson
                               -------------------------------------------------
My commission expires:         (printed name)
Feb. 14, 2005
- ---------------------

[SEAL]

                                      -9-




     THUS  DONE AND  PASSED  this 24th day of January,  2003,  to be  effective,
however,  as of January  27,  2003,  in my presence  and in the  presence of the
undersigned competent witnesses who hereunto sign their names with Mortgagor and
me, Notary, after reading of the whole.

WITNESSES:                              NANCE PETROLEUM CORPORATION
/s/ KAREN M. POLLY
- -----------------------------------
Name:   Karen M. Polly
       ----------------------------
                                        By:  /s/ ROBERT T. HANLEY
                                            ------------------------------------
                                             Robert T. Hanley
 /s/ RICHARD C. NORRIS                       Vice President and Treasurer
- -----------------------------------
Name:   Richard C. Norris
       ----------------------------
                             /s/ JAMES C. ROBERTSON
                   ------------------------------------------
                                  NOTARY PUBLIC


The address and tax identification number of Nance are:

550 North 31st Street, Suite 500
Billings, Montana 59101
(Yellowstone County)
Taxpayer ID. No. 8 1-0309883


STATE OF COLORADO                 ss.
                                  ss.
COUNTY OF DENVER                  ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby certify that, on this 24TH day of January,  2003, there
personally  appeared  before  me:  Robert  T.  Hanley,  the Vice  President  and
Treasurer of Nance Petroleum Corporation, a Montana corporation,  known to me to
be such officer, such corporation being a party to the foregoing instrument.

MONTANA, NEW        The foregoing instrument was acknowledged before mc on this
MEXICO, NORTH       day, by such person, the above designated officer of the
DAKOTA              corporation specified following such person's name, on
OKLAHOMA, TEXAS,    behalf of said corporation.
UTAH, WYOMING and
LOUISIANA           On  this  date   before  me,  the   undersigned   authority,
                    personally  came and appeared such person,  to me personally
                    known  and  known  by me  to be  the  person  whose  genuine
                    signature is affixed to the foregoing  document as the above
                    designated  officer of the corporation  specified  following

                                      -10-


                    such person's  name,  who signed said document  before me in
                    the presence of the two  witnesses,  whose names are thereto
                    subscribed  as  such,  being  competent  witnesses,  and who
                    acknowledged,  in my  presence  and in the  presence of said
                    witnesses,  that he signed the above and foregoing  document
                    as his own free act and deed on behalf  of such  corporation
                    by authority  of its board of directors  and as the free act
                    and deed of such  corporation  and for the uses and purposes
                    therein set forth and apparent.

     IN WITNESS  WHEREOF.  I have  hereunto set my hand and official seal in the
City of  Denver,  Denver  County,  Colorado,  on the day and  year  first  above
written.
                                 /s/ JAMES C. ROBERTSON
                               -------------------------------------------------
                               NOTARY PUBLIC, in and for the State of Colorado
                                  James C. Robertson
                               -------------------------------------------------
My commission expires:         (printed name)
Feb. 14, 2005
- ---------------------

[SEAL]

                                      -11-




     0THUS DONE AND  PASSED  this 24th day of January,  2003,  to be  effective,
however,  as of January  27,  2003,  in my presence  and in the  presence of the
undersigned competent witnesses who hereunto sign their names with Mortgagor and
me, Notary, after reading of the whole.

WITNESSES:                               ST. MARY MINERALS INC.
/s/ KAREN M. POLLY
- -----------------------------------
Name:   Karem M. Polly
       ----------------------------
                                         By:  /s/ RICHARD C. NORRIS
                                             -----------------------------------
                                               Richard C. Norris
 /s/ ROBERT T. HANLEY                          Vice President - Finance
- -----------------------------------
Name:    Robert T. Hanley
       ----------------------------
                             /s/ JAMES C. ROBERTSON
                   ------------------------------------------
                                  NOTARY PUBLIC


The address and tax identification number of Minerals are:

1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(Denver County)
Taxpayer ID. No. 84-12003 18


STATE OF COLORADO           ss.
                            ss.
COUNTY OF DENVER            ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby certify that, on this 24th day of January,  2003, there
personally  appeared before me: Richard C. Norris,  the Vice President - Finance
of St.  Mary  Minerals  Inc.,  a  Colorado  corporation,  known to me to be such
officer, such corporation being a party to the foregoing instrument.

MONTANA, NEW        The  foregoing instrument was acknowledged before me on this
MEXICO, NORTH       day, by  such  person,  the  above designated officer of the
DAKOTA              corporation  specified  following  such  person's  name,  on
OKLAHOMA, TEXAS,    behalf of said corporation.
UTAH, WYOMING and
LOUISIANA           On  this  date   before  me,  the   undersigned   authority,
                    personally  came and appeared such person,  to me personally
                    known  and  known  by me  to be  the  person  whose  genuine

                                      -12-


                    signature is affixed to the foregoing  document as the above
                    designated  officer of the corporation  specified  following
                    such person's  name,  who signed said document  before me in
                    the presence of the two  witnesses,  whose names are thereto
                    subscribed  as  such,  being  competent  witnesses,  and who
                    acknowledged,  in my  presence  and in the  presence of said
                    witnesses,  that he signed the above and foregoing  document
                    as his own free act and deed on behalf  of such  corporation
                    by authority  of its board of directors  and as the free act
                    and deed of such  corporation  and for the uses and purposes
                    therein set forth and apparent.

     IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in the
City of  Denver,  Denver  County,  Colorado,  on the day and  year  first  above
written.
                                   /s/ JAMES C. ROBERTSON
                                 -----------------------------------------------
                                 NOTARY PUBLIC, in and for the State of Colorado
                                    James C. Robertson
                                 -----------------------------------------------
My commission expires:           (printed name)
Feb. 14, 2005
- ---------------------

[SEAL]

                                      -13-




     THUS DONE AND  PASSED  this 24th day of  January,  2003,  to be  effective,
however,  as of January  27,  2003,  in my presence  and in the  presence of the
undersigned competent witnesses who hereunto sign their names with Mortgagor and
me, Notary, after reading of the whole.

WITNESSES:                              ROSWELL, L.L.C.
/s/ KAREN M. POLLY
- -----------------------------------
Name:   Karen M. Polly                  By:   St. Mary Land & Exploration
       ----------------------------           Company, as Member


 /s/ ROBERT T. HANLEY                   By:   /s/ MILAM RANDOLPH PHARO
- -----------------------------------         ------------------------------------
Name:   Robert T. Hanley                      Milam Randolph Pharo
       ----------------------------           Vice President - Land & Legal

                             /s/ JAMES C. ROBERTSON
                   ------------------------------------------
                                  NOTARY PUBLIC



The address and tax identification number of Roswell are:

1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(Denver County)
Taxpayer ID. No. 74-2788509


STATE OF COLORADO                 ss.
                                  ss.
COUNTY OF DENVER                  ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby certify that, on this 24th day of January,  2003, there
personally  appeared before me: Milam Randolph Pharo,  the Vice President - Land
& Legal of St Mary Land &  Exploration Company, a Delaware  corporation,
in its  capacity  as a member of  Roswell,  L.L.C.,  a Texas  limited  liability
company,  known to me to be such officer of such  corporation,  such corporation
acting in its  capacity  as  member  and on  behalf  of such  limited  liability
company,  and such  limited  liability  company  being a party to the  foregoing
instrument.

MONTANA, NEW        The foregoing instrument was acknowledged before  me on this
MEXICO, NORTH       day, by  such  person, the  above  designated officer of St.
DAKOTA              Mary Land &  Exploration Company acting  in its capacity

                                      -14-


OKLAHOMA, TEXAS,    as  member  of  the  limited  liability  company   specified
UTAH,               following such person's name,  on behalf of said corporation
WYOMING,            acting ill  its capacity as member of  the limited liability
and                 company, and  on  behalf of  said limited liability company.
LOUISIANA

                    On  this  date   before  me,  the   undersigned   authority.
                    personally  came and appeared such person,  to me personally
                    known  and  known  by  me o be  tile  person  whose  genuine
                    signature is affixed to the foregoing  document as the above
                    designated officer of the above mentioned corporation acting
                    in its capacity as member of the limited  liability  company
                    specified  following  such  person's  name,  who signed said
                    document  before me in the  presence  of the two  witnesses,
                    whose names are thereto  subscribed as such, being competent
                    witnesses,  and who acknowledged,  in my presence and in the
                    presence  of said  witnesses,  that he signed  the above and
                    foregoing document as his own free act and deed on behalf of
                    such  corporation  acting in its  capacity as member of such
                    limited  liability  company,  and on behalf of such  limited
                    liability  company,  by  authority of its board of directors
                    and by authority of its  members,  respectively,  and as the
                    free  act  and  deed  of  such  corporation,  acting  in its
                    capacity as member of such limited liability company, and of
                    such limited liability company and for the uses and purposes
                    therein set forth and apparent.

     IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in the
City of  Denver,  Denver  County,  Colorado,  on the day and  year  first  above
written.
                                 /s/ JAMES C. ROBERTSON
                               -------------------------------------------------
                               NOTARY PUBLIC, in and for the State of Colorado
                                  James C. Robertson
                               -------------------------------------------------
My commission expires:           (printed name)
Feb. 14, 2005
- ---------------------

[SEAL]

                                      -15-





     THUS  DONE AND  PASSED  this 24th day of  January,  2003,  to be effective,
however,  as of January  27,  2003,  in my presence  and in the  presence of the
undersigned competent witnesses who hereunto sign their names with Mortgagor and
me, Notary, after reading of the whole.

WITNESSES:                              ST. MARY OPERATING COMPANY
/s/ KAREN M. POLLY
- -----------------------------------
Name:   Karen M. Polly
       ----------------------------
                                        By:  /s/ MILAM RANDOLPH PHARO
                                             -----------------------------------
                                              Milam Randolph Pharo
 /s/ ROBERT T. HANLEY                         Vice President - Land & Legal
- -----------------------------------
Name:   Robert T. Hanley
       ----------------------------
                             /s/ JAMES C. ROBERTSON
                   ------------------------------------------
                                  NOTARY PUBLIC


The address and tax identification number of Operating are:

1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(Denver County)
Taxpayer ID. No. 84-0723492


STATE OF COLORADO                 ss.
                                  ss.
COUNTY OF DENVER                  ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby certify that, on this 24th day of January,  2003, there
personally  appeared before me: Milam Randolph Pharo,  the Vice President - Land
& Legal of St. Mary Operating Company, a Colorado  corporation,  known to me
to be such officer, such corporation being a party to the foregoing instrument.

MONTANA, NEW        The foregoing instrument was  acknowledged before me on this
MEXICO, NORTH       day, by  such person, the  above  designated officer  of the
DAKOTA              corporation  specified  following  such  person's  name,  on
OKLAHOMA, TEXAS,    behalf of said corporation.
UTAH, WYOMING and
LOUISIANA           On  this  date   before  me,  the   undersigned   authority,
                    personally  came and appeared such person,  to me personally
                    known  and  known  by me  to be  the  person  whose  genuine
                    signature is affixed to the foregoing  document as the above
                    designated  officer of the corporation  specified  following

                                      -16-


                    such person's  name,  who signed said document  before me in
                    the presence of the two  witnesses,  whose names are thereto
                    subscribed  as  such,  being  competent  witnesses,  and who
                    acknowledged,  in my  presence  and in the  presence of said
                    witnesses,  that he signed the above and foregoing  document
                    as his own free act and deed on behalf  of such  corporation
                    by authority  of its board of directors  and as the free act
                    and deed of such  corporation  and for the uses and purposes
                    therein set forth and apparent.

     IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in the
City of  Denver,  Denver  County,  Colorado,  on the day and  year  first  above
written.
                               /s/ JAMES C. ROBERTSON
                            ----------------------------------------------------
                            NOTARY PUBLIC, in and for the State of Colorado
                               James C. Robertson
                            ----------------------------------------------------
My commission expires:        (printed name)
Feb. 14, 2005
- ---------------------

[SEAL]

                                      -17-




     THUS DONE AND  PASSED  this 27th day of  January,  2003,  to be  effective,
however,  as of January  27,  2003,  in my presence  and in the  presence of the
undersigned competent witnesses who hereunto sign their names with Agent and me,
Notary, after reading of the whole.

WITNESSES:                              WACHOVIA BANK, NATIONAL
/s/ JEFF CARMICHAEL                     ASSOCIATION, as Administrative Agent
- -----------------------------------
Name:   Jeff Carmichael
       ----------------------------
                                        By:   /s/ PHILIP J. TRINDER
                                              ----------------------------------
                                        Name: Philip J. Trinder
/s/ LUKE ALBRECHT                             Title:   Vice President
- -----------------------------------
Name:   Luke Albrecht
       ----------------------------
                               /s/ MICHELE J COX
                   ------------------------------------------
                                  NOTARY PUBLIC


The address of Agent is:

201 South College Street
8th Floor NC 0680
Charlotte, North Carolina 28288


STATE OF TEXAS              ss.
                            ss.
COUNTY OF HARRIS            ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby certify that, on this 27th day of January,  2003, there
personally appeared before me: Philip J. Trinder, the Vice President of Wachovia
Bank, National  Association,  a national banking association,  known to me to be
such  officer,   such  banking  association  being  a  party  to  the  foregoing
instrument.

MONTANA, NEW        The foregoing  instrument was acknowledged before me on this
MEXICO, NORTH       day, by  such  person, the  above  designated officer of the
DAKOTA              banking association specified following such person's name,
OKLAHOMA, TEXAS,    on behalf of said banking association.
UTAH, WYOMING and
LOUISIANA           On  this  date   before  me,  the   undersigned   authority,
                    personally  came and appeared such person,  to me personally
                    known  and  known  by me  to be  the  person  whose  genuine
                    signature is affixed to the foregoing  document as the above
                    designated  officer  of the  banking  association  specified
                    following  such  person's  name,  who signed  said  document

                                      -18-


                    before me in the presence of the two witnesses,  whose names
                    are thereto  subscribed as such, being competent  witnesses,
                    and who acknowledged,  in my presence and in the presence of
                    said  witnesses,  that he signed  the  above  and  foregoing
                    document  as his own  free act and  deed on  behalf  of such
                    banking  association  by authority of its board of directors
                    and as the free act and deed of such banking association and
                    for the uses and purposes therein set forth and apparent.

         IN WITNESS WHEREOF, I have hereunto set my hand and official seal in
the City of Houston, Harris County, Texas, on the day and year first above
written.
                                      /s/ MICHELE J COX
                                  ----------------------------------------------
                                  NOTARY PUBLIC, in and for the State of Texas
                                    Michele J. Cox
                                  ----------------------------------------------
My commission expires:            (printed name)
9-4-05
- ---------------------

[SEAL]


                                      -19-

EX-10

                                                                   EXHIBIT 10.11

                DEED OF TRUST, MORTGAGE, LINE OF CREDIT MORTGAGE
                 ASSIGNMENT, SECURITY AGREEMENT, FIXTURE FILING
                          AND FINANCING STATEMENT FROM

                        (LA, MT, ND, NM, OK, TX, UT, WY)

                     ST. MARY LAND & EXPLORATION COMPANY
                         (Taxpayer I.D. No. 41-05 18430)

                             ST. MARY ENERGY COMPANY
                         (Taxpayer I.D. No. 76-0554924)

                           NANCE PETROLEUM CORPORATION
                         (Taxpayer I.D. No. 8 1-0309883)

                             ST. MARY MINERALS INC.
                         (Taxpayer I.D. No. 84-1200318)

                                 ROSWELL, L.L.C.
                         (Taxpayer I.D. No. 74-2788509)

                           ST. MARY OPERATING COMPANY
                         (Taxpayer I.D. No. 84-0723492)

                                    NPC INC.
                         (Taxpayer I.D. No. 11-3668557)

                                       TO

                             JAY CHERNOSKY, TRUSTEE
    FIRST AMERICAN TITLE COMPANY OF UTAH, TRUSTEE (for Utah Properties only)

                                       AND

                      WACHOVIA BANK, NATIONAL ASSOCIATION,
                             as Administrative Agent

                     Dated Effective as of January 27, 2003

A CARBON,  PHOTOGRAPHIC,  FACSIMILE, OR OTHER REPRODUCTION OF THIS INSTRUMENT IS
SUFFICIENT AS A FINANCING STATEMENT.

THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS,  SECURES PAYMENT OF
FUTURE ADVANCES, AND COVERS PROCEEDS OF COLLATERAL.

THIS INSTRUMENT COVERS, AMONG OTHER THINGS, (A) GOODS WHICH ARE OR ARE TO BECOME
FIXTURES  RELATED TO THE REAL PROPERTY  DESCRIBED  HEREIN,  AND (B) AS-EXTRACTED
COLLATERAL  RELATED TO THE REAL PROPERTY  DESCRIBED  HEREIN  (INCLUDING  WITHOUT
LIMITATION,  OIL, GAS, OTHER MINERALS AND OTHER SUBSTANCES OF VALUE WHTCH MAY BE

                                      -1-


EXTRACTED FROM THE EARTH AND ACCOUNTS ARISING OUT OF THE SALE AT THE WELLHEAD OR
MINEHEAD  THEREOF).  THIS  INSTRUMENT  IS TO BE FILED FOR  RECORD,  AMONG  OTHER
PLACES, IN THE REAL ESTATE OR COMPARABLE RECORDS OF THE COUNTIES AND/OR PARISHES
REFERENCED  IN  EXHIBIT A HERETO  AND SUCFI  FILING  SHALL  SERVE,  AMONG  OTHER
PURPOSES, AS A FIXTURE FILING AND AS A FINANCING STATEMENT COVERING AS-EXTRACTED
OLLATERAL.  THE  MORTGAGOR  HAS AN INTEREST OF RECORD IN THE REAL ESTATE  AND/OR
IMMOVABLE PROPERTY CONCERNED, WHICH INTEREST IS DESCRIBED IN SECTION 1.1 OF THIS
INSTRUMENT.

A POWER OF SALE HAS BEEN  GRANTED  IN THIS  MORTGAGE.  APOWER  OF SALE MAY ALLOW
- --------------------------------------------------------------------------------
AGENT (AS HEREINAFTER DEFINED) OR TI-IF TRUSTEE (AS HEREINAFTER DEFINED) TO TAKE
- --------------------------------------------------------------------------------
THE MORTGAGED  PROPERTIES  AND SELL THEM WITHOUT GOING TO COURT IN A FORECLOSURE
- --------------------------------------------------------------------------------
ACTION  UPON  DEFAULT  BY THE  MORTGAGOR  (AS  HEREINAFTER  DEFINED)  UNDER THIS
- --------------------------------------------------------------------------------
MORTGAGE.
- --------

Note to Utah Recording Officer: This is not a Purchase Money Mortgage

Note to North Dakota Recording Officer: Attached to counterparts hereto to be
filed in the State of North Dakota (as Annex II) is an adequate statement of the
interest.


WHEN RECORDED OR FILED RETURN TO:                   THIS DOCUMENT PREPARED BY:

Vinson & Elkins L.L.P.                          Craig W. Murray
2300 First City Tower                               Vinson & Elkins L.L.P.
Houston, Texas 77002                                2300 First City Tower
Attention: Craig W. Murray                          Houston, Texas 77002

                                      -2-




                DEED OF TRUST, MORTGAGE, LINE OF CREDIT MORTGAGE
                 ASSIGNMENT, SECURITY AGREEMENT, FIXTURE FILING
                             AND FINANCING STATEMENT
                                (this "Mortgage")

                                   ARTICLE I.

                     Granting Clauses: Secured Indebtedness
                     --------------------------------------

     Section 1.1 Grant and Mortgage.  St. Mary Land & Exploration Company, a
                 ------------------
Delaware corporation ("Parent"), St. Mary Energy Company, a Delaware corporation
("Energy"),  Nance Petroleum Corporation,  a Montana corporation ("Nance"),  St.
Mary Minerals Inc., a Colorado  corporation  ("Minerals"),  Roswell,  L.L.C.,  a
Texas limited  liability  company  ("Roswell"),  St. Mary Operating  Company,  a
Colorado  corporation  ("Operating"),  and  NPC  Inc.,  a  Colorado  corporation
("NPC");  Parent,  Energy,  Nance,  Minerals,  Roswell,  Operating and NPC being
herein collectively  called "Mortgagor" and Energy,  Nance,  Minerals,  Roswell,
Operating  and NPC being  herein  sometimes  collectively  called a  "Subsidiary
Mortgagor"),  for and in  consideration  of the sum of Ten  Dollars  ($10.00) to
Mortgagor  in hand  paid,  and in order to secure  the  payment  of the  secured
indebtedness  hereinafter  referred to and the  performance of the  obligations,
covenants,  agreements,  warranties and  undertakings  of Mortgagor  hereinafter
described,  does hereby (a) GRANT, BARGAIN, SELL, CONVEY,  TRANSFER,  ASSIGN AND
SET OVER to Trustee (as  hereinafter  defined),  and grant to Trustee a POWER OF
SALE  (pursuant to this Mortgage and  applicable  law) with respect to, those of
the following  described  properties,  rights and interests which are located in
(or  cover  properties  located  in) the  State of Texas or the State of Utah or
which are located within (or cover properties  located within) the offshore area
over which the United States of America  asserts  jurisdiction  and to which the
laws of any such state are applicable  with respect to this Mortgage  and/or the
liens or  security  interests  created  hereby  (the  "Deed  of Trust  Mortgaged
Properties"), and (b) MORTGAGE, ASSIGN, WARRANT, PLEDGE AND HYPOTHECATE to Agent
(as  defined  in  Section  1.3(a)  below),  and  grant  to Agent a POWER OF SALE
(pursuant  to this  Mortgage  and  applicable  law) with  respect to, all of the
following  described rights,  interests and properties which were not granted to
Trustee  in  clause  (a)  above  (including,  without  limitation,  those of the
following  described  properties,  rights and interests which are located in (or
cover  properties  located in ) the States of  Louisiana,  Montana,  New Mexico,
North  Dakota,  Oklahoma  or  Wyoming  or which  are  located  within  (or cover
properties  located  within) the offshore  area over which the United  States of
America  asserts  jurisdiction  and to  which  the laws of any  such  state  are
applicable with respect to this Mortgage and/or the liens or security  interests
created hereby) (the "Other Mortgaged Properties"):

          A. The oil, gas and/or other mineral  properties,  mineral servitudes,
and/or mineral rights which are described in Exhibit A attached  hereto and made
a part hereof;

          B. Without  limitation of the  foregoing,  all other right,  title and
interest  of  Mortgagor  of whatever  kind or  character  (whether  now owned or
hereafter  acquired by operation of law or otherwise) in and to (i) the oil, gas
and/or mineral leases or other  agreements  described in Exhibit A hereto,  (ii)
the lands  described  or  referred to in Exhibit A (or  described  in any of the
instruments  described  or  referred  to in Exhibit  A),  without  regard to any

                                      -1-


limitations  as to  specific  lands or depths that may be set forth in Exhibit A
hereto or in any of the leases or other agreements described in Exhibit A hereto
and (iii) any other lands  (including  submerged  lands) located anywhere in the
United  States of America or located  offshore the United  States of America but
within the  offshore  area over which the United  States of America or any State
thereof asserts jurisdiction;

          C.  All of  Mortgagor's  interest  (whether  now  owned  or  hereafter
acquired by operation of law or otherwise) in and to all presently  existing and
hereafter   created  oil,  gas  and/or  mineral   unitization,   pooling  and/or
communitization  agreements,  declarations  and/or  orders,  and  in  and to the
properties,   rights  and  interests  covered  and  the  units  created  thereby
(including, without limitation, units formed under orders, rules, regulations or
other  official  acts  of  any  federal,   state  or  other   authority   having
jurisdiction), which cover, affect or otherwise relate to the properties, rights
and interests described in clause A or B above;

          D. All of Mortgagor's  interest in and rights under (whether now owned
or hereafter  acquired by operation of law or otherwise) all presently  existing
and hereafter created operating agreements,  equipment leases,  production sales
contracts,  processing  agreements,  transportation  agreements,  gas  balancing
agreements,  farmout and/or farm-in agreements,  salt water disposal agreements,
area of mutual interest agreements,  and other contracts and/or agreements which
cover,  affect,  or otherwise  relate to the  properties,  rights and  interests
described  in clause  A, B or C above or to the  operation  of such  properties,
rights  and  interests  or  to  the  treating,  handling,  storing,  processing,
transporting  or marketing of oil, gas,  other  hydrocarbons,  or other minerals
produced  from  (or  allocated  to)  such   properties,   rights  and  interests
(including,  but not limited to, those contracts listed in Exhibit A hereto), as
same may be amended or supplemented from time to time; and

          E.  All of  Mortgagor's  interest  (whether  now  owned  or  hereafter
acquired by operation of law or otherwise) in and to all improvements, fixtures,
movable  or  immovable   property  and  other  real  and/or  personal   property
(including,  without limitation,  all wells, pumping units,  wellhead equipment,
tanks, pipelines, flow lines, gathering lines,  compressors,  dehydration units,
separators,   meters,  buildings,  injection  facilities,  salt  water  disposal
facilities,  and power,  telephone  and  telegraph  lines),  and all  easements,
servitudes,  rights-of-way,  surface leases, licenses, permits and other surface
rights, which are now or hereafter used, or held for use, in connection with the
properties,  rights and  interests  described  in clause A, B or C above,  or in
connection with the operation of such  properties,  rights and interests,  or in
connection with the treating,  handling,  storing,  processing,  transporting or
marketing of oil, gas, other  hydrocarbons,  or other minerals produced from (or
allocated to) such properties, rights and interests; and

          F. All  rights,  estates,  powers and  privileges  appurtenant  to the
foregoing rights, interests and properties.

     TO HAVE AND TO HOLD (a) the Deed of  Trust  Mortgaged  Properties  unto the
Trustee,  and its successors or  substitutes in this trust,  and to its or their
successors  and  assigns,  in trust,  however,  upon the terms,  provisions  and
conditions herein set forth, and (b) the Other Mortgaged  Properties unto Agent,
and Agent's  successors and assigns,  upon the terms,  provisions and conditions
herein set forth (the Deed of Trust Mortgaged Properties and the Other Mortgaged

                                      -2-


Properties are herein sometimes collectively called the "Mortgaged Properties").
As used throughout this Mortgage, the term "Trustee" shall mean (a) with respect
to all of the Deed of Trust Mortgaged  Properties which are located in (or which
cover properties located in) the State of Utah, The First American Title Company
of Utah, and (b) with respect to all other Deed of Trust  Mortgaged  Properties,
Jay Chernosky.

     Section  1.2 Grant of  Security  Interest.  In order to further  secure the
                  ----------------------------
payment of the secured indebtedness  hereinafter referred to and the performance
of the  obligations,  covenants,  agreements,  warranties,  and  undertakings of
Mortgagor hereinafter described, Mortgagor hereby grants to Agent (as defined in
Section  1.3(a) below) a security  interest in the entire  interest of Mortgagor
(whether now owned or hereafter  acquired by operation of law or  otherwise)  in
and to:

     (a) to the extent a security interest may be created therein, the Mortgaged
Properties;

     (b) all oil, gas, other  hydrocarbons,  and other minerals produced from or
allocated to the Mortgaged  Properties,  and any products  processed or obtained
therefrom  (herein  collectively  called the  "Production"),  together  with all
proceeds of Production  (regardless of whether Production to which such proceeds
relate  occurred on or before or after the date  hereof),  and together with all
liens and security interests securing payment of the proceeds of the Production,
including,  but not limited to, those liens and security  interests provided for
under  (i)  statutes  enacted  in  the  jurisdictions  in  which  the  Mortgaged
Properties  are located,  or (ii)  statutes  made  applicable  to the  Mortgaged
Properties under federal law (or some combination of federal and state law);

     (c) without  limitation  of any other  provisions  of this Section 1.2, all
payments   received  in  lieu  of  production  from  the  Mortgaged   Properties
(regardless of whether such payments accrued,  and/or the events which gave rise
to such payments  occurred,  on or before or after the date hereof),  including,
without  limitation,  "take or pay"  payments  and  similar  payments,  payments
received in  settlement  of or pursuant to a judgment  rendered  with respect to
take or pay or similar obligations or other obligations under a production sales
contract,  payments  received  in buyout or  buydown  or other  settlement  of a
production  sales  contract,  and  payments  received  under a gas  balancing or
similar  agreement as a result of (or received  otherwise  in  settlement  of or
pursuant to judgment  rendered  with  respect to) rights held by  Mortgagor as a
result of Mortgagor  (and/or its  predecessors  in title) taking or having taken
less gas from lands covered by a Mortgaged Property (or lands pooled or unitized
therewith) than their ownership of such Mortgaged Property would entitle them to
receive (the  payments  described  in this  subsection  (C) being herein  called
"Payments in Lieu of Production");

     (d) all equipment, inventory, improvements, fixtures, accessions, goods and
other personal  property or movable property of whatever nature now or hereafter
located on or used or held for use in connection  with the Mortgaged  Properties
(or in connection with the operation thereof or the treating, handling, storing,
processing,  transporting,  or  marketing of  Production),  and all licenses and
permits of whatever  nature now or hereafter  used or held for use in connection
with the Mortgaged  Properties (Or in connection  with the operation  thereof or
the  treating,  handling,  storing,  processing,  transporting,  or marketing of
Production),  and all renewals or replacements of the foregoing or substitutions
for the foregoing;

                                      -3-


     (e) all  contract  rights,  choses  in  action  (i.e.,  rights  to  enforce
contracts  or to bring  claims  thereunder),  commercial  tort  claims and other
general  intangibles  (regardless  of whether the same arose,  and/or the events
which  gave rise to the same  occurred,  on or before or after the date  hereof)
related to the Mortgaged Properties, the operation thereof (whether Mortgagor is
operator or  non-operator),  or the  treating,  handling,  storing,  processing,
transporting, or marketing of Production (including,  without limitation, any of
the same  relating to payment of proceeds of Production or to payment of amounts
which could constitute Payments in Lieu of Production);

     (f) Without  limitation of the generality of the foregoing,  any rights and
interests  of Mortgagor  under any present or future  hedge or swap  agreements,
cap, floor, collar, exchange, forward or other hedge or protection agreements or
transactions  relating to crude oil, natural gas or other  hydrocarbons,  or any
option  with  respect to any such  agreement  or  transaction  now  existing  or
hereafter entered into by or on behalf of Mortgagor;

     (g) all geological, geophysical, engineering, accounting, title, legal, and
other  technical or business  data  concerning  the  Mortgaged  Properties,  the
Production or any other item of Property (as hereinafter  defined) which are now
or hereafter in the possession of Mortgagor or in which  Mortgagor can otherwise
grant a  security  interest,  and all books,  files,  records,  magnetic  media,
software and other forms of recording or obtaining access to such data;

     (h) all money,  documents,  instruments,  chattel paper (including  without
limitation,  electronic  chattel paper and tangible  chattel  paper),  rights to
payment evidenced by chattel paper, securities,  accounts,  payment intangibles,
general  intangibles,  letters of credit,  letter-of-credit  rights,  supporting
obligations  and  rights to payment  of money  arising  from or by virtue of any
transaction  (regardless  of whether such  transaction  occurred on or before or
after the date hereof)  related to the Mortgaged  Properties,  the Production or
any other item of Property;

     (i) all rights,  titles and  interests  now owned or hereafter  acquired by
Mortgagor in any and all goods, inventory,  equipment,  as-extracted collateral,
documents, money, instruments,  intellectual property,  certificated securities,
uncertificated  securities,  investment property,  letters of credit,  rights to
proceeds  of  written  letters  of  credit  and other  letter-of-credit  rights,
commercial  tort  claims,   deposit  accounts,   payment  intangibles,   general
intangibles,  contract rights,  chattel paper  (including,  without  limitation,
electronic  chattel  paper  and  tangible  chattel  paper),  rights  to  payment
evidenced by chattel  paper,  software,  supporting  obligations  and  accounts,
wherever located, and all rights and privileges with respect thereto (all of the
properties,  rights and interests  described in subsections  (a), (b), (c), (d),
(e),  (f),  (g) and (h) above and this  subsection  (i) being  herein  sometimes
collectively called the "Collateral"); and

     (j) all proceeds of the  Collateral,  whether such proceeds or payments are
goods,  money,  documents,  instruments,  chattel paper,  securities,  accounts,
payment intangibles,  general intangibles,  fixtures,  real/immovable  property,
personal/  movable  property or other  assets  (the  Mortgaged  Properties,  the
Collateral   and  the  proceeds  of  the  Collateral   being  herein   sometimes
collectively called the "Property").

Except as  otherwise  expressly  provided  in this  Mortgage,  all terms in this
Mortgage  relating to the  Collateral  and the grant of the  foregoing  security
interest  which are  defined in the Texas  Uniform  Commercial  Code (the "UCC")

                                      -4-


shall have the meanings  assigned to them in Article 9 (or, absent definition in
Article 9, in any other  Article) of the UCC, as those  meanings may be amended,
revised  or  replaced  from time to time.  Notwithstanding  the  foregoing,  the
parties  intend that the terms used herein which are defined in the UCC have, at
all times, the broadest and most inclusive  meanings possible.  Accordingly,  if
the UCC shall in the  future be  amended  or held by a court to define  any term
used herein more  broadly or  inclusively  than the UCC in effect on the date of
this  Mortgage,  then such term, as used herein,  shall he given such  broadened
meaning.  If the UCC shall in the future be amended or held by a court to define
any term used herein more narrowly, or less inclusively,  than the UCC in effect
on the date of this Mortgage,  such amendment or holding shall be disregarded in
defining terms used in this Mortgage

     Section 1.3 Secured  Indebtedness.  This Mortgage is executed and delivered
                 ---------------------
by the  Mortgagor  to secure and  enforce the  payment  and  performance  of the
following:

     (a) Payment of and performance of any and all indebtedness, obligations and
liabilities,   including  interest  (including,  without  limitation,   interest
accruing  after the  maturity  of the  "Loans"  (as  defined in the  hereinafter
defined Credit  Agreement)  made by each Lender and interest  accruing after the
filing of any petition in bankruptcy,  or the  commencement  of any  insolvency,
reorganization  or like  proceeding,  relating to the  Parent,  whether or not a
claim for post-filing or  post-petition  interest is allowed in such proceeding)
of the Parent  whether now existing or hereafter  arising under or in connection
with that certain  Credit  Agreement  dated as of January 27, 2003, by and among
Parent,  Wachovia Bank, National  Association,  as Administrative Agent (in such
capacity,  the  "Agent")  and the  Lenders (as the same may from time to time be
amended or  supplemented,  the "Credit  Agreement") or any other "Loan Document"
(as defined in the Credit Agreement), including, without limitation, the "Notes"
(as defined in the Credit Agreement) in the aggregate  original principal amount
of $300,000,000 with final maturity on or before January 27, 2006.

     (b) Payment and  performance of any and all  indebtedness,  obligations and
liabilities  of  Energy,  Nance,  Operating  and NPC  whether  now  existing  or
hereafter  arising under or in  connection  with the  "Guaranty  Agreement"  (as
defined in the Credit Agreement).

     (c) Any sums which may be advanced or paid by the Agent or any Lender under
the terms hereof or of the Credit  Agreement or any Loan  Document on account of
the failure of the  Mortgagor  to comply  with the  covenants  of the  Mortgagor
contained herein or in the Credit Agreement or any other Loan Document;  and all
other  indebtedness of the Mortgagor  arising pursuant to the provisions of this
Mortgage.

     (d) Payment of and performance of any and all present or future obligations
of the Mortgagor  according to the terms of any present or future  interest rate
or currency swap, rate cap, rate floor,  rate collar,  forward rate agreement or
other exchange or rate  protection  agreements or any option with respect to any
such  transaction  now existing or hereafter  entered into between the Mortgagor
and any Lender (or any Affiliate of such Lender).

     (e) Payment of and performance of any and all present or future obligations
of the  Mortgagor  according  to  the  terms  of  any  present  or  future  swap
agreements,   cap,  floor,  collar,  forward  agreement  or  other  exchange  or
protection  agreements  relating to crude oil, natural gas or other hydrocarbons

                                      -5-


or any option with  respect to any such  transaction  now  existing or hereafter
entered  into  between the  Mortgagor  and any Lender (or any  Affiliate of such
Lender).

     Performance of all "Letter of Credit  Agreements" (as defined in the Credit
Agreement)  executed  from time to time by the Parent or any  Subsidiary  of the
Parent  under  or  pursuant  to  the  Credit  Agreement  and  all  reimbursement
obligations  for drawn or undrawn  portions  under any  "Letter  of Credit"  (as
defined in the Credit  Agreement) now  outstanding or hereafter  issued under or
pursuant to the Credit Agreement.

     Section 1.4 Secured  Indebtedness.  The indebtedness referred to in Sectio
                 ---------------------
1.3,  and  all  renewals,   extensions  and  modifications   thereof,   and  all
substitutions therefor, in whole or in part, are herein sometimes referred to as
the  "secured   indebtedness"  or  the  "indebtedness  secured  hereby".  It  is
contemplated  and  acknowledged  that  the  secured   indebtedness  may  include
revolving  credit loans and advances  from time to time,  and that this Mortgage
shall have effect,  as of the date hereof,  to secure all secured  indebtedness,
regardless  of whether any amounts are advanced on the date hereof or on a later
date or, whether having been advanced,  are later repaid in part or in whole and
further advances made at a later date.

     Section 1.5 MAXIMUM SECURED AMOUNT. NOTWITHSTANDING ANY PROVISION HEREOF TO
                 ----------------------
THE CONTRARY,  THE OUTSTANDING  INDEBTEDNESS  SECURED BY PROPERTY LOCATED IN THE
STATES OF  LOUISIANA,  MONTANA OR NEW MEXICO SHALL NOT, AT ANY TIME OR FROM TIME
TO TIME, EXCEED AN AGGREGATE MAXIMUM AMOUNT OF $400,000,000.

     Section  1.6 Line of Credit  Mortgage.  THIS  INSTRUMENT  SECURES A LINE OF
                  ------------------------
CREDIT USED PRIMARILY FOR BUSINESS,  COMMERCIAL,  OR AGRICULTURAL PURPOSES. THIS
MORTGAGE WILL  CONSTITUTE A LINE OF CREDIT  MORTGAGE IN ACCORDANCE  WITH SECTION
48-7-4.B NMSA 1978 COMP.

     Section  1.7  Limit  on  Secured  Indebtedness  and  Collateral.  It is the
                   -------------------------------------------------
intention of each Subsidiary Mortgagor, Agent and Lenders that this Mortgage not
constitute a fraudulent  transfer or  fraudulent  conveyance  under any state or
federal law that may be applied hereto.  Each  Subsidiary  Mortgagor and, by its
acceptance hereof, Agent hereby acknowledge and agree that,  notwithstanding any
other provision of this Mortgage:  (a) the  indebtedness  secured hereby by such
Subsidiary Mortgagor shall be limited to the maximum amount of indebtedness that
can be incurred or secured by such Subsidiary  Mortgagor  without rendering this
Mortgage subject to avoidance under Section 548 of the United States  Bankruptcy
Code or any comparable  provisions of any  applicable  state or federal law, and
(b) the Property granted by such Subsidiary Mortgagor hereunder shall be limited
to the  maximum  amount  of  Property  that can be  granted  by such  Subsidiary
Mortgagor without rendering this Mortgage subject to avoidance under Section 548
of the  United  States  Bankruptcy  Code  or any  comparable  provisions  of any
applicable state or federal law.

                                      -6-


                                  ARTICLE II.

                    Representations, Warranties and Covenants
                    -----------------------------------------

     Section 2.1 Mortgagor represents, warrants, and covenants as follows:

     (a)  Title  and  Permitted  Encumbrances.   Mortgagor  has,  and  Mortgagor
          -----------------------------------
covenants to maintain, good and defensible title to the Property, free and clear
of all liens, security interests, and encumbrances except for (i) the contracts,
agreements,   burdens,   encumbrances   and  other  matters  set  forth  in  the
descriptions  of certain of the Mortgaged  Properties on Exhibit A hereto,  (ii)
the liens and security  interests  evidenced by this Mortgage,  (iii)  statutory
liens for  taxes  which  are not yet  delinquent,  (iv)  liens  under  operating
agreements,  pooling  orders and  unitization  agreements,  and  mechanics'  and
materialmen's  liens, with respect to obligations which are not yet due, and (v)
other  liens and  security  interests  (if any) in favor of Agent  (the  matters
described in the foregoing clauses (i), (ii), (iii),  (iv), and (v) being herein
called the "Permitted Encumbrances"); Mortgagor will warrant and defend title to
the Property,  subject as aforesaid,  against the claims and demands  (including
claims  which  would be a  Permitted  Encumbrance  under item (vi) above) of all
persons claiming or to claim the same or any part thereof. Without limitation of
the foregoing,  the ownership by Mortgagor of the Mortgaged  Properties does and
will,  with  respect to each well or unit  identified  on Schedule  I,  attached
hereto and made a part  hereof,  entitle  Mortgagor  to receive  (subject to the
terms and provisions of this Mortgage) a decimal or percentage share of the oil,
gas and other  hydrocarbons  produced  from,  or allocated to, such well or unit
equal to not less than the decimal or percentage  share set forth, for such well
or unit,  in the  column  headed  "Net  Revenue  Interest"  (or words of similar
import) on Schedule I, and cause  Mortgagor to be obligated to bear a decimal or
percentage share of the cost of operation of such well or unit equal to not more
than the decimal or  percentage  share set forth,  for such well or unit, in the
column headed "Working  Interest" (or words of similar import on Schedule I. The
above-described  shares of production which Mortgagor is entitled to receive and
shares of expenses which  Mortgagor is obligated to bear are not and will not be
subject to change  (other  than  changes  which arise  pursuant  to  non-consent
provisions of operating  agreements  described in Exhibit A in  connection  with
operations  hereafter  proposed),  except,  and only to the  extent  that,  such
changes are  reflected in Schedule I. There is not and will not be any unexpired
financing  statement  covering  any part of the  Property  on file in any public
office  naming any party  other than Agent as  secured  party.  Upon  request by
Agent, Mortgagor will deliver to Agent schedules of all internal and third party
information  identifying the Mortgaged  Properties (such as, for example,  lease
names and  numbers  assigned  by  Mortgagor  or the  operator  of any  Mortgaged
Property,  well  and/or  unit  and/or  property  names and  numbers  assigned by
purchasers of Production,  and internal identification names and numbers used by
Mortgagor in accounting for revenues,  costs,  and joint  interest  transactions
attributable to the Mortgaged Properties). The listing of Permitted Encumbrances
above is made for the purpose of limiting certain  warranties and covenants made
by Mortgagor  herein;  such  listing is not  intended to affect the  description
herein of the Mortgaged  Properties  nor to  subordinate  the liens and security
interests hereunder to any Permitted Encumbrances.

     (b) Leases and Contracts;  Performance of Obligations.  The oil, gas and/or
         -------------------------------------------------
mineral leases, contracts, servitudes and other agreements forming a part of the
Property, to the extent the same cover or otherwise relate to the Property,  are
in full force and effect, and Mortgagor agrees to so maintain them in full force

                                      -7-


and effect.  All rents,  royalties and other payments due and payable under such
leases,  contracts,  servitudes  and other  agreements,  or under the  Permitted
Encumbrances,  or  otherwise  attendant  to the  ownership  or  operation of the
Property,  have  been,  and will  continue  to be,  properly  and  timely  paid.
Mortgagor  is not in  default  with  respect  to  Mortgagor's  obligations  (and
Mortgagor  is not aware of any default by any third  party with  respect to such
third party's  obligations) under such leases,  contracts,  servitudes and other
agreements,  or under the Permitted Encumbrances,  or otherwise attendant to the
ownership  or operation of any part of the  Property,  where such default  could
adversely  affect the  ownership or operation of the  Property;  Mortgagor  will
fulfill all such obligations  coming due in the future.  There are no situations
where  Mortgagor is aware that a contingent  liability may exist to account on a
basis  less  favorable  to  Mortgagor  than on the basis on which  Mortgagor  is
currently accounting.

     (c) Sale of Production.  No Mortgaged Property is or will become subject to
         ------------------
any  contractual or other  arrangement  (i) whereby payment for production is or
can be  deferred  for a  substantial  period  after  the  month  in  which  such
production is delivered (i.e., for wells in pay status,  in the ease of oil, not
in excess of 60 days,  and in the case of gas, not in excess of 90 days, and for
wells not in pay status,  the time period  provided by statute) or (ii)  whereby
payments  are made to  Mortgagor  other than by checks,  drafts,  wire  transfer
advises  or  other  similar  writings,  instruments  or  communications  for the
immediate  payment of money.  Except for production sales contracts,  processing
agreements or  transportation  agreements (or other  agreements  relating to the
marketing of Production)  listed on Exhibit A (in connection  with the Mortgaged
Properties  to where they  relate),  (1) except for the  contracts and Mortgaged
Properties  associated therewith as set forth on Schedule 2.1 (c)A, no Mortgaged
Property is or will become subject to any  contractual or other  arrangement for
the sale,  processing or  transportation  of Production (or otherwise related to
the  marketing of  Production)  which cannot be cancelled on 120 days' (or less)
notice and (ii) all contractual or other  arrangements for the sale,  processing
or  transportation  of  Production  (or  otherwise  related to the  marketing of
Production)  shall be bona fide  transactions,  and except for  contractual  and
other  arrangements  with Four Winds Marketing,  LLC, will be with third parties
not  affiliated  with  Mortgagor,  and shall,  with respect to all contracts and
other  arrangements  be at the best price (and on the best terms) then available
(such price shall,  in the case of  Production  sales which are subject to price
controls,  be  determined  giving  consideration  to such  fact).  Mortgagor  is
presently  receiving a price for all production from (or  attributable  to) each
Mortgaged Property covered by a production sales contract listed on Exhibit A as
computed  in  accordance  with the  terms of such  contract,  and is not  having
deliveries of production from such Mortgaged  Property  curtailed  substantially
below such  property's  delivery  capacity.  Neither  Mortgagor,  nor any of its
predecessors in title, has received prepayments (including,  but not limited to,
payments  for gas  not  taken  pursuant  to  "take  or  pay"  or  other  similar
arrangements) for any oil, gas or other hydrocarbons  produced or to be produced
from the  Mortgaged  Properties  after the date  hereof,  and  Mortgagor  hereby
covenants not to enter into any such advance or prepayment  arrangements whereby
it accepts consideration for oil, gas or other hydrocarbons not yet produced. No
Mortgaged  Property  is or will  become  subject  to any  "take or pay" or other
similar  arrangement  (i)  which  can be  satisfied  in  whole or in part by the
production or transportation of gas from other properties or (ii) as a result of
which  production from the Mortgaged  Properties may be required to be delivered
to one or more third parties without payment (or without full payment)  therefor
as a result of payments  made,  or other  actions  taken,  with respect to other
properties.  To the best of Mortgagor's knowledge,  the gas imbalances set forth

                                      -8-


in the attached  Schedule 2. l(c)B  reflects the gas  balancing  position of the
Mortgaged  Properties  as of December 31, 2001.  Except as set forth on Schedule
2.1 (c)B, as of December 31, 2001,  there is no Mortgaged  Property with respect
to which Mortgagor, or its predecessors in title, has, prior to such date, taken
more  ("overproduced"),  or less  ("underproduced"),  gas from the lands covered
thereby (or pooled or unitized  therewith)  than its ownership  interest in such
Mortgaged Property would entitle it to take which has resulted, on such date, in
Mortgagor  being  materially  overproduced  or  materially  under-produced  with
respect to such  Mortgaged  Property.  Mortgagor  will not after the date hereof
become  "overproduced"  (as  above  defined)  with  respect  to any  well on the
Mortgaged  Properties  (or  on  any  unit  in  which  the  Mortgaged  Properties
participate),  in an amount in excess of Mortgagor's  share of gas produced from
such well during the preceding four calendar months. No Mortgaged Property is or
will become subject to a gas balancing arrangement under which one or more third
parties  may take a portion of the  production  attributable  to such  Mortgaged
Property  without  payment (or  without  full  payment)  therefor as a result of
production  having been taken from, or as a result of other actions or inactions
with  respect to,  other  properties.  No  Mortgaged  Property is subject at the
present time to any regulatory refund obligation and, to the best of Mortgagor's
knowledge, no facts exist which might cause the same to be imposed.

     (d) Condition of Personal or Movable  Property.  The equipment,  inventory,
         ------------------------------------------
improvements,  fixtures,  goods and  other  tangible  personal/movable  property
forming a part of the Property are and will remain (and with respect to Property
not operated by Mortgagor, to the best of Mortgagor's knowledge, such equipment,
inventory,  fixtures, goods and other tangible personal/movable property are and
will remain) in good repair and  condition  and are and will be adequate for the
normal operation of the Property in accordance with prudent industry  standards;
all of such Property is, and will remain,  located on the Mortgaged  Properties,
except  for  that  portion  thereof  which  is or  shall  be  located  elsewhere
(including  that usually  located on the Mortgaged  Properties  but  temporarily
located  elsewhere) in the course of the normal  operation of the  Property,  or
which is hereafter sold or otherwise  disposed of as permitted  under the Credit
Agreement.

     (e) Operation of Mortgaged Properties.  The Mortgaged Properties,  and with
         ---------------------------------
respect to  Mortgaged  Properties  not  operated  by  Mortgagor,  to the best of
Mortgagor's knowledge,  such non-operated Mortgaged Properties,  (and properties
unitized  therewith)  are being  (and,  to the extent  the same could  adversely
affect the  ownership or operation of the  Mortgaged  Properties  after the date
hereof, have in the past been), and hereafter will be, maintained,  operated and
developed in a good and workmanlike  manner, in accordance with prudent industry
standards and in conformity with all applicable laws and all rules,  regulations
and  orders  of all duly  constituted  authorities  having  jurisdiction  and in
conformity with all oil, gas and/or other mineral leases and other contracts and
agreements  forming a part of the Property and in conformity  with the Permitted
Encumbrances;  specifically  in this  connection,  (i) no Mortgaged  Property is
subject to having  allowable  production after the date hereof reduced below the
full and regular allowable (including the maximum permissible tolerance) because
of any  overproduction  (whether  or not the same was  permissible  at the time)
prior to the date  hereof and (ii) none of the wells  located  on the  Mortgaged
Properties (or properties  unitized  therewith) are or will be deviated from the
vertical more than the maximum permitted by applicable laws, regulations,  rules
and orders,  and such wells are, and will remain,  bottomed  under and producing
from,  with the well bores wholly within,  the Mortgaged  Properties (or, in the

                                      -9-


case  of  wells  located  on  properties  unitized   therewith,   such  unitized
properties). There are no wells listed on Schedule I hereto ("Schedule I Wells")
being redrilled, deepened, plugged back or reworked, and no other operations are
being  conducted for which consent is required  under the  applicable  operating
agreement  (or which are other than normal  operation  of existing  wells on the
Mortgaged  Properties);  except as set forth on  Schedule  2.1(e),  there are no
proposals  in  excess  of  $500,000  net  to  Mortgagor's   interest   currently
outstanding  (whether  made by  Mortgagor  or by any other  party) to  re-drill,
deepen,  plug  back,  or  rework  Schedule  I Wells,  or to  conduct  any  other
operations  under the applicable  joint operating  agreement,  or to abandon any
Schedule I Wells  (nor are there any such  proposals  which  have been  approved
either by  Mortgagor or any other  party,  with respect to which the  operations
covered  thereby  have not been  commenced).  Except  as set  forth on  Schedule
2.1(e),  there are no dry holes,  or otherwise  inactive  wells,  located on the
Mortgaged  Properties  or on lands  pooled  or  unitized  therewith  (including,
without  limitation,  any wells  which  would,  if  located  in  Texas,  require
compliance  with Railroad  Commission  Rule 14(b)(2)) that in the aggregate will
cost  more  than  $500,000,  net to  Mortgagor's  interest  and  net of  salvage
proceeds, to plug and abandon,  except for wells that have been properly plugged
and  abandoned.  Mortgagor  has, and will have in the future,  all  governmental
licenses and permits  necessary or  appropriate to own and operate the Property;
Mortgagor  has not  received  notice of any  violations  in  respect of any such
licenses or permits.

     (f) Sale or Disposal. Mortgagor will not, without the prior written consent
         ----------------
of Agent, sell, exchange,  lease, transfer, or otherwise dispose of any part of,
or  interest  in,  the  Property  other  than (i)  sales,  transfers  and  other
dispositions of machinery,  equipment and other personal/  movable  property and
fixtures made in connection with a release, surrender or abandonment of a lease,
(ii) sales,  transfers and other dispositions of machinery,  equipment and other
personal/movable  property and fixtures in connection  with the abandonment of a
well, (iii) sales, transfers and other dispositions of machinery,  equipment and
other  personal/movable  property and fixtures  which are (A) obsolete for their
intended  purpose  and  disposed  of in the  ordinary  course of business or (B)
replaced by articles of at least equal  suitability and value owned by Mortgagor
free and clear of all liens except this Mortgage and the Permitted Encumbrances,
(iv) sales of Production  which are made in the ordinary  course of business and
in compliance  with Section 2.1(c) hereof;  provided that nothing in clause (iv)
shall  be  construed  as  limiting  Agent's  rights  under  Article  III of this
Mortgage, and (v) sales, transfers and other dispositions of oil and gas leases,
but only to the  extent  such  sale,  transfer  or other  disposition  is in the
ordinary  course of business and does not  materially  and adversely  affect the
value of the Property in the aggregate. In the event and during the continuation
of a default (as  hereinafter  defined),  Mortgagor  shall at all times keep the
Property and its proceeds separate and distinct from other property of Mortgagor
and shall keep accurate and complete records of the Property and its proceeds.

     (g) Suits and  Claims.  Except as set  forth on  Schedule  2.1(g)  attached
         -----------------
hereto  and  made  a  part  hereof,  there  are  no  Suits,   actions,   claims,
investigations,  inquiries,  proceedings or demands  pending (or. to the best of
Mortgagor's  knowledge,  threatened)  which  affect the  Properties  (including,
without  limitation,  any which  challenge or otherwise  pertain to  Mortgagor's
title to the Properties)  and no judicial or  administrative  actions,  suits or
proceedings  pending  (or,  to the best of  Mortgagor's  knowledge,  threatened)
against Mortgagor.  Notwithstanding the foregoing, Mortgagor's representation in
this Section with respect to pending  suits,  actions,  claims,  investigations,
inquiries, proceedings or demands which affect Properties which are not operated

                                      -10-


by Mortgagor,  except those pertaining to Mortgagor's title to such non-operated
Properties, will be limited to the best of Mortgagor's knowledge.

     (h) Environmental.
         -------------

          (A) Current  Status.  The  Property  (and with respect to Property not
              ---------------
     operated  by  Mortgagor,  to  the  best  of  Mortgagor's  knowledge,   such
     non-operated  Property)  and  Mortgagor  are not in material  violation  of
     Applicable  Environmental Laws (below defined), or subject to any existing,
     pending or, to the best knowledge of Mortgagor, threatened investigation or
     inquiry by any  governmental  authority  or any other  person under or with
     respect to  Applicable  Environmental  Laws,  or  subject  to any  remedial
     obligations under Applicable Environmental Laws, and are in compliance with
     all permits and licenses required under Applicable  Environmental Laws, and
     this  representation  will  continue  to  be  true  and  correct  following
     disclosure  to the  applicable  governmental  authorities  of all  relevant
     facts, conditions and circumstances, if any, pertaining to the Property and
     Mortgagor.  "Applicable Environmental Laws" shall mean any applicable laws,
     orders, rules, or regulations  (including,  without limitation,  the common
     law) pertaining to safety, health or the environment, as such laws, orders,
     rules or regulations  now exist or are hereafter  enacted  and/or  amended.
     Applicable   Environmental   Laws   include,   without   limitation,    the
     Comprehensive  Environmental Response,  Compensation,  and Liability Act of
     1980, as amended by the Superfund  Amendments  and  Reauthorization  Act of
     1986 (as amended,  hereinafter called "CERCLA"),  the Resource Conservation
     and Recovery Act of 1976, as amended by the Used Oil Recycling Act of 1980,
     the Solid Waste  Disposal Act  Amendments  of 1980,  and the  Hazardous and
     Solid Waste Amendments of 1984 (as amended,  hereinafter called "RCRA") and
     applicable  state  and  local  law).  Mortgagor  undertook,  at the time of
     acquisition  of the  Property,  all  appropriate  inquiry into the previous
     ownership  and uses of the  Property  consistent  with good  commercial  or
     customary practice. Mortgagor has taken all commercial and reasonable steps
     necessary to determine and has determined  that no hazardous  substances or
     solid wastes have been disposed of or otherwise  released at, into, upon or
     under the Property.  The use which  Mortgagor  makes and intends to make of
     the Property will not result in the use, treatment,  storage or disposal or
     other release of any hazardous  substance or solid waste at, into,  upon or
     under  the  Property,   except  such  usage,   and  temporary   storage  in
     anticipation  of usage,  as is in the  ordinary  course of business  and in
     compliance  with  Applicable   Environmental  Laws.  The  terms  "hazardous
     substance"  and "release" as used in this Mortgage  shall have the meanings
     specified  in  CERCLA,  and the terms  "solid  waste"  and  "disposal"  (or
     "disposed")  shall have the meanings  specified in RCRA;  provided,  in the
     event either  CERCLA or RCRA is amended so as to broaden the meaning of any
     term defined  thereby,  such broader meaning shall apply  subsequent to the
     effective date of such amendment and provided  further,  to the extent that
     the laws of the  states  in which  the  Mortgaged  Properties  are  located
     establish a meaning for "hazardous substance," "release," "solid waste," or
     "disposal"  which is broader than that  specified in either CERCLA or RCRA,
     such broader meaning shall apply.  The "Associated  Property' (as such term
     is hereinafter defined) is not in violation of any Applicable Environmental
     Laws for which  Mortgagor  or its  predecessors  in the  Property  would he
     responsible.  The term "Associated Property" as used in this Mortgage shall
     mean any and all interests in and to (and or carved out of) the lands which

                                      -11-


     are  described or referred to in Exhibit A hereto,  or which are  otherwise
     described in any of the oil, gas and/or mineral leases or other instruments
     described in or referred to in such Exhibit A, whether or not such property
     interests are owned by Mortgagor.

          (B) Future  Performance.  Mortgagor  will use its best  efforts not to
              -------------------
     cause or permit the Property or the Associated  Property or Mortgagor to be
     in material  violation  of, or do  anything  or permit  anything to be done
     which will subject the Property or the Associated  Property to any material
     remedial  obligations  under,  or result  in  material  noncompliance  with
     applicable permits and licenses under, any Applicable  Environmental  Laws,
     assuming  disclosure  to the  applicable  governmental  authorities  of all
     relevant facts,  conditions and  circumstances,  if any,  pertaining to the
     Property or the  Associated  Property and Mortgagor  will  promptly  notify
     Agent in writing of any  existing,  pending  or, to the best  knowledge  of
     Mortgagor,  threatened  investigation,   claim,  suit  or  inquiry  by  any
     governmental  authority  or any person in  connection  with any  Applicable
     Environmental  Laws, provided that, with respect to Properties not operated
     by Mortgagor,  Mortgagor shall notify Agent of any investigations,  claims,
     suits or inquiries,  whether  existing,  pending,  or threatened,  of which
     Mortgagor becomes aware. Mortgagor will take all steps reasonably necessary
     to  determine  that no  hazardous  substances  or solid  wastes  have  been
     disposed of or otherwise  released on or to the Property or the  Associated
     Property. Mortgagor will use commercial and reasonable efforts not to cause
     or permit the disposal or other release of any hazardous substance or solid
     waste at, into,  upon or under the Property or the Associated  Property and
     covenants  and agrees to keep or cause the Property  and/or the  Associated
     Property to be kept free of any hazardous  substance or solid waste (except
     such use, and temporary  storage in  anticipation of use, as is required in
     the ordinary  course of business,  all while in compliance  with Applicable
     Environmental Laws), and to remove the same (or if removal is prohibited by
     law, to take whatever action is required by law) promptly upon discovery at
     its sole expense.  Upon Agent's  reasonable  request,  at any time and from
     time to time during the existence of this Mortgage,  Mortgagor will provide
     at Mortgagor's  sole expense an inspection or audit of the Property and the
     Associated  Property from an  engineering  or  consulting  firm approved by
     Agent, indicating the presence or absence of hazardous substances and solid
     waste on the Property  and/or the Associated  Property and compliance  with
     Applicable Environmental Laws. In the event of a violation,  Mortgagor will
     diligently  work  to  cure  such  violation,   including  remediation,   if
     necessary,  and so long as Mortgagor diligently  prosecutes efforts to cure
     the violation, Mortgagor will not be in breach of this provision.

     (i) Not Abandon  Wells;  Participate  in  Operations.  Mortgagor  will not,
         ------------------------------------------------
without prior written consent of Agent,  abandon,  or consent to the abandonment
of, any well  producing from the Mortgaged  Properties  (or properties  unitized
therewith)  so long as such well is capable (or is subject to being made capable
through  drilling,  reworking or other operations which it would be commercially
feasible to conduct)  of  producing  oil,  gas, or other  hydrocarbons  or other
minerals in commercial  quantities (as determined without considering the effect
of this  Mortgage).  In the event and  during  the  continuation  of a  default,
Mortgagor  will not,  without  prior  written  consent  of  Agent,  elect not to
participate in a proposed operation on the Mortgaged Properties where the effect
of such  election  would be the  forfeiture  either  temporarily  (i.e.  until a

                                      -12-


certain sum of money is received out of the forfeited  interest) or  permanently
of any material interest in the Mortgaged Properties.

     (j) Defense of Mortgage. If the validity or priority of this Mortgage or of
         -------------------
any rights, titles, liens or security interests created or evidenced hereby with
respect to the  Property or any part  thereof or the title of  Mortgagor  to the
Property  shall be endangered  or  questioned  or shall be attacked  directly or
indirectly or if any legal  proceedings  are instituted  against  Mortgagor with
respect thereto,  Mortgagor will give prompt written notice thereof to Agent and
at Mortgagor's own cost and expense will diligently  endeavor to cure any defect
that may be developed or claimed,  and will take all  necessary and proper steps
for the defense of such legal  proceedings,  including,  but not limited to, the
employment of counsel,  the prosecution or defense of litigation and the release
or discharge  of all adverse  claims,  and Trustee and Agent,  or either of them
(whether or not named as parties to legal proceedings with respect thereto), are
hereby  authorized  and  empowered  to take  such  additional  steps as in their
judgment and  discretion  may be necessary or proper for the defense of any such
legal proceedings or the protection of the validity or priority of this Mortgage
and the  rights,  titles,  liens and  security  interests  created or  evidenced
hereby,  including but not limited to the employment of independent counsel, the
prosecution or defense of litigation, the compromise or discharge of any adverse
claims made with respect to the Property,  the purchase of any tax title and the
removal of prior liens or security interests, and all reasonable expenditures so
made of every kind and character shall be a demand  obligation (which obligation
Mortgagor  hereby  expressly  promises  to pay) owing by  Mortgagor  to Agent or
Trustee  (as the case may be) and shall  bear  interest  from the date  expended
until paid at the rate described in Section 2.3 hereof,  and the party incurring
such expenses  shall be subrogated  to all rights of the person  receiving  such
payment.

     (k)  Fees  and  Expenses;  Indemnity.  Mortgagor  will  pay all  reasonable
          -------------------------------
appraisal fees, recording fees, taxes, brokerage fees and commissions,  abstract
and other  records  search  fees,  attorneys'  fees and  expenses  and all other
reasonable costs and expenses of every character  incurred by Mortgagor or Agent
or any Lender in connection  with the closing of the loan or loans  evidenced by
the Loan Documents and any and all amendments,  supplements or  modifications to
such loan transaction or transactions.  Mortgagor will reimburse Trustee,  Agent
and each Lender (for purposes of this paragraph,  the terms  "Trustee",  "Agent"
and "Lender"  shall include the  directors,  officers,  partners,  employees and
agents  of  Trustee,  Agent or any  Lender,  respectively,  and any  persons  or
entities owned or controlled by or affiliated with Trustee, Agent or any Lender,
respectively) for all  expenditures,  including  reasonable  attorneys' fees and
expenses, incurred or expended in connection with (i) the breach by Mortgagor of
any  covenant,  agreement  or  condition  contained  herein or in any other Loan
Document,  (ii) the exercise of any rights and  remedies  hereunder or under any
other Loan Document,  and (iii) the protection of the Property  and/or liens and
security interests therein.  Mortgagor will indemnify and hold harmless Trustee,
Agent and each Lender  from and against  (and will  reimburse  such  indemnified
parties  for) all  claims,  demands,  liabilities,  losses,  damages  (including
without  limitation  consequential  damages),   causes  of  action,   judgments,
penalties,   costs  and  expenses   (including  without  limitation   reasonable
attorneys'  fees and expenses)  which may be imposed upon,  asserted  against or
incurred  or paid by the  Trustee,  the Agent or any  Lender on  account  of, in
connection  with,  or arising  out of (A) any bodily  injury or death or natural
resource,  human health or property damage occurring in, at, into, under or upon
(or,  to the extent  such  injury,  death or damage is related to  Mortgagor  or
Mortgagor's  ownership  or operation  of the  Property,  in the vicinity of) the

                                      -13-


Property  through any cause  whatsoever,  (B) any act performed or omitted to be
performed  hereunder or the breach of any representation or warranty herein, (C)
the  exercise  of any  rights  and  remedies  hereunder  or under any other Loan
Document, (D) any transaction,  act, omission, event or circumstance arising out
of or in any way connected  with the Property or with this Mortgage or any other
Loan Document, (E) any violation on or prior to the Release Date (as hereinafter
defined) of any Applicable  Environmental Law, (F) any act,  omission,  event or
circumstance  existing or occurring  on or prior to the Release Date  (including
without  limitation  the  presence on or under the  Property  or the  Associated
Property or release at, into, upon, under or from the Property or the Associated
Property of  hazardous  substances  or solid  wastes  disposed  of or  otherwise
released)  resulting  from or in connection  with the  ownership,  construction,
occupancy,  operation,  use and/or maintenance of the Property or the Associated
Property,  regardless  of  whether  the act,  omission,  event  or  circumstance
constituted a violation of any Applicable  Environmental  Law at the time of its
existence  or  occurrence,  and (G) any and all claims or  proceedings  (whether
brought by private party or  governmental  agencies)  for human  health,  bodily
injury,  property  damage,  abatement  or  remediation.   environmental  damage.
cleanup. mitigation, removal, natural resource damage or impairment or any other
injury or damage resulting from or relating to any hazardous or toxic substance,
solid waste or  contaminated  material  located upon or migrating  into, from or
through the Property or the Associated  Property  (whether or not the release of
such  materials was caused by Mortgagor,  a tenant or subtenant or a prior owner
or tenant or subtenant on the Property or the Associated Property and whether or
not the alleged  liability  is  attributable  to the use,  treatment,  handling,
storage,  generation,  transportation,  removal or disposal  of such  substance,
waste or material or the mere presence of such  substance,  waste or material on
or under the Property or the Associated Property),  which the Trustee any or the
Agent and/or any Lender may have  liability with respect to due to the making of
the loan or loans  evidenced by any Notes,  the granting of this  Mortgage,  the
exercise of any rights under the Loan Documents, or otherwise.  Agent shall have
the right to compromise and adjust any such claims,  actions and judgments.  and
in addition to the rights to be indemnified as herein provided, all amounts paid
in compromise,  satisfaction or discharge of any such claim, action or judgment,
and all court  costs,  reasonable  attorneys'  fees and other  expenses of every
character expended by Agent, Trustee or any Lender pursuant to the provisions of
this section shall be a demand  obligation  (which  obligation  Mortgagor hereby
expressly  promises  to pay)  owing  by  Mortgagor  to the  applicable  party or
parties.  The  "Release  Date" as used  herein  shall  mean the  earlier  of the
following  two dates:  (i) the date on which the  indebtedness  and  obligations
secured  hereby have been paid and  performed in full, or (ii) the date on which
the lien of this Mortgage is foreclosed or a deed in lieu of such foreclosure is
fully  effective  and  recorded.  WTITHOUT  LIMITATION,  IT IS THE  INTENTION OF
MORTGAGOR AND MORTGAGOR  AGREES THAT THE  FOREGOING  INDEMNITIES  SHALL APPLY TO
EACH INDEMNIFIED  PARTY WITH RESPECT TO CLAIMS,  DEMANDS,  LIABILITIES,  LOSSES,
DAMAGES, CAUSES OF ACTION, JUDGMENTS,  PENALTIES,  COSTS AND EXPENSES (INCLUDING
WITHOUT  LIMITATION  REASONABLE  ATTORNEYS'  FEES) WHICH IN WHOLE OR IN PART ARE
CAUSED BY OR ARISE OUT OF THE NEGLIGENCE OF SUCH (AND/OR ANY OTHER)  INDEMNIFIED
PARTY. However,  such indemnities shall not apply to any particular  indemnified
party  (but  shall  apply to the other  indemnified  parties)  to the extent the
subject  of the  indemnification  is  caused  by or  arises  out  of  the  gross
negligence  or willful  misconduct of such  particular  indemnified  party.  The
foregoing  indemnities  shall not  terminate  upon the Release  Date or upon the

                                      -14-


release,  foreclosure or other termination of this Mortgage but will survive the
Release Date, foreclosure of this Mortgage or conveyance in lieu of foreclosure,
and the repayment of the secured  indebtedness  and the discharge and release of
this Mortgage and the other  documents  evidencing  and/or  securing the secured
indebtedness.  Any amount to be paid  hereunder by  Mortgagor to Agent,  Trustee
and/or  any  Lender  shall be a demand  obligation  owing  by  Mortgagor  to the
applicable  party  or  parties  and  shall  be  subject  to and  covered  by the
provisions of Section 2.3 hereof.

     (l)  Insurance.  Mortgagor  will keep (and with  respect  to  Property  not
          ---------
operated  by  Mortgagor,  will use its best  efforts  to keep)  such part of the
Property which is of an insurable  nature and of a character  usually insured by
persons  operating  similar  properties,  insured with  companies of  recognized
responsibility  satisfactory  to Agent and in such amounts as are  acceptable to
Agent (and in the  absence of  specification  of such  amounts by Agent,  in the
amount of the full value of such property,  less  reasonable  deductibles not to
exceed deductibles  customary in the industry for similarly situated  businesses
and properties), against loss or damage by fire, casualty and from other hazards
customarily insured against by persons operating similar  properties.  Mortgagor
shall  also  provide  such  other  insurance  as  Agent  may  from  time to time
reasonably  require;  such  coverage to be carried with  companies of recognized
responsibility  satisfactory  to Agent.  All policies  evidencing such insurance
shall contain  clauses  providing that the proceeds  thereof shall be payable to
Agent as its interest  may appear and  providing  that such  policies may not be
cancelled, reduced or otherwise affected without at least thirty (30) days prior
written notice to Agent. Upon request by Agent, Mortgagor shall deliver to Agent
the original policies, evidence of payment of premiums,  certificates evidencing
renewals,  and such other  information  regarding  such  insurance  as Agent may
request.  In the event of any loss under any  insurance  policies  so carried by
Mortgagor,  Agent shall have the right (but not the obligation) to make proof of
loss and collect the same,  and all amounts so received  shall be applied toward
costs,  charges and expenses  (including  reasonable  attorneys'  fees), if any,
incurred in the collection thereof, then to the payment, in the order determined
by Agent in its own  discretion,  of the secured  indebtedness,  and any balance
remaining shall be subject to the order of Mortgagor. Agent is hereby authorized
but not obligated to enforce in its name or in the name of Mortgagor  payment of
any or all of said  policies  or  settle  or  compromise  any  claim in  respect
thereof,  and to collect and make receipts for the proceeds thereof and Agent is
hereby appointed  Mortgagor's agent and attorney-in-fact to endorse any check or
draft payable to Mortgagor in order to collect the proceeds of insurance. In the
event  of  foreclosure  of this  Mortgage,  or  other  transfer  of title to the
Property in extinguishment in whole or in part of the secured indebtedness,  all
right,  title and interest of Mortgagor  in and to such  policies  then in force
concerning the Property and all proceeds payable thereunder shall thereupon vest
in the purchaser at such  foreclosure  or other  transferee in the event of such
other  transfer  of  title.  Mortgagor  shall  at all  times  maintain  adequate
insurance  against its  liability  on account of damages to persons or property,
which  insurance  shall be carried by  companies  of  recognized  responsibility
satisfactory  to Agent,  and shall be for such  amounts and insure  against such
risks as are customary in the industry for  similarly  situated  businesses  and
properties.  Mortgagor shall at all times maintain cost of regaining  control of
well insurance and similar  insurance to the extent customary in the industry in
the pertinent area of operations.

     (m) Further  Assurances.  Mortgagor will, on request of Agent, (i) promptly
         -------------------
correct any defect, error or omission which may be discovered in the contents of
this  Mortgage,  or  in  any  other  Loan  Document,  or  in  the  execution  or

                                      -15-


acknowledgment  of this  Mortgage  or any other  Loan  Document;  (ii)  execute,
acknowledge, deliver and record and/or file such further instruments (including,
without  limitation,  further deeds of trust,  mortgages,  security  agreements,
financing statements,  continuation  statements,  and assignments of production,
accounts, funds, contract rights, general intangibles, and proceeds) and do such
further  acts as may be  necessary,  desirable  or  proper  to  carry  Out  more
effectively  the purposes of this  Mortgage and the other Loan  Documents and to
more fully identify and subject to the liens and security  interests  hereof any
property  intended to be covered  hereby,  including  specifically,  but without
limitation,   any   renewals,   additions,   substitutions,   replacements,   or
appurtenances to the Property; and (iii) execute, acknowledge, deliver, and file
and/or record any document or instrument  (including  specifically any financing
statement)  desired  by  Agent to  protect  the  lien or the  security  interest
hereunder against the rights or interests of third persons.  Mortgagor shall pay
all costs connected with any of the foregoing.

     (n) Name and Place of Business  and  Formation.  Except as disclosed in the
         ------------------------------------------
Credit Agreement, Mortgagor has not, during the preceding five years, been known
by or used  any  other  corporate  or  partnership,  trade or  fictitious  name.
Mortgagor will not cause or permit any change to be made in its name,  identity,
state of  formation  or  corporate  or  partnership  structure,  or its  federal
employer  identification  number unless  Mortgagor  shall have notified Agent of
such  change at least  thirty  (30)  days  prior to the  effective  date of such
change,  and shall have first taken all action required by Agent for the purpose
of further  perfecting  or  protecting  the liens and security  interests in the
Property  created hereby.  Mortgagor's  exact name is the name set forth in this
Mortgage. Mortgagor's location is as follows:

                  Mortgagor  is  a  registered organization  which  is
                  organized  under  the  laws  of one  of  the  states
                  comprising  the  United  States  (e.g.  corporation,
                  limited  partnership, registered  limited  liability
                  partnership or limited liability company). Mortgagor
                  is  located (as  determined pursuant to  the UCC) in
                  the state  under the laws which it was organized, as
                  follows:

                  Name of Mortgagor              State of Organization
                  ----------------------------------------------------
                  Parent                         Delaware
                  Energy                         Delaware
                  Minerals                       Colorado
                  Nance                          Montana
                  Roswell                        Texas
                  Operating                      Colorado
                  NPC                            Colorado

                  Mortgagor's  principal place  of  business and chief
                  executive  office, and  the  place  where  Mortgagor
                  keeps its books and records  concerning the Property
                  (including,  particularly, the records  with respect
                  to "Production Proceeds", as  defined in Section 3.1
                  hereof, from  the Mortgaged Properties) has  for the
                  preceding four months, been, and will continue to be
                  (unless  Mortgagor  notifies Agent of any  change in
                  writing at  least thirty (30) days prior to the date

                                      -16-


                  of such change), the address set forth  opposite the
                  signature of Mortgagor to this Mortgage.

     (o) Not a Foreign  Person.  Mortgagor is not a "foreign  person" within the
         ---------------------
meaning of the Internal  Revenue Code of 1986, as amended,  (hereinafter  called
the "Code"), Sections 1445 and 7701 (i.e. Mortgagor is not a non-resident alien,
foreign  corporation,  foreign  partnership,  foreign trust or foreign estate as
those terms are defined in the Code and any regulations promulgated thereunder).

     Section  2.2  Compliance  by  Operator.  As to any  part  of the  Mortgaged
                   ------------------------
Properties  which is not a working  interest,  Mortgagor agrees to take all such
commercial and reasonable  action and to exercise all rights and remedies as are
reasonably  available  to  Mortgagor to cause the owner or owners of the working
interest  in such  properties  to  comply  with  the  covenants  and  agreements
contained  herein;  and as to any part of the  Mortgaged  Properties  which is a
working  interest  but  which  is  operated  by a party  other  than  Mortgagor,
Mortgagor  agrees  to take all such  commercial  and  reasonable  action  and to
exercise  all rights and  remedies  as are  reasonably  available  to  Mortgagor
(including,  but not limited to, all rights under any  operating  agreement)  to
cause  the  party  who is the  operator  of such  property  to  comply  with the
covenants and agreements contained herein.

     Section 2.3 Performance on Mortgagor's  Behalf.  Mortgagor  agrees that, if
                 ----------------------------------
Mortgagor  fails  to  perform  any act or to take  any  action  which  hereunder
Mortgagor  is required to perform or take,  or to pay any money which  hereunder
Mortgagor is required to pay, Agent,  in Mortgagor's  name or its own name, may,
but shall not be obligated to, perform or cause to be performed such act or take
such  action or pay such  money,  and any  expenses so incurred by Agent and any
money so paid by Agent shall be a demand  obligation owing by Mortgagor to Agent
(which  obligation  Mortgagor hereby expressly  promises to pay) and Agent, upon
making such  payment,  shall be  subrogated  to all of the rights of the person,
corporation or body politic receiving such payment. Each amount due and owing by
Mortgagor to Trustee  and/or Agent and/or any Lender  pursuant to this  Mortgage
shall bear interest each day, from the date of such expenditure or payment until
paid, at a rate equal to the rate as provided for past due  principal  under the
Notes (provided that,  should  applicable law provide for a maximum  permissible
rate of  interest  on such  amounts,  such rate shall not be  greater  than such
maximum  permissible  rate);  all such  amounts,  together  with  such  interest
thereon,  shall be a part of the  secured  indebtedness  and shall be secured by
this Mortgage.

                                  ARTICLE III.

                 Assignment of Production, Accounts and Proceeds
                 -----------------------------------------------

     Section 3.1 Assignment of Production.  Mortgagor does hereby absolutely and
                 ------------------------
unconditionally  assign,  transfer  and set over to Agent all  Production  which
accrues to  Mortgagor's  interest in the Mortgaged  Properties,  all proceeds of
such  Production  and all Payments in Lieu of  Production  (herein  collectively
referred to as the  "Production  Proceeds"),  together  with the  immediate  and
continuing  right to collect and receive  such  Production  Proceeds,  Mortgagor
directs and instructs any and all  purchasers of any  Production to pay to Agent
all of the Production Proceeds accruing to Mortgagor's  interest until such time

                                      -17-


as  such   purchasers  have  been  furnished  with  evidence  that  all  secured
indebtedness  has been paid and that this Mortgage has been released.  Mortgagor
agrees that no purchasers of the Production  shall have any  responsibility  for
the application of any funds paid to Agent.

     Section  3.2  Effectuating   Payment  of  Production   Proceeds  to  Agent.
                   ------------------------------------------------------------
Independent  of  the  foregoing   provisions  and  authorities  herein  granted,
Mortgagor  agrees to execute and deliver any and all transfer  orders,  division
orders  and  other  instruments  that may be  requested  by Agent or that may be
required by any  purchaser  of any  Production  for the purpose of  effectuating
payment  of the  Production  Proceeds  to  Agent.  If under any  existing  sales
agreements,  other than  division  orders or  transfer  orders,  any  Production
Proceeds  are  required to be paid by the  purchaser  to Mortgagor so that under
such existing  agreements payment cannot be made of such Production  Proceeds to
Agent,  Mortgagor's  interest  in  all  Production  Proceeds  under  such  sales
agreements and in all other Production Proceeds which for any reason may be paid
to  Mortgagor  shall,  when  received by  Mortgagor,  constitute  trust funds in
Mortgagor's  hands  and  shall  be  immediately  paid  over  to  Agent.  Without
limitation upon any of the foregoing,  Mortgagor hereby constitutes and appoints
Agent as Mortgagor's  special attorney in-fact (with full power of substitution,
either  generally or for such periods or purposes as Agent may from time to time
prescribe) in the name, place and stead of Mortgagor to do any and every act and
exercise  any and  every  power  that  Mortgagor  might or could do or  exercise
personally  with respect to all  Production  and  Production  Proceeds (the same
having been  assigned by  Mortgagor  to Agent  pursuant to Section 3.1  hereof),
expressly inclusive, but not limited to, the right, power and authority to:

     (a)  Execute  and  deliver in the name of  Mortgagor  any and all  transfer
orders,  division orders, letters in lieu of transfer orders,  indemnifications,
certificates  and other  instruments  of every  nature that may be  requested or
required by any purchaser of Production from any of the Mortgaged Properties for
the  purposes of  effectuating  payment of the  Production  Proceeds to Agent or
which Agent may otherwise deem necessary or appropriate to effect the intent and
purposes of the assignment contained in Section 3.1; and

     (b) If under any product sales  agreements  other than  division  orders or
transfer  orders,  any  Production  Proceeds  are  required  to be  paid  by the
purchaser to Mortgagor so that under such existing  agreements payment cannot be
made of such Production  Proceeds to Agent, to make, execute and enter into such
sales  agreements  or other  agreements  as are  necessary to direct  Production
Proceeds to be payable to Agent;

giving and granting  unto said  attorney-in-fact  full power and authority to do
and perform any and every act and thing whatsoever necessary and requisite to be
done as fully and to all intents and purposes, as Mortgagor might or could do if
personally  present;   and  Mortgagor  shall  be  bound  thereby  as  fully  and
effectively as if Mortgagor had personally executed,  acknowledged and delivered
any of the  foregoing  certificates  or  documents.  The powers and  authorities
herein conferred upon Agent may be exercised by Agent through any person who, at
the time of the execution of the particular instrument,  is an officer of Agent.
The power of attorney herein conferred is granted for valuable consideration and
hence is coupled  with an  interest  and is  irrevocable  so long as the secured
indebtedness, or any part thereof, shall remain unpaid. All persons dealing with
Agent or any  substitute  shall be fully  protected  in treating  the powers and
authorities  conferred by this  paragraph as continuing in full force and effect

                                      -18-


until  advised by Agent that all the secured  indebtedness  is fully and finally
paid.  Agent may,  hut shall not be  obligated  to, take such action as it deems
appropriate in an effort to collect the  Production  Proceeds and any reasonable
expenses (including  reasonable attorney's fees) so incurred by Agent shall be a
demand  obligation of Mortgagor  and shall be part of the secured  indebtedness,
and shall bear interest each day, from the date of such  expenditure  or payment
until paid, at the rate described in Section 2.3 hereof.

     Section  3.3  Change of  Purchaser.  To the extent a default  has  occurre
                   --------------------
hereunder and is  continuing,  should any person now or hereafter  purchasing or
taking  Production  fail to make  payment  promptly  to Agent of the  Production
Proceeds, Agent shall, subject to then existing contractual  prohibitions,  have
the right to make, or to require  Mortgagor to make, a change of purchaser,  and
the right to  designate  or approve the new  purchaser,  and Agent shall have no
liability or responsibility in connection  therewith so long as ordinary care is
used in making such designation.

     Section 3.4 Application of Production  Proceeds.  So long as no default has
                 -----------------------------------
occurred  hereunder,  the  Production  Proceeds  received  by Agent  during each
calendar month shall on the first business day of the next  succeeding  calendar
month (or, at the option of Agent,  on any earlier  date) be applied by Agent as
follows:

                  FIRST, to the payment of all secured indebtedness then due and
                  -----
         payable, in such manner and order as Agent deems advisable;

                  SECOND, to  the  prepayment of  the remainder  of the  secured
                  ------
         indebtedness in such manner and order and to such extent as Agent deems
         advisable; and

                  THIRD, the  remainder, if  ally, of  the  Production  Proceeds
                  -----
         shall  be paid  over to  Mortgagor or  to Mortgagor's  order or to such
         other parties as may be entitled thereto by law.

After a default  hereunder has occurred,  all  Production  Proceeds from time to
time in the hands of Agent  shall be  applied  by it toward  the  payment of all
secured indebtedness  (principal,  interest,  attorneys' fees and other fees and
expenses) at such times and in such manner and order and to such extent as Agent
deems advisable.

     Section  3.5  Release  From  Liability;  Indemnification.   Agent  and  its
                   ------------------------------------------
successors  and assigns are hereby  released and absolved from all liability for
failure to enforce  collection  of the  Production  Proceeds  and from all other
responsibility  in connection  therewith,  except the  responsibility of each to
account to Mortgagor for funds actually  received by each.  Mortgagor  agrees to
indemnify and hold  harmless  Agent (for  purposes of this  paragraph,  the term
"Agent" shall include the directors, officers, partners, employees and agents of
Agent and any persons or entities  owned or  controlled  by or  affiliated  with
Agent)  from and  against  all claims,  demands,  liabilities,  losses,  damages
(including  without  limitation   consequential  damages),   causes  of  action,
judgments,   penalties,   costs  and  expenses   (including  without  limitation
reasonable  attorneys'  fees and  expenses)  imposed upon,  asserted  against or
incurred or paid by Agent by reason of the assertion that Agent received, either
before or after  payment  in full of the  secured  indebtedness,  funds from the
production of oil, gas, other  hydrocarbons  or other minerals  claimed by third

                                      -19-


persons (and/or funds attributable to sales of production which (i) were made at
prices in excess of the maximum price  permitted by applicable  law or (ii) were
otherwise made in violation of laws, rules,  regulations and/or orders governing
such sales), and Agent shall have the right to defend against any such claims or
actions,  employing  attorneys of its own  selection,  and if not furnished with
indemnity  satisfactory  to it,  Agent  shall have the right to  compromise  and
adjust any such claims, actions and judgments,  and in addition to the rights to
be  indemnified  as herein  provided,  all amounts paid by Agent in  compromise,
satisfaction or discharge of any such claim,  action or judgment,  and all court
costs, reasonable attorneys' fees and other expenses of every character expended
by Agent pursuant to the provisions of this section shall he a demand obligation
(which obligation Mortgagor hereby expressly promises to pay) owing by Mortgagor
to Agent and shall bear interest, from the date expended until paid, at the rate
described in Section 2.3 hereof.  The foregoing  indemnities shall not terminate
upon the Release Date or upon the release,  foreclosure or other  termination of
this Mortgage but will survive the Release Date, foreclosure of this Mortgage or
conveyance in lieu of foreclosure, and the repayment of the secured indebtedness
and  the  discharge  and  release  of this  Mortgage  and  the  other  documents
evidencing and/or securing the secured indebtedness.  WITHOUT LIMITATION,  IT IS
THE INTENTION OF MORTGAGOR AND MORTGAGOR AGREES THAT THE FOREGOING  RELEASES AND
INDEMNITIES  SHALL APPLY TO EACH  INDEMNIFIED  PARTY WITH RESPECT TO ALL CLAIMS,
DEMANDS,   LIABILITIES,    LOSSES,   DAMAGES   (INCLUDING   WITHOUT   LIMITATION
CONSEQUENTIAL  DAMAGES),  CAUSES  OF  ACTION,  JUDGMENTS,  PENALTIES,  COSTS AND
EXPENSES (INCLUDING WITHOUT LIMITATION  REASONABLE ATTORNEYS' FEES AND EXPENSES)
WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF THE  NEGLIGENCE  OF SUCH
(AND/OR ANY OTHER) INDEMNIFIED PARTY.  However, such indemnities shall not apply
to any particular  indemnified  party (but shall apply to the other  indemnified
parties) to the extent the subject of the indemnification is caused by or arises
out of the gross negligence or willful misconduct of such particular indemnified
party.

     Section 3.6 Mortgagor's  Absolute  Obligation to Pay Notes.  Nothing herein
                 ----------------------------------------------
contained  shall  detract  from or limit the  obligations  of  Mortgagor to make
prompt payment of the Notes, and any and all other secured indebtedness,  at the
time and in the manner provided herein and in the Loan Documents,  regardless of
whether the Production and Production Proceeds herein assigned are sufficient to
pay same, and the rights under this Article III shall be cumulative of all other
rights under the Loan Documents.

     Section 3.7 Rights Under  Oklahoma Oil and Gas Owners' Lien Act.  Mortgagor
                 ---------------------------------------------------
hereby grants,  sells,  assigns and sets over unto Agent during the term hereof,
all of  Mortgagor's  rights and interests  pursuant to the provisions of the Oil
and Gas Owners' Lien Act (OKLA. STAT. tit. 52, ss.ss. 548.l-548.6 (the "Oklahoma
Act"), hereby vesting in Agent all of Mortgagor's rights as an interest owner to
the continuing  security interest in and lien upon the oil or gas severed or the
proceeds of sale. Agent may, at its option,  file the verified notice of lien in
order to perfect  such lien,  but shall not be obligated to make such filing and
shall not be held liable to  Mortgagor  for any act or omission  pursuant to the
Oklahoma Act.

     Section 3.8 Rights Under New Mexico Act.  Mortgagor  hereby grants,  sells,
                 ---------------------------
assigns and sets over unto Agent,  during the term  hereof,  all of  Mortgagor's

                                      -20-


rights and interests  pursuant to the  provisions of Sections  48-9-1,  et seq.,
N.M.S.A.  1978 Comp.  (the "New  Mexico  Act"),  hereby  vesting in Agent all of
Mortgagor's  rights as an interest owner to the continuing  security interest in
and lien upon the oil or gas severed or the proceeds of sale.  Agent may, at its
option,  file the  verified  notice of lien in order to perfect  such lien,  but
shall not be  obligated  to make  such  filing  and shall not be held  liable to
Mortgagor for any act or omission pursuant to the New Mexico Act.

     Section 3.9 Rights Under Wyoming Statutes.  Mortgagor hereby appoints Agent
                 -----------------------------
as its  attorney-ill-fact  to pursue any and all lien rights of the Mortgagor to
liens and security  interests in the Mortgaged  Properties  securing  payment of
Production Proceeds attributable to the Mortgaged Properties, including, without
limitation,  those liens and security interests provided for by Section 34.1-9-3
19, Wyoming Statutes Annotated, 1988 Republished Edition (June 1991), as amended
or  recodified.  Mortgagor  further  assigns  to Agent  any and all such  liens,
security  interests,  financing  statements,  or similar  interests of Mortgagor
attributable to its interests in the Mortgaged Properties or Production Proceeds
therefrom arising under or created by statutory provision, judicial decision, or
otherwise.

                                  ARTICLE IV.

                              Remedies Upon Default
                              ---------------------

     Section 4.1 Default. The term "default" as used in this Mortgage shall mean
                 -------
the occurrence of any of the following events:

     (a) the  occurrence  of an "Event of  Default"  as  defined  in the  Credit
Agreement; or

     (b) the failure of Mortgagor  to make due and punctual  payment of any Note
or of any other secured  indebtedness or of any installment of principal thereof
or  interest  thereon,  or any part  thereof,  as the same shall  become due and
payable (taking into account any applicable  grace period,  if any,  provided in
the Loan  Documents),  whether at a date for payment of a fixed  installment  or
contingent or other payment, or as a result of acceleration, or otherwise; or

     (c) the failure of Mortgagor to pay over to Agent any  Production  Proceeds
which  are  receivable  by Agent  under  this  Mortgage  but  which  are paid to
Mortgagor  rather than Agent  (either as  provided  for in Section 3.2 hereof or
otherwise),  except  Production  Proceeds  paid over to Mortgagor by Agent under
clause THIRD of Section 3.4; or

     (d) the  failure of  Mortgagor  timely and  properly  to  observe,  keep or
perform any covenant,  agreement,  warranty or condition  herein or in any other
Loan Document required to be observed, kept or performed, if such failure is not
remedied  within the applicable  grace period provided for in such Loan Document
or, if such Loan Document  does not provide for such a grace  period,  within 30
days  after  written  notice  and  demand by Agent for the  performance  of such
covenant, agreement, warranty or condition; or

     (e) any representation contained herein (or in any certificate delivered by
Mortgagor in connection  herewith) or contained in any other Loan  Document,  or
otherwise heretofore or hereafter made by or on behalf of Mortgagor, shall prove
to have been false or misleading in any material respect on the date made (or on
the date as of which made); or

                                      -21-


     (f) the  occurrence  of a "default"  or "event of  default"  under any Loan
Document  other  than this  Mortgage,  which  default  is not cured  within  the
applicable grace period (if any) provided for in such other Loan Document; or

     (g) Mortgagor  suffers the entry against it of a judgment,  decree or order
for relief by a court of competent  jurisdiction  ill an involuntary  proceeding
commenced  under any applicable  bankruptcy,  insolvency or other similar law of
any  jurisdiction  now or  hereafter  in effect,  including  the  United  States
Bankruptcy  Code,  as from  time  to  time  amended,  or has  such a  proceeding
commenced against it which remains undisrnissed for a period of 30 days; or

     (h) Mortgagor  commences a voluntary case under any applicable  bankruptcy,
insolvency  or similar  law now or  hereafter  in effect,  including  the United
States Bankruptcy Code, as from time to time amended, or applies for or consents
to the entry of an order for relief in an  involuntary  case under any such law;
or Mortgagor makes a general assignment for the benefit of creditors or fails to
pay (or admits in writing its  inability  to pay) its debts as such debts become
due; or Mortgagor  takes  corporate or other action in furtherance of any of the
foregoing; or

     (i)  Mortgagor  suffers the  appointment  of or taking of  possession  by a
receiver,  liquidator,  assignee,  custodian,  trustee,  sequestrator or similar
official for a substantial part of its assets or for any part of the Property in
a proceeding  brought  against or initiated  by it and (1) such  appointment  or
taking is  neither  made  ineffective  nor  discharged  within 30 days after the
making of such  appointment  or within 30 days  after such  taking,  or (2) such
appointment  or taking is  consented  to,  requested  by,  or  acquiesced  to by
Mortgagor; or

     (j)  Mortgagor  suffers a writ or  warrant  of  attachment  or any  similar
process to be issued by any court  against  all or any  substantial  part of its
assets or any part of the  Property,  and such writ or warrant of  attachment or
any similar  process is not stayed or released within 30 days after the entry or
levy thereof or after any stay is vacated or set aside; or

     (k) Any of the events referred to above in subsections (g), (h), (i) or (j)
shall occur with respect to any guarantor of the secured  indebtedness and shall
not be remedied  within the  applicable  grace period (if any) set forth in such
subsections.

     Section 4.2 Acceleration of Secured Indebtedness.  Upon the occurrence of a
                 ------------------------------------
default  described in subsection (g), (h), (i) or (j) of Section 4.1 above,  all
of the secured  indebtedness  shall  thereupon be  immediately  due and payable,
without presentment,  demand, protest, notice of protest,  declaration or notice
of  acceleration  or intention to accelerate,  putting the Mortgagor in default,
dishonor, notice of dishonor or any other notice or declaration of any kind, all
of which are  hereby  expressly  waived by  Mortgagor,  and the liens  evidenced
hereby  shall be subject to  foreclosure  in any manner  provided  for herein or
provided  for by law as Agent may  elect.  During the  continuance  of any other
default, Agent at any time and from time to time may without notice to Mortgagor
or any other person declare any or all of the secured  indebtedness  immediately
due and payable and all such secured indebtedness shall thereupon be immediately
due and  payable,  without  presentment,  demand,  protest,  notice of  protest,
declaration or notice of  acceleration  or intention to accelerate,  putting the
Mortgagor  in  default,  dishonor,  notice of  dishonor  or any other  notice or
declaration of any kind, all of which are hereby  expressly waived by Mortgagor,

                                      -22-


and the liens  evidenced  hereby shall be subject to  foreclosure  in any manner
provided fur herein or provided for by law as Agent may elect.

     Section 4.3 Pre-Foreclosure  Remedies. Upon the occurrence of a default, or
                 -------------------------
any event or circumstance which, with the lapse of time or the giving of notice,
or both,  would  constitute a default  hereunder,  and  following  any period to
attempt to cure such default, if any, provided in the Credit Agreement, Agent is
authorized,   prior  or  subsequent  to  the   institution  of  any  foreclosure
proceedings,  to enter  upon the  Property,  or any  part  thereof,  and to take
possession of the Property and all books and records  relating  thereto,  and to
exercise without  interference from Mortgagor any and all rights which Mortgagor
has  with  respect  to the  management,  possession,  operation,  protection  or
preservation of the Property. If necessary to obtain the possession provided for
above, Agent may invoke any and all remedies to dispossess Mortgagor, including,
without limitation, summary proceeding or restraining order, Mortgagor agrees to
peacefully  surrender  possession  of the  Property  upon  default.  All  costs,
expenses  and  liabilities  of every  character  incurred by Agent in  managing,
operating, maintaining, protecting or preserving the Property shall constitute a
demand obligation (which obligation  Mortgagor hereby expressly promises to pay)
owing by Mortgagor  to Agent and shall bear  interest  from date of  expenditure
until paid at the rate  described  in Section  2.3  hereof,  all of which  shall
constitute  a portion of the secured  indebtedness  and shall be secured by this
Mortgage  and by any other  instrument  securing  the secured  indebtedness.  In
connection  with any action taken by Agent  pursuant to this Section 4.3,  AGENT
SHALL NOT BE LIABLE FOR ANY LOSS  SUSTAINED BY MORTGAGOR  RESULTING FROM ANY ACT
OR OMISSION OF AGENT (INCLUDING AGENT'S OWN NEGLIGENCE) IN MANAGING THE PROPERTY
UNLESS  SUCH LOSS IS CAUSED BY THE WILLFUL  MISCONDUCT  OR GROSS  NEGLIGENCE  OF
AGENT, nor shall Agent be obligated to perform or discharge any obligation, duty
or liability  of Mortgagor  arising  under any  agreement  forming a part of the
Property  or arising  under any  Permitted  Encumbrance  or  otherwise  arising.
Mortgagor  hereby assents to, ratifies and confirms any and all actions of Agent
with  respect  to the  Property  taken  under  this  Section  4.3.

     Section 4.4 Foreclosure.
                 -----------

     (a) Upon the  occurrence of a default,  Trustee is authorized and empowered
and it shall be Trustee's  special duty at the request of Agent to sell the Deed
of Trust Mortgaged Properties, or any part thereof, as an entirety or in parcels
as Agent may elect, at such place or places and otherwise in the manner and upon
such  notice  as  may be  required  by  law  or,  in  the  absence  of any  such
requirement, as Trustee may deem appropriate. If Trustee shall have given notice
of sale hereunder,  any successor or substitute Trustee thereafter appointed may
complete the sale and the conveyance of the property pursuant thereto as if such
notice had been given by the  successor or  substitute  Trustee  conducting  the
sale. Cumulative of the foregoing and the other provisions of this Section 4.4:

          (i) As to any  portion  of the  Deed  of  Trust  Mortgaged  Properties
     located in the State of Texas (or within the  offshore  area over which the
     United States of America asserts jurisdiction and to which the laws of such
     state are  applicable  with  respect to this  Mortgage  and/or the liens or
     security  interests created hereby),  such sales of all or any part of such
     Deed of Trust Mortgaged  Properties shall be conducted at the courthouse of

                                      -23-


     any  county  (whether  or not the  counties  in  which  such  Deed of Trust
     Mortgaged  Properties are located are contiguous) ill the State of Texas in
     which any part of such Deed of Trust  Mortgaged  Properties  is situated or
     which lies shoreward of any Deed of Trust Mortgaged  Property (i.e., to the
     extent a particular Deed of Trust  Mortgaged  Property lies offshore within
     the  reasonable   projected   seaward  extension  of  the  relevant  county
     boundary), at public venue to the highest bidder for cash between the hours
     of ten o'clock a.m. and four o'clock p.m. on the first Tuesday in any month
     or at such other  place,  time and date as provided by the  statutes of the
     State of Texas then in force  governing  sales of real estate  under powers
     conferred  by deed of  trust,  after  having  given  notice of such sale in
     accordance with such statutes.

          A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE MAY
          ----------------------------------------------------------------------
     ALLOW TRUSTEE TO TAKE THE MORTGAGED  PROPERTIES AND SELL THEM WITHOUT GOING
     ---------------------------------------------------------------------------
     TO COURT IN A  FORECLOSURE  ACTION  UPON  DEFAULT BY  MORTGAGOR  UNDER THIS
     ---------------------------------------------------------------------------
     MORTGAGE.
     --------

     (b) Upon the occurrence of a default, this Mortgage may be foreclosed as to
the Other Mortgaged Properties,  or any part thereof, in any manner permitted by
applicable  law.  Cumulative of the  foregoing and the other  provisions of this
Section 4.4:

          (i) As to Other Mortgaged Properties located in the State of Louisiana
     (or  within  the  offshore  area over  which the  United  States of America
     asserts  jurisdiction  and to which the laws of such  state are  applicable
     with  respect  to this  Mortgage  and/or  the liens or  security  interests
     created hereby), Agent may foreclose this Mortgage by executory process, or
     any other process,  subject to, and on the terms and conditions required or
     permitted by,  applicable law, and shall have the right to appoint a keeper
     of such Other Mortgaged Properties.

          (ii)  As to  Other  Mortgaged  Properties  located  in  the  State  of
     Oklahoma, Mortgagor hereby confers on Agent the power to sell the Mortgaged
     Properties  in  accordance   with  the  Oklahoma  Power  of  Sale  Mortgage
     Foreclosure  Act (OKLA.  STAT.  tit. 46, ss.ss.  41-49),  as the same maybe
     amended from time to time.  Mortgagor  hereby  represents and warrants that
     this Mortgage  transaction does not involve a consumer loan as said term is
     defined in Section 3-104 of Title 14A of the Oklahoma  Statutes,  that this
     Mortgage  does not  secure  an  extension  of  credit  made  primarily  for
     agricultural  purposes as defined in paragraph 4 of Section  1-301 of Title
     14A of the Oklahoma  Statutes,  and that this Mortgage is not a mortgage on
     the Mortgagor's homestead.

          (iii) As to Other  Mortgaged  Properties  located  in the State of New
     Mexico, Lender may, at its election, proceed by suit or suits, at law or in
     equity,  to enforce the payment of the secured  indebtedness  in accordance
     with the terms hereof and of the Notes or other instruments  evidencing it,
     to foreclose the lien and security interest of this Mortgage against all or
     any portion of the Other Mortgaged Properties., and to have said properties
     sold  under the  judgment  or decree of a court of  competent  jurisdiction
     pursuant to Section  39-5-19 NMSA 1978, as that statutory  provision may be
     amended or recodified.

                                      -24-


               A POWER OF SALE HAS BEEN  GRANTED  IN THIS  MORTGAGE.  A POWER OF
               -----------------------------------------------------------------
          SALE MAY ALLOW AGENT TO TAKE THE  MORTGAGED  PROPERTIES  AND SELL THEM
          ----------------------------------------------------------------------
          WITHOUT  GOING  TO COURT  IN A  FORECLOSURE  ACTION  UPON  DEFAULT  BY
          ----------------------------------------------------------------------
          MORTGAGOR UNDER THIS MORTGAGE.
          -----------------------------

     (c) Upon the  occurrence  of a default,  Agent may  exercise  its rights of
enforcement with respect to the Collateral under the Texas Business and Commerce
Code,  as amended,  the  Louisiana  Commercial  Laws,  as  amended,  the Uniform
Commercial  Code of the State of Oklahoma,  as amended,  the Uniform  Commercial
Code of the State of New  Mexico,  or under the Uniform  Commercial  Code or any
other  statute in force in any state to the extent the same is  applicable  law.
Cumulative of the foregoing and the other provisions of this Section 4.4:

          (i) To the extent permitted by law, Agent may enter upon the Mortgaged
     Properties or otherwise upon  Mortgagor's  premises to take  possession of,
     assemble and collect the Collateral or to render it unusable; and

          (ii) Agent may require  Mortgagor to assemble the  Collateral and make
     it available at a place Agent  designates  which is mutually  convenient to
     allow Agent to take possession or dispose of the Collateral; and

          (iii) Written  notice mailed to Mortgagor as provided  herein at least
     five (5) days prior to the date of public sale of the  Collateral  or prior
     to the date after which private sale of the  Collateral  will be made shall
     constitute reasonable notice; and

          (iv) in the  event  of a  foreclosure  of the  liens  and/or  security
     interests  evidenced hereby, the Collateral,  or any part thereof,  and the
     Mortgaged Properties,  or any part thereof, may, at the option of Agent, be
     sold, as a whole or in parts,  together or separately  (including,  without
     limitation,  where a  portion  of the  Mortgaged  Properties  is sold,  the
     Collateral related thereto may be sold in connection therewith); and

          (v) the  expenses of sale  provided for in clause FIRST of Section 4.7
     shall include the reasonable  expenses of retaking the  Collateral,  or any
     part  thereof,  holding the same and  preparing  the same for sale or other
     disposition; and

          (vi) should,  under this  subsection,  the  Collateral  be disposed of
     other than by sale, any proceeds of such disposition shall be treated under
     Section 4.7 as if the same were sales proceeds; and

          (vii) as to the Collateral located in or otherwise subject to the laws
     of the State of Louisiana,  Agent may foreclose this Mortgage as a security
     agreement  affecting  the  Collateral  by executory  process,  or any other
     process,  subject to, and on the terms and conditions required or permitted
     by  applicable  law,  and shall  have the right to appoint a keeper of such
     Collateral.

     (d) To the extent  permitted by applicable  law, the sale hereunder of less
than the whole of the  Property  shall not  exhaust  the  powers of sale  herein
granted or the right to judicial  foreclosure,  and successive sale or sales may
be made until the whole of the Property  shall be sold,  and, if the proceeds of

                                      -25-


such  sale of less  than  the  whole  of the  Property  shall  he less  than the
aggregate of the indebtedness  secured hereby and the expense of conducting such
sale, this Mortgage and the liens and security  interests hereof shall remain in
full force and effect as to the unsold portion of the Property just as though no
sale had been made; provided, however, that Mortgagor shall never have any right
to  require  the sale of less than the whole of the  Property.  In the event any
sale  hereunder is not  completed or is defective in the opinion of Agent,  such
sale shall not  exhaust  the powers of sale  hereunder  or the right to judicial
foreclosure,  and Agent shall have the right to cause a subsequent sale or sales
to be made.  Any sale may be  adjourned  by  announcement  at the time and place
appointed for such sale without further notice except as may be required by law.
The Trustee or his successor or substitute,  and the Agent acting under power of
sale,  may appoint or delegate  any one or more  persons as agent to perform any
act or acts  necessary  or incident to any sale held by it  (including,  without
limitation,  the  posting  of  notices  and  the  conduct  of  sale),  and  such
appointment  need not be in writing or recorded,  Any and all statements of fact
or other recitals made in any deed or deeds,  or other  instruments of transfer,
given in connection with a sale as to nonpayment of the secured  indebtedness or
as to the  occurrence of any default,  or as to all of the secured  indebtedness
having been declared to be due and payable,  or as to the request to sell, or as
to notice of time,  place and terms of sale and the properties to be sold having
been duly given,  or, with respect to any sale by the Trustee,  or any successor
or substitute trustee, as to the refusal, failure or inability to act of Trustee
or any substitute or successor  trustee or the  appointment of any substitute or
successor trustee,  or as to any other act or thing having been duly done, shall
he taken as prima  facie  evidence  of the  truth  of the  facts so  stated  and
recited.  Notwithstanding  any  reference  herein  to the  Notes  or the  Credit
Agreement or any other Loan  Document,  all persons  dealing with the  Mortgaged
Properties  shall be entitled to rely on any document,  or  certificate,  of the
Agent as to the occurrence of an event,  such as an Event of Default,  and shall
not be charged with or forced to review any  provision of any other  document to
determine the accuracy thereof.  With respect to any sale held in foreclosure of
the liens and/or security  interests  covered hereby,  it shall not be necessary
for the Trustee,  Agent,  any public officer acting under  execution or order of
the court or any other party to have  physically  present or  constructively  in
his/her  or its  possession,  either at the time of or prior to such  sale,  the
Property or any part thereof.

     (e) As to Property now or hereafter located in, or otherwise subject to the
laws  of,  the  State  of   Louisiana,   Mortgagor   acknowledges   the  secured
indebtedness,  whether now existing or to arise  hereafter,  and for  Mortgagor,
Mortgagor's heirs, devisees,  personal representatives,  successors and assigns,
hereby  confesses  judgment for the full amount of the secured  indebtedness  in
favor of the Lender.  Mortgagor  further  agrees that the Agent may cause all or
any part of the  Property  to be seized and sold after due  process of law,  the
Mortgagor  waiving  the  benefit  of all laws or parts of laws  relative  to the
appraisement of property seized and sold under executory  process or other legal
process, and consenting that all or any part of the Property may be sold without
appraisement,  either in its entirety or ill lots and parcels,  as the Agent may
determine,  to the highest  bidder for cash or on such terms as the plaintiff in
such  proceedings  may  direct.  Mortgagor  hereby  waives  (i) the  benefit  of
appraisement  provided  for in  articles  2332,  2336,  2723,  and  2724  of the
Louisiana Code of Civil  Procedure and all other laws  conferring the same; (ii)
the demand and three (3) days notice of demand as provided in articles  2639 and
2721 of the  Louisiana  Code of Civil  Procedure;  (iii) the  notice of  seizure
provided for in articles 2293 and 2721 of the Louisiana Code of Civil Procedure;
(iv) the three (3) days  delay  provided  for in  articles  2331 and 2722 of the
Louisiana Code of Civil  Procedure;  and (v) all other laws providing  rights of

                                      -26-


notice,  demand,  appraisement,  or delay.  Mortgagor  expressly  authorizes and
agrees  that Agent  shall  have the right to  appoint a keeper of such  Property
pursuant to the terms and  provisions  of La. R.S.  9:5131 et seq.  and La. R.S.
9:5136 et seq., which keeper may be the Agent, any agent or employee thereof, or
any other person,  firm, or  corporation.  Compensation  for the services of the
keeper is hereby  fixed at five  percent  (5%) of the  amount due or sued for or
claimed or sought to be protected,  preserved, or enforced in the proceeding for
the  recognition  or  enforcement  of this  Mortgage and shall be secured by the
liens and security interests of this Mortgage.

     Section  4.5  Effective  as  Mortgage.  As to the Deed of  Trust  Mortgaged
                   -----------------------
Properties,  this instrument  shall be effective as a mortgage as well as a deed
of trust and upon the  occurrence  of a default may be foreclosed as to the Deed
of Trust Mortgaged  Properties,  or any portion thereof, in any manner permitted
by  applicable  law,  and any  foreclosure  suit may be brought by Trustee or by
Agent.  To the  extent,  if any,  required  to cause  this  instrument  to be so
effective as a mortgage as well as a deed of trust,  Mortgagor  hereby mortgages
the Deed of Trust  Mortgaged  Properties  to Agent.  In the event a  foreclosure
hereunder as to the Deed of Trust  Mortgaged  Properties,  or any part  thereof,
shall be commenced by Trustee, or his substitute or successor,  Agent may at any
time before the sale of such properties  direct Trustee to abandon the sale, and
may  then  institute  suit  for  the  foreclosure  of this  Mortgage  as to such
properties.  It is  agreed  that  if  Agent  should  institute  a suit  for  the
foreclosure of this Mortgage,  Agent may at any time before the entry of a final
judgment in said suit dismiss the same, and require  Trustee,  its substitute or
successor, to sell the Deed of Trust Mortgaged Properties,  or any part thereof,
in accordance with the provisions of this Mortgage.

     Section 4.6 Receiver.  In addition to all other  remedies  herein  provided
                 --------
for,  Mortgagor  agrees that,  upon the  occurrence of a default or any event or
circumstance  which,  with the lapse of time or the giving of  notice,  or both,
would  constitute  a  default  hereunder,  Agent  shall as a matter  of right be
entitled to the  appointment  of a receiver or receivers  for all or any part of
the  Property,  whether  such  receivership  be incident to a proposed  sale (or
sales) of such  property or  otherwise,  and without  regard to the value of the
Property or the solvency of any person or persons  liable for the payment of the
indebtedness   secured  hereby,   and  Mortgagor  does  hereby  consent  to  the
appointment  of such receiver or receivers,  waives any and all defenses to such
appointment,  and agrees not to oppose any  application  therefor by Agent,  and
agrees that such appointment  shall in no manner impair,  prejudice or otherwise
affect the rights of Agent under Article III hereof.  Mortgagor expressly waives
notice of a hearing for  appointment of a receiver and the necessity for bond or
an  accounting  by the  receiver.  Nothing  herein is to be construed to deprive
Agent or any  Lender  of any other  right,  remedy  or  privilege  it may now or
hereafter have under the law to have a receiver appointed. Any money advanced by
Agent in  connection  with any such  receivership  shall be a demand  obligation
(which obligation Mortgagor hereby expressly promises to pay) owing by Mortgagor
to Agent and shall bear  interest,  from the date of making such  advancement by
Agent until paid, at the rate described in Section 2.3 hereof.

     Section  4.7  Proceeds  of  Foreclosure.  The  proceeds of any sale held in
                   -------------------------
foreclosure of the liens and/or  security  interests  evidenced  hereby shall be
applied:

                  FIRST, to the  payment  of all necessary  costs  and  expenses
                  -----
         incident to  such foreclosure  sale, including but not  limited  to all

                                      -27-


         court  costs and  charges of every character in the event foreclosed by
         suit or any  judicial proceeding  and including but  not limited  to  a
         reasonable  fee to the  Trustee if such  sale was made  by the  Trustee
         acting  under the  provisions of  Section 4.4(a) and  including but not
         limited to the compensation of the keeper, if any;

                  SECOND, to the payment of the secured  indebtedness (including
                  ------
         specifically without  limitation the principal, interest and attorneys'
         fees  due and unpaid on  the Notes and the amounts due  and unpaid  and
         owed under this  Mortgage) in such manner and order as Agent may elect;
         and

                  THIRD, the remainder, if any  there shall be, shall be paid to
                  -----
         Mortgagor,   or  to  Mortgagor's   heirs,  devisees,   representatives,
         successors or assigns, or such other persons as may be entitled thereto
         by law.

     Section 4.8 Lender as Purchaser.  Any Lender shall have the right to become
                 -------------------
the  purchaser  at any sale held in  foreclosure  of the liens  and/or  security
interests  evidenced  hereby,  and any Lender  purchasing at any such sale shall
have the right to credit upon the amount of the bid made therefor, to the extent
necessary to satisfy such bid, the secured indebtedness owing to such Lender, or
if such  Lender  holds  less  than all of such  indebtedness,  the pro rata part
thereof  owing to such Lender,  accounting  to all other  Lenders not joining in
such  bid in cash for the  portion  of such  bid or bids  apportionable  to such
non-bidding Lender or Lenders.

     Section  4.9  Foreclosure  as to Matured  Debt.  Upon the  occurrence  of a
                   --------------------------------
default,  Agent shall have the right to proceed  with  foreclosure  of the liens
and/or security interests  evidenced hereby without declaring the entire secured
indebtedness  due,  and in such  event,  any such  foreclosure  sale may he made
subject to the unmatured part of the secured  indebtedness  and shall not in any
manner affect the  unmatured  part of the secured  indebtedness,  but as to such
unmatured  part,  this  Mortgage  shall  remain in full force and effect just as
though no sale had been  made.  The  proceeds  of such sale  shall be applied as
provided in Section 4.7 except that the amount paid under clause SECOND  thereof
shall be only the matured portion of the secured  indebtedness  and any proceeds
of such  sale in excess  of those  provided  for in  clauses  FIRST  and  SECOND
(modified as provided  above) shall he applied as provided in clause  SECOND AND
THIRD of  Section  3.4  hereof.  Several  sales  may be made  hereunder  without
exhausting the right of sale for any unmatured part of the secured indebtedness.

     Section 4.10  Remedies  Cumulative.  All remedies  herein  provided for are
                   --------------------
cumulative of each other and of all other remedies  existing at law or in equity
and are cumulative of any and all other remedies  provided for in any other Loan
Document, and, in addition to the remedies herein provided, there shall continue
to be available all such other remedies as may now or hereafter  exist at law or
in equity for the collection of the secured  indebtedness and the enforcement of
the covenants herein and the foreclosure of the liens and/or security  interests
evidenced  hereby,  and the resort to any remedy provided for hereunder or under
any such  other Loan  Document  or  provided  for by law shall not  prevent  the
concurrent or subsequent employment of any other appropriate remedy or remedies.

     Section 4.11  Discretion  as to Security.  Agent may resort to any security
                   --------------------------
given by this Mortgage or to any other security now existing or hereafter  given
to secure the payment of the secured  indebtedness,  in whole or in part, and in

                                      -28-


such  portions  and in such  order  as may  seem  best to  Agent in its sole and
uncontrolled discretion,  and any such action shall not in any way be considered
as a  waiver  of  any of the  rights,  benefits,  liens  or  security  interests
evidenced by this Mortgage.

     Section  4.12  Mortgagor's  Waiver of Certain  Rights.  To the full  extent
                    --------------------------------------
Mortgagor may do so, Mortgagor agrees that Mortgagor will not at any time insist
upon, plead,  claim or take the benefit or advantage of any law now or hereafter
in  force  providing  for  any  appraisement,   valuation,  stay,  extension  or
redemption,   and  Mortgagor,   for  Mortgagor,   Mortgagor's  heirs,  devisees,
representatives,  successors  and  assigns,  and for any  and all  persons  ever
claiming any interest in the  Property,  to the extent  permitted by  applicable
law, hereby waives and releases all rights of appraisement,  valuation,  stay of
execution, redemption, notice of intention to mature or declare due the whole of
the secured indebtedness,  notice of election to mature or declare due the whole
of the  secured  indebtedness  and all  rights  to a  marshaling  of  assets  of
Mortgagor,  including the Property,  or to a sale in inverse order of alienation
in the  event of  foreclosure  of the liens  and/or  security  interests  hereby
created.  Mortgagor shall not have or assert any right under any statute or rule
of law  pertaining  to the  marshaling  of  assets,  sale in  inverse  order  of
alienation,  the  exemption  of  homestead,  the  administration  of  estates of
decedents, or other matters whatever to defeat, reduce or affect the right under
the terms of this  Mortgage to a sale of the Property for the  collection of the
secured  indebtedness  without any prior or different resort for collection,  or
the  right  under the  terms of this  Mortgage  to the  payment  of the  secured
indebtedness  out of the proceeds of sale of the Properly in preference to every
other  claimant  whatever,  If any law  referred  to in this  section and now in
force,  of which  Mortgagor or  Mortgagor's  heirs,  devisees,  representatives,
successors  or  assigns  or any  other  persons  claiming  any  interest  in the
Mortgaged  Properties  or the  Collateral  might  take  advantage  despite  this
section, shall hereafter be repealed or cease to be in force, such law shall not
thereafter be deemed to preclude the application of this section.

     Section 4.13 Mortgagor as Tenant Post-Foreclosure.  In the event there is a
                  ------------------------------------
foreclosure sale hereunder and at the time of such sale Mortgagor or Mortgagor's
heirs,  devisees,  representatives,  successors  or assigns or any other persons
claiming  any  interest  in the  Property  by,  through or under  Mortgagor  are
occupying  or using  the  Property,  or any  part  thereof,  each and all  shall
immediately become the tenant of the purchaser at such sale, which tenancy shall
be a  tenancy  from day to day,  terminable  at the will of either  landlord  or
tenant,  at a  reasonable  rental per day based  upon the value of the  property
occupied,  such rental to be due daily to the purchaser. To the extent permitted
by  applicable  law,  the  purchaser  at such sale  shall,  notwithstanding  any
language  herein  apparently  to the  contrary,  have the sole  option to demand
immediate  possession following the sale or to permit the occupants to remain as
tenants at will.  In the event the tenant fails to surrender  possession of said
property upon demand,  the purchaser shall be entitled to institute and maintain
a summary  action for possession of the property (such as an action for forcible
entry and detainer) in any court having jurisdiction.

     Section 4.14 Waiver of Oklahoma Appraisement. As to Property situated in or
                  -------------------------------
otherwise  subject  to the laws of the State of  Oklahoma,  appraisement  of the
Property  is hereby  waived (or not) at the option of Agent,  such  option to be
exercised at the time judgment is rendered in any  foreclosure  hereof or at any
time prior thereto.

                                      -29-


     Section  4.15  Limitation  on New Mexico  Redemption  Period.  Pursuant  to
                    ---------------------------------------------
Section 39-5-19 of New Mexico Statutes,  1978 Annotated,  the redemption  period
after  foreclosure sale for any Property situated in or otherwise subject to the
laws of the State of New Mexico shall be limited to one (1) month,

                                   ARTICLE V.

                                  Miscellaneous
                                  -------------

     Section  5.1  Scope of  Mortgage.  This  Mortgage  is a deed of  trust  and
                   ------------------
mortgage  of both  real/immovable  and  personal/movable  property,  a  security
agreement, a financing statement and an assignment, and also covers proceeds and
fixtures.

     Section 5.2 Effective as a Financing Statement.  This Mortgage, among other
                 ----------------------------------
things,  covers  goods which are or are to become  fixtures  related to the real
property  described herein,  and covers  as-extracted  collateral related to the
real property described herein.  This Mortgage shall be effective as a financing
statement  (i) filed as a fixture  filing with respect to all fixtures  included
within the Property,  (ii) covering as-extracted  collateral with respect to all
as-extracted  collateral  included  within  the  Property  (including,   without
limitation, all oil, gas, other minerals and other substances of value which may
be  extracted  from the earth and all  accounts  arising  out of the sale at the
wellhead or minehead  thereof),  and (iii)  covering  all other  Property.  This
Mortgage  is to be filed for record in the  real/immovable  property  records of
each county or parish where any part of the Mortgaged  Properties is situated or
which lies shoreward of any Mortgaged  Property (i.e., to the extent a Mortgaged
Property lies offshore  within the projected  seaward  extension of the relevant
county or parish boundaries), and may also be filed in the offices of the Bureau
of Land Management,  the Minerals Management Service, the General Land Office or
any relevant federal, state, local or tribal agency (or any successor agencies).
The mailing  address of Mortgagor  is the address of Mortgagor  set forth at the
end of this Mortgage and the address of Agent from which information  concerning
the  security  interests  hereunder  may be obtained is the address of Agent set
forth at the end of this Mortgage.  Nothing contained in this paragraph shall he
construed  to  limit  the  scope of this  Mortgage  nor its  effectiveness  as a
financing statement covering any type of Property.

     Section 5.3 Reproduction of Mortgage as Financing Statement;  Authorization
                 ---------------------------------------------------------------
to  File.  A  carbon,  photographic,  facsimile  or other  reproduction  of this
- --------
Mortgage  or of any  financing  statement  relating  to this  Mortgage  shall be
sufficient as a financing statement for any purpose.  Without limiting any other
provision  herein,  Mortgagor hereby  authorizes Agent to file, in any filing or
recording  office,  one  or  more  financing   statements  and  any  renewal  or
continuation  statements thereof,  describing the Property,  including,  without
limitation,  a  financing  statement  covering  "all  assets of  Mortgagor,  all
proceeds therefrom and all rights and privileges with respect thereto."

     Section  5.4  Notice to  Account  Debtors.  In  addition  to,  but  without
                   ---------------------------
limitation of, the rights granted in Article III hereof,  Agent may, at any time
after a default has occurred that is continuing,  notify the account  debtors or
obligors  of any  accounts,  chattel  paper,  negotiable  instruments  or  other
evidences of indebtedness included in the Collateral to pay Agent directly.

                                      -30-


     Section 5.5 Waivers. Agent may at any time and from time to time in writing
                 -------
waive  compliance by Mortgagor with any covenant herein made by Mortgagor to the
extent and in the manner  specified in such writing,  or consent to  Mortgagor's
doing  any act  which  hereunder  Mortgagor  is  prohibited  from  doing,  or to
Mortgagor's  failing to do any act which hereunder  Mortgagor is required to do,
to the extent and in the manner  specified in such writing,  or release any part
of the Property or any interest therein or any Production Proceeds from the lien
and  security  interest of this  Mortgage,  without the joinder of Trustee.  Any
party liable, either directly or indirectly, for the secured indebtedness or for
any covenant  herein or in any other Loan  Document may be released  from all or
any part of such obligations without impairing or releasing the liability of any
other party. No such act shall in any way impair any rights or powers  hereunder
except to the extent specifically agreed to in such writing.

     Section 5.6 No  Impairment  of Security.  The lien,  security  interest and
                 ---------------------------
other  security  rights  hereunder  shall  not he  impaired  by any  indulgence,
moratorium or release which may be granted,  including,  but not limited to, any
renewal,  extension  or  modification  which may be granted  with respect to any
secured indebtedness, or any surrender, compromise, release, renewal, extension,
exchange  or  substitution  which  maybe  granted  in  respect  of the  Property
(including without limitation Production  Proceeds),  or any part thereof or any
interest  therein,  or any  release  or  indulgence  granted  to  any  endorser,
guarantor or surety of any secured indebtedness.

     Section 5.7 Acts Not Constituting Waiver. Any default may be waived without
                 ----------------------------
waiving  any other  prior or  subsequent  default.  Any  default may be remedied
without waiving the default remedied.  Neither failure to exercise, nor delay in
exercising,  any right, power or remedy upon any default shall be construed as a
waiver of such  default or as a waiver of the right to exercise  any such right,
power or remedy at a later  date.  No single or partial  exercise  of any right,
power or remedy  hereunder shall exhaust the same or shall preclude any other or
further exercise thereof, and every such right, power or remedy hereunder may be
exercised at any time and from time to time,  No  modification  or waiver of any
provision  hereof nor consent to any departure by Mortgagor  therefrom  shall in
any event be  effective  unless the same shall be in writing and signed by Agent
and then  such  waiver  or  consent  shall  be  effective  only in the  specific
instances,  for the purpose for which given and to the extent therein specified.
No  notice to nor  demand  on  Mortgagor  in any case  shall of  itself  entitle
Mortgagor  to any  other  or  further  notice  or  demand  in  similar  or other
circumstances.  Acceptance of any payment in an amount less than the amount then
due on any secured  indebtedness  shall be deemed an  acceptance on account only
and shall not in any way excuse the existence of a default hereunder.

     Section  5.8  Mortgagor's  Successors.  In the event the  ownership  of the
                   -----------------------
Property or any part thereof  becomes  vested in a person other than  Mortgagor,
then, without notice to Mortgagor,  such successor or successors in interest may
be dealt with, with reference to this Mortgage and to the  indebtedness  secured
hereby,  in the same manner as with  Mortgagor,  without in any way vitiating or
discharging   Mortgagor's   liability  hereunder  or  for  the  payment  of  the
indebtedness  or performance of the obligations  secured hereby.  No transfer of
the Property,  no  forbearance,  and no extension of the time for the payment of
the  indebtedness  secured hereby shall operate to release,  discharge,  modify,
change or affect,  in whole or in part, the liability of Mortgagor  hereunder or
for the payment of the  indebtedness or performance of the  obligations  secured

                                      -31-


hereby or the liability of any other person  hereunder or for the payment of the
indebtedness secured hereby.

     Section 5.9 Place of Payment.  All secured  indebtedness which may be owing
                 ----------------
hereunder at any time by Mortgagor  shall be payable at the place  designated in
the Credit Agreement (or if no such designation is made, at the address of Agent
indicated  at the end of this  Mortgage),  or at such  other  place as Agent may
designate in writing.

     Section 5.10  Subrogation to Existing Liens. To the extent that proceeds of
                   -----------------------------
the Notes are used to pay indebtedness secured by any outstanding lien, security
interest,  charge or prior encumbrance against the Property,  such proceeds have
been advanced at  Mortgagor's  request,  and the party or parties  advancing the
same shall be  subrogated  to any and all rights,  security  interests and liens
owned by any owner or  holder of such  outstanding  liens,  security  interests,
charges or encumbrances, irrespective of whether said liens, security interests,
charges or encumbrances  are released,  and it is expressly  understood that, in
consideration of the payment of such  indebtedness,  Mortgagor hereby waives and
releases  all demands and causes of action for offsets and payments to, upon and
in connection with the said indebtedness.

     Section 5.11 Application of Payments to Certain  Indebtedness.  If any part
                  ------------------------------------------------
of the secured  indebtedness  cannot be lawfully  secured by this Mortgage or if
any part of the  Property  cannot be lawfully  subject to the lien and  security
interest hereof to the full extent of such indebtedness,  then all payments made
shall be applied on said indebtedness first in discharge of that portion thereof
which is not secured by this Mortgage.

     Section 5.12  Compliance  With Usury Laws.  It is the intent of  Mortgagor,
                   ---------------------------
Lender  and all  other  parties  to the Loan  Documents  to  contract  in strict
compliance with applicable usury law from time to time in effect. In furtherance
thereof,  it is  stipulated  and  agreed  that none of the terms and  provisions
contained  herein or in the other  Loan  Documents  shall ever be  construed  to
create a  contract  to pay,  for the use,  forbearance  or  detention  of money,
interest in excess of the maximum amount of interest  permitted to be charged by
applicable law from time to time in effect.

     Section 5.13 Substitute Trustee. The Trustee may resign by an instrument in
                  ------------------
writing  addressed  to Agent,  or  Trustee  may be  removed  at any time with or
without  cause by an  instrument  in writing  executed by Agent.  In case of the
death,  resignation,  removal,  or  disqualification  of Trustee,  or if for any
reason  Agent  shall deem it  desirable  to appoint a  substitute  or  successor
trustee  to act  instead  of the  herein  named  trustee  or any  substitute  or
successor trustee,  then Agent shall have the right and is hereby authorized and
empowered to appoint a successor trustee, or a substitute trustee, without other
formality than  appointment and designation in writing executed by Agent and the
authority  hereby  conferred  shall extend to the appointment of other successor
and substitute trustees  successively until the indebtedness  secured hereby has
been paid in full,  or until the  Property is sold  hereunder.  In the event the
secured  indebtedness is owned by more than one person or entity,  the holder or
holders of not less than a majority  in the  amount of such  indebtedness  shall
also have the right and  authority  to make the  appointment  of a successor  or
substitute  trustee  as  provided  for in the  preceding  sentence  or to remove
Trustee as provided in the first sentence of this section,  Such appointment and
designation  by Agent shall be full  evidence of the right and authority to make

                                      -32-


the  same and of all  facts  therein  recited.  if  Agent  is a  corporation  or
association and such appointment is executed in its behalf by an officer of such
corporation or association,  such appointment shall be conclusively  presumed to
be executed with  authority and shall be valid and  sufficient  without proof of
ally action by the board of directors or any superior officer of the corporation
or  association.   Agent  may  act  through  an  agent  or  attorney-in-fact  in
substituting trustees.  Upon the making of any such appointment and designation,
all of the estate and title of Trustee in the Deed of Trust Mortgaged Properties
shall vest in the named  successor or substitute  Trustee and such  successor or
substitute shall thereupon succeed to, and shall hold, possess and execute,  all
the rights,  powers,  privileges,  immunities  and duties herein  conferred upon
Trustee; but nevertheless, upon the written request of Agent or of the successor
or substitute  Trustee,  the Trustee ceasing to act shall execute and deliver an
instrument  transferring  to such  successor  or  substitute  Trustee all of the
estate and title in the Deed of Trust  Mortgaged  Properties  of the  Trustee so
ceasing to act, together with all the rights, powers, privileges, immunities and
duties herein  conferred upon the Trustee,  and shall duly assign,  transfer and
deliver any of the properties and moneys held by said Trustee  hereunder to said
successor or  substitute  Trustee,  All  references  herein to Trustee  shall be
deemed to refer to Trustee (including any successor or substitute  appointed and
designated as herein provided) from time to time acting hereunder.

     Section 5.14 No Liability for Trustee.  THE TRUSTEE SHALL NOT BE LIABLE FOR
                  ------------------------
ANY ERROR OF  JUDGMENT  OR ACT DONE BY TRUSTEE IN GOOD  FAITH,  OR BE  OTHERWISE
RESPONSIBLE  OR  ACCOUNTABLE  UNDER  ANY  CIRCUMSTANCES  WHATSOEVER  (INCLUDING,
WITHOUT  LIMITATION,  THE  TRUSTEE'S  NEGLIGENCE).  EXCEPT FOR  TRUSTEE'S  GROSS
NEGLIGENCE  OR WILLFUL  MISCONDUCT.  The Trustee shall have the right to rely on
any instrument, document or signature authorizing or supporting any action taken
or  proposed to be taken by the  Trustee  hereunder,  believed by the Trustee in
good faith to be genuine.  All moneys  received by Trustee shall,  until used or
applied as herein  provided,  be held in trust for the  purposes  for which they
were  received,  but need not be  segregated in any manner from any other moneys
(except to the extent  required by law), and Trustee shall be under no liability
for interest on any moneys received by him hereunder.  Mortgagor hereby ratifies
and confirms any and all acts which the herein named Trustee or its successor or
successors,  substitute  or  substitutes,  shall do lawfully  by virtue  hereof.
Mortgagor  will reimburse  Trustee for, and indemnify and save Trustee  harmless
against, any and all liability and expenses (including attorneys fees) which may
be  incurred  by  Trustee  in the  performance  of  his  duties.  The  foregoing
indemnities  shall  not  terminate  upon  the  release,   foreclosure  or  other
termination of this Mortgage but will survive such release,  termination  and/or
foreclosure  of this  Mortgage,  or conveyance in lieu of  foreclosure,  and the
repayment  of the secured  indebtedness  and the  discharge  and release of this
Mortgage  and  the  other  documents  evidencing  and/or  securing  the  secured
indebtedness. Any amount to be paid hereunder by Mortgagor to Trustee shall be a
demand  obligation  owing by  Mortgagor  to Trustee  and shall be subject to and
covered by the provisions of Section 2.3 hereof.

     Section  5.15 Release of Mortgage.  If all of the secured  indebtedness  be
                   -------------------
paid as the same becomes due and payable,  all other  requirements of the Credit
Agreement are satisfied and all of the covenants,  warranties,  undertakings and
agreements  made in this  Mortgage  are kept and  performed,  and if neither the
Mortgagor  nor any Lender is bound to the other or to any third person to permit
any obligation or secured indebtedness to be incurred then or thereafter,  then,
upon sixty (60) days prior written  notice (or such lesser number of days as may

                                      -33-


be mandated by applicable  law), the Mortgagor may request that this Mortgage be
terminated.  Upon such  termination  the  Mortgagor  may further  request that a
written act of release of this Mortgage be provided  (except this mortgage shall
be reinstated to the extent expressly  provided  herein,  and will continue with
respect to indemnification  and other rights which are to continue following the
release hereof).  Agent agrees to deliver such an act of release (subject to the
foregoing  limitation),  all at the cost and  expense of the  Mortgagor,  within
thirty (30) days (or such lesser number of days as may be mandated by applicable
law) of receiving such request unless Agent in good faith,  has cause to believe
that   Mortgagor  is  not   entitled  to  a   termination   of  this   Mortgage.
Notwithstanding  the  foregoing,  it  is  understood  and  agreed  that  certain
indemnifications,  and other  rights,  which  are  provided  herein to  continue
following the release  hereof,  shall  continue in effect  notwithstanding  such
release;  and  provided  that if any  payment  to Lender,  or Agent,  is held to
constitute a preference or a voidable transfer under applicable state or federal
laws or if for any other  reason  Lender,  or Agent,  is required to refund such
payment to the payor  thereof or to pay the amount  thereof to any third  party,
this Mortgage shall be reinstated to the extent of such payment or payments.

     Section 5.16 Notices. All notices,  requests,  consents,  demands and other
                  -------
communications  required or permitted hereunder shall be in writing and shall be
deemed  sufficiently  given or furnished if delivered by personal  delivery,  by
telecopy,  by delivery  service  with proof of  delivery,  or by  registered  or
certified United States mail, postage prepaid, at the addresses specified at the
end of this Mortgage  (unless  changed by similar notice in writing given by the
particular  party  whose  address  is  to  be  changed).   Any  such  notice  or
communication  shall be deemed to have  been  given (a) in the case of  personal
delivery or delivery service,  as of the date of first attempted delivery at the
address and in the manner  provided  herein,  (b) in the case of telecopy,  upon
receipt,  and (c) in the case of  registered  or certified  United  States mail,
three days after deposit in the mail. Notwithstanding the foregoing, or anything
else in the Loan Documents which may appear to the contrary, any notice given in
connection  with a foreclosure of the liens and/or  security  interests  created
hereunder,  or otherwise in connection with the exercise by Agent, any Lender or
Trustee of their  respective  rights hereunder or under any other Loan Document,
which is given in a manner permitted by applicable law shall  constitute  proper
notice; without limitation of the foregoing,  notice given in a form required or
permitted  by statute  shall (as to the  portion of the  Property  to which such
statute is applicable) constitute proper notice.

     Section 5.17 Invalidity of Certain  Provisions.  A  determination  that any
                  ---------------------------------
provision  of this  Mortgage is  unenforceable  or invalid  shall not affect the
enforceability or validity of any other provision and the determination that the
application of any provision of this Mortgage to any person or  circumstance  is
illegal or unenforceable shall not affect the enforceability or validity of such
provision as it may apply to other persons or circumstances.

     Section  5.18 Gender;  Titles.  Within this  Mortgage,  words of any gender
                   ---------------
shall be held and  construed  to  include  any  other  gender,  and words in the
singular  number shall be held and  construed to include the plural,  unless the
context   otherwise   requires.   Titles  appearing  at  the  beginning  of  any
subdivisions hereof are for convenience only, do not constitute any part of such
subdivisions,  and shall be disregarded in construing the language  contained in
such subdivisions.

                                      -34-


     Section  5.19  Recording.  Mortgagor  will  cause  this  Mortgage  and  all
                    ---------
amendments and supplements thereto and substitutions  therefor and all financing
statements and continuation  statements relating thereto to be recorded,  filed,
re-recorded  and  refiled in such  manner and in such places as Trustee or Agent
shall reasonably request and will pay all such recording,  filing,  re-recording
and refiling taxes, fees and other charges.

     Section 5.20 Reporting Compliance.  Mortgagor agrees to comply with any and
                  --------------------
all reporting requirements  applicable to the transaction evidenced by the Notes
and secured by this Mortgage which are set forth in any law, statute, ordinance,
rule,  regulation,  order or determination of any  governmental  authority,  and
further  agrees  upon  request of Agent to furnish  Agent with  evidence of such
compliance.

     Section 5.21 Certain Consents.  Except where otherwise  expressly  provided
                  ----------------
herein, in any instance hereunder where the approval, consent or the exercise of
judgment  of Agent or any Lender is  required,  the  granting  or denial of such
approval or consent and the exercise of such  judgment  shall he within the sole
discretion  of such party.  and such party  shall not,  for any reason or to any
extent,  be required to grant such approval or consent or exercise such judgment
in any particular manner, regardless of the reasonableness of either the request
or the judgment of such party.

     Section 5.22 Certain Obligations of Mortgagor. Without limiting Mortgagor's
                  --------------------------------
obligations  hereunder,  Mortgagor's  liability  hereunder and the  indebtedness
secured hereby shall extend to and include all post petition interest, expenses,
and other  duties  and  liabilities  with  respect  to  Mortgagor's  obligations
hereunder  which  would  be  owed  but  for  the  fact  that  the  same  may  be
unenforceable  due to the existence of a bankruptcy,  reorganization  or similar
proceeding.

     Section 5.23 Authority of Agent.  The persons  constituting  Lender may, by
                  ------------------
agreement  among  them,  provide  for and  regulate  the  exercise of rights and
remedies  hereunder,  but,  unless and until modified to the contrary in writing
signed by all such  persons and  recorded in the same  counties  and parishes as
this  Mortgage  is  recorded,  (i) all  persons  other  than  Mortgagor  and its
affiliates  shall  be  entitled  to rely  on the  releases,  waivers,  consents,
approvals,   notifications  and  other  acts  (including,   without  limitation,
appointment of substitute or successor trustee,  or trustees,  hereunder and the
bidding  in of all or any part of the  secured  indebtedness  held by any one or
more  Lenders,  whether the same be  conducted  under the  provisions  hereof or
otherwise) of Agent,  without  inquiry into any such agreements or the existence
of required consent or approval of any persons  constituting  Lender and without
the joinder of any party other than Agent in such releases,  waivers,  consents,
approvals, notifications or other acts and (ii) all notices, requests, consents,
demands and other communications required or permitted to be given hereunder may
be given to Agent.

     Section  5.24  Counterparts.  This  Mortgage  may be  executed  in  several
                    ------------
counterparts,  all of  which  are  identical,  except  that,  (a) to  facilitate
recordation,  certain  counterparts  hereof  may  include  only that  portion of
Exhibit A which contains descriptions of the properties located in (or otherwise
subject  to the  recording  or filing  requirements  and/or  protections  of the
recording or filing acts or regulations of) the recording  jurisdiction in which
the particular  counterpart  is to be recorded,  and other portions of Exhibit A
shall be included in such  counterparts  by reference only and (b) Schedule I is
attached only to the master  counterparts hereof being retained by Mortgagor and

                                      -35-


Agent, (c) only those counterparts  hereof being retained by Agent and Mortgagor
or otherwise containing counterpart descriptions of Mortgaged Properties located
in (or  otherwise  subject  to  the  recording  or  filing  requirements  and/or
protections  of the  recording  or filing acts or  regulations  of) the State of
Louisiana will have Annex I attached  thereto,  Annex I is included in all other
counterparts  by reference only, (d) the execution of this Mortgage by Mortgagor
may not be witnessed on those  counterparts  hereof  containing  descriptions of
Mortgaged  Properties  located in states where witnesses are not required and/or
encouraged by applicable law, (c) only those counterparts  hereof being retained
by  Agent  and  Mortgagor  otherwise  containing  counterpart   descriptions  of
Mortgaged Properties located in (or otherwise subject to the recording or filing
requirements  and/or  protections of the recording or filing acts or regulations
of) in State of North  Dakota  will have Annex II attached  thereto,  Annex Ills
included in all other  counterparts  by reference  only,  and (f) the  following
schedules will be attached only to the master counterparts hereof being retained
by Agent and Mortgagor,  and are included in all other counterparts by reference
only:  Schedules 2.1(c)A,  2.1(c)B,  2.1(e) and 2.1(g). All of such counterparts
together shall constitute one and the same  instrument.  Complete copies of this
Mortgage  containing  the  entire  Exhibit A and  Schedule  I, and being  frilly
executed by Agent,  and  witnessed  by two  individuals,  have been  retained by
Mortgagor  and Agent  and one such copy  (without  Schedules  2.l(c)A,  2.1(c)B,
2.1(e) and 2.1(g)) has been recorded in Pointe Coupee Parish, Louisiana.

     Section 5.25 Multiple Parties  Constituting  Mortgagor.  Unless the context
                  -----------------------------------------
clearly  indicates  otherwise,  as used in this Mortgage,  "Mortgagor" means the
Mortgagors  named in  Section  1.1  hereof or any of them.  The  obligations  of
Mortgagor hereunder shall be joint and several.

     Section 5.26  Successors  and Assigns.  The terms,  provisions,  covenants,
                   -----------------------
representations,  indemnifications  and conditions  hereof shall be binding upon
Mortgagor,  and the successors and assigns of Mortgagor,  and shall inure to the
benefit  of  Agent,  Trustee  and each  person  constituting  Lender  and  their
respective  successors and assigns,  and shall constitute covenants running with
the  Mortgaged  Properties.  Should  the  agency  under  which  Agent  serves be
terminated,  or otherwise  cease to exist,  Lenders  (including  the  respective
successors and assigns of each person constituting Lender named herein) shall be
deemed to be the  successors  to  Agent.  All  references  in this  Mortgage  to
Mortgagor,  Agent,  Trustee  or  Lenders  shall be  deemed to  include  all such
successors and assigns.

     Section 5.27 FINAL  AGREEMENT OF THE  PARTIES.  THE WRITTEN LOAN  DOCUMENTS
                  --------------------------------------------------------------
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
- --------------------------------------------------------------------------------
EVIDENCE  OF  PRIOR.  CONTEMPORANEOUS.  OR  SUBSEQUENT  ORAL  AGREEMENTS  OF THE
- --------------------------------------------------------------------------------
PARTIES. THERE ARE NO UNWRHTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
- ------------------------------------------------------------------

     Section 5.28 CHOICE OF LAW.  WITHOUT  REGARD TO  PRINCIPLES OF CONFLICTS OF
                  -------------
LAW,  THIS  MORTGAGE  SHALL BE  CONSTRUED  AND ENFORCED IN  ACCORDANCE  WITH AND
GOVERNED BY THE LAWS OF THE STATE OF TEXAS  APPLICABLE TO CONTRACTS  MADE AND TO
BE  PERFORMED  ENTIRELY  WITHIN SUCH STATE AND THE LAWS OF THE UNITED  STATES OF

                                      -36-


AMERICA, EXCEPT THAT TO THE EXTENT THAT THE LAW OF A STATE IN WHICH A PORTION OF
THE  PROPERTY IS LOCATED (OR WHICH IS OTHERWISE  APPLICABLE  TO A PORTION OF THE
PROPERTY)  NECESSARILY  OR,  IN THE SOLE  DISCRETION  OF  LENDER,  APPROPRIATELY
GOVERNS WITH  RESPECT TO  PROCEDURAL  AND  SUBSTANTIVE  MATTERS  RELATING TO THE
CREATION,  PERFECTION AND ENFORCEMENT OF THE LIENS, SECURITY INTERESTS AND OTHER
RIGHTS AND REMEDIES OF THE TRUSTEE OR THE LENDER GRANTED HEREIN, THE LAW OF SUCH
STATE SHALL  APPLY AS TO THAT  PORTION OF THE  PROPERTY  LOCATED IN (OR WHICH IS
OTHERWISE SUBJECT TO THE LAWS OF) SUCH STATE.

     Section 5.29  Reliance on  Certificate  or  Statement  of Agent.  All third
                   -------------------------------------------------
parties  may  rely  upon a  certificate  or  statement  of the  Agent  as to the
occurrence of any act or event, including, but not limited to, the occurrence of
a default  hereunder,  or the occurrence of an Event of Default under the Credit
Agreement.

     Section  5.30  Appearance.  Resolutions,  For  purposes of  Louisiana  law,
                    ----------
including but not limited to the  availability of executory  process,  Mortgagor
has appeared on this date before the undersigned  Notary Public and witnesses in
order to execute this Mortgage.  Mortgagor attaches, as Annex I, to counterparts
hereof  being  recorded  in  Louisiana  certified  resolutions  of its  Board of
Directors authorizing the execution and delivery of this Mortgage.

     Section 5.31 Paraph.  Mortgagor  acknowledges  that no  promissory  note or
                  ------
other  instrument  has been  presented to the  undersigned  Notary  Public to be
paraphed for identification herewith.

     Section 5.32  Acceptance  by Agent.  In accordance  with the  provisions of
                   --------------------
Louisiana  Civil Code  article  3289,  Agent has  accepted  the  benefits of the
Mortgage without the necessity of execution by Agent.


                                      -37-




     THUS DONE AND  PASSED  this 24th day of  January,  2003,  to be  effective,
however,  as of January  27,  2003,  in my presence  and in the  presence of the
undersigned competent witnesses who hereunto sign their names with Mortgagor and
me, Notary, after reading of the whole.


WITNESSES:                               ST. MARY LAND & EXPLORATION
/s/ KAREN M. POLLY                       COMPANY
- -----------------------------------
Name:   Karen M. Polly
       ----------------------------
                                         By:  /s/ MILAM RANDOLPH PHARO
                                             -----------------------------------
                                              Milam Randolph Pharo
 /s/ ROBERT T. HANLEY                         Vice President - Land & Legal
- -----------------------------------
Name:   Robert T. Hanley
       ----------------------------

                             /s/ JAMES C. ROBERSTON
                    -----------------------------------------
                                  NOTARY PUBLIC


The address and tax identification number of Parent are:
1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(Denver County)
Taxpayer I.D. No. 41-05 18430

The  address of Agent is:
201 South College Street
8th Floor NC 0680
Charlotte, NC 28288

The addresses of Trustees are:
Jay Chernosky
1001 Fannin Street, Suite 2255
Houston, Texas 77002

The First American Title Company of Utah
3300 East 400 South
Salt Lake City, Utah 84111

This instrument prepared by:
Craig W. Murray
Vinson & Elkins L.L.P.
1001 Fannin, Suite 2300
Houston, TX  77002

                                      -38-


STATE OF COLORADO                 ss.
                                  ss.
COUNTY OF DENVER                  ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby certify that, on this 24th day of January,  2003, THERE
personally  appeared before me: Milam Randolph Pharo,  the Vice President - Land
& Legal of St. Mary Land &  Exploration Company, a Delaware corporation,
known to me to be such officer,  such corporation being a party to the foregoing
instrument.

MONTANA, NEW        The foregoing instrument was  acknowledged before me on this
MEXICO, NORTH       day, bysuch  person, the  above  designated  officer  of the
DAKOTA              corporation  specified  following  such  person's  name,  on
OKLAHOMA, TEXAS,    behalf of said corporation.
UTAH, WYOMING and
LOUISIANA           On  this  date   before  me,  the   undersigned   authority,
                    personally  came and appeared such person,  to me personally
                    known  and  known  by me  to be  the  person  whose  genuine
                    signature is affixed to the foregoing  document as the above
                    designated  officer of the corporation  specified  following
                    such person's  name,  who signed said document  before me in
                    the presence of the two  witnesses,  whose names are thereto
                    subscribed  as  such,  being  competent  witnesses,  and who
                    acknowledged,  in my  presence  and in the  presence of said
                    witnesses,  that he signed the above and foregoing  document
                    as his own free act and deed on behalf  of such  corporation
                    by authority  of its board of directors  and as the free act
                    and deed of such  corporation  and for the uses and purposes
                    therein set forth and apparent.

     IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in the
City of Denver, Denver County, Colorado on the day and year first above written.

                                /s/ JAMES C. ROBERTSON
                               -------------------------------------------------
                               NOTARY PUBLIC, in and for the State of Colorado
                                  James C. Robertson
                               -------------------------------------------------
My commission expires:           (printed name)
Feb. 14, 2005
- ---------------------

[SEAL]

                                      -39-




     THUS  DONE AND  PASSED  this 24th day of January,  2003,  to be  effective,
however,  as of January  27,  2003,  in my presence  and in the  presence of the
undersigned competent witnesses who hereunto sign their names with Mortgagor and
me, Notary, after reading of the whole.

WITNESSES:                               ST. MARY ENERGY COMPANY
/s/ KAREN M. POLLY
- -----------------------------------
Name:   Karen M. Polly
       ----------------------------
                                         By: /s/ MILAM RANDOLPH PHARO
                                             -----------------------------------
                                              Milam Randolph Pharo
/s/ ROBERT T. HANLEY                          Vice President - Land & Legal
- -----------------------------------
Name:   Robert T. Hanley
       ----------------------------
                             /s/ JAMES C. ROBERSTON
                   ------------------------------------------
                                  NOTARY PUBLIC

The address and tax identification number of Energy are:

1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(Denver County)
Taxpayer ID. No. 76-0554924


STATE OF COLORADO            ss.
                             ss.
COUNTY OF DENVER             ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby certify that, on this 24th day of January,  2003, there
personally  appeared before me: Milam Randolph Pharo,  the Vice President - Land
& Legal of St. Mary Energy Company, a Delaware  corporation,  known to me to
be such officer, such corporation being a party to the foregoing instrument.

MONTANA, NEW        The foregoing instrument was  acknowledged before me on this
MEXICO, NORTH       day, by  such  person, the  above designated  officer of the
DAKOTA              corporation  specified  following  such  person's  name,  on
OKLAHOMA,TEXAS,     behalf of said corporation.
UTAH, WYOMING and
LOUISIANA           On  this  date   before  me,  the   undersigned   authority,
                    personally  came and appeared such person,  to me personally
                    known  and  known  by me  to be  the  person  whose  genuine
                    signature is affixed to the foregoing  document as the above
                    designated  officer of the corporation  specified  following
                    such person's  name,  who signed said document  before me in
                    the presence of the two  witnesses,  whose names are thereto
                    subscribed  as  such,  being  competent  witnesses,  and who

                                      -40-


                    acknowledged,  in my  presence  and in the  presence of said
                    witnesses,  that he signed the above and foregoing  document
                    as his own free act and deed on behalf  of such  corporation
                    by authority  of its board of directors  and as the free act
                    and deed of such  corporation  and for the uses and purposes
                    therein set forth and apparent.

     IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in the
City of Denver, Denver County, Colorado on the day and year first above written.

                                 /s/ JAMES C. ROBERTSON
                               -------------------------------------------------
                               NOTARY PUBLIC, in and for the State of Colorado
                                  James C. Robertson
                               -------------------------------------------------
My commission expires:           (printed name)
Feb. 14, 2005
- ---------------------

[SEAL]

                                      -41-




     THUS  DONE AND  PASSED  this ___ day of  January,  2003,  to be  effective,
however,  as of January  27,  2003,  in my presence  and in the  presence of the
undersigned competent witnesses who hereunto sign their names with Mortgagor and
me, Notary, after reading of the whole.

WITNESSES:                               NANCE PETROLEUM CORPORATION
/s/ KAREN M. POLLY
- -----------------------------------
Name:   Karen M. Polly
       ----------------------------
                                         By:   /s/ ROBERT T. HANLEY
                                              ----------------------------------
                                              Robert T. Hanley
 /s/ RICHARD C. NORRIS                        Vice President and Treasurer
- -----------------------------------
Name:   Richard C. Norris
       ----------------------------
                             /s/ JAMES C. ROBERSTON
                   ------------------------------------------
                                  NOTARY PUBLIC

The address and tax identification number of Nance are:

550 North 31st Street, Suite 500
Billings, Montana 59101
(Yellowstone County)
Taxpayer I.D. No. 8 1-0309883


STATE OF COLORADO               ss.
                                ss.
COUNTY OF DENVER                ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby certify that, on this 24th day of January,  2003, there
personally  appeared  before  me:  Robert  T.  Hanley,  the Vice  President  and
Treasurer of Nance Petroleum Corporation, a Montana corporation,  known to me to
be such officer, such corporation being a party to the foregoing instrument.

MONTANA, NEW        The foregoing instrument was acknowledged before mc on this
MEXICO, NORTH       day, by such  person, the  above designated  officer of  the
DAKOTA              corporation  specified  following  such  person's  name,  on
OKLAHOMA, TEXAS,    behalf of said corporation.
UTAH, WYOMING and
LOUISIANA           On  this  date   before  me,  the   undersigned   authority,
                    personally  came and appeared such person,  to me personally
                    known  and  known  by me  to be  the  person  whose  genuine
                    signature is affixed to the foregoing  document as the above
                    designated  officer of the corporation  specified  following
                    such person's  name,  who signed said document  before me in
                    the presence of the two  witnesses,  whose names are thereto
                    subscribed  as  such,  being  competent  witnesses,  and who

                                      -42-


                    acknowledged,  in my  presence  and in the  presence of said
                    witnesses,  that he signed the above and foregoing  document
                    as his own free act and deed on behalf  of such  corporation
                    by authority  of its board of directors  and as the free act
                    and deed of such  corporation  and for the uses and purposes
                    therein set forth and apparent.

     IN WITNESS  WHEREOF.  I have  hereunto set my hand and official seal in the
City of  Denver,  Denver  County,  Colorado,  on the day and  year  first  above
written.

                                /s/ JAMES C. ROBERTSON
                               -------------------------------------------------
                               NOTARY PUBLIC, in and for the State of Colorado
                                  James C. Robertson
                               -------------------------------------------------
My commission expires:           (printed name)
Feb. 14, 2005
- ---------------------

[SEAL]

                                      -43-




     THUS  DONE AND  PASSED  this 24th day of  January,  2003, to be  effective,
however,  as of January  27,  2003,  in my presence  and in the  presence of the
undersigned competent witnesses who hereunto sign their names with Mortgagor and
me, Notary, after reading of the whole.

WITNESSES:                               ST. MARY MINERALS INC.
/s/ KAREN M. POLLY
- -----------------------------------
Name:   Karen M. Polly
       ----------------------------
                                         By:  /s/ RICHARD C. NORRIS
                                              ----------------------------------
                                              Richard C. Norris
 /s/ ROBERT T. HANLEY                         Vice President - Finance
- -----------------------------------
Name:   Robert T. Hanley
       ----------------------------
                             /s/ JAMES C. ROBERSTON
                   ------------------------------------------
                                  NOTARY PUBLIC

The address and tax identification number of Minerals are:

1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(Denver County)
Taxpayer I.D. No. 84-12003 18


STATE OF COLORADO                ss.
                                 ss.
COUNTY OF DENVER                 ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby certify that, on this 24th day of January,  2003, there
personally  appeared before me: Richard C. Norris,  the Vice President - Finance
of St.  Mary  Minerals  Inc.,  a  Colorado  corporation,  known to me to be such
officer, such corporation being a party to the foregoing instrument.

MONTANA, NEW        The foregoing instrument was  acknowledged before me on this
MEXICO, NORTH       day, by  such person, the  above designated  officer of  the
DAKOTA              corporation  specified  following  such  person's  name,  on
OKLAHOMA, TEXAS,    behalf of said corporation.
UTAH, WYOMING and
LOUISIANA           On  this  date   before  me,  the   undersigned   authority,
                    personally  came and appeared such person,  to me personally
                    known  and  known  by me  to be  the  person  whose  genuine
                    signature is affixed to the foregoing  document as the above
                    designated  officer of the corporation  specified  following
                    such person's  name,  who signed said document  before me in
                    the presence of the two  witnesses,  whose names are thereto
                    subscribed  as  such,  being  competent  witnesses,  and who

                                      -44-


                    acknowledged,  in my  presence  and in the  presence of said
                    witnesses,  that he signed the above and foregoing  document
                    as his own free act and deed on behalf  of such  corporation
                    by authority  of its board of directors  and as the free act
                    and deed of such  corporation  and for the uses and purposes
                    therein set forth and apparent.

     IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in the
City of  Denver,  Denver  County,  Colorado,  on the day and  year  first  above
written.

                                  /s/ JAMES C. ROBERTSON
                               -------------------------------------------------
                               NOTARY PUBLIC, in and for the State of Colorado
                                  James C. Robertson
                               -------------------------------------------------
My commission expires:           (printed name)
Feb. 14, 2005
- ---------------------

[SEAL]

                                      -45-




     THUS  DONE AND  PASSED  this ___ day of  January,  2003,  to be  effective,
however,  as of January  27,  2003,  in my presence  and in the  presence of the
undersigned competent witnesses who hereunto sign their names with Mortgagor and
me, Notary, after reading of the whole.

WITNESSES:                               ROSWELL, L.L.C.
/s/ KAREN M. POLLY
- -----------------------------------
Name:   Karen M. Polly                   By:   St. Mary Land & Exploration
       ----------------------------            Company, as Member


/s/ ROBERT T. HANLEY                      By: /s/ MILAM RANDOLPH PHARO
- -----------------------------------           ----------------------------------
Name:   Robert T. Hanley                      Milam Randolph Pharo
       ----------------------------           Vice President - Land & Legal

                             /s/ JAMES C. ROBERSTON
                   ------------------------------------------
                                  NOTARY PUBLIC


The address and tax identification number of Roswell are:

1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(Denver County)
Taxpayer I.D. No. 74-2788509


STATE OF COLORADO                 ss.
                                  ss.
COUNTY OF DENVER                  ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby certify that, on this 24th day of January, 2003,  there
personally  appeared before me: Milam Randolph Pharo,  the Vice President - Land
& Legal of St Mary Land &  Exploration Company, a Delaware  corporation,
in its  capacity  as a member of  Roswell,  L.L.C.,  a Texas  limited  liability
company,  known to me to be such officer of such  corporation,  such corporation
acting in its  capacity  as  member  and on  behalf  of such  limited  liability
company,  and such  limited  liability  company  being a party to the  foregoing
instrument.

MONTANA, NEW        The foregoing instrument was  acknowledged before me on this
MEXICO, NORTH       day, by such person, the  above  designated  officer  of St.
DAKOTA              Mary  Land & Exploration Company  acting in its capacity
OKLAHOMA, TEXAS,    as  member   of  the  limited  liability  company  specified
UTAH, WYOMING and   following such person's name,  on behalf of said corporation
LOUISIANA           acting ill its capacity as member of  the  limited liability
                    company,and on behalf of said limited liability and company.

                                      -46-


                    On  this  date   before  me,  the   undersigned   authority.
                    personally  came and appeared such person,  to me personally
                    known  and  known  by  me  o be  the  person  whose  genuine
                    signature is affixed to the foregoing  document as the above
                    designated officer of the above mentioned corporation acting
                    in its capacity as member of the limited  liability  company
                    specified  following  such  person's  name,  who signed said
                    document  before me in the  presence  of the two  witnesses,
                    whose names are thereto  subscribed as such, being competent
                    witnesses,  and who acknowledged,  in my presence and in the
                    presence  of said  witnesses,  that he signed  the above and
                    foregoing document as his own free act and deed on behalf of
                    such  corporation  acting in its  capacity as member of such
                    limited  liability  company,  and on behalf of such  limited
                    liability  company,  by  authority of its board of directors
                    and by authority of its  members,  respectively,  and as the
                    free  act  and  deed  of  such  corporation,  acting  in its
                    capacity as member of such limited liability company, and of
                    such limited liability company and for the uses and purposes
                    therein set forth and apparent.

     IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in the
City of  Denver,  Denver  County,  Colorado,  on the day and  year  first  above
written.

                                /s/ JAMES C. ROBERTSON
                               -------------------------------------------------
                               NOTARY PUBLIC, in and for the State of Colorado
                                  James C. Robertson
                               -------------------------------------------------
My commission expires:           (printed name)
Feb. 14, 2005
- ---------------------

[SEAL]


                                      -47-




     THUS  DONE AND  PASSED  this 24th day of  January,  2003, to be  effective,
however,  as of January  27,  2003,  in my presence  and in the  presence of the
undersigned competent witnesses who hereunto sign their names with Mortgagor and
me, Notary, after reading of the whole.

WITNESSES:                               ST. MARY OPERATING COMPANY
/s/ KAREN M. POLLY
- -----------------------------------
Name:   Karen M. Polly
       ----------------------------
                                         By:  /s/ MILAM RANDOLPH PHARO
                                              ----------------------------------
                                              Milam Randolph Pharo
/s/ ROBERT T. HANLEY                          Vice President - Land & Legal
- -----------------------------------
Name:   Robert T. Hanley
       ----------------------------
                             /s/ JAMES C. ROBERSTON
                   ------------------------------------------
                                  NOTARY PUBLIC

The address and tax identification number of Operating are:

1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(Denver County)
Taxpayer I.D. No. 84-0723492


STATE OF COLORADO           ss.
                            ss.
COUNTY OF DENVER            ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby certify that, on this 24th day of January,  2003, there
personally  appeared before me: Milam Randolph Pharo,  the Vice President - Land
& Legal of St. Mary Operating Company, a Colorado  corporation.  known to me
to be such officer, such corporation being a party to the foregoing instrument.

MONTANA, NEW        The foregoing instrument was  acknowledged before me on this
MEXICO, NORTH       day, by  such person, the above  designated  officer of  the
DAKOTA              corporation  specified  following  such  person's  name,  on
OKLAHOMA, TEXAS,    behalf of said corporation.
UTAH, WYOMING and
LOUISIANA           On  this  date   before  me,  the   undersigned   authority,
                    personally  came and appeared such person,  to me personally
                    known  and  known  by me  to be  the  person  whose  genuine
                    signature is affixed to the foregoing  document as the above
                    designated  officer of the corporation  specified  following
                    such person's  name,  who signed said document  before me in
                    the presence of the two  witnesses,  whose names are thereto
                    subscribed  as  such,  being  competent  witnesses,  and who

                                      -48-


                    acknowledged,  in my  presence  and in the  presence of said
                    witnesses,  that he signed the above and foregoing  document
                    as his own free act and deed on behalf  of such  corporation
                    by authority  of its board of directors  and as the free act
                    and deed of such  corporation  and for the uses and purposes
                    therein set forth and apparent.

     IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in the
City of  Denver,  Denver  County,  Colorado,  on the day and  year  first  above
written.

                                /s/ JAMES C. ROBERTSON
                               -------------------------------------------------
                               NOTARY PUBLIC, in and for the State of Colorado
                                  James C. Robertson
                               -------------------------------------------------
My commission expires:           (printed name)
Feb. 14, 2005
- ---------------------

[SEAL]

                                      -49-




     THUS  DONE AND  PASSED  this ___ day of  January,  2003,  to be  effective,
however,  as of January  27,  2003,  in my presence  and in the  presence of the
undersigned competent witnesses who hereunto sign their names with Mortgagor and
me, Notary, after reading of the whole.

WITNESSES:                               NPC INC.
/s/ KAREN M. POLLY
- -----------------------------------
Name:   Karen M. Polly
       ----------------------------
                                         By:  /s/ ROBERT T. HANLEY
                                              ----------------------------------
                                              Robert T. Hanley
/s/ RICHARD C. NORRIS                         Vice President and Treasurer
- -----------------------------------
Name:   Richard C. Norris
       ----------------------------
                             /s/ JAMES C. ROBERSTON
                   ------------------------------------------
                                  NOTARY PUBLIC

The address and tax identification number of Operating are:

550 North 31st Street, Suite 500
Billings, Montana 59101
(Yellowstone County)
Taxpayer I.D. No. 11-3668557


STATE OF COLORADO                 ss.
                                  ss.
COUNTY OF DENVER                  ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby certify that, on this 24th day of January,  2003, there
personally  appeared  before  me:  Robert  T.  Hanley,  the Vice  President  and
Treasurer of NPC Inc., a Colorado  corporation.  known to me to be such officer,
such corporation being a party to the foregoing instrument.

MONTANA, NEW        The foregoing  instrument was acknowledged before me on this
MEXICO, NORTH       day, by  such person, the  above  designated  officer of the
DAKOTA              corporation   specified  following  such  person's  name, on
OKLAHOMA, TEXAS,    behalf of said corporation.
UTAH, WYOMING and
LOUISIANA           On  this  date   before  me,  the   undersigned   authority,
                    personally  came and appeared such person,  to me personally
                    known  and  known  by me  to be  the  person  whose  genuine
                    signature is affixed to the foregoing  document as the above
                    designated  officer of the corporation  specified  following
                    such person's  name,  who signed said document  before me in
                    the presence of the two  witnesses,  whose names are thereto
                    subscribed  as  such,  being  competent  witnesses,  and who

                                      -50-


                    acknowledged,  in my  presence  and in the  presence of said
                    witnesses,  that he signed the above and foregoing  document
                    as his own free act and deed on behalf  of such  corporation
                    by authority  of its board of directors  and as the free act
                    and deed of such  corporation  and for the uses and purposes
                    therein set forth and apparent.

     IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in the
City of  Denver,  Denver  County,  Colorado,  on the day and  year  first  above
written.
                                /s/ JAMES C. ROBERTSON
                               -------------------------------------------------
                               NOTARY PUBLIC, in and for the State of Colorado
                                  James C. Robertson
                               -------------------------------------------------
My commission expires:           (printed name)
Feb. 14, 2005
- ---------------------

[SEAL]

                                      -51-

EX-10

                                                                   EXHIBIT 10.12
(CO, NV, SD)


                DEED OF TRUST, MORTGAGE, LINE OF CREDIT MORTGAGE.
                 ASSIGNMENT, SECURITY AGREEMENT, FIXTURE FILING
                             AND FINANCING STATEMENT

                                      FROM

                     ST. MARY LAND & EXPLORATION COMPANY
                         (Taxpayer I.D. No. 41-05 18430)

                             ST. MARY ENERGY COMPANY
                         (Taxpayer I.D. No. 76-0554924)

                           NANCE PETROLEUM CORPORATION
                         (Taxpayer I.D. No. 8 1-0309883)

                             ST. MARY MINERALS INC.
                         (Taxpayer I.D. No. 84-1200318)

                                 ROSWELL, L.L.C.
                         (Taxpayer I.D. No. 74-2788509)

                           ST. MARY OPERATING COMPANY
                         (Taxpayer I.D. No. 84-0723492)

                                    NPC INC.
                         (Taxpayer I.D. No. 11-3668557)

                                       TO

                   JAY CHERNOSKY (for Nevada Properties only)

                                       AND

                      WACHOVIA BANK, NATIONAL ASSOCIATION,
                             as Administrative Agent

                     Dated Effective as of April 16th, 2003

A CARBON,  PHOTOGRAPHIC,  FACSIMILE, OR OTHER REPRODUCTION OF THIS INSTRUMENT IS
SUFFICIENT AS A FINANCING STATEMENT.

THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS,  SECURES PAYMENT OF
FUTURE ADVANCES, AND COVERS PROCEEDS OF COLLATERAL.

THIS INSTRUMENT COVERS, AMONG OTHER THINGS, (A) GOODS WHICH ARE OR ARE TO BECOME



FIXTURES  RELATED TO THE REAL PROPERTY  DESCRIBED  HEREIN,  AND (B) AS-EXTRACTED
COLLATERAL  RELATED TO THE REAL PROPERTY  DESCRIBED  HEREIN  (INCLUDING  WITHOUT
LIMITATION,  OIL, GAS, OTHER MINERALS AND OTHER SUBSTANCES OF VALUE WHICH MAY BE
EXTRACTED FROM THE EARTH AND ACCOUNTS ARISING OUT OF THE SALE AT THE WELLHEAD OR
MINEHEAD  THEREOF).  THIS  INSTRUMENT  IS TO BE FILED FOR  RECORD,  AMONG  OTHER
PLACES, IN THE REAL ESTATE OR COMPARABLE RECORDS OF THE COUNTIES AND/OR PARISHES
REFERENCED  IN  EXHIBIT  A HERETO  AND SUCH  FILING  SHALL  SERVE,  AMONG  OTHER
PURPOSES, AS A FIXTURE FILING AND AS A FINANCING STATEMENT COVERING AS-EXTRACTED
COLLATERAL.  THE  MORTGAGOR  HAS AN INTEREST OF RECORD IN THE REAL ESTATE AND/OR
IMMOVABLE PROPERTY CONCERNED, WHICH INTEREST IS DESCRIBED IN SECTION 1.1 OF THIS
INSTRUMENT.

A POWER OF SALE HAS BEEN  GRANTED  IN THIS  MORTGAGE.  A POWER OF SALE MAY ALLOW
- --------------------------------------------------------------------------------
AGENT (AS HEREINAFTER  DEFINED) OR THE TRUSTEE (AS HEREINAFTER  DEFINED) TO TAKE
- --------------------------------------------------------------------------------
THE MORTGAGED  PROPERTIES  AND SELL THEM WITHOUT GOING TO COURT IN A FORECLOSURE
- --------------------------------------------------------------------------------
ACTION  UPON  DEFAULT  BY THE  MORTGAGOR  (AS  HEREINAFTER  DEFINED)  UNDER THIS
- --------------------------------------------------------------------------------
MORTGAGE.
- --------

WHEN RECORDED OR FILED RETURN TO:               THIS DOCUMENT PREPARED BY:

Vinson & Elkins L.L.P.                      Craig W. Murray
2300 First City Tower                           Vinson & Elkins L.L.P.
Houston, Texas 77002                            2300 First City Tower
Attention: Craig W. Murray                      Houston, Texas 77002





                DEED OF TRUST, MORTGAGE, LINE OF CREDIT MORTGAGE
                 ASSIGNMENT, SECURITY AGREEMENT, FIXTURE FILING
                             AND FINANCING STATEMENT
                                (this "Mortgage")

                                   ARTICLE I.

                     Granting Clauses: Secured Indebtedness
                     --------------------------------------

     Section 1.1 Grant and Mortgage.  St. Mary Land & Exploration Company, a
                 ------------------
Delaware corporation ("Parent"), St. Mary Energy Company, a Delaware corporation
("Energy"),  Nance Petroleum Corporation,  a Montana corporation ("Nance"),  St.
Mary Minerals Inc., a Colorado  corporation  ("Minerals"),  Roswell,  L.L.C.,  a
Texas limited  liability  company  ("Roswell"),  St. Mary Operating  Company,  a
Colorado corporation ("Operating"), and NPC Inc., a Colorado corporation ("NPC";
Parent,  Energy,  Nance,  Minerals,  Roswell,  Operating  and NPC  being  herein
collectively called "Mortgagor" and Energy, Nance, Minerals,  Roswell, Operating
and NPC being herein sometimes  collectively  called a "Subsidiary  Mortgagor"),
for and in consideration of the sum of Ten Dollars ($10.00) to Mortgagor in hand
paid, and in order to secure the payment of the secured indebtedness hereinafter
referred  to and the  performance  of the  obligations,  covenants,  agreements,
warranties and undertakings of Mortgagor hereinafter described,  does hereby (a)
GRANT,  BARGAIN,  SELL,  CONVEY,  TRANSFER,  ASSIGN AND SET OVER to Trustee  (as
hereinafter  defined),  and grant to Trustee a POWER OF SALE  (pursuant  to this
Mortgage and applicable  law) with respect to, those of the following  described
properties,  rights and  interests  which are  located  in (or cover  properties
located  in) the  State of Nevada  and to which  the laws of any such  state are
applicable with respect to this Mortgage and/or the liens or security  interests
created  hereby (the "Deed of Trust  Mortgaged  Properties"),  and (b) MORTGAGE,
ASSIGN,  WARRANT,  PLEDGE AND HYPOTHECATE to Agent (as defined in Section 1.3(a)
below),  and  grant to  Agent a POWER OF SALE  (pursuant  to this  Mortgage  and
applicable  law)  with  respect  to,  all of  the  following  described  rights,
interests and  properties  which were not granted to Trustee in clause (a) above
(including,  without limitation,  those of the following  described  properties,
rights and interests which are located in (or cover properties  located in ) the
States of Colorado,  Nevada,  and South Dakota and to which the laws of any such
state are applicable  with respect to this Mortgage and/or the liens or security
interests created hereby) (the "Other Mortgaged Properties"):

          A. The oil, gas and/or other mineral  properties,  mineral servitudes,
and/or mineral rights which are described in Exhibit A attached  hereto and made
a part hereof;

          B. Without  limitation of the  foregoing,  all other right,  title and
interest  of  Mortgagor  of whatever  kind or  character  (whether  now owned or
hereafter  acquired by operation of law or otherwise) in and to (i) the oil, gas
and/or mineral leases or other  agreements  described in Exhibit A hereto,  (ii)
the lands  described  or  referred to in Exhibit A (or  described  in any of the
instruments  described  or  referred  to in Exhibit  A),  without  regard to any
limitations  as to  specific  lands or depths that may be set forth in Exhibit A
hereto or in any of the leases or other agreements described in Exhibit A hereto
and (iii) any other lands  (including  submerged  lands) located anywhere in the
United States of America;

                                      -1-


          C.  All of  Mortgagor's  interest  (whether  now  owned  or  hereafter
acquired by operation of law or otherwise) in and to all presently  existing and
hereafter   created  oil,  gas  and/or  mineral   unitization,   pooling  and/or
communitization  agreements,  declarations  and/or  orders,  and  in  and to the
properties,   rights  and  interests  covered  and  the  units  created  thereby
(including, without limitation, units formed under orders, rules, regulations or
other  official  acts  of  any  federal,   state  or  other   authority   having
jurisdiction), which cover, affect or otherwise relate to the properties, rights
and interests described in clause A or B above;

          D. All of Mortgagor's  interest in and rights under (whether now owned
or hereafter  acquired by operation of law or otherwise) all presently  existing
and hereafter created operating agreements,  equipment leases,  production sales
contracts,  processing  agreements,  transportation  agreements,  gas  balancing
agreements,  farmout and/or farm-in agreements,  salt water disposal agreements,
area of mutual interest agreements,  and other contracts and/or agreements which
cover,  affect,  or otherwise  relate to the  properties,  rights and  interests
described  in clause  A, B or C above or to the  operation  of such  properties,
rights  and  interests  or  to  the  treating,  handling,  storing,  processing,
transporting  or marketing of oil, gas,  other  hydrocarbons,  or other minerals
produced  from  (or  allocated  to)  such   properties,   rights  and  interests
(including,  but not limited to, those contracts listed in Exhibit A hereto), as
same may be amended or supplemented from time to time;

          E.  All of  Mortgagor's  interest  (whether  now  owned  or  hereafter
acquired by operation of law or otherwise) in and to all improvements, fixtures,
movable  or  immovable   property  and  other  real  and/or  personal   property
(including,  without limitation,  all wells, pumping units,  wellhead equipment,
tanks, pipelines, flow lines, gathering lines,  compressors,  dehydration units,
separators,   meters,  buildings,  injection  facilities,  salt  water  disposal
facilities,  and power,  telephone  and  telegraph  lines),  and all  easements,
servitudes,  rights-of-way,  surface leases, licenses, permits and other surface
rights, which are now or hereafter used, or held for use, in connection with the
properties,  rights and  interests  described  in clause A, B or C above,  or in
connection with the operation of such  properties,  rights and interests,  or in
connection with the treating,  handling,  storing,  processing,  transporting or
marketing of oil, gas, other  hydrocarbons,  or other minerals produced from (or
allocated to) such properties, rights and interests; and

          F. All  rights,  estates,  powers and  privileges  appurtenant  to the
foregoing rights, interests and properties.

     TO HAVE AND TO HOLD (a) the Deed of  Trust  Mortgaged  Properties  unto the
Trustee,  and its successors or  substitutes in this trust,  and to its or their
successors  and  assigns,  in trust,  however,  upon the terms,  provisions  and
conditions herein set forth, and (b) the Other Mortgaged  Properties unto Agent,
and Agent's  successors and assigns,  upon the terms,  provisions and conditions
herein set forth (the Deed of Trust Mortgaged Properties and the Other Mortgaged
Properties are herein sometimes collectively called the "Mortgaged Properties").
As used throughout this Mortgage, the term "Trustee" shall mean, with respect to
all of the Deed of Trust  Mortgaged  Properties  which are  located in (or which
cover properties located in) the State of Nevada, Jay Chernosky.

                                      -2-


     Section  1.2 Grant of  Security  Interest.  In order to further  secure the
                  ----------------------------
payment of the secured indebtedness  hereinafter referred to and the performance
of the  obligations,  covenants,  agreements,  warranties,  and  undertakings of
Mortgagor hereinafter described, Mortgagor hereby grants to Agent (as defined in
Section  1.3(a) below) a security  interest in the entire  interest of Mortgagor
(whether now owned or hereafter  acquired by operation of law or  otherwise)  in
and to:

     (a) to the extent a security interest may be created therein, the Mortgaged
Properties;

     (b) all oil, gas, other  hydrocarbons,  and other minerals produced from or
allocated to the Mortgaged  Properties,  and any products  processed or obtained
therefrom  (herein  collectively  called the  "Production"),  together  with all
proceeds of Production  (regardless of whether Production to which such proceeds
relate  occurred on or before or after the date  hereof),  and together with all
liens and security interests securing payment of the proceeds of the Production,
including,  but not limited to, those liens and security  interests provided for
under  (i)  statutes  enacted  in  the  jurisdictions  in  which  the  Mortgaged
Properties  are located,  or (ii)  statutes  made  applicable  to the  Mortgaged
Properties under federal law (or some combination of federal and state law);

     (c) without  limitation  of any other  provisions  of this Section 1.2, all
payments   received  in  lieu  of  production  from  the  Mortgaged   Properties
(regardless of whether such payments accrued,  and/or the events which gave rise
to such payments  occurred,  on or before or after the date hereof),  including,
without  limitation,  "take or pay"  payments  and  similar  payments,  payments
received in  settlement  of or pursuant to a judgment  rendered  with respect to
take or pay or similar obligations or other obligations under a production sales
contract,  payments  received  in buyout or  buydown  or other  settlement  of a
production  sales  contract,  and  payments  received  under a gas  balancing or
similar  agreement as a result of (or received  otherwise  in  settlement  of or
pursuant to judgment  rendered  with  respect to) rights held by  Mortgagor as a
result of Mortgagor  (and/or its  predecessors  in title) taking or having taken
less gas from lands covered by a Mortgaged Property (or lands pooled or unitized
therewith) than their ownership of such Mortgaged Property would entitle them to
receive (the  payments  described  in this  subsection  (c) being herein  called
"Payments in Lieu of Production");

     (d) all equipment, inventory, improvements, fixtures, accessions, goods and
other personal  property or movable property of whatever nature now or hereafter
located on or used or held for use in connection  with the Mortgaged  Properties
(or in connection with the operation thereof or the treating, handling, storing,
processing,  transporting,  or  marketing of  Production),  and all licenses and
permits of whatever  nature now or hereafter  used or held for use in connection
with the Mortgaged  Properties (or in connection  with the operation  thereof or
the  treating,  handling,  storing,  processing,  transporting,  or marketing of
Production),  and all renewals or replacements of the foregoing or substitutions
for the foregoing;

     (e) all  contract  rights,  choses  in  action  (i.e.,  rights  to  enforce
contracts  or to bring  claims  thereunder),  commercial  tort  claims and other
general  intangibles  (regardless  of whether the same arose,  and/or the events
which  gave rise to the same  occurred,  on or before or after the date  hereof)
related to the Mortgaged Properties, the operation thereof (whether Mortgagor is
operator or  non-operator),  or the  treating,  handling,  storing,  processing,

                                      -3-


transporting, or marketing of Production (including,  without limitation, any of
the same  relating to payment of proceeds of Production or to payment of amounts
which could constitute Payments in Lieu of Production);

     (f) Without  limitation of the generality of the foregoing,  any rights and
interests  of Mortgagor  under any present or future  hedge or swap  agreements,
cap, floor, collar, exchange, forward or other hedge or protection agreements or
transactions  relating to crude oil, natural gas or other  hydrocarbons,  or any
option  with  respect to any such  agreement  or  transaction  now  existing  or
hereafter entered into by or on behalf of Mortgagor;

     (g) all geological, geophysical, engineering, accounting, title, legal, and
other  technical or business  data  concerning  the  Mortgaged  Properties,  the
Production or any other item of Property (as hereinafter  defined) which are now
or hereafter in the possession of Mortgagor or in which  Mortgagor can otherwise
grant a  security  interest,  and all books,  files,  records,  magnetic  media,
software and other forms of recording or obtaining access to such data;

     (h) all money,  documents,  instruments,  chattel paper (including  without
limitation,  electronic  chattel paper and tangible  chattel  paper),  rights to
payment evidenced by chattel paper, securities,  accounts,  payment intangibles,
general  intangibles,  letters of credit,  letter-of-credit  rights,  supporting
obligations  and  rights to payment  of money  arising  from or by virtue of any
transaction  (regardless  of whether such  transaction  occurred on or before or
after the date hereof)  related to the Mortgaged  Properties,  the Production or
any other item of Property;

     (i) all rights,  titles and  interests  now owned or hereafter  acquired by
Mortgagor in any and all goods, inventory,  equipment,  as-extracted collateral,
documents, money, instruments,  intellectual property,  certificated securities,
uncertificated  securities,  investment property,  letters of credit,  rights to
proceeds  of  written  letters  of  credit  and other  letter-of-credit  rights,
commercial  tort  claims,   deposit  accounts,   payment  intangibles,   general
intangibles,  contract rights,  chattel paper  (including,  without  limitation,
electronic  chattel  paper  and  tangible  chattel  paper),  rights  to  payment
evidenced by chattel  paper,  software,  supporting  obligations  and  accounts,
wherever located, and all rights and privileges with respect thereto (all of the
properties,  rights and interests  described in subsections  (a), (b), (c), (d),
(e),  (f),  (g) and (h) above and this  subsection  (i) being  herein  sometimes
collectively called the "Collateral"); and

     (j) all proceeds of the  Collateral,  whether such proceeds or payments are
goods,  money,  documents,  instruments,  chattel paper,  securities,  accounts,
payment intangibles,  general intangibles,  fixtures,  real/immovable  property,
personal/  movable  property or other  assets  (the  Mortgaged  Properties,  the
Collateral   and  the  proceeds  of  the  Collateral   being  herein   sometimes
collectively called the "Property").

Except as  otherwise  expressly  provided  in this  Mortgage,  all terms in this
Mortgage  relating to the  Collateral  and the grant of the  foregoing  security
interest  which are  defined in the Texas  Uniform  Commercial  Code (the "UCC")
shall have the meanings  assigned to them in Article 9 (or, absent definition in
Article 9, in any other  Article) of the UCC, as those  meanings may be amended,
revised  or  replaced  from time to time.  Notwithstanding  the  foregoing,  the
parties  intend that the terms used herein which are defined in the UCC have, at
all times, the broadest and most inclusive  meanings possible.  Accordingly,  if
the UCC shall in the  future be  amended  or held by a court to define  any term

                                      -4-


used herein more  broadly or  inclusively  than the UCC in effect on the date of
this  Mortgage,  then such term, as used herein,  shall be given such  broadened
meaning.  If the UCC shall in the future be amended or held by a court to define
any term used herein more narrowly, or less inclusively,  than the UCC in effect
on the date of this Mortgage,  such amendment or holding shall be disregarded in
defining terms used in this Mortgage

     Section 1.3 Secured  Indebtedness.  This Mortgage is executed and delivered
                 ---------------------
by the  Mortgagor  to secure and  enforce the  payment  and  performance  of the
following:

     (a) Payment of and performance of any and all indebtedness, obligations and
liabilities,   including  interest  (including,  without  limitation,   interest
accruing  after the  maturity  of the  "Loans"  (as  defined in the  hereinafter
defined Credit  Agreement)  made by each Lender and interest  accruing after the
filing of any petition in bankruptcy,  or the  commencement  of any  insolvency,
reorganization  or like  proceeding,  relating to the  Parent,  whether or not a
claim for post-filing or  post-petition  interest is allowed in such proceeding)
of the Parent  whether now existing or hereafter  arising under or in connection
with that certain  Credit  Agreement  dated as of January 27, 2003, by and among
Parent,  Wachovia Bank, National  Association,  as Administrative Agent (in such
capacity,  the "Agent") and the Lenders (as amended by First Amendment to Credit
Agreement dated as of January 27, 2003, and as the same may from time to time be
further  amended or  supplemented,  the "Credit  Agreement")  or any other "Loan
Document" (as defined in the Credit Agreement),  including,  without limitation,
the "Notes"  (as  defined in the Credit  Agreement)  in the  aggregate  original
principal  amount of  $300,000,000  with final maturity on or before January 27,
2006.

     (b) Payment and  performance of any and all  indebtedness,  obligations and
liabilities  of  Energy,  Nance,  Operating  and NPC  whether  now  existing  or
hereafter  arising under or in  connection  with the  "Guaranty  Agreement"  (as
defined in the Credit Agreement).

     (c) Any sums which may be advanced or paid by the Agent or any Lender under
the terms hereof or of the Credit  Agreement or any Loan  Document on account of
the failure of the  Mortgagor  to comply  with the  covenants  of the  Mortgagor
contained herein or in the Credit Agreement or any other Loan Document;  and all
other  indebtedness of the Mortgagor  arising pursuant to the provisions of this
Mortgage.

     (d) Payment of and performance of any and all present or future obligations
of the Mortgagor  according to the terms of any present or future  interest rate
or currency swap, rate cap, rate floor,  rate collar,  forward rate agreement or
other exchange or rate  protection  agreements or any option with respect to any
such  transaction  now existing or hereafter  entered into between the Mortgagor
and any Lender (or any Affiliate of such Lender).

     (e) Payment of and performance of any and all present or future obligations
of the  Mortgagor  according  to  the  terms  of  any  present  or  future  swap
agreements,   cap,  floor,  collar,  forward  agreement  or  other  exchange  or
protection  agreements  relating to crude oil, natural gas or other hydrocarbons
or any option with  respect to any such  transaction  now  existing or hereafter
entered  into  between the  Mortgagor  and any Lender (or any  Affiliate of such
Lender).

                                      -5-


     (f)  Performance  of all "Letter of Credit  Agreements"  (as defined in the
Credit Agreement)  executed from time to time by the Parent or any Subsidiary of
the Parent  under or  pursuant  to the Credit  Agreement  and all  reimbursement
obligations  for drawn or undrawn  portions  under any  "Letter  of Credit"  (as
defined in the Credit  Agreement) now  outstanding or hereafter  issued under or
pursuant to the Credit Agreement.

     Section 1.4 Secured  Indebtedness.  The indebtedness referred to in Section
                 ---------------------
1.3,  and  all  renewals,   extensions  and  modifications   thereof,   and  all
substitutions therefor, in whole or in part, are herein sometimes referred to as
the  "secured   indebtedness"  or  the  "indebtedness  secured  hereby".  It  is
contemplated  and  acknowledged  that  the  secured   indebtedness  may  include
revolving  credit loans and advances  from time to time,  and that this Mortgage
shall have effect,  as of the date hereof,  to secure all secured  indebtedness,
regardless  of whether any amounts are advanced on the date hereof or on a later
date or, whether having been advanced,  are later repaid in part or in whole and
further advances made at a later date.

     Section 1.5 MAXIMUM SECURED AMOUNT. NOTWITHSTANDING ANY PROVISION HEREOF TO
                 ----------------------
THE CONTRARY, THE OUTSTANDING INDEBTEDNESS SECURED HEREBY SHALL NOT, AT ANY TIME
OR FROM TIME TO TIME, EXCEED AN AGGREGATE MAXIMUM AMOUNT OF $400,000,000.

     Section  1.6  Limit  on  Secured  Indebtedness  and  Collateral.  It is the
                   -------------------------------------------------
intention of each Subsidiary Mortgagor, Agent and Lenders that this Mortgage not
constitute a fraudulent  transfer or  fraudulent  conveyance  under any state or
federal law that may be applied hereto.  Each  Subsidiary  Mortgagor and, by its
acceptance hereof, Agent hereby acknowledge and agree that,  notwithstanding any
other provision of this Mortgage:  (a) the  indebtedness  secured hereby by such
Subsidiary Mortgagor shall be limited to the maximum amount of indebtedness that
can be incurred or secured by such Subsidiary  Mortgagor  without rendering this
Mortgage subject to avoidance under Section 548 of the United States  Bankruptcy
Code or any comparable  provisions of any  applicable  state or federal law, and
(b) the Property granted by such Subsidiary Mortgagor hereunder shall be limited
to the  maximum  amount  of  Property  that can be  granted  by such  Subsidiary
Mortgagor without rendering this Mortgage subject to avoidance under Section 548
of the  United  States  Bankruptcy  Code  or any  comparable  provisions  of any
applicable state or federal law.

                                  ARTICLE II.

                    Representations, Warranties and Covenants
                    -----------------------------------------

     Section 2.1 Mortgagor represents, warrants, and covenants as follows:

     (a)  Title  and  Permitted  Encumbrances.   Mortgagor  has,  and  Mortgagor
          -----------------------------------
covenants to maintain, good and defensible title to the Property, free and clear
of all liens, security interests, and encumbrances except for (i) the contracts,
agreements,   burdens,   encumbrances   and  other  matters  set  forth  in  the
descriptions  of certain of the Mortgaged  Properties on Exhibit A hereto,  (ii)
the liens and security  interests  evidenced by this Mortgage,  (iii)  statutory
liens for  taxes  which  are not yet  delinquent,  (iv)  liens  under  operating
agreements,  pooling  orders and  unitization  agreements,  and  mechanics'  and

                                      -6-


materialmen's  liens,  with respect to obligations which are not yet due subject
to  applicable  permitted  payment  periods,  and (v) other  liens and  security
interests  (if any) in favor of Agent (the matters  described  in the  foregoing
clauses (i),  (ii),  (iii),  (iv),  and (v) being herein  called the  "Permitted
Encumbrances"); Mortgagor will warrant and defend title to the Property, subject
as aforesaid,  against the claims and demands (including claims which would be a
Permitted Encumbrance under item (vi) above) of all persons claiming or to claim
the same or any part thereof. Without limitation of the foregoing, the ownership
by Mortgagor of the  Mortgaged  Properties  does and will,  with respect to each
well or unit  identified on Schedule I, attached  hereto and made a part hereof,
entitle  Mortgagor  to  receive  (subject  to the terms and  provisions  of this
Mortgage) a decimal or percentage  share of the oil, gas and other  hydrocarbons
produced  from,  or  allocated  to, such well or unit equal to not less than the
decimal  or  percentage  share set forth,  for such well or unit,  in the column
headed "Net Revenue  Interest"  (or words of similar  import) on Schedule I, and
cause  Mortgagor to be obligated  to bear a decimal or  percentage  share of the
cost of  operation  of such well or unit  equal to not more than the  decimal or
percentage share set forth, for such well or unit, in the column headed "Working
Interest" (or words of similar import) on Schedule I. The above-described shares
of  production  which  Mortgagor  is  entitled to receive and shares of expenses
which  Mortgagor  is obligated to bear are not and will not be subject to change
(other than changes which arise pursuant to non-consent  provisions of operating
agreements  described  in  Exhibit A in  connection  with  operations  hereafter
proposed),  except,  and only to the extent that,  such changes are reflected in
Schedule  I.  There  is not and will not be any  unexpired  financing  statement
covering any part of the Property on file in any public  office naming any party
other than Agent as secured party. Upon request by Agent, Mortgagor will deliver
to Agent schedules of all internal and third party  information  identifying the
Mortgaged Properties (such as, for example,  lease names and numbers assigned by
Mortgagor or the  operator of any  Mortgaged  Property,  well and/or unit and/or
property names and numbers  assigned by purchasers of  Production,  and internal
identification  names and numbers used by Mortgagor in accounting  for revenues,
costs,   and  joint  interest   transactions   attributable   to  the  Mortgaged
Properties). The listing of Permitted Encumbrances above is made for the purpose
of limiting  certain  warranties  and covenants made by Mortgagor  herein;  such
listing  is not  intended  to affect  the  description  herein of the  Mortgaged
Properties nor to subordinate the liens and security interests  hereunder to any
Permitted Encumbrances.

     (b) Leases and Contracts;  Performance Of Obligations.  The oil, gas and/or
         -------------------------------------------------
mineral leases, contracts, servitudes and other agreements forming a part of the
Property, to the extent the same cover or otherwise relate to the Property,  are
in full force and effect, and Mortgagor agrees to so maintain them in full force
and effect.  All rents,  royalties and other payments due and payable under such
leases,  contracts,  servitudes  and other  agreements,  or under the  Permitted
Encumbrances,  or  otherwise  attendant  to the  ownership  or  operation of the
Property,  have  been,  and will  continue  to be,  properly  and  timely  paid.
Mortgagor  is not in  default  with  respect  to  Mortgagor's  obligations  (and
Mortgagor  is not aware of any default by any third  party with  respect to such
third party's  obligations) under such leases,  contracts,  servitudes and other
agreements,  or under the Permitted Encumbrances,  or otherwise attendant to the
ownership  or operation of any part of the  Property,  where such default  could
adversely  affect the  ownership or operation of the  Property;  Mortgagor  will
fulfill all such obligations  coming due in the future.  There are no situations
where  Mortgagor is aware that a contingent  liability may exist to account on a
basis  less  favorable  to  Mortgagor  than on the basis on which  Mortgagor  is
currently accounting.

                                      -7-


     (c) Sale of Production.  No Mortgaged Property is or will become subject to
         ------------------
any  contractual or other  arrangement  (i) whereby payment for production is or
can be  deferred  for a  substantial  period  after  the  month  in  which  such
production is delivered (i.e., for wells in pay status,  in the case of oil, not
in excess of 60 days,  and in the case of gas, not in excess of 90 days, and for
wells not in pay status,  the time period  provided by statute) or (ii)  whereby
payments  are made to  Mortgagor  other than by checks,  drafts,  wire  transfer
advises  or  other  similar  writings,  instruments  or  communications  for the
immediate  payment of money.  Except for production sales contracts,  processing
agreements or  transportation  agreements (or other  agreements  relating to the
marketing of Production)  listed on Exhibit A (in connection  with the Mortgaged
Properties to where they relate),  (i) except as otherwise disclosed to Agent in
writing,  no Mortgaged  Property is or will become subject to any contractual or
other  arrangement for the sale,  processing or transportation of Production (or
otherwise  related to the marketing of  Production)  which (except for contracts
with a term of 270 days or less)  cannot  be  cancelled  on 120  days' (or less)
notice and (ii) all contractual or other  arrangements for the sale,  processing
or  transportation  of  Production  (or  otherwise  related to the  marketing of
Production) shall be bona fide transactions,  and will be with third parties not
affiliated  with Mortgagor,  and shall,  with respect to all contracts and other
arrangements  be at the best price (and on the best terms) then available  (such
price  shall,  in the  case of  Production  sales  which  are  subject  to price
controls,  be  determined  giving  consideration  to such  fact).  Mortgagor  is
presently  receiving a price for all production from (or  attributable  to) each
Mortgaged Property covered by a production sales contract listed on Exhibit A as
computed  in  accordance  with the  terms of such  contract,  and is not  having
deliveries of production from such Mortgaged  Property  curtailed  substantially
below such  property's  delivery  capacity.  Neither  Mortgagor,  nor any of its
predecessors in title, has received prepayments (including,  but not limited to,
payments  for gas  not  taken  pursuant  to  "take  or  pay"  or  other  similar
arrangements) for any oil, gas or other hydrocarbons  produced or to be produced
from the  Mortgaged  Properties  after the date  hereof,  and  Mortgagor  hereby
covenants not to enter into any such advance or prepayment  arrangements whereby
it accepts consideration for oil, gas or other hydrocarbons not yet produced. No
Mortgaged  Property  is or will  become  subject  to any  "take or pay" or other
similar  arrangement  (i)  which  can be  satisfied  in  whole or in part by the
production or transportation of gas from other properties or (ii) as a result of
which  production from the Mortgaged  Properties may be required to be delivered
to one or more third parties without payment (or without full payment)  therefor
as a result of payments  made,  or other  actions  taken,  with respect to other
properties.  To the best of Mortgagor's knowledge,  the gas imbalances set forth
in Schedule 7.19 of the Credit Agreement  reflects the gas balancing position of
the Mortgaged  Properties as of January 27, 2003. Except as otherwise  disclosed
to Agent in writing,  as of December  31, 2002,  there is no Mortgaged  Property
with respect to which  Mortgagor,  or its  predecessors in title,  has, prior to
such date, taken more ("overproduced"), or less ("underproduced"),  gas from the
lands  covered  thereby (or pooled or  unitized  therewith)  than its  ownership
interest in such Mortgaged Property would entitle it to take which has resulted,
on  such  date,  in  Mortgagor  being  materially   overproduced  or  materially
underproduced  with respect to such  Mortgaged  Property in violation of Section
9.18 of the Credit  Agreement.  Mortgagor  will not after the date hereof become
"overproduced"  (as above  defined)  with  respect to any well on the  Mortgaged
Properties (or on any unit in which the Mortgaged  Properties  participate),  in
violation of Section 9.18 of the Credit Agreement.  No Mortgaged  Property is or
will become subject to a gas balancing arrangement under which one or more third
parties  may take a portion of the  production  attributable  to such  Mortgaged

                                      -8-


Property  without  payment (or  without  full  payment)  therefor as a result of
production  having been taken from, or as a result of other actions or inactions
with  respect to,  other  properties.  No  Mortgaged  Property is subject at the
present time to any regulatory refund obligation and, to the best of Mortgagor's
knowledge, no facts exist which might cause the same to be imposed.

     (d) Condition of Personal or Movable  Property.  The equipment,  inventory,
         ------------------------------------------
improvements,  fixtures,  goods and  other  tangible  personal/movable  property
forming a part of the Property are and will remain (and with respect to Property
not operated by Mortgagor, to the best of Mortgagor's knowledge, such equipment,
inventory,  fixtures, goods and other tangible personal/movable property are and
will remain) in good repair and  condition  and are and will be adequate for the
normal operation of the Property in accordance with prudent industry  standards;
all of such Property is, and will remain,  located on the Mortgaged  Properties,
except  for  that  portion  thereof  which  is or  shall  be  located  elsewhere
(including  that usually  located on the Mortgaged  Properties  but  temporarily
located  elsewhere) in the course of the normal  operation of the  Property,  or
which is hereafter sold or otherwise  disposed of as permitted  under the Credit
Agreement.

     (e) Operation of Mortgaged Properties.  The Mortgaged Properties,  and with
         ---------------------------------
respect to  Mortgaged  Properties  not  operated  by  Mortgagor,  to the best of
Mortgagor's knowledge,  such non-operated Mortgaged Properties,  (and properties
unitized  therewith)  are being  (and,  to the extent  the same could  adversely
affect the  ownership or operation of the  Mortgaged  Properties  after the date
hereof, have in the past been), and hereafter will be, maintained,  operated and
developed in a good and workmanlike  manner, in accordance with prudent industry
standards and in conformity with all applicable laws and all rules,  regulations
and  orders  of all duly  constituted  authorities  having  jurisdiction  and in
conformity with all oil, gas and/or other mineral leases and other contracts and
agreements  forming a part of the Property and in conformity  with the Permitted
Encumbrances;  specifically  in this  connection,  (i) no Mortgaged  Property is
subject to having  allowable  production after the date hereof reduced below the
full and regular allowable (including the maximum permissible tolerance) because
of any  overproduction  (whether  or not the same was  permissible  at the time)
prior to the date  hereof and (ii) none of the wells  located  on the  Mortgaged
Properties (or properties  unitized  therewith) are or will be deviated from the
vertical more than the maximum permitted by applicable laws, regulations,  rules
and orders,  and such wells are, and will remain,  bottomed  under and producing
from,  with the well bores wholly within,  the Mortgaged  Properties (or, in the
case  of  wells  located  on  properties  unitized   therewith,   such  unitized
properties). There are no wells listed on Schedule I hereto ("Schedule I Wells")
being redrilled, deepened, plugged back or reworked, and no other operations are
being  conducted for which consent is required  under the  applicable  operating
agreement  (or which are other than normal  operation  of existing  wells on the
Mortgaged Properties);  except as otherwise disclosed to Agent in writing, there
are no  proposals in excess of $500,000 net to  Mortgagor's  interest  currently
outstanding  (whether  made by  Mortgagor  or by any other  party) to  re-drill,
deepen,  plug  back,  or  rework  Schedule  I Wells,  or to  conduct  any  other
operations  under the applicable  joint operating  agreement,  or to abandon any
Schedule I Wells  (nor are there any such  proposals  which  have been  approved
either by  Mortgagor or any other  party,  with respect to which the  operations
covered thereby have not been commenced). Except as otherwise disclosed to Agent
in writing,  there are no dry holes, or otherwise inactive wells, located on the
Mortgaged  Properties  or on lands  pooled  or  unitized  therewith  (including,

                                      -9-


without  limitation,  any wells  which  would,  if  located  in  Texas,  require
compliance  with Railroad  Commission  Rule 14(b)(2)) that in the aggregate will
cost  more  than  $500,000,  net to  Mortgagor's  interest  and  net of  salvage
proceeds, to plug and abandon,  except for wells that have been properly plugged
and  abandoned.  Mortgagor  has, and will have in the future,  all  governmental
licenses and permits  necessary or  appropriate to own and operate the Property;
Mortgagor  has not  received  notice of any  violations  in  respect of any such
licenses or permits.

     (f) Sale or Disposal. Mortgagor will not, without the prior written consent
         ----------------
of Agent, sell, exchange,  lease, transfer, or otherwise dispose of any part of,
or  interest  in,  the  Property  other  than (i)  sales,  transfers  and  other
dispositions of machinery,  equipment and other personal/  movable  property and
fixtures made in connection with a release, surrender or abandonment of a lease,
(ii) sales,  transfers and other dispositions of machinery,  equipment and other
personal/movable  property and fixtures in connection  with the abandonment of a
well, (iii) sales, transfers and other dispositions of machinery,  equipment and
other  personal/movable  property and fixtures  which are (A) obsolete for their
intended  purpose  and  disposed  of in the  ordinary  course of business or (B)
replaced by articles of at least equal  suitability and value owned by Mortgagor
free and clear of all liens except this Mortgage and the Permitted Encumbrances,
(iv) sales of Production  which are made in the ordinary  course of business and
in compliance  with Section 2.1(c) hereof;  provided that nothing in clause (iv)
shall  be  construed  as  limiting  Agent's  rights  under  Article  III of this
Mortgage, and (v) sales, transfers and other dispositions of oil and gas leases,
but only to the  extent  such  sale,  transfer  or other  disposition  is in the
ordinary  course of business and does not  materially  and adversely  affect the
value of the Property in the aggregate. In the event and during the continuation
of a default (as  hereinafter  defined),  Mortgagor  shall at all times keep the
Property and its proceeds separate and distinct from other property of Mortgagor
and shall keep accurate and complete records of the Property and its proceeds.

     (g) Suits and Claims.  Except as  otherwise  disclosed to Agent in writing,
         ----------------
there are no Suits, actions, claims, investigations,  inquiries,  proceedings or
demands  pending (or. to the best of Mortgagor's  knowledge,  threatened)  which
affect the Properties  (including,  without  limitation,  any which challenge or
otherwise  pertain to Mortgagor's  title to the  Properties)  and no judicial or
administrative  actions,  suits  or  proceedings  pending  (or,  to the  best of
Mortgagor's  knowledge,  threatened)  against  Mortgagor.   Notwithstanding  the
foregoing,  Mortgagor's  representation  in this Section with respect to pending
suits, actions, claims, investigations,  inquiries, proceedings or demands which
affect  Properties which are not operated by Mortgagor,  except those pertaining
to Mortgagor's  title to such  non-operated  Properties,  will be limited to the
best of Mortgagor's knowledge.

          (h) Environmental.
              -------------

               (A) Current  Status.  The Property  (and with respect to Property
                   ---------------
          not operated by Mortgagor, to the best of Mortgagor's knowledge,  such
          non-operated  Property) and Mortgagor are not in material violation of
          Applicable  Environmental  Laws  (below  defined),  or  subject to any
          existing,  pending or, to the best knowledge of Mortgagor,  threatened
          investigation  or inquiry by any  governmental  authority or any other
          person  under or with respect to  Applicable  Environmental  Laws,  or
          subject to any remedial  obligations  under  Applicable  Environmental
          Laws,  and are in  compliance  with all permits and licenses  required
          under  Applicable  Environmental  Laws, and this  representation  will

                                      -10-


          continue to be true and correct following disclosure to the applicable
          governmental   authorities  of  all  relevant  facts,  conditions  and
          circumstances,  if any,  pertaining  to the  Property  and  Mortgagor.
          "Applicable  Environmental  Laws"  shall  mean  any  applicable  laws,
          orders,  rules, or regulations  (including,  without  limitation,  the
          common law) pertaining to safety,  health or the environment,  as such
          laws, orders,  rules or regulations now exist or are hereafter enacted
          and/or  amended.   Applicable   Environmental  Laws  include,  without
          limitation,  the Comprehensive  Environmental Response,  Compensation,
          and Liability Act of 1980, as amended by the Superfund  Amendments and
          Reauthorization Act of 1986 (as amended, hereinafter called "CERCLA"),
          the Resource  Conservation and Recovery Act of 1976, as amended by the
          Used  Oil  Recycling  Act  of  1980,  the  Solid  Waste  Disposal  Act
          Amendments of 1980,  and the  Hazardous and Solid Waste  Amendments of
          1984 (as amended,  hereinafter called "RCRA") and applicable state and
          local law).  Mortgagor  undertook,  at the time of  acquisition of the
          Property, all appropriate inquiry into the previous ownership and uses
          of the Property consistent with good commercial or customary practice.
          Mortgagor has taken all commercial and reasonable  steps  necessary to
          determine  and has  determined  that no hazardous  substances or solid
          wastes have been disposed of or otherwise  released at, into,  upon or
          under the Property.  The use which Mortgagor makes and intends to make
          of the  Property  will not  result in the use,  treatment,  storage or
          disposal or other  release of any  hazardous  substance or solid waste
          at, into, upon or under the Property, except such usage, and temporary
          storage in  anticipation  of usage,  as is in the  ordinary  course of
          business and in compliance  with  Applicable  Environmental  Laws. The
          terms  "hazardous  substance"  and  "release" as used in this Mortgage
          shall have the  meanings  specified  in CERCLA,  and the terms  "solid
          waste"  and  "disposal"  (or  "disposed")   shall  have  the  meanings
          specified in RCRA;  provided,  in the event  either  CERCLA or RCRA is
          amended so as to broaden the meaning of any term defined thereby, such
          broader  meaning shall apply  subsequent to the effective date of such
          amendment  and  provided  further,  to the extent that the laws of the
          states in which the  Mortgaged  Properties  are  located  establish  a
          meaning  for  "hazardous  substance,"  "release,"  "solid  waste,"  or
          "disposal"  which is broader than that  specified in either  CERCLA or
          RCRA, such broader meaning shall apply. The "Associated  Property' (as
          such  term  is  hereinafter  defined)  is  not  in  violation  of  any
          Applicable  Environmental Laws for which Mortgagor or its predecessors
          in the Property would be responsible.  The term "Associated  Property"
          as used in this  Mortgage  shall mean any and all  interests in and to
          (and or carved out of) the lands which are described or referred to in
          Exhibit A hereto, or which are otherwise  described in any of the oil,
          gas  and/or  mineral  leases  or  other  instruments  described  in or
          referred to in such Exhibit A, whether or not such property  interests
          are owned by Mortgagor.

               (B) Future  Performance.  Mortgagor will use its best efforts not
                   -------------------
          to  cause  or  permit  the  Property  or the  Associated  Property  or
          Mortgagor  to be in  material  violation  of, or do anything or permit
          anything to be done which will subject the Property or the  Associated
          Property to any  material  remedial  obligations  under,  or result in
          material noncompliance with applicable permits and licenses under, any
          Applicable  Environmental  Laws, assuming disclosure to the applicable
          governmental   authorities  of  all  relevant  facts,  conditions  and
          circumstances,  if any,  pertaining to the Property or the  Associated
          Property and Mortgagor  will  promptly  notify Agent in writing of any

                                      -11-


          existing,  pending or, to the best knowledge of Mortgagor,  threatened
          investigation, claim, suit or inquiry by any governmental authority or
          any  person in  connection  with any  Applicable  Environmental  Laws,
          provided  that,  with respect to Properties not operated by Mortgagor,
          Mortgagor shall notify Agent of any investigations,  claims,  suits or
          inquiries,   whether  existing,   pending,  or  threatened,  of  which
          Mortgagor  becomes  aware.  Mortgagor  will take all steps  reasonably
          necessary to determine  that no hazardous  substances  or solid wastes
          have been  disposed of or otherwise  released on or to the Property or
          the Associated Property.  Mortgagor will use commercial and reasonable
          efforts not to cause or permit the  disposal  or other  release of any
          hazardous  substance  or solid  waste  at,  into,  upon or  under  the
          Property or the  Associated  Property and covenants and agrees to keep
          or cause the Property  and/or the Associated  Property to be kept free
          of any  hazardous  substance  or solid  waste  (except  such use,  and
          temporary  storage  in  anticipation  of use,  as is  required  in the
          ordinary  course of business,  all while in compliance with Applicable
          Environmental  Laws),  and  to  remove  the  same  (or if  removal  is
          prohibited  by law,  to  take  whatever  action  is  required  by law)
          promptly upon discovery at its sole expense.  Upon Agent's  reasonable
          request,  at any time and from time to time  during the  existence  of
          this Mortgage,  Mortgagor will provide at Mortgagor's  sole expense an
          inspection or audit of the Property and the  Associated  Property from
          an  engineering or consulting  firm approved by Agent,  indicating the
          presence  or absence of  hazardous  substances  and solid waste on the
          Property and/or the Associated Property and compliance with Applicable
          Environmental  Laws.  In the  event  of a  violation,  Mortgagor  will
          diligently  work to cure such  violation,  including  remediation,  if
          necessary,  and so long as Mortgagor diligently  prosecutes efforts to
          cure the violation, Mortgagor will not be in breach of this provision.

     (i) Not Abandon  Wells;  Participate  in  Operations.  Mortgagor  will not,
         ------------------------------------------------
without prior written consent of Agent,  abandon,  or consent to the abandonment
of, any well  producing from the Mortgaged  Properties  (or properties  unitized
therewith)  so long as such well is capable (or is subject to being made capable
through  drilling,  reworking or other operations which it would be commercially
feasible to conduct)  of  producing  oil,  gas, or other  hydrocarbons  or other
minerals in commercial  quantities (as determined without considering the effect
of this  Mortgage).  In the event and  during  the  continuation  of a  default,
Mortgagor  will not,  without  prior  written  consent  of  Agent,  elect not to
participate in a proposed operation on the Mortgaged Properties where the effect
of such  election  would be the  forfeiture  either  temporarily  (i.e.  until a
certain sum of money is received out of the forfeited  interest) or  permanently
of any material interest in the Mortgaged Properties.

     (j) Defense of Mortgage. If the validity or priority of this Mortgage or of
         -------------------
any rights, titles, liens or security interests created or evidenced hereby with
respect to the  Property or any part  thereof or the title of  Mortgagor  to the
Property  shall be endangered  or  questioned  or shall be attacked  directly or
indirectly or if any legal  proceedings  are instituted  against  Mortgagor with
respect thereto,  Mortgagor will give prompt written notice thereof to Agent and
at Mortgagor's own cost and expense will diligently  endeavor to cure any defect
that may be developed or claimed,  and will take all  necessary and proper steps
for the defense of such legal  proceedings,  including,  but not limited to, the
employment of counsel,  the prosecution or defense of litigation and the release
or discharge  of all adverse  claims,  and Trustee and Agent,  or either of them
(whether or not named as parties to legal proceedings with respect thereto), are
hereby  authorized  and  empowered  to take  such  additional  steps as in their

                                      -12-


judgment and  discretion  may be necessary or proper for the defense of any such
legal proceedings or the protection of the validity or priority of this Mortgage
and the  rights,  titles,  liens and  security  interests  created or  evidenced
hereby,  including but not limited to the employment of independent counsel, the
prosecution or defense of litigation, the compromise or discharge of any adverse
claims made with respect to the Property,  the purchase of any tax title and the
removal of prior liens or security interests, and all reasonable expenditures so
made of every kind and character shall be a demand  obligation (which obligation
Mortgagor  hereby  expressly  promises  to pay) owing by  Mortgagor  to Agent or
Trustee  (as the case may be) and shall  bear  interest  from the date  expended
until paid at the rate described in Section 2.3 hereof,  and the party incurring
such expenses  shall be subrogated  to all rights of the person  receiving  such
payment.

     (k)  Fees  and  Expenses;  Indemnity.  Mortgagor  will  pay all  reasonable
          -------------------------------
appraisal fees, recording fees, taxes, brokerage fees and commissions,  abstract
and other  records  search  fees,  attorneys'  fees and  expenses  and all other
reasonable costs and expenses of every character  incurred by Mortgagor or Agent
or any Lender in connection  with the closing of the loan or loans  evidenced by
the Loan Documents and any and all amendments,  supplements or  modifications to
such loan transaction or transactions.  Mortgagor will reimburse Trustee,  Agent
and each Lender (for purposes of this paragraph,  the terms  "Trustee",  "Agent"
and "Lender"  shall include the  directors,  officers,  partners,  employees and
agents  of  Trustee,  Agent or any  Lender,  respectively,  and any  persons  or
entities owned or controlled by or affiliated with Trustee, Agent or any Lender,
respectively) for all  expenditures,  including  reasonable  attorneys' fees and
expenses, incurred or expended in connection with (i) the breach by Mortgagor of
any  covenant,  agreement  or  condition  contained  herein or in any other Loan
Document,  (ii) the exercise of any rights and  remedies  hereunder or under any
other Loan Document,  and (iii) the protection of the Property  and/or liens and
security interests therein.  Mortgagor will indemnify and hold harmless Trustee,
Agent and each Lender  from and against  (and will  reimburse  such  indemnified
parties  for) all  claims,  demands,  liabilities,  losses,  damages  (including
without  limitation  consequential  damages),   causes  of  action,   judgments,
penalties,   costs  and  expenses   (including  without  limitation   reasonable
attorneys'  fees and expenses)  which may be imposed upon,  asserted  against or
incurred  or paid by the  Trustee,  the Agent or any  Lender on  account  of, in
connection  with,  or arising  out of (A) any bodily  injury or death or natural
resource,  human health or property damage occurring in, at, into, under or upon
(or,  to the extent  such  injury,  death or damage is related to  Mortgagor  or
Mortgagor's  ownership  or operation  of the  Property,  in the vicinity of) the
Property  through any cause  whatsoever,  (B) any act performed or omitted to be
performed  hereunder or the breach of any representation or warranty herein, (C)
the  exercise  of any  rights  and  remedies  hereunder  or under any other Loan
Document, (D) any transaction,  act, omission, event or circumstance arising out
of or in any way connected  with the Property or with this Mortgage or any other
Loan Document, (E) any violation on or prior to the Release Date (as hereinafter
defined) of any Applicable  Environmental Law, (F) any act,  omission,  event or
circumstance  existing or occurring  on or prior to the Release Date  (including
without  limitation  the  presence on or under the  Property  or the  Associated
Property or release at, into, upon, under or from the Property or the Associated
Property of  hazardous  substances  or solid  wastes  disposed  of or  otherwise
released)  resulting  from or in connection  with the  ownership,  construction,
occupancy,  operation,  use and/or maintenance of the Property or the Associated
Property,  regardless  of  whether  the act,  omission,  event  or  circumstance
constituted a violation of any Applicable  Environmental  Law at the time of its
existence  or  occurrence,  and (G) any and all claims or  proceedings  (whether
brought by private party or  governmental  agencies)  for human  health,  bodily

                                      -13-


injury,  property  damage,  abatement  or  remediation,   environmental  damage,
cleanup, mitigation, removal, natural resource damage or impairment or any other
injury or damage resulting from or relating to any hazardous or toxic substance,
solid waste or  contaminated  material  located upon or migrating  into, from or
through the Property or the Associated  Property  (whether or not the release of
such  materials was caused by Mortgagor,  a tenant or subtenant or a prior owner
or tenant or subtenant on the Property or the Associated Property and whether or
not the alleged  liability  is  attributable  to the use,  treatment,  handling,
storage,  generation,  transportation,  removal or disposal  of such  substance,
waste or material or the mere presence of such  substance,  waste or material on
or under the Property or the Associated Property),  which the Trustee and/or the
Agent and/or any Lender may have  liability with respect to due to the making of
the loan or loans  evidenced by any Notes,  the granting of this  Mortgage,  the
exercise of any rights under the Loan Documents, or otherwise.  Agent shall have
the right to compromise and adjust any such claims,  actions and judgments,  and
in addition to the rights to be indemnified as herein provided, all amounts paid
in compromise,  satisfaction or discharge of any such claim, action or judgment,
and all court  costs,  reasonable  attorneys'  fees and other  expenses of every
character expended by Agent, Trustee or any Lender pursuant to the provisions of
this section shall be a demand  obligation  (which  obligation  Mortgagor hereby
expressly  promises  to pay)  owing  by  Mortgagor  to the  applicable  party or
parties.  The  "Release  Date" as used  herein  shall  mean the  earlier  of the
following  two dates:  (i) the date on which the  indebtedness  and  obligations
secured  hereby have been paid and  performed in full, or (ii) the date on which
the lien of this Mortgage is foreclosed or a deed in lieu of such foreclosure is
fully  effective  and  recorded.  WITHOUT  LIMITATION,  IT IS THE  INTENTION  OF
MORTGAGOR AND MORTGAGOR  AGREES THAT THE  FOREGOING  INDEMNITIES  SHALL APPLY TO
EACH INDEMNIFIED  PARTY WITH RESPECT TO CLAIMS,  DEMANDS,  LIABILITIES,  LOSSES,
DAMAGES, CAUSES OF ACTION, JUDGMENTS,  PENALTIES,  COSTS AND EXPENSES (INCLUDING
WITHOUT  LIMITATION  REASONABLE  ATTORNEYS'  FEES) WHICH IN WHOLE OR IN PART ARE
CAUSED BY OR ARISE OUT OF THE NEGLIGENCE OF SUCH (AND/OR ANY OTHER)  INDEMNIFIED
PARTY. However,  such indemnities shall not apply to any particular  indemnified
party  (but  shall  apply to the other  indemnified  parties)  to the extent the
subject  of the  indemnification  is  caused  by or  arises  out  of  the  gross
negligence  or willful  misconduct of such  particular  indemnified  party.  The
foregoing  indemnities  shall not  terminate  upon the Release  Date or upon the
release,  foreclosure or other termination of this Mortgage but will survive the
Release Date, foreclosure of this Mortgage or conveyance in lieu of foreclosure,
and the repayment of the secured  indebtedness  and the discharge and release of
this Mortgage and the other  documents  evidencing  and/or  securing the secured
indebtedness.  Any amount to be paid  hereunder by  Mortgagor to Agent,  Trustee
and/or  any  Lender  shall be a demand  obligation  owing  by  Mortgagor  to the
applicable  party  or  parties  and  shall  be  subject  to and  covered  by the
provisions of Section 2.3 hereof.

     (l)  Insurance.  Mortgagor  will keep (and with  respect  to  Property  not
          ---------
operated  by  Mortgagor,  will use its best  efforts  to keep)  such part of the
Property which is of an insurable  nature and of a character  usually insured by
persons  operating  similar  properties,  insured with  companies of  recognized
responsibility  satisfactory  to Agent and in such amounts as are  acceptable to
Agent (and in the  absence of  specification  of such  amounts by Agent,  in the
amount of the full value of such property,  less  reasonable  deductibles not to
exceed deductibles  customary in the industry for similarly situated  businesses
and properties), against loss or damage by fire, casualty and from other hazards

                                      -14-


customarily insured against by persons operating similar  properties.  Mortgagor
shall  also  provide  such  other  insurance  as  Agent  may  from  time to time
reasonably  require;  such  coverage to be carried with  companies of recognized
responsibility  satisfactory  to Agent.  All policies  evidencing such insurance
shall contain  clauses  providing that the proceeds  thereof shall be payable to
Agent as its interest  may appear and  providing  that such  policies may not be
cancelled, reduced or otherwise affected without at least thirty (30) days prior
written notice to Agent. Upon request by Agent, Mortgagor shall deliver to Agent
the original policies, evidence of payment of premiums,  certificates evidencing
renewals,  and such other  information  regarding  such  insurance  as Agent may
request.  In the event of any loss under any  insurance  policies  so carried by
Mortgagor,  Agent shall have the right (but not the obligation) to make proof of
loss and collect the same,  and all amounts so received  shall be applied toward
costs,  charges and expenses  (including  reasonable  attorneys'  fees), if any,
incurred in the collection thereof, then to the payment, in the order determined
by Agent in its own  discretion,  of the secured  indebtedness,  and any balance
remaining shall be subject to the order of Mortgagor. Agent is hereby authorized
but not obligated to enforce in its name or in the name of Mortgagor  payment of
any or all of said  policies  or  settle  or  compromise  any  claim in  respect
thereof,  and to collect and make receipts for the proceeds thereof and Agent is
hereby appointed  Mortgagor's agent and attorney-in-fact to endorse any check or
draft payable to Mortgagor in order to collect the proceeds of insurance. In the
event  of  foreclosure  of this  Mortgage,  or  other  transfer  of title to the
Property in extinguishment in whole or in part of the secured indebtedness,  all
right,  title and interest of Mortgagor  in and to such  policies  then in force
concerning the Property and all proceeds payable thereunder shall thereupon vest
in the purchaser at such  foreclosure  or other  transferee in the event of such
other  transfer  of  title.  Mortgagor  shall  at all  times  maintain  adequate
insurance  against its  liability  on account of damages to persons or property,
which  insurance  shall be carried by  companies  of  recognized  responsibility
satisfactory  to Agent,  and shall be for such  amounts and insure  against such
risks as are customary in the industry for  similarly  situated  businesses  and
properties.  Mortgagor shall at all times maintain cost of regaining  control of
well insurance and similar  insurance to the extent customary in the industry in
the pertinent area of operations.

     (m) Further  Assurances.  Mortgagor will, on request of Agent, (i) promptly
         -------------------
correct any defect, error or omission which may be discovered in the contents of
this  Mortgage,  or  in  any  other  Loan  Document,  or  in  the  execution  or
acknowledgment  of this  Mortgage  or any other  Loan  Document;  (ii)  execute,
acknowledge, deliver and record and/or file such further instruments (including,
without  limitation,  further deeds of trust,  mortgages,  security  agreements,
financing statements,  continuation  statements,  and assignments of production,
accounts, funds, contract rights, general intangibles, and proceeds) and do such
further  acts as may be  necessary,  desirable  or  proper  to  carry  out  more
effectively  the purposes of this  Mortgage and the other Loan  Documents and to
more fully identify and subject to the liens and security  interests  hereof any
property  intended to be covered  hereby,  including  specifically,  but without
limitation,   any   renewals,   additions,   substitutions,   replacements,   or
appurtenances to the Property; and (iii) execute, acknowledge, deliver, and file
and/or record any document or instrument  (including  specifically any financing
statement)  desired  by  Agent to  protect  the  lien or the  security  interest
hereunder against the rights or interests of third persons.  Mortgagor shall pay
all costs connected with any of the foregoing.

                                      -15-


     (n) Name and Place of Business  and  Formation.  Except as disclosed in the
         ------------------------------------------
Credit Agreement, Mortgagor has not, during the preceding five years, been known
by or used  any  other  corporate  or  partnership,  trade or  fictitious  name.
Mortgagor will not cause or permit any change to be made in its name,  identity,
state of  formation  or  corporate  or  partnership  structure,  or its  federal
employer  identification  number unless  Mortgagor  shall have notified Agent of
such  change at least  thirty  (30)  days  prior to the  effective  date of such
change,  and shall have first taken all action required by Agent for the purpose
of further  perfecting  or  protecting  the liens and security  interests in the
Property  created hereby.  Mortgagor's  exact name is the name set forth in this
Mortgage. Mortgagor's location is as follows:

               Mortgagor is  a registered organization  which is  organized
               under the  laws of one  of the states  comprising the United
               States (e.g.  corporation, limited  partnership,  registered
               limited liability partnership or limited liability company).
               Mortgagor is  located (as determined pursuant to the UCC) in
               the state under the laws which it was organized, as follows:

               Name of Mortgagor                      State of Organization
               ------------------------------------------------------------
               Parent                                 Delaware
               Energy                                 Delaware
               Minerals                               Colorado
               Nance                                  Montana
               Roswell                                Texas
               Operating                              Colorado
               NPC                                    Colorado

               Mortgagor's principal  place of business and chief executive
               office, and  the place  where Mortgagor  keeps its books and
               records  concerning  the  Property (including, particularly,
               the  records  with  respect  to  "Production  Proceeds",  as
               defined in Section 3.1 hereof,from the Mortgaged Properties)
               has  for the  preceding four months, been, and will continue
               to  be (unless  Mortgagor  notifies Agent  of  any change in
               writing at least  thirty (30) days prior to the date of such
               change), the  address  set forth  opposite the  signature of
               Mortgagor to this Mortgage.

     (o) Not a Foreign  Person.  Mortgagor is not a "foreign  person" within the
         ---------------------
meaning of the Internal  Revenue Code of 1986, as amended,  (hereinafter  called
the "Code"), Sections 1445 and 7701 (i.e. Mortgagor is not a non-resident alien,
foreign  corporation,  foreign  partnership,  foreign trust or foreign estate as
those terms are defined in the Code and any regulations promulgated thereunder).

     Section  2.2  Compliance  by  Operator.  As to any  part  of the  Mortgaged
                   ------------------------
Properties  which is not a working  interest,  Mortgagor agrees to take all such
commercial and reasonable  action and to exercise all rights and remedies as are
reasonably  available  to  Mortgagor to cause the owner or owners of the working
interest  in such  properties  to  comply  with  the  covenants  and  agreements
contained  herein;  and as to any part of the  Mortgaged  Properties  which is a
working  interest  but  which  is  operated  by a party  other  than  Mortgagor,
Mortgagor  agrees  to take all such  commercial  and  reasonable  action  and to

                                      -16-


exercise  all rights and  remedies  as are  reasonably  available  to  Mortgagor
(including,  but not limited to, all rights under any  operating  agreement)  to
cause  the  party  who is the  operator  of such  property  to  comply  with the
covenants and agreements contained herein.

     Section 2.3 Performance on Mortgagor's  Behalf.  Mortgagor  agrees that, if
                 ----------------------------------
Mortgagor  fails  to  perform  any act or to take  any  action  which  hereunder
Mortgagor  is required to perform or take,  or to pay any money which  hereunder
Mortgagor is required to pay, Agent,  in Mortgagor's  name or its own name, may,
but shall not be obligated to, perform or cause to be performed such act or take
such  action or pay such  money,  and any  expenses so incurred by Agent and any
money so paid by Agent shall be a demand  obligation owing by Mortgagor to Agent
(which  obligation  Mortgagor hereby expressly  promises to pay) and Agent, upon
making such  payment,  shall be  subrogated  to all of the rights of the person,
corporation or body politic receiving such payment. Each amount due and owing by
Mortgagor to Trustee  and/or Agent and/or any Lender  pursuant to this  Mortgage
shall bear interest each day, from the date of such expenditure or payment until
paid, at a rate equal to the rate as provided for past due  principal  under the
Notes (provided that,  should  applicable law provide for a maximum  permissible
rate of  interest  on such  amounts,  such rate shall not be  greater  than such
maximum  permissible  rate);  all such  amounts,  together  with  such  interest
thereon,  shall be a part of the  secured  indebtedness  and shall be secured by
this Mortgage.

                                  ARTICLE III.

                 Assignment of Production, Accounts and Proceeds
                 -----------------------------------------------

     Section 3.1 Assignment of Production.  Mortgagor does hereby absolutely and
                 ------------------------
unconditionally  assign,  transfer  and set over to Agent all  Production  which
accrues to  Mortgagor's  interest in the Mortgaged  Properties,  all proceeds of
such  Production  and all Payments in Lieu of  Production  (herein  collectively
referred to as the  "Production  Proceeds"),  together  with the  immediate  and
continuing  right to collect and receive  such  Production  Proceeds.  Mortgagor
directs and instructs any and all  purchasers of any  Production to pay to Agent
all of the Production Proceeds accruing to Mortgagor's  interest until such time
as  such   purchasers  have  been  furnished  with  evidence  that  all  secured
indebtedness  has been paid and that this Mortgage has been released.  Mortgagor
agrees that no purchasers of the Production  shall have any  responsibility  for
the application of any funds paid to Agent.

     Section  3.2  Effectuating   Payment  of  Production   Proceeds  to  Agent.
                   ------------------------------------------------------------
Independent  of  the  foregoing   provisions  and  authorities  herein  granted,
Mortgagor  agrees to execute and deliver any and all transfer  orders,  division
orders  and  other  instruments  that may be  requested  by Agent or that may be
required by any  purchaser  of any  Production  for the purpose of  effectuating
payment  of the  Production  Proceeds  to  Agent.  If under any  existing  sales
agreements,  other than  division  orders or  transfer  orders,  any  Production
Proceeds  are  required to be paid by the  purchaser  to Mortgagor so that under
such existing  agreements payment cannot be made of such Production  Proceeds to
Agent,  Mortgagor's  interest  in  all  Production  Proceeds  under  such  sales
agreements and in all other Production Proceeds which for any reason may be paid
to  Mortgagor  shall,  when  received by  Mortgagor,  constitute  trust funds in
Mortgagor's  hands  and  shall  be  immediately  paid  over  to  Agent.  Without
limitation upon any of the foregoing,  Mortgagor hereby constitutes and appoints

                                      -17-


Agent as Mortgagor's  special attorney in-fact (with full power of substitution,
either  generally or for such periods or purposes as Agent may from time to time
prescribe) in the name, place and stead of Mortgagor to do any and every act and
exercise  any and  every  power  that  Mortgagor  might or could do or  exercise
personally  with respect to all  Production  and  Production  Proceeds (the same
having been  assigned by  Mortgagor  to Agent  pursuant to Section 3.1  hereof),
expressly inclusive, but not limited to, the right, power and authority to:

     (a)  Execute  and  deliver in the name of  Mortgagor  any and all  transfer
orders,  division orders, letters in lieu of transfer orders,  indemnifications,
certificates  and other  instruments  of every  nature that may be  requested or
required by any purchaser of Production from any of the Mortgaged Properties for
the  purposes of  effectuating  payment of the  Production  Proceeds to Agent or
which Agent may otherwise deem necessary or appropriate to effect the intent and
purposes of the assignment contained in Section 3.1; and

     (b) If under any product sales  agreements  other than  division  orders or
transfer  orders,  any  Production  Proceeds  are  required  to be  paid  by the
purchaser to Mortgagor so that under such existing  agreements payment cannot be
made of such Production  Proceeds to Agent, to make, execute and enter into such
sales  agreements  or other  agreements  as are  necessary to direct  Production
Proceeds to be payable to Agent;

giving and granting  unto said  attorney-in-fact  full power and authority to do
and perform any and every act and thing whatsoever necessary and requisite to be
done as fully and to all intents and purposes, as Mortgagor might or could do if
personally  present;   and  Mortgagor  shall  be  bound  thereby  as  fully  and
effectively as if Mortgagor had personally executed,  acknowledged and delivered
any of the  foregoing  certificates  or  documents.  The powers and  authorities
herein conferred upon Agent may be exercised by Agent through any person who, at
the time of the execution of the particular instrument,  is an officer of Agent.
The power of attorney herein conferred is granted for valuable consideration and
hence is coupled  with an  interest  and is  irrevocable  so long as the secured
indebtedness, or any part thereof, shall remain unpaid. All persons dealing with
Agent or any  substitute  shall be fully  protected  in treating  the powers and
authorities  conferred by this  paragraph as continuing in full force and effect
until  advised by Agent that all the secured  indebtedness  is fully and finally
paid.  Agent may,  but shall not be  obligated  to, take such action as it deems
appropriate in an effort to collect the  Production  Proceeds and any reasonable
expenses (including  reasonable attorney's fees) so incurred by Agent shall be a
demand  obligation of Mortgagor  and shall be part of the secured  indebtedness,
and shall bear interest each day, from the date of such  expenditure  or payment
until paid, at the rate described in Section 2.3 hereof.

     Section  3.3  Change of  Purchaser.  To the extent a default  has  occurred
                   --------------------
hereunder and is  continuing,  should any person now or hereafter  purchasing or
taking  Production  fail to make  payment  promptly  to Agent of the  Production
Proceeds, Agent shall, subject to then existing contractual  prohibitions,  have
the right to make, or to require  Mortgagor to make, a change of purchaser,  and
the right to  designate  or approve the new  purchaser,  and Agent shall have no
liability or responsibility in connection  therewith so long as ordinary care is
used in making such designation.

                                      -18-


     Section 3.4 Application of Production  Proceeds.  So long as no default has
                 -----------------------------------
occurred  hereunder,  the  Production  Proceeds  received  by Agent  during each
calendar month shall on the first business day of the next  succeeding  calendar
month (or, at the option of Agent,  on any earlier  date) be applied by Agent as
follows:

                  FIRST, to the payment of all secured indebtedness then due and
                  -----
         payable, in such manner and order as Agent deems advisable;

                  SECOND, to  the  prepayment  of  the remainder o f the secured
                  ------
         indebtedness in such manner and order and to such extent as Agent deems
         advisable; and

                  THIRD, the remainder, if any, of the Production Proceeds shall
                  -----
         be  paid over  to Mortgagor or  to Mortgagor's  order or  to such other
         parties as may be entitled thereto by law.

After a default  hereunder has occurred,  all  Production  Proceeds from time to
time in the hands of Agent  shall be  applied  by it toward  the  payment of all
secured indebtedness  (principal,  interest,  attorneys' fees and other fees and
expenses) at such times and in such manner and order and to such extent as Agent
deems advisable.

     Section  3.5  Release  From  Liability;  Indemnification.   Agent  and  its
                   ------------------------------------------
successors  and assigns are hereby  released and absolved from all liability for
failure to enforce  collection  of the  Production  Proceeds  and from all other
responsibility  in connection  therewith,  except the  responsibility of each to
account to Mortgagor for funds actually  received by each.  Mortgagor  agrees to
indemnify and hold  harmless  Agent (for  purposes of this  paragraph,  the term
"Agent" shall include the directors, officers, partners, employees and agents of
Agent and any persons or entities  owned or  controlled  by or  affiliated  with
Agent)  from and  against  all claims,  demands,  liabilities,  losses,  damages
(including  without  limitation   consequential  damages),   causes  of  action,
judgments,   penalties,   costs  and  expenses   (including  without  limitation
reasonable  attorneys'  fees and  expenses)  imposed upon,  asserted  against or
incurred or paid by Agent by reason of the assertion that Agent received, either
before or after  payment  in full of the  secured  indebtedness,  funds from the
production of oil, gas, other hydrocarbons or other minerals from the Properties
claimed by third persons (and/or funds attributable to sales of production which
(i) were made at prices in excess of the maximum  price  permitted by applicable
law or (ii) were otherwise made in violation of laws, rules,  regulations and/or
orders  governing such sales),  and Agent shall have the right to defend against
any such claims or actions, employing attorneys of its own selection, and if not
furnished  with  indemnity  satisfactory  to it,  Agent  shall have the right to
compromise and adjust any such claims, actions and judgments, and in addition to
the rights to be  indemnified as herein  provided,  all amounts paid by Agent in
compromise, satisfaction or discharge of any such claim, action or judgment, and
all  court  costs,  reasonable  attorneys'  fees  and  other  expenses  of every
character  expended by Agent pursuant to the provisions of this section shall be
a demand  obligation (which  obligation  Mortgagor hereby expressly  promises to
pay) owing by Mortgagor to Agent and shall bear interest, from the date expended
until  paid,  at the  rate  described  in  Section  2.3  hereof.  The  foregoing
indemnities  shall not  terminate  upon the  Release  Date or upon the  release,
foreclosure  or other  termination of this Mortgage but will survive the Release
Date, foreclosure of this Mortgage or conveyance in lieu of foreclosure, and the
repayment  of the secured  indebtedness  and the  discharge  and release of this

                                      -19-


Mortgage  and  the  other  documents  evidencing  and/or  securing  the  secured
indebtedness. WITHOUT LIMITATION, IT IS THE INTENTION OF MORTGAGOR AND MORTGAGOR
AGREES  THAT  THE  FOREGOING  RELEASES  AND  INDEMNITIES  SHALL  APPLY  TO  EACH
INDEMNIFIED  PARTY WITH  RESPECT TO ALL CLAIMS,  DEMANDS,  LIABILITIES,  LOSSES,
DAMAGES (INCLUDING WITHOUT LIMITATION CONSEQUENTIAL DAMAGES),  CAUSES OF ACTION,
JUDGMENTS,   PENALTIES,   COSTS  AND  EXPENSES   (INCLUDING  WITHOUT  LIMITATION
REASONABLE ATTORNEYS' FEES AND EXPENSES) WHICH IN WHOLE OR IN PART ARE CAUSED BY
OR ARISE OUT OF THE  NEGLIGENCE  OF SUCH (AND/OR ANY OTHER)  INDEMNIFIED  PARTY.
However,  such indemnities  shall not apply to any particular  indemnified party
(but shall apply to the other indemnified  parties) to the extent the subject of
the  indemnification  is  caused by or arises  out of the  gross  negligence  or
willful misconduct of such particular indemnified party.

     Section 3.6 Mortgagor's  Absolute  Obligation to Pay Notes.  Nothing herein
                 ----------------------------------------------
contained  shall  detract  from or limit the  obligations  of  Mortgagor to make
prompt payment of the Notes, and any and all other secured indebtedness,  at the
time and in the manner provided herein and in the Loan Documents,  regardless of
whether the Production and Production Proceeds herein assigned are sufficient to
pay same, and the rights under this Article III shall be cumulative of all other
rights under the Loan Documents.

                                  ARTICLE IV.

                              Remedies Upon Default
                              ---------------------

     Section 4.1 Default. The term "default" as used in this Mortgage shall mean
                 -------
the occurrence of any of the following events:

     (a) the  occurrence  of an "Event of  Default"  as  defined  in the  Credit
Agreement; or

     (b) the failure of Mortgagor  to make due and punctual  payment of any Note
or of any other secured  indebtedness or of any installment of principal thereof
or  interest  thereon,  or any part  thereof,  as the same shall  become due and
payable (taking into account any applicable  grace period,  if any,  provided in
the Loan  Documents),  whether at a date for payment of a fixed  installment  or
contingent or other payment, or as a result of acceleration, or otherwise; or

     (c) the failure of Mortgagor to pay over to Agent any  Production  Proceeds
which  are  receivable  by Agent  under  this  Mortgage  but  which  are paid to
Mortgagor  rather than Agent  (either as  provided  for in Section 3.2 hereof or
otherwise),  except  Production  Proceeds  paid over to Mortgagor by Agent under
clause THIRD of Section 3.4; or

     (d) the  failure of  Mortgagor  timely and  properly  to  observe,  keep or
perform any covenant,  agreement,  warranty or condition  herein or in any other
Loan Document required to be observed, kept or performed, if such failure is not
remedied  within the applicable  grace period provided for in such Loan Document
or, if such Loan Document  does not provide for such a grace  period,  within 30
days  after  written  notice  and  demand by Agent for the  performance  of such
covenant, agreement, warranty or condition; or

                                      -20-


     (e) any representation contained herein (or in any certificate delivered by
Mortgagor in connection  herewith) or contained in any other Loan  Document,  or
otherwise heretofore or hereafter made by or on behalf of Mortgagor, shall prove
to have been false or misleading in any material respect on the date made (or on
the date as of which made); or

     (f) the  occurrence  of a "default"  or "event of  default"  under any Loan
Document  other  than this  Mortgage,  which  default  is not cured  within  the
applicable grace period (if any) provided for in such other Loan Document; or

     (g) Mortgagor  suffers the entry against it of a judgment,  decree or order
for relief by a court of competent  jurisdiction  in an  involuntary  proceeding
commenced  under any applicable  bankruptcy,  insolvency or other similar law of
any  jurisdiction  now or  hereafter  in effect,  including  the  United  States
Bankruptcy  Code,  as from  time  to  time  amended,  or has  such a  proceeding
commenced against it which remains undismissed for a period of 30 days; or

     (h) Mortgagor  commences a voluntary case under any applicable  bankruptcy,
insolvency  or similar  law now or  hereafter  in effect,  including  the United
States Bankruptcy Code, as from time to time amended, or applies for or consents
to the entry of an order for relief in an  involuntary  case under any such law;
or Mortgagor makes a general assignment for the benefit of creditors or fails to
pay (or admits in writing its  inability  to pay) its debts as such debts become
due; or Mortgagor  takes  corporate or other action in furtherance of any of the
foregoing; or

     (i)  Mortgagor  suffers the  appointment  of or taking of  possession  by a
receiver,  liquidator,  assignee,  custodian,  trustee,  sequestrator or similar
official for a substantial part of its assets or for any part of the Property in
a proceeding  brought  against or initiated  by it and (1) such  appointment  or
taking is  neither  made  ineffective  nor  discharged  within 30 days after the
making of such  appointment  or within 30 days  after such  taking,  or (2) such
appointment  or taking is  consented  to,  requested  by,  or  acquiesced  to by
Mortgagor; or

     (j)  Mortgagor  suffers a writ or  warrant  of  attachment  or any  similar
process to be issued by any court  against  all or any  substantial  part of its
assets or any part of the  Property,  and such writ or warrant of  attachment or
any similar  process is not stayed or released within 30 days after the entry or
levy thereof or after any stay is vacated or set aside; or

     (k) Any of the events referred to above in subsections (g), (h), (i) or (j)
shall occur with respect to any guarantor of the secured  indebtedness and shall
not be remedied  within the  applicable  grace period (if any) set forth in such
subsections.

     Section 4.2 Acceleration of Secured Indebtedness.  Upon the occurrence of a
                 ------------------------------------
default  described in subsection (g), (h), (i) or (j) of Section 4.1 above,  all
of the secured  indebtedness  shall  thereupon be  immediately  due and payable,
without presentment,  demand, protest, notice of protest,  declaration or notice
of  acceleration  or intention to accelerate,  putting the Mortgagor in default,
dishonor, notice of dishonor or any other notice or declaration of any kind, all
of which are  hereby  expressly  waived by  Mortgagor,  and the liens  evidenced
hereby  shall be subject to  foreclosure  in any manner  provided  for herein or
provided  for by law as Agent may  elect.  During the  continuance  of any other
default, Agent at any time and from time to time may without notice to Mortgagor

                                      -21-


or any other person declare any or all of the secured  indebtedness  immediately
due and payable and all such secured indebtedness shall thereupon be immediately
due and  payable,  without  presentment,  demand,  protest,  notice of  protest,
declaration or notice of  acceleration  or intention to accelerate,  putting the
Mortgagor  in  default,  dishonor,  notice of  dishonor  or any other  notice or
declaration of any kind, all of which are hereby  expressly waived by Mortgagor,
and the liens  evidenced  hereby shall be subject to  foreclosure  in any manner
provided for herein or provided for by law as Agent may elect.

     Section 4.3 Pre-Foreclosure  Remedies. Upon the occurrence of a default, or
                 -------------------------
any event or circumstance which, with the lapse of time or the giving of notice,
or both,  would  constitute a default  hereunder,  and  following  any period to
attempt to cure such default, if any, provided in the Credit Agreement, Agent is
authorized,   prior  or  subsequent  to  the   institution  of  any  foreclosure
proceedings,  to enter  upon the  Property,  or any  part  thereof,  and to take
possession of the Property and all books and records  relating  thereto,  and to
exercise without  interference from Mortgagor any and all rights which Mortgagor
has  with  respect  to the  management,  possession,  operation,  protection  or
preservation of the Property. If necessary to obtain the possession provided for
above, Agent may invoke any and all remedies to dispossess Mortgagor, including,
without limitation, summary proceeding or restraining order, Mortgagor agrees to
peacefully  surrender  possession  of the  Property  upon  default.  All  costs,
expenses  and  liabilities  of every  character  incurred by Agent in  managing,
operating, maintaining, protecting or preserving the Property shall constitute a
demand obligation (which obligation  Mortgagor hereby expressly promises to pay)
owing by Mortgagor  to Agent and shall bear  interest  from date of  expenditure
until paid at the rate  described  in Section  2.3  hereof,  all of which  shall
constitute  a portion of the secured  indebtedness  and shall be secured by this
Mortgage  and by any other  instrument  securing  the secured  indebtedness.  In
connection  with any action taken by Agent  pursuant to this Section 4.3,  AGENT
SHALL NOT BE LIABLE FOR ANY LOSS  SUSTAINED BY MORTGAGOR  RESULTING FROM ANY ACT
OR OMISSION OF AGENT (INCLUDING AGENT'S OWN NEGLIGENCE) IN MANAGING THE PROPERTY
UNLESS  SUCH LOSS IS CAUSED BY THE WILLFUL  MISCONDUCT  OR GROSS  NEGLIGENCE  OF
AGENT, nor shall Agent be obligated to perform or discharge any obligation, duty
or liability  of Mortgagor  arising  under any  agreement  forming a part of the
Property  or arising  under any  Permitted  Encumbrance  or  otherwise  arising.
Mortgagor  hereby assents to, ratifies and confirms any and all actions of Agent
with respect to the Property taken under this Section 4.3.

     Section 4.4 Foreclosure.
                 -----------

     (a) Upon the  occurrence of a default,  Trustee is authorized and empowered
and it shall be Trustee's  special duty at the request of Agent to sell the Deed
of Trust Mortgaged Properties, or any part thereof, as an entirety or in parcels
as Agent may elect, at such place or places and otherwise in the manner and upon
such  notice  as  may be  required  by  law  or,  in  the  absence  of any  such
requirement, as Trustee may deem appropriate. If Trustee shall have given notice
of sale hereunder,  any successor or substitute Trustee thereafter appointed may
complete the sale and the conveyance of the property pursuant thereto as if such
notice had been given by the  successor or  substitute  Trustee  conducting  the
sale.

                                      -22-


          A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE MAY
          ----------------------------------------------------------------------
     ALLOW TRUSTEE TO TAKE THE MORTGAGED  PROPERTIES AND SELL THEM WITHOUT GOING
     ---------------------------------------------------------------------------
     TO COURT IN A  FORECLOSURE  ACTION  UPON  DEFAULT BY  MORTGAGOR  UNDER THIS
     ---------------------------------------------------------------------------
     MORTGAGE.
     --------

     (b) Upon the occurrence of a default (i) this Mortgage may be foreclosed as
to the Other Mortgaged Properties,  or any part thereof, in any manner permitted
by applicable law, or (ii) the Agent may, to the extent  permitted by applicable
law, sell the Other Mortgaged Properties, or any part thereof, as an entirety or
in  parcels as Agent may elect,  at such  place or places and  otherwise  in the
manner and upon such  notice as may be required by law or, in the absence of any
such  requirement,  as the  Agent  may  deem  appropriate  (Mortgagor  expressly
granting to the Agent the power of sale).

          A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE MAY
          ----------------------------------------------------------------------
     ALLOW AGENT TO TAKE THE MORTGAGED PROPERTIES AND SELL THEM WITHOUT GOING TO
     ---------------------------------------------------------------------------
     COURT  IN A  FORECLOSURE  ACTION  UPON  DEFAULT  BY  MORTGAGOR  UNDER  THIS
     ---------------------------------------------------------------------------
     MORTGAGE.
     --------

     (c) Upon the  occurrence  of a default,  Agent may  exercise  its rights of
enforcement with respect to the Collateral under the Uniform  Commercial Code or
any other  statute in force in any state to the  extent  the same is  applicable
law. Cumulative of the foregoing and the other provisions of this Section 4.4:

          (i) To the extent permitted by law, Agent may enter upon the Mortgaged
     Properties or otherwise upon  Mortgagor's  premises to take  possession of,
     assemble and collect the Collateral or to render it unusable; and

          (ii) Agent may require  Mortgagor to assemble the  Collateral and make
     it available at a place Agent  designates  which is mutually  convenient to
     allow Agent to take possession or dispose of the Collateral; and

          (iii) Written  notice mailed to Mortgagor as provided  herein at least
     five (5) days prior to the date of public sale of the  Collateral  or prior
     to the date after which private sale of the  Collateral  will be made shall
     constitute reasonable notice; and

          (iv) in the  event  of a  foreclosure  of the  liens  and/or  security
     interests  evidenced hereby, the Collateral,  or any part thereof,  and the
     Mortgaged Properties,  or any part thereof, may, at the option of Agent, be
     sold, as a whole or in parts,  together or separately  (including,  without
     limitation,  where a  portion  of the  Mortgaged  Properties  is sold,  the
     Collateral related thereto may be sold in connection therewith); and

          (v) the  expenses of sale  provided for in clause FIRST of Section 4.7
     shall include the reasonable  expenses of retaking the  Collateral,  or any
     part  thereof,  holding the same and  preparing  the same for sale or other
     disposition; and

                                      -23-


          (vi) should,  under this  subsection,  the  Collateral  be disposed of
     other than by sale, any proceeds of such disposition shall be treated under
     Section 4.7 as if the same were sales proceeds.

     (d) To the extent  permitted by applicable  law, the sale hereunder of less
than the whole of the  Property  shall not  exhaust  the  powers of sale  herein
granted or the right to judicial  foreclosure,  and successive sale or sales may
be made until the whole of the Property  shall be sold,  and, if the proceeds of
such  sale of less  than  the  whole  of the  Property  shall  be less  than the
aggregate of the indebtedness  secured hereby and the expense of conducting such
sale, this Mortgage and the liens and security  interests hereof shall remain in
full force and effect as to the unsold portion of the Property just as though no
sale had been made; provided, however, that Mortgagor shall never have any right
to  require  the sale of less than the whole of the  Property.  In the event any
sale  hereunder is not  completed or is defective in the opinion of Agent,  such
sale shall not  exhaust  the powers of sale  hereunder  or the right to judicial
foreclosure,  and Agent shall have the right to cause a subsequent sale or sales
to be made.  Any sale may be  adjourned  by  announcement  at the time and place
appointed for such sale without further notice except as may be required by law.
The Trustee or his successor or substitute,  and the Agent acting under power of
sale,  may appoint or delegate  any one or more  persons as agent to perform any
act or acts  necessary  or incident to any sale held by it  (including,  without
limitation,  the  posting  of  notices  and  the  conduct  of  sale),  and  such
appointment  need not be in writing or recorded,  Any and all statements of fact
or other recitals made in any deed or deeds,  or other  instruments of transfer,
given in connection with a sale as to nonpayment of the secured  indebtedness or
as to the  occurrence of any default,  or as to all of the secured  indebtedness
having been declared to be due and payable,  or as to the request to sell, or as
to notice of time,  place and terms of sale and the properties to be sold having
been duly given,  or, with respect to any sale by the Trustee,  or any successor
or substitute trustee, as to the refusal, failure or inability to act of Trustee
or any substitute or successor  trustee or the  appointment of any substitute or
successor trustee,  or as to any other act or thing having been duly done, shall
be taken as prima  facie  evidence  of the  truth  of the  facts so  stated  and
recited.  Notwithstanding  any  reference  herein  to the  Notes  or the  Credit
Agreement or any other Loan  Document,  all persons  dealing with the  Mortgaged
Properties  shall be entitled to rely on any document,  or  certificate,  of the
Agent as to the occurrence of an event,  such as an Event of Default,  and shall
not be charged with or forced to review any  provision of any other  document to
determine the accuracy thereof.  With respect to any sale held in foreclosure of
the liens and/or security  interests  covered hereby,  it shall not be necessary
for the Trustee,  Agent,  any public officer acting under  execution or order of
the court or any other party to have  physically  present or  constructively  in
his/her  or its  possession,  either at the time of or prior to such  sale,  the
Property or any part thereof.

     Section  4.5  Effective  as  Mortgage.  As to the Deed of  Trust  Mortgaged
                   -----------------------
Properties,  this instrument  shall be effective as a mortgage as well as a deed
of trust and upon the  occurrence  of a default may be foreclosed as to the Deed
of Trust Mortgaged  Properties,  or any portion thereof, in any manner permitted
by  applicable  law,  and any  foreclosure  suit may be brought by Trustee or by
Agent.  To the  extent,  if any,  required  to cause  this  instrument  to be so
effective as a mortgage as well as a deed of trust,  Mortgagor  hereby mortgages
the Deed of Trust  Mortgaged  Properties  to Agent.  In the event a  foreclosure
hereunder as to the Deed of Trust  Mortgaged  Properties,  or any part  thereof,
shall be commenced by Trustee, or his substitute or successor,  Agent may at any
time before the sale of such properties  direct Trustee to abandon the sale, and

                                      -24-


may  then  institute  suit  for  the  foreclosure  of this  Mortgage  as to such
properties.  It is  agreed  that  if  Agent  should  institute  a suit  for  the
foreclosure of this Mortgage,  Agent may at any time before the entry of a final
judgment in said suit dismiss the same, and require  Trustee,  its substitute or
successor, to sell the Deed of Trust Mortgaged Properties,  or any part thereof,
in accordance with the provisions of this Mortgage.

     Section 4.6 Receiver.  In addition to all other  remedies  herein  provided
                 --------
for,  Mortgagor  agrees that,  upon the  occurrence of a default or any event or
circumstance  which,  with the lapse of time or the giving of  notice,  or both,
would  constitute  a  default  hereunder,  Agent  shall as a matter  of right be
entitled to the  appointment  of a receiver or receivers  for all or any part of
the  Property,  whether  such  receivership  be incident to a proposed  sale (or
sales) of such  property or  otherwise,  and without  regard to the value of the
Property or the solvency of any person or persons  liable for the payment of the
indebtedness   secured  hereby,   and  Mortgagor  does  hereby  consent  to  the
appointment  of such receiver or receivers,  waives any and all defenses to such
appointment,  and agrees not to oppose any  application  therefor by Agent,  and
agrees that such appointment  shall in no manner impair,  prejudice or otherwise
affect the rights of Agent under Article III hereof.  Mortgagor expressly waives
notice of a hearing for  appointment of a receiver and the necessity for bond or
an  accounting  by the  receiver.  Nothing  herein is to be construed to deprive
Agent or any  Lender  of any other  right,  remedy  or  privilege  it may now or
hereafter have under the law to have a receiver appointed. Any money advanced by
Agent in  connection  with any such  receivership  shall be a demand  obligation
(which obligation Mortgagor hereby expressly promises to pay) owing by Mortgagor
to Agent and shall bear  interest,  from the date of making such  advancement by
Agent until paid, at the rate described in Section 2.3 hereof.

     Section  4.7  Proceeds  of  Foreclosure.  The  proceeds of any sale held in
                   -------------------------
foreclosure of the liens and/or  security  interests  evidenced  hereby shall be
applied:

          FIRST, to the payment of all necessary costs and expenses  incident to
          -----
     such  foreclosure  sale,  including  but not limited to all court costs and
     charges of every character in the event  foreclosed by suit or any judicial
     proceeding and including but not limited to a reasonable fee to the Trustee
     if such sale was made by the Trustee acting under the provisions of Section
     4.4(a) and including but not limited to the compensation of the keeper,  if
     any;

          SECOND,  to  the  payment  of  the  secured  indebtedness   (including
          ------
     specifically without limitation the principal, interest and attorneys' fees
     due and unpaid on the Notes and the  amounts  due and unpaid and owed under
     this Mortgage) in such manner and order as Agent may elect; and

          THIRD,  the  remainder,  if any  there  shall  be,  shall  be  paid to
          -----
     Mortgagor, or to Mortgagor's heirs, devisees,  representatives,  successors
     or assigns, or such other persons as may be entitled thereto by law.

     Section 4.8 Lender as Purchaser.  Any Lender shall have the right to become
                 -------------------
the  purchaser  at any sale held in  foreclosure  of the liens  and/or  security
interests  evidenced  hereby,  and any Lender  purchasing at any such sale shall
have the right to credit upon the amount of the bid made therefor, to the extent
necessary to satisfy such bid, the secured indebtedness owing to such Lender, or

                                      -25-


if such  Lender  holds  less  than all of such  indebtedness,  the pro rata part
thereof  owing to such Lender,  accounting  to all other  Lenders not joining in
such  bid in cash for the  portion  of such  bid or bids  apportionable  to such
non-bidding Lender or Lenders.

     Section  4.9  Foreclosure  as to Matured  Debt.  Upon the  occurrence  of a
                   --------------------------------
default,  Agent shall have the right to proceed  with  foreclosure  of the liens
and/or security interests  evidenced hereby without declaring the entire secured
indebtedness  due,  and in such  event,  any such  foreclosure  sale may be made
subject to the unmatured part of the secured  indebtedness  and shall not in any
manner affect the  unmatured  part of the secured  indebtedness,  but as to such
unmatured  part,  this  Mortgage  shall  remain in full force and effect just as
though no sale had been  made.  The  proceeds  of such sale  shall be applied as
provided in Section 4.7 except that the amount paid under clause SECOND  thereof
shall be only the matured portion of the secured  indebtedness  and any proceeds
of such  sale in excess  of those  provided  for in  clauses  FIRST  and  SECOND
(modified as provided  above) shall be applied as provided in clause  SECOND AND
THIRD of  Section  3.4  hereof.  Several  sales  may be made  hereunder  without
exhausting the right of sale for any unmatured part of the secured indebtedness.

     Section 4.10  Remedies  Cumulative.  All remedies  herein  provided for are
                   --------------------
cumulative of each other and of all other remedies  existing at law or in equity
and are cumulative of any and all other remedies  provided for in any other Loan
Document, and, in addition to the remedies herein provided, there shall continue
to be available all such other remedies as may now or hereafter  exist at law or
in equity for the collection of the secured  indebtedness and the enforcement of
the covenants herein and the foreclosure of the liens and/or security  interests
evidenced  hereby,  and the resort to any remedy provided for hereunder or under
any such  other Loan  Document  or  provided  for by law shall not  prevent  the
concurrent or subsequent employment of any other appropriate remedy or remedies.

     Section 4.11  Discretion  as to Security.  Agent may resort to any security
                   --------------------------
given by this Mortgage or to any other security now existing or hereafter  given
to secure the payment of the secured  indebtedness,  in whole or in part, and in
such  portions  and in such  order  as may  seem  best to  Agent in its sole and
uncontrolled discretion,  and any such action shall not in any way be considered
as a  waiver  of  any of the  rights,  benefits,  liens  or  security  interests
evidenced by this Mortgage.

     Section  4.12  Mortgagor's  Waiver of Certain  Rights.  To the full  extent
                    --------------------------------------
Mortgagor may do so, Mortgagor agrees that Mortgagor will not at any time insist
upon, plead,  claim or take the benefit or advantage of any law now or hereafter
in  force  providing  for  any  appraisement,   valuation,  stay,  extension  or
redemption,   and  Mortgagor,   for  Mortgagor,   Mortgagor's  heirs,  devisees,
representatives,  successors  and  assigns,  and for any  and all  persons  ever
claiming any interest in the  Property,  to the extent  permitted by  applicable
law, hereby waives and releases all rights of appraisement,  valuation,  stay of
execution, redemption, notice of intention to mature or declare due the whole of
the secured indebtedness,  notice of election to mature or declare due the whole
of the  secured  indebtedness  and all  rights  to a  marshaling  of  assets  of
Mortgagor,  including the Property,  or to a sale in inverse order of alienation
in the  event of  foreclosure  of the liens  and/or  security  interests  hereby
created.  Mortgagor shall not have or assert any right under any statute or rule
of law  pertaining  to the  marshaling  of  assets,  sale in  inverse  order  of
alienation,  the  exemption  of  homestead,  the  administration  of  estates of

                                      -26-


decedents, or other matters whatever to defeat, reduce or affect the right under
the terms of this  Mortgage to a sale of the Property for the  collection of the
secured  indebtedness  without any prior or different resort for collection,  or
the  right  under the  terms of this  Mortgage  to the  payment  of the  secured
indebtedness  out of the proceeds of sale of the Properly in preference to every
other  claimant  whatever.  If any law  referred  to in this  section and now in
force,  of which  Mortgagor or  Mortgagor's  heirs,  devisees,  representatives,
successors  or  assigns  or any  other  persons  claiming  any  interest  in the
Mortgaged  Properties  or the  Collateral  might  take  advantage  despite  this
section, shall hereafter be repealed or cease to be in force, such law shall not
thereafter be deemed to preclude the application of this section.

     Section 4.13 Mortgagor as Tenant Post-Foreclosure.  In the event there is a
                  ------------------------------------
foreclosure sale hereunder and at the time of such sale Mortgagor or Mortgagor's
heirs,  devisees,  representatives,  successors  or assigns or any other persons
claiming  any  interest  in the  Property  by,  through or under  Mortgagor  are
occupying  or using  the  Property,  or any  part  thereof,  each and all  shall
immediately become the tenant of the purchaser at such sale, which tenancy shall
be a  tenancy  from day to day,  terminable  at the will of either  landlord  or
tenant,  at a  reasonable  rental per day based  upon the value of the  property
occupied,  such rental to be due daily to the purchaser. To the extent permitted
by  applicable  law,  the  purchaser  at such sale  shall,  notwithstanding  any
language  herein  apparently  to the  contrary,  have the sole  option to demand
immediate  possession following the sale or to permit the occupants to remain as
tenants at will.  In the event the tenant fails to surrender  possession of said
property upon demand,  the purchaser shall be entitled to institute and maintain
a summary  action for possession of the property (such as an action for forcible
entry and detainer) in any court having jurisdiction.

                                   ARTICLE V.

                                  Miscellaneous
                                  -------------

     Section  5.1  Scope of  Mortgage.  This  Mortgage  is a deed of  trust  and
                   ------------------
mortgage  of both  real/immovable  and  personal/movable  property,  a  security
agreement, a financing statement and an assignment, and also covers proceeds and
fixtures.

     Section 5.2 Effective as a Financing Statement.  This Mortgage, among other
                 ----------------------------------
things,  covers  goods which are or are to become  fixtures  related to the real
property  described herein,  and covers  as-extracted  collateral related to the
real property described herein.  This Mortgage shall be effective as a financing
statement  (i) filed as a fixture  filing with respect to all fixtures  included
within the Property,  (ii) covering as-extracted  collateral with respect to all
as-extracted  collateral  included  within  the  Property  (including,   without
limitation, all oil, gas, other minerals and other substances of value which may
be  extracted  from the earth and all  accounts  arising  out of the sale at the
wellhead or minehead  thereof),  and (iii)  covering  all other  Property.  This
Mortgage  is to be filed for record in the  real/immovable  property  records of
each county where any part of the Mortgaged Properties is situated or which lies
shoreward of any Mortgaged Property, and may also be filed in the offices of the
Bureau of Land Management,  the Minerals  Management  Service,  the General Land
Office or any relevant federal,  state, local or tribal agency (or any successor
agencies).  The mailing  address of Mortgagor  is the address of  Mortgagor  set
forth  at the  end of  this  Mortgage  and  the  address  of  Agent  from  which
information  concerning the security interests  hereunder may be obtained is the
address of Agent set forth at the end of this  Mortgage.  Nothing  contained  in

                                      -27-


this  paragraph  shall be construed to limit the scope of this  Mortgage nor its
effectiveness as a financing statement covering any type of Property.

     Section 5.3 Reproduction of Mortgage as Financing Statement;  Authorization
                 ---------------------------------------------------------------
to  File.  A  carbon,  photographic,  facsimile  or other  reproduction  of this
- --------
Mortgage  or of any  financing  statement  relating  to this  Mortgage  shall be
sufficient as a financing statement for any purpose.  Without limiting any other
provision  herein,  Mortgagor hereby  authorizes Agent to file, in any filing or
recording  office,  one  or  more  financing   statements  and  any  renewal  or
continuation  statements thereof,  describing the Property,  including,  without
limitation,  a  financing  statement  covering  "all  assets of  Mortgagor,  all
proceeds therefrom and all rights and privileges with respect thereto."

     Section  5.4  Notice to  Account  Debtors.  In  addition  to,  but  without
                   ---------------------------
limitation of, the rights granted in Article III hereof,  Agent may, at any time
after a default has occurred that is continuing,  notify the account  debtors or
obligors  of any  accounts,  chattel  paper,  negotiable  instruments  or  other
evidences of indebtedness included in the Collateral to pay Agent directly.

     Section 5.5 Waivers. Agent may at any time and from time to time in writing
                 -------
waive  compliance by Mortgagor with any covenant herein made by Mortgagor to the
extent and in the manner  specified in such writing,  or consent to  Mortgagor's
doing  any act  which  hereunder  Mortgagor  is  prohibited  from  doing,  or to
Mortgagor's  failing to do any act which hereunder  Mortgagor is required to do,
to the extent and in the manner  specified in such writing,  or release any part
of the Property or any interest therein or any Production Proceeds from the lien
and  security  interest of this  Mortgage,  without the joinder of Trustee.  Any
party liable, either directly or indirectly, for the secured indebtedness or for
any covenant  herein or in any other Loan  Document may be released  from all or
any part of such obligations without impairing or releasing the liability of any
other party. No such act shall in any way impair any rights or powers  hereunder
except to the extent specifically agreed to in such writing.

     Section 5.6 No  Impairment  of Security.  The lien,  security  interest and
                 ---------------------------
other  security  rights  hereunder  shall  not be  impaired  by any  indulgence,
moratorium or release which may be granted,  including,  but not limited to, any
renewal,  extension  or  modification  which may be granted  with respect to any
secured indebtedness, or any surrender, compromise, release, renewal, extension,
exchange  or  substitution  which  maybe  granted  in  respect  of the  Property
(including without limitation Production  Proceeds),  or any part thereof or any
interest  therein,  or any  release  or  indulgence  granted  to  any  endorser,
guarantor or surety of any secured indebtedness.

     Section 5.7 Acts Not Constituting Waiver. Any default may be waived without
                 ----------------------------
waiving  any other  prior or  subsequent  default.  Any  default may be remedied
without waiving the default remedied.  Neither failure to exercise, nor delay in
exercising,  any right, power or remedy upon any default shall be construed as a
waiver of such  default or as a waiver of the right to exercise  any such right,
power or remedy at a later  date.  No single or partial  exercise  of any right,
power or remedy  hereunder shall exhaust the same or shall preclude any other or
further exercise thereof, and every such right, power or remedy hereunder may be
exercised at any time and from time to time,  No  modification  or waiver of any

                                      -28-


provision  hereof nor consent to any departure by Mortgagor  therefrom  shall in
any event be  effective  unless the same shall be in writing and signed by Agent
and then  such  waiver  or  consent  shall  be  effective  only in the  specific
instances,  for the purpose for which given and to the extent therein specified.
No  notice to nor  demand  on  Mortgagor  in any case  shall of  itself  entitle
Mortgagor  to any  other  or  further  notice  or  demand  in  similar  or other
circumstances.  Acceptance of any payment in an amount less than the amount then
due on any secured  indebtedness  shall be deemed an  acceptance on account only
and shall not in any way excuse the existence of a default hereunder.

     Section  5.8  Mortgagor's  Successors.  In the event the  ownership  of the
                   -----------------------
Property or any part thereof  becomes  vested in a person other than  Mortgagor,
then, without notice to Mortgagor,  such successor or successors in interest may
be dealt with, with reference to this Mortgage and to the  indebtedness  secured
hereby,  in the same manner as with  Mortgagor,  without in any way vitiating or
discharging   Mortgagor's   liability  hereunder  or  for  the  payment  of  the
indebtedness  or performance of the obligations  secured hereby.  No transfer of
the Property,  no  forbearance,  and no extension of the time for the payment of
the  indebtedness  secured hereby shall operate to release,  discharge,  modify,
change or affect,  in whole or in part, the liability of Mortgagor  hereunder or
for the payment of the  indebtedness or performance of the  obligations  secured
hereby or the liability of any other person  hereunder or for the payment of the
indebtedness secured hereby.

     Section 5.9 Place of Payment.  All secured  indebtedness which may be owing
                 ----------------
hereunder at any time by Mortgagor  shall be payable at the place  designated in
the Credit Agreement (or if no such designation is made, at the address of Agent
indicated  at the end of this  Mortgage),  or at such  other  place as Agent may
designate in writing.

     Section 5.10  Subrogation to Existing Liens. To the extent that proceeds of
                   -----------------------------
the Notes are used to pay indebtedness secured by any outstanding lien, security
interest,  charge or prior encumbrance against the Property,  such proceeds have
been advanced at  Mortgagor's  request,  and the party or parties  advancing the
same shall be  subrogated  to any and all rights,  security  interests and liens
owned by any owner or  holder of such  outstanding  liens,  security  interests,
charges or encumbrances, irrespective of whether said liens, security interests,
charges or encumbrances  are released,  and it is expressly  understood that, in
consideration of the payment of such  indebtedness,  Mortgagor hereby waives and
releases  all demands and causes of action for offsets and payments to, upon and
in connection with the said indebtedness.

     Section 5.11 Application of Payments to Certain  Indebtedness.  If any part
                  ------------------------------------------------
of the secured  indebtedness  cannot be lawfully  secured by this Mortgage or if
any part of the  Property  cannot be lawfully  subject to the lien and  security
interest hereof to the full extent of such indebtedness,  then all payments made
shall be applied on said indebtedness first in discharge of that portion thereof
which is not secured by this Mortgage.

     Section 5.12  Compliance  With Usury Laws.  It is the intent of  Mortgagor,
                   ---------------------------
Lender  and all  other  parties  to the Loan  Documents  to  contract  in strict
compliance with applicable usury law from time to time in effect. In furtherance
thereof,  it is  stipulated  and  agreed  that none of the terms and  provisions
contained  herein or in the other  Loan  Documents  shall ever be  construed  to
create a  contract  to pay,  for the use,  forbearance  or  detention  of money,

                                      -29-


interest in excess of the maximum amount of interest  permitted to be charged by
applicable law from time to time in effect.

     Section 5.13 Substitute Trustee. The Trustee may resign by an instrument in
                  ------------------
writing  addressed  to Agent,  or  Trustee  may be  removed  at any time with or
without  cause by an  instrument  in writing  executed by Agent.  In case of the
death,  resignation,  removal,  or  disqualification  of Trustee,  or if for any
reason  Agent  shall deem it  desirable  to appoint a  substitute  or  successor
trustee  to act  instead  of the  herein  named  trustee  or any  substitute  or
successor trustee,  then Agent shall have the right and is hereby authorized and
empowered to appoint a successor trustee, or a substitute trustee, without other
formality than  appointment and designation in writing executed by Agent and the
authority  hereby  conferred  shall extend to the appointment of other successor
and substitute trustees  successively until the indebtedness  secured hereby has
been paid in full,  or until the  Property is sold  hereunder.  In the event the
secured  indebtedness is owned by more than one person or entity,  the holder or
holders of not less than a majority  in the  amount of such  indebtedness  shall
also have the right and  authority  to make the  appointment  of a successor  or
substitute  trustee  as  provided  for in the  preceding  sentence  or to remove
Trustee as provided in the first sentence of this section,  Such appointment and
designation  by Agent shall be full  evidence of the right and authority to make
the  same and of all  facts  therein  recited.  If  Agent  is a  corporation  or
association and such appointment is executed in its behalf by an officer of such
corporation or association,  such appointment shall be conclusively  presumed to
be executed with  authority and shall be valid and  sufficient  without proof of
any action by the board of directors or any superior  officer of the corporation
or  association.   Agent  may  act  through  an  agent  or  attorney-in-fact  in
substituting trustees.  Upon the making of any such appointment and designation,
all of the estate and title of Trustee in the Deed of Trust Mortgaged Properties
shall vest in the named  successor or substitute  Trustee and such  successor or
substitute shall thereupon succeed to, and shall hold, possess and execute,  all
the rights,  powers,  privileges,  immunities  and duties herein  conferred upon
Trustee; but nevertheless, upon the written request of Agent or of the successor
or substitute  Trustee,  the Trustee ceasing to act shall execute and deliver an
instrument  transferring  to such  successor  or  substitute  Trustee all of the
estate and title in the Deed of Trust  Mortgaged  Properties  of the  Trustee so
ceasing to act, together with all the rights, powers, privileges, immunities and
duties herein  conferred upon the Trustee,  and shall duly assign,  transfer and
deliver any of the properties and moneys held by said Trustee  hereunder to said
successor or  substitute  Trustee.  All  references  herein to Trustee  shall be
deemed to refer to Trustee (including any successor or substitute  appointed and
designated as herein provided) from time to time acting hereunder.

     Section 5.14 No Liability for Trustee.  THE TRUSTEE SHALL NOT BE LIABLE FOR
                  ------------------------
ANY ERROR OF  JUDGMENT  OR ACT DONE BY TRUSTEE IN GOOD  FAITH,  OR BE  OTHERWISE
RESPONSIBLE  OR  ACCOUNTABLE  UNDER  ANY  CIRCUMSTANCES  WHATSOEVER  (INCLUDING,
WITHOUT  LIMITATION,  THE  TRUSTEE'S  NEGLIGENCE),  EXCEPT FOR  TRUSTEE'S  GROSS
NEGLIGENCE  OR WILLFUL  MISCONDUCT.  The Trustee shall have the right to rely on
any instrument, document or signature authorizing or supporting any action taken
or  proposed to be taken by the  Trustee  hereunder,  believed by the Trustee in
good faith to be genuine.  All moneys  received by Trustee shall,  until used or
applied as herein  provided,  be held in trust for the  purposes  for which they
were  received,  but need not be  segregated in any manner from any other moneys
(except to the extent  required by law), and Trustee shall be under no liability

                                      -30-


for interest on any moneys received by him hereunder.  Mortgagor hereby ratifies
and confirms any and all acts which the herein named Trustee or its successor or
successors,  substitute  or  substitutes,  shall do lawfully  by virtue  hereof.
Mortgagor  will reimburse  Trustee for, and indemnify and save Trustee  harmless
against, any and all liability and expenses (including attorneys fees) which may
be  incurred  by  Trustee  in the  performance  of  his  duties.  The  foregoing
indemnities  shall  not  terminate  upon  the  release,   foreclosure  or  other
termination of this Mortgage but will survive such release,  termination  and/or
foreclosure  of this  Mortgage,  or conveyance in lieu of  foreclosure,  and the
repayment  of the secured  indebtedness  and the  discharge  and release of this
Mortgage  and  the  other  documents  evidencing  and/or  securing  the  secured
indebtedness. Any amount to be paid hereunder by Mortgagor to Trustee shall be a
demand  obligation  owing by  Mortgagor  to Trustee  and shall be subject to and
covered by the provisions of Section 2.3 hereof.

     Section  5.15 Release of Mortgage.  If all of the secured  indebtedness  be
                   -------------------
paid as the same becomes due and payable,  all other  requirements of the Credit
Agreement are satisfied and all of the covenants,  warranties,  undertakings and
agreements  made in this  Mortgage  are kept and  performed,  and if neither the
Mortgagor  nor any Lender is bound to the other or to any third person to permit
any obligation or secured indebtedness to be incurred then or thereafter,  then,
upon sixty (60) days prior written  notice (or such lesser number of days as may
be mandated by applicable  law), the Mortgagor may request that this Mortgage be
terminated.  Upon such  termination  the  Mortgagor  may further  request that a
written act of release of this Mortgage be provided  (except this Mortgage shall
be reinstated to the extent expressly  provided  herein,  and will continue with
respect to indemnification  and other rights which are to continue following the
release hereof).  Agent agrees to deliver such an act of release (subject to the
foregoing  limitation),  all at the cost and  expense of the  Mortgagor,  within
thirty (30) days (or such lesser number of days as may be mandated by applicable
law) of receiving such request unless Agent in good faith,  has cause to believe
that   Mortgagor  is  not   entitled  to  a   termination   of  this   Mortgage.
Notwithstanding  the  foregoing,  it  is  understood  and  agreed  that  certain
indemnifications,  and other  rights,  which  are  provided  herein to  continue
following the release  hereof,  shall  continue in effect  notwithstanding  such
release;  and  provided  that if any  payment  to Lender,  or Agent,  is held to
constitute a preference or a voidable transfer under applicable state or federal
laws or if for any other  reason  Lender,  or Agent,  is required to refund such
payment to the payor  thereof or to pay the amount  thereof to any third  party,
this Mortgage shall be reinstated to the extent of such payment or payments.

     Section 5.16 Notices. All notices,  requests,  consents,  demands and other
                  -------
communications  required or permitted hereunder shall be in writing and shall be
deemed  sufficiently  given or furnished if delivered by personal  delivery,  by
telecopy,  by delivery  service  with proof of  delivery,  or by  registered  or
certified United States mail, postage prepaid, at the addresses specified at the
end of this Mortgage  (unless  changed by similar notice in writing given by the
particular  party  whose  address  is  to  be  changed).   Any  such  notice  or
communication  shall be deemed to have  been  given (a) in the case of  personal
delivery or delivery service,  as of the date of first attempted delivery at the
address and in the manner  provided  herein,  (b) in the case of telecopy,  upon
receipt,  and (c) in the case of  registered  or certified  United  States mail,
three days after deposit in the mail. Notwithstanding the foregoing, or anything
else in the Loan Documents which may appear to the contrary, any notice given in
connection  with a foreclosure of the liens and/or  security  interests  created
hereunder,  or otherwise in connection with the exercise by Agent, any Lender or

                                      -31-


Trustee of their  respective  rights hereunder or under any other Loan Document,
which is given in a manner permitted by applicable law shall  constitute  proper
notice; without limitation of the foregoing,  notice given in a form required or
permitted  by statute  shall (as to the  portion of the  Property  to which such
statute is applicable) constitute proper notice.

     Section 5.17 Invalidity of Certain  Provisions.  A  determination  that any
                  ---------------------------------
provision  of this  Mortgage is  unenforceable  or invalid  shall not affect the
enforceability or validity of any other provision and the determination that the
application of any provision of this Mortgage to any person or  circumstance  is
illegal or unenforceable shall not affect the enforceability or validity of such
provision as it may apply to other persons or circumstances.

     Section  5.18 Gender;  Titles.  Within this  Mortgage,  words of any gender
                   ---------------
shall be held and  construed  to  include  any  other  gender,  and words in the
singular  number shall be held and  construed to include the plural,  unless the
context   otherwise   requires.   Titles  appearing  at  the  beginning  of  any
subdivisions hereof are for convenience only, do not constitute any part of such
subdivisions,  and shall be disregarded in construing the language  contained in
such subdivisions.

     Section  5.19  Recording.  Mortgagor  will  cause  this  Mortgage  and  all
                    ---------
amendments and supplements thereto and substitutions  therefor and all financing
statements and continuation  statements relating thereto to be recorded,  filed,
re-recorded  and  refiled in such  manner and in such places as Trustee or Agent
shall reasonably request and will pay all such recording,  filing,  re-recording
and refiling taxes, fees and other charges.

     Section 5.20 Reporting Compliance.  Mortgagor agrees to comply with any and
                  --------------------
all reporting requirements  applicable to the transaction evidenced by the Notes
and secured by this Mortgage which are set forth in any law, statute, ordinance,
rule,  regulation,  order or determination of any  governmental  authority,  and
further  agrees  upon  request of Agent to furnish  Agent with  evidence of such
compliance.

     Section 5.21 Certain Consents.  Except where otherwise  expressly  provided
                  ----------------
herein, in any instance hereunder where the approval, consent or the exercise of
judgment  of Agent or any Lender is  required,  the  granting  or denial of such
approval or consent and the exercise of such  judgment  shall be within the sole
discretion  of such party,  and such party  shall not,  for any reason or to any
extent,  be required to grant such approval or consent or exercise such judgment
in any particular manner, regardless of the reasonableness of either the request
or the judgment of such party.

     Section 5.22 Certain Obligations of Mortgagor. Without limiting Mortgagor's
                  --------------------------------
obligations  hereunder,  Mortgagor's  liability  hereunder and the  indebtedness
secured hereby shall extend to and include all post petition interest, expenses,
and other  duties  and  liabilities  with  respect  to  Mortgagor's  obligations
hereunder  which  would  be  owed  but  for  the  fact  that  the  same  may  be
unenforceable  due to the existence of a bankruptcy,  reorganization  or similar
proceeding.

     Section 5.23 Authority of Agent.  The persons  constituting  Lender may, by
                  ------------------
agreement  among  them,  provide  for and  regulate  the  exercise of rights and
remedies  hereunder,  but,  unless and until modified to the contrary in writing
signed by all such persons and recorded in the same counties as this Mortgage is
recorded,  (i) all persons  other than  Mortgagor  and its  affiliates  shall be

                                      -32-


entitled to rely on the releases,  waivers, consents,  approvals,  notifications
and other acts  (including,  without  limitation,  appointment  of substitute or
successor trustee, or trustees,  hereunder and the bidding in of all or any part
of the secured indebtedness held by any one or more Lenders, whether the same be
conducted  under the provisions  hereof or otherwise) of Agent,  without inquiry
into any such agreements or the existence of required consent or approval of any
persons  constituting  Lender and  without  the  joinder of any party other than
Agent in such releases,  waivers,  consents,  approvals,  notifications or other
acts and (ii) all notices, requests,  consents, demands and other communications
required or permitted to be given hereunder may be given to Agent.

     Section  5.24  Counterparts.  This  Mortgage  may be  executed  in  several
                    ------------
counterparts,  all of  which  are  identical,  except  that,  (a) to  facilitate
recordation,  certain  counterparts  hereof  may  include  only that  portion of
Exhibit A which contains descriptions of the properties located in (or otherwise
subject  to the  recording  or filing  requirements  and/or  protections  of the
recording or filing acts or regulations of) the recording  jurisdiction in which
the particular  counterpart  is to be recorded,  and other portions of Exhibit A
shall be included in such  counterparts  by reference only and (b) Schedule I is
attached only to the master  counterparts hereof being retained by Mortgagor and
Agent.

     Section 5.25 Multiple Parties  Constituting  Mortgagor.  Unless the context
                  -----------------------------------------
clearly  indicates  otherwise,  as used in this Mortgage,  "Mortgagor" means the
Mortgagors  named in  Section  1.1  hereof or any of them.  The  obligations  of
Mortgagor hereunder shall be joint and several.

     Section 5.26  Successors  and Assigns.  The terms,  provisions,  covenants,
                   -----------------------
representations,  indemnifications  and conditions  hereof shall be binding upon
Mortgagor,  and the successors and assigns of Mortgagor,  and shall inure to the
benefit  of  Agent,  Trustee  and each  person  constituting  Lender  and  their
respective  successors and assigns,  and shall constitute covenants running with
the  Mortgaged  Properties.  Should  the  agency  under  which  Agent  serves be
terminated,  or otherwise  cease to exist,  Lenders  (including  the  respective
successors and assigns of each person constituting Lender named herein) shall be
deemed to be the  successors  to  Agent.  All  references  in this  Mortgage  to
Mortgagor,  Agent,  Trustee  or  Lenders  shall be  deemed to  include  all such
successors and assigns.

     Section 5.27 FINAL  AGREEMENT OF THE  PARTIES.  THE WRITTEN LOAN  DOCUMENTS
                  --------------------------------------------------------------
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
- --------------------------------------------------------------------------------
EVIDENCE  OF  PRIOR.  CONTEMPORANEOUS.  OR  SUBSEQUENT  ORAL  AGREEMENTS  OF THE
- --------------------------------------------------------------------------------
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
- -------------------------------------------------------------------

     Section 5.28 CHOICE OF LAW.  WITHOUT  REGARD TO  PRINCIPLES OF CONFLICTS OF
                  -------------
LAW,  THIS  MORTGAGE  SHALL BE  CONSTRUED  AND ENFORCED IN  ACCORDANCE  WITH AND
GOVERNED BY THE LAWS OF THE STATE OF TEXAS  APPLICABLE TO CONTRACTS  MADE AND TO
BE  PERFORMED  ENTIRELY  WITHIN SUCH STATE AND THE LAWS OF THE UNITED  STATES OF
AMERICA, EXCEPT THAT TO THE EXTENT THAT THE LAW OF A STATE IN WHICH A PORTION OF

                                      -33-


THE  PROPERTY IS LOCATED (OR WHICH IS OTHERWISE  APPLICABLE  TO A PORTION OF THE
PROPERTY)  NECESSARILY  OR,  IN THE SOLE  DISCRETION  OF  LENDER,  APPROPRIATELY
GOVERNS WITH  RESPECT TO  PROCEDURAL  AND  SUBSTANTIVE  MATTERS  RELATING TO THE
CREATION,  PERFECTION AND ENFORCEMENT OF THE LIENS, SECURITY INTERESTS AND OTHER
RIGHTS AND REMEDIES OF THE TRUSTEE OR THE LENDER GRANTED HEREIN, THE LAW OF SUCH
STATE SHALL  APPLY AS TO THAT  PORTION OF THE  PROPERTY  LOCATED IN (OR WHICH IS
OTHERWISE SUBJECT TO THE LAWS OF) SUCH STATE.

     Section 5.29  Reliance on  Certificate  or  Statement  of Agent.  All third
                   -------------------------------------------------
parties  may  rely  upon a  certificate  or  statement  of the  Agent  as to the
occurrence of any act or event, including, but not limited to, the occurrence of
a default  hereunder,  or the occurrence of an Event of Default under the Credit
Agreement.


                         [Signatures begin on next page]

                                      -34-




     EXECUTED  this 16th day of April,  2003, to be  effective,  however,  as of
April 16th, 2003.


                                       ST. MARY LAND & EXPLORATION
                                       COMPANY


                                       By:   /s/ MILAM RANDOLPH PHARO
                                            ------------------------------------
                                            Milam Randolph Pharo
                                            Vice President - Land & Legal




The address and tax identification number of Parent are:
1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(Denver County)
Taxpayer I.D. No. 41-05 18430

The  address of Agent is:
201 South College Street
8th Floor NC 0680
Charlotte, NC 28288

The addresses of Trustees are:
Jay Chernosky
1001 Fannin Street, Suite 2255
Houston, Texas 77002

The First American Title Company of Utah
3300 East 400 South
Salt Lake City, Utah 84111

This instrument prepared by:
Craig W. Murray
Vinson & Elkins L.L.P.
1001 Fannin, Suite 2300
Houston, TX  77002

                                      -35-




STATE OF COLORADO                 ss.
                                  ss.
COUNTY OF DENVER                  ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby  certify that, on this 16th day of April,  2003,  THERE
personally  appeared before me: Milam Randolph Pharo,  the Vice President - Land
& Legal of St. Mary Land &  Exploration Company, a Delaware corporation,
known to me to be such officer,  such corporation being a party to the foregoing
instrument.

COLORADO,           The foregoing instrument was  acknowledged before me on this
NEVADA and          day, by  such  person, the  above  designated officer of the
SOUTH DAKOTA        corporation   specified  following  such person's  name,  on
                    behalf of said corporation.

                    On  this  date   before  me,  the   undersigned   authority,
                    personally  came and appeared such person,  to me personally
                    known  and  known  by me  to be  the  person  whose  genuine
                    signature is affixed to the foregoing  document as the above
                    designated  officer of the corporation  specified  following
                    such person's  name,  who signed said document  before me in
                    the presence of the two  witnesses,  whose names are thereto
                    subscribed  as  such,  being  competent  witnesses,  and who
                    acknowledged,  in my  presence  and in the  presence of said
                    witnesses,  that he signed the above and foregoing  document
                    as his own free act and deed on behalf  of such  corporation
                    by authority  of its board of directors  and as the free act
                    and deed of such  corporation  and for the uses and purposes
                    therein set forth and apparent.

     IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in the
City of Denver, Denver County, Colorado on the day and year first above written.
                                /s/ JAMES C. ROBERTSON
                             ---------------------------------------------------
                             NOTARY PUBLIC, in and for the State of Colorado

                             James C. Robertson
My commission expires:       (printed name)
February 14, 2005
- ---------------------

[SEAL]

                                      -36-




     EXECUTED  this 16th day of April,  2003, to be  effective,  however,  as of
April 16th, 2003.

                                       ST. MARY ENERGY COMPANY


                                       By:  /s/ MILAM RANDOLPH PHARO
                                            ------------------------------------
                                            Milam Randolph Pharo
                                            Vice President - Land & Legal



The address and tax identification number of Energy are:

1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(Denver County)
Taxpayer ID. No. 76-0554924


STATE OF COLORADO           ss.
                            ss.
COUNTY OF DENVER            ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby  certify  that, on this 16th day of April,  2003, there
personally  appeared before me: Milam Randolph Pharo,  the Vice President - Land
& Legal of St. Mary Energy Company, a Delaware  corporation,  known to me to
be such officer, such corporation being a party to the foregoing instrument.

COLORADO,           The foregoing instrument  was acknowledged before me on this
NEVADA and          day, by such  person, the  above designated  officer of  the
SOUTH DAKOTA        corporation  specified  following  such  person's  name,  on
                    behalf of said corporation.

                    On  this  date   before  me,  the   undersigned   authority,
                    personally  came and appeared such person,  to me personally
                    known  and  known  by me  to be  the  person  whose  genuine
                    signature is affixed to the foregoing  document as the above
                    designated  officer of the corporation  specified  following
                    such person's  name,  who signed said document  before me in
                    the presence of the two  witnesses,  whose names are thereto
                    subscribed  as  such,  being  competent  witnesses,  and who
                    acknowledged,  in my  presence  and in the  presence of said
                    witnesses,  that he signed the above and foregoing  document
                    as his own free act and deed on behalf  of such  corporation
                    by authority  of its board of directors  and as the free act
                    and deed of such  corporation  and for the uses and purposes

                                      -38-


                    therein set forth and apparent.

     IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in the
City of Denver, Denver County, Colorado on the day and year first above written.
                                /s/ JAMES C. ROBERTSON
                               -------------------------------------------------
                               NOTARY PUBLIC, in and for the State of Colorado

                               James C. Robertson
My commission expires:         (printed name)
February 14, 2005
- ---------------------

[SEAL]

                                      -38-




     EXECUTED  this 16th day of April,  2003, to be  effective,  however,  as of
April 16th, 2003.

                                       NANCE PETROLEUM CORPORATION



                                       By:  /s/ ROBERT T. HANLEY
                                           -------------------------------------
                                            Robert T. Hanley
                                            Vice President and Treasurer


The address and tax identification number of Nance are:

550 North 31st Street, Suite 500
Billings, Montana 59101
(Yellowstone County)
Taxpayer I.D. No. 8 1-0309883


STATE OF COLORADO               ss.
                                ss.
COUNTY OF DENVER                ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby  certify  that, on this 16th day of April,  2003, there
personally  appeared  before  me:  Robert  T.  Hanley,  the Vice  President  and
Treasurer of Nance Petroleum Corporation, a Montana corporation,  known to me to
be such officer, such corporation being a party to the foregoing instrument.

COLORADO,           The foregoing  instrument was acknowledged before me on this
NEVADA and          day, by  such person, the above  designated  officer  of the
SOUTH DAKOTA        corporation   specified  following  such  person's  name, on
                    behalf of said corporation.

                    On  this  date   before  me,  the   undersigned   authority,
                    personally  came and appeared such person,  to me personally
                    known  and  known  by me  to be  the  person  whose  genuine
                    signature is affixed to the foregoing  document as the above
                    designated  officer of the corporation  specified  following
                    such person's  name,  who signed said document  before me in
                    the presence of the two  witnesses,  whose names are thereto
                    subscribed  as  such,  being  competent  witnesses,  and who
                    acknowledged,  in my  presence  and in the  presence of said
                    witnesses,  that he signed the above and foregoing  document
                    as his own free act and deed on behalf  of such  corporation
                    by authority  of its board of directors  and as the free act

                                      -39-


                    and deed of such  corporation  and for the uses and purposes
                    therein set forth and apparent.

     IN WITNESS  WHEREOF.  I have  hereunto set my hand and official seal in the
City of  Denver,  Denver  County,  Colorado,  on the day and  year  first  above
written.
                                  /s/ JAMES C. ROBERTSON
                                ------------------------------------------------
                                NOTARY PUBLIC, in and for the State of Colorado

                                James C. Robertson
My commission expires:           (printed name)
February 14, 2005
- ---------------------

[SEAL]

                                      -40-




     EXECUTED  this 16th day of April,  2003, to be  effective,  however,  as of
April 16th, 2003.

                                       ST. MARY MINERALS INC.


                                       By:   /s/ RICHARD C. NORRIS
                                            ------------------------------------
                                            Richard C. Norris
                                            Vice President - Finance


The address and tax identification number of Minerals are:

1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(Denver County)
Taxpayer I.D. No. 84-12003 18


STATE OF COLORADO                 ss.
                                  ss.
COUNTY OF DENVER                  ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby  certify  that, on this 16th day of April,  2003, there
personally  appeared before me: Richard C. Norris,  the Vice President - Finance
of St.  Mary  Minerals  Inc.,  a  Colorado  corporation,  known to me to be such
officer, such corporation being a party to the foregoing instrument.

COLORADO,           The foregoing instrument was acknowledged before me on this
NEVADA and          day, by such person, the above designated officer of the
SOUTH DAKOTA        corporation specified following such person's name, on
                    behalf of said corporation.

                    On  this  date   before  me,  the   undersigned   authority,
                    personally  came and appeared such person,  to me personally
                    known  and  known  by me  to be  the  person  whose  genuine
                    signature is affixed to the foregoing  document as the above
                    designated  officer of the corporation  specified  following
                    such person's  name,  who signed said document  before me in
                    the presence of the two  witnesses,  whose names are thereto
                    subscribed  as  such,  being  competent  witnesses,  and who
                    acknowledged,  in my  presence  and in the  presence of said
                    witnesses,  that he signed the above and foregoing  document
                    as his own free act and deed on behalf  of such  corporation
                    by authority  of its board of directors  and as the free act
                    and deed of such  corporation  and for the uses and purposes
                    therein set forth and apparent.

                                      -41-


     IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in the
City of  Denver,  Denver  County,  Colorado,  on the day and  year  first  above
written.
                                /s/ JAMES C. ROBERTSON
                               -------------------------------------------------
                               NOTARY PUBLIC, in and for the State of Colorado

                               James C. Robertson
My commission expires:          (printed name)
February 14, 2005
- ---------------------

[SEAL]

                                      -42-




     EXECUTED  this 16th day of April,  2003, to be  effective,  however,  as of
April 16th, 2003.

                                        ROSWELL, L.L.C.


                                        By:   St. Mary Land & Exploration
                                              Company, as Member

                                        By:  /s/ MILAM RANDOLPH PHARO
                                            ------------------------------------
                                              Milam Randolph Pharo
                                              Vice President - Land & Legal




The address and tax identification number of Roswell are:

1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(Denver County)
Taxpayer I.D. No. 74-2788509


STATE OF COLORADO                 ss.
                                  ss.
COUNTY OF DENVER                  ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby  certify  that, on this 16th day of April,  2003, there
personally  appeared before me: Milam Randolph Pharo,  the Vice President - Land
& Legal of St Mary Land &  Exploration Company, a Delaware  corporation,
in its  capacity  as a member of  Roswell,  L.L.C.,  a Texas  limited  liability
company,  known to me to be such officer of such  corporation,  such corporation
acting in its  capacity  as  member  and on  behalf  of such  limited  liability
company,  and such  limited  liability  company  being a party to the  foregoing
instrument.

COLORADO,           The foregoing  instrument was acknowledged before me on this
NEVADA and          day, by  such person, the  above  designated officer  of St.
SOUTH DAKOTA        Mary Land & Exploration  Company acting  in its capacity
                    as  member  of  the  limited  liability  company   specified
                    following  such person's name, on behalf of said corporation
                    acting  in its capacity  as member  of the limited liability
                    company, and on behalf of said limited liability company.

                    On  this  date   before  me,  the   undersigned   authority.
                    personally  came and appeared such person,  to me personally
                    known  and  known  by  me  o be  the  person  whose  genuine

                                      -43-


                    signature is affixed to the foregoing  document as the above
                    designated officer of the above mentioned corporation acting
                    in its capacity as member of the limited  liability  company
                    specified  following  such  person's  name,  who signed said
                    document  before me in the  presence  of the two  witnesses,
                    whose names are thereto  subscribed as such, being competent
                    witnesses,  and who acknowledged,  in my presence and in the
                    presence  of said  witnesses,  that he signed  the above and
                    foregoing document as his own free act and deed on behalf of
                    such  corporation  acting in its  capacity as member of such
                    limited  liability  company,  and on behalf of such  limited
                    liability  company,  by  authority of its board of directors
                    and by authority of its  members,  respectively,  and as the
                    free  act  and  deed  of  such  corporation,  acting  in its
                    capacity as member of such limited liability company, and of
                    such limited liability company and for the uses and purposes
                    therein set forth and apparent.

     IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in the
City of  Denver,  Denver  County,  Colorado,  on the day and  year  first  above
written.
                                   /s/ JAMES C. ROBERTSON
                                 -----------------------------------------------
                                 NOTARY PUBLIC, in and for the State of Colorado

                                 James C. Robertson
My commission expires:            (printed name)
February 14, 2005
- ---------------------

[SEAL]


                                      -44-




     EXECUTED  this 16th day of April,  2003, to be  effective,  however,  as of
April 16th, 2003.

                                       ST. MARY OPERATING COMPANY



                                       By:  /s/ MILAM RANDOLPH PHARO
                                           -------------------------------------
                                             Milam Randolph Pharo
                                             Vice President - Land & Legal




The address and tax identification number of Operating are:

1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(Denver County)
Taxpayer I.D. No. 84-0723492


STATE OF COLORADO           ss.
                            ss.
COUNTY OF DENVER            ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby  certify  that, on this 16th day of April,  2003, there
personally  appeared before me: Milam Randolph Pharo,  the Vice President - Land
& Legal of St. Mary Operating Company, a Colorado  corporation.  known to me
to be such officer, such corporation being a party to the foregoing instrument.

COLORADO,           The foregoing  instrument was acknowledged before me on this
NEVADA and          day, by such  person, the  above  designated o fficer of the
SOUTH DAKOTA        corporation  specified  following  such  person's  name,  on
                    behalf of said corporation.

                    On  this  date   before  me,  the   undersigned   authority,
                    personally  came and appeared such person,  to me personally
                    known  and  known  by me  to be  the  person  whose  genuine
                    signature is affixed to the foregoing  document as the above
                    designated  officer of the corporation  specified  following
                    such person's  name,  who signed said document  before me in
                    the presence of the two  witnesses,  whose names are thereto
                    subscribed  as  such,  being  competent  witnesses,  and who
                    acknowledged,  in my  presence  and in the  presence of said
                    witnesses,  that he signed the above and foregoing  document
                    as his own free act and deed on behalf  of such  corporation

                                      -45-


                    by authority  of its board of directors  and as the free act
                    and deed of such  corporation  and for the uses and purposes
                    therein set forth and apparent.

     IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in the
City of  Denver,  Denver  County,  Colorado,  on the day and  year  first  above
written.
                                 /s/ JAMES C. ROBERTSON
                               -------------------------------------------------
                               NOTARY PUBLIC, in and for the State of Colorado

                               James C. Robertson
My commission expires:         (printed name)
February 14, 2005
- ---------------------

[SEAL]

                                      -46-




     EXECUTED  this 16th day of April,  2003, to be  effective,  however,  as of
April 16th, 2003.

                                       NPC INC.



                                       By:  /s/ ROBERT T. HANLEY
                                           -------------------------------------
                                            Robert T. Hanley
                                            Vice President and Treasurer


The address and tax identification number of Operating are:

550 North 31st Street, Suite 500
Billings, Montana 59101
(Yellowstone County)
Taxpayer I.D. No. 11-3668557


STATE OF COLORADO                 ss.
                                  ss.
COUNTY OF DENVER                  ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby  certify  that, on this 16th day of April,  2003, there
personally  appeared  before  me:  Robert  T.  Hanley,  the Vice  President  and
Treasurer of NPC Inc., a Colorado  corporation.  known to me to be such officer,
such corporation being a party to the foregoing instrument.

COLORADO,           The foregoing  instrument was acknowledged before me on this
NEVADA and          day, by  such  person, the above designated  officer  of the
SOUTH DAKOTA        corporation  specified  following  such  person's  name,  on
                    behalf of said corporation.

                    On  this  date   before  me,  the   undersigned   authority,
                    personally  came and appeared such person,  to me personally
                    known  and  known  by me  to be  the  person  whose  genuine
                    signature is affixed to the foregoing  document as the above
                    designated  officer of the corporation  specified  following
                    such person's  name,  who signed said document  before me in
                    the presence of the two  witnesses,  whose names are thereto
                    subscribed  as  such,  being  competent  witnesses,  and who
                    acknowledged,  in my  presence  and in the  presence of said
                    witnesses,  that he signed the above and foregoing  document
                    as his own free act and deed on behalf  of such  corporation
                    by authority  of its board of directors  and as the free act

                                      -47-


                    and deed of such  corporation  and for the uses and purposes
                    therein set forth and apparent.

     IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in the
City of  Denver,  Denver  County,  Colorado,  on the day and  year  first  above
written.
                                   /s/ JAMES C. ROBERTSON
                                ------------------------------------------------
                                NOTARY PUBLIC, in and for the State of Colorado

                                James C. Robertson
My commission expires:            (printed name)
February 14, 2005
- ---------------------

[SEAL]

                                      -48-

EX-10

                                                                   EXHIBIT 10.13
(LA, MT, ND, NM, OK, TX, UT, WY)

                DEED OF TRUST, MORTGAGE, LINE OF CREDIT MORTGAGE
                 ASSIGNMENT, SECURITY AGREEMENT, FIXTURE FILING
                             AND FINANCING STATEMENT

                                      FROM

                     ST. MARY LAND & EXPLORATION COMPANY
                         (Taxpayer I.D. No. 41-05 18430)

                             ST. MARY ENERGY COMPANY
                         (Taxpayer I.D. No. 76-0554924)

                           NANCE PETROLEUM CORPORATION
                         (Taxpayer I.D. No. 8 1-0309883)

                             ST. MARY MINERALS INC.
                         (Taxpayer I.D. No. 84-1200318)

                                 ROSWELL, L.L.C.
                         (Taxpayer I.D. No. 74-2788509)

                           ST. MARY OPERATING COMPANY
                         (Taxpayer I.D. No. 84-0723492)

                                    NPC INC.
                         (Taxpayer I.D. No. 11-3668557)

                                       TO

                             JAY CHERNOSKY, TRUSTEE
    FIRST AMERICAN TITLE COMPANY OF UTAH, TRUSTEE (for Utah Properties only)

                                       AND

                      WACHOVIA BANK, NATIONAL ASSOCIATION,
                             as Administrative Agent

                      Dated Effective as of April 16th, 2003

A CARBON,  PHOTOGRAPHIC,  FACSIMILE, OR OTHER REPRODUCTION OF THIS INSTRUMENT IS
SUFFICIENT AS A FINANCING STATEMENT.

THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS,  SECURES PAYMENT OF
FUTURE ADVANCES, AND COVERS PROCEEDS OF COLLATERAL.

THIS INSTRUMENT COVERS, AMONG OTHER THINGS, (A) GOODS WHICH ARE OR ARE TO BECOME
FIXTURES  RELATED TO THE REAL PROPERTY  DESCRIBED  HEREIN,  AND (B) AS-EXTRACTED



COLLATERAL  RELATED TO THE REAL PROPERTY  DESCRIBED  HEREIN  (INCLUDING  WITHOUT
LIMITATION,  OIL, GAS, OTHER MINERALS AND OTHER SUBSTANCES OF VALUE WHICH MAY BE
EXTRACTED FROM THE EARTH AND ACCOUNTS ARISING OUT OF THE SALE AT THE WELLHEAD OR
MINEHEAD  THEREOF).  THIS  INSTRUMENT  IS TO BE FILED FOR  RECORD,  AMONG  OTHER
PLACES, IN THE REAL ESTATE OR COMPARABLE RECORDS OF THE COUNTIES AND/OR PARISHES
REFERENCED  IN  EXHIBIT  A HERETO  AND SUCH  FILING  SHALL  SERVE,  AMONG  OTHER
PURPOSES, AS A FIXTURE FILING AND AS A FINANCING STATEMENT COVERING AS-EXTRACTED
COLLATERAL.  THE  MORTGAGOR  HAS AN INTEREST OF RECORD IN THE REAL ESTATE AND/OR
IMMOVABLE PROPERTY CONCERNED, WHICH INTEREST IS DESCRIBED IN SECTION 1.1 OF THIS
INSTRUMENT.

A POWER OF SALE HAS BEEN  GRANTED  IN THIS  MORTGAGE.  APOWER  OF SALE MAY ALLOW
- --------------------------------------------------------------------------------
AGENT (AS HEREINAFTER DEFINED) OR TI-IF TRUSTEE (AS HEREINAFTER DEFINED) TO TAKE
- --------------------------------------------------------------------------------
THE MORTGAGED  PROPERTIES  AND SELL THEM WITHOUT GOING TO COURT IN A FORECLOSURE
- --------------------------------------------------------------------------------
ACTION  UPON  DEFAULT  BY THE  MORTGAGOR  (AS  HEREINAFTER  DEFINED)  UNDER THIS
- --------------------------------------------------------------------------------
MORTGAGE.
- --------

Note to Utah Recording Officer: This is not a Purchase Money Mortgage


WHEN RECORDED OR FILED RETURN TO:                   THIS DOCUMENT PREPARED BY:

Vinson & Elkins L.L.P.                              Craig W. Murray
2300 First City Tower                               Vinson & Elkins L.L.P.
Houston, Texas 77002                                2300 First City Tower
Attention: Craig W. Murray                          Houston, Texas 77002






                DEED OF TRUST, MORTGAGE, LINE OF CREDIT MORTGAGE
                 ASSIGNMENT, SECURITY AGREEMENT, FIXTURE FILING
                             AND FINANCING STATEMENT
                                (this "Mortgage")

                                   ARTICLE I.

                     Granting Clauses: Secured Indebtedness
                     --------------------------------------

     Section 1.1 Grant and Mortgage.  St. Mary Land & Exploration Company, a
                 ------------------
Delaware corporation ("Parent"), St. Mary Energy Company, a Delaware corporation
("Energy"),  Nance Petroleum Corporation,  a Montana corporation ("Nance"),  St.
Mary Minerals Inc., a Colorado  corporation  ("Minerals"),  Roswell,  L.L.C.,  a
Texas limited  liability  company  ("Roswell"),  St. Mary Operating  Company,  a
Colorado  corporation  ("Operating"),  and  NPC  Inc.,  a  Colorado  corporation
("NPC");  Parent,  Energy,  Nance,  Minerals,  Roswell,  Operating and NPC being
herein collectively  called "Mortgagor" and Energy,  Nance,  Minerals,  Roswell,
Operating  and NPC being  herein  sometimes  collectively  called a  "Subsidiary
Mortgagor"),  for and in  consideration  of the sum of Ten  Dollars  ($10.00) to
Mortgagor  in hand  paid,  and in order to secure  the  payment  of the  secured
indebtedness  hereinafter  referred to and the  performance of the  obligations,
covenants,  agreements,  warranties and  undertakings  of Mortgagor  hereinafter
described,  does hereby (a) GRANT, BARGAIN, SELL, CONVEY,  TRANSFER,  ASSIGN AND
SET OVER to Trustee (as  hereinafter  defined),  and grant to Trustee a POWER OF
SALE  (pursuant to this Mortgage and  applicable  law) with respect to, those of
the following  described  properties,  rights and interests which are located in
(or  cover  properties  located  in) the  State of Texas or the State of Utah or
which are located within (or cover properties  located within) the offshore area
over which the United States of America  asserts  jurisdiction  and to which the
laws of any such state are applicable  with respect to this Mortgage  and/or the
liens or  security  interests  created  hereby  (the  "Deed  of Trust  Mortgaged
Properties"), and (b) MORTGAGE, ASSIGN, WARRANT, PLEDGE AND HYPOTHECATE to Agent
(as  defined  in  Section  1.3(a)  below),  and  grant  to Agent a POWER OF SALE
(pursuant  to this  Mortgage  and  applicable  law) with  respect to, all of the
following  described rights,  interests and properties which were not granted to
Trustee  in  clause  (a)  above  (including,  without  limitation,  those of the
following  described  properties,  rights and interests which are located in (or
cover  properties  located in ) the States of  Louisiana,  Montana,  New Mexico,
North  Dakota,  Oklahoma  or  Wyoming  or which  are  located  within  (or cover
properties  located  within) the offshore  area over which the United  States of
America  asserts  jurisdiction  and to  which  the laws of any  such  state  are
applicable with respect to this Mortgage and/or the liens or security  interests
created hereby) (the "Other Mortgaged Properties"):

          A. The oil, gas and/or other mineral  properties,  mineral servitudes,
and/or mineral rights which are described in Exhibit A attached  hereto and made
a part hereof;

          B. Without  limitation of the  foregoing,  all other right,  title and
interest  of  Mortgagor  of whatever  kind or  character  (whether  now owned or
hereafter  acquired by operation of law or otherwise) in and to (i) the oil, gas
and/or mineral leases or other  agreements  described in Exhibit A hereto,  (ii)
the lands  described  or  referred to in Exhibit A (or  described  in any of the
instruments  described  or  referred  to in Exhibit  A),  without  regard to any

                                       -1-


limitations  as to  specific  lands or depths that may be set forth in Exhibit A
hereto or in any of the leases or other agreements described in Exhibit A hereto
and (iii) any other lands  (including  submerged  lands) located anywhere in the
United  States of America or located  offshore the United  States of America but
within the  offshore  area over which the United  States of America or any State
thereof asserts jurisdiction;

          C.  All of  Mortgagor's  interest  (whether  now  owned  or  hereafter
acquired by operation of law or otherwise) in and to all presently  existing and
hereafter   created  oil,  gas  and/or  mineral   unitization,   pooling  and/or
communitization  agreements,  declarations  and/or  orders,  and  in  and to the
properties,   rights  and  interests  covered  and  the  units  created  thereby
(including, without limitation, units formed under orders, rules, regulations or
other  official  acts  of  any  federal,   state  or  other   authority   having
jurisdiction), which cover, affect or otherwise relate to the properties, rights
and interests described in clause A or B above;

          D. All of Mortgagor's  interest in and rights under (whether now owned
or hereafter  acquired by operation of law or otherwise) all presently  existing
and hereafter created operating agreements,  equipment leases,  production sales
contracts,  processing  agreements,  transportation  agreements,  gas  balancing
agreements,  farmout and/or farm-in agreements,  salt water disposal agreements,
area of mutual interest agreements,  and other contracts and/or agreements which
cover,  affect,  or otherwise  relate to the  properties,  rights and  interests
described  in clause  A, B or C above or to the  operation  of such  properties,
rights  and  interests  or  to  the  treating,  handling,  storing,  processing,
transporting  or marketing of oil, gas,  other  hydrocarbons,  or other minerals
produced  from  (or  allocated  to)  such   properties,   rights  and  interests
(including,  but not limited to, those contracts listed in Exhibit A hereto), as
same may be amended or supplemented from time to time;

          E.  All of  Mortgagor's  interest  (whether  now  owned  or  hereafter
acquired by operation of law or otherwise) in and to all improvements, fixtures,
movable  or  immovable   property  and  other  real  and/or  personal   property
(including,  without limitation,  all wells, pumping units,  wellhead equipment,
tanks, pipelines, flow lines, gathering lines,  compressors,  dehydration units,
separators,   meters,  buildings,  injection  facilities,  salt  water  disposal
facilities,  and power,  telephone  and  telegraph  lines),  and all  easements,
servitudes,  rights-of-way,  surface leases, licenses, permits and other surface
rights, which are now or hereafter used, or held for use, in connection with the
properties,  rights and  interests  described  in clause A, B or C above,  or in
connection with the operation of such  properties,  rights and interests,  or in
connection with the treating,  handling,  storing,  processing,  transporting or
marketing of oil, gas, other  hydrocarbons,  or other minerals produced from (or
allocated to) such properties, rights and interests; and

          F. All  rights,  estates,  powers and  privileges  appurtenant  to the
foregoing rights, interests and properties.

     TO HAVE AND TO HOLD (a) the Deed of  Trust  Mortgaged  Properties  unto the
Trustee,  and its successors or  substitutes in this trust,  and to its or their
successors  and  assigns,  in trust,  however,  upon the terms,  provisions  and
conditions herein set forth, and (b) the Other Mortgaged  Properties unto Agent,
and Agent's  successors and assigns,  upon the terms,  provisions and conditions
herein set forth (the Deed of Trust Mortgaged Properties and the Other Mortgaged

- -2-


Properties are herein sometimes collectively called the "Mortgaged Properties").
As used throughout this Mortgage, the term "Trustee" shall mean (a) with respect
to all of the Deed of Trust Mortgaged  Properties which are located in (or which
cover properties located in) the State of Utah, The First American Title Company
of Utah, and (b) with respect to all other Deed of Trust  Mortgaged  Properties,
Jay Chernosky.

     Section  1.2 Grant of  Security  Interest.  In order to further  secure the
                  ----------------------------
payment of the secured indebtedness  hereinafter referred to and the performance
of the  obligations,  covenants,  agreements,  warranties,  and  undertakings of
Mortgagor hereinafter described, Mortgagor hereby grants to Agent (as defined in
Section  1.3(a) below) a security  interest in the entire  interest of Mortgagor
(whether now owned or hereafter  acquired by operation of law or  otherwise)  in
and to:

     (a) to the extent a security interest may be created therein, the Mortgaged
Properties;

     (b) all oil, gas, other  hydrocarbons,  and other minerals produced from or
allocated to the Mortgaged  Properties,  and any products  processed or obtained
therefrom  (herein  collectively  called the  "Production"),  together  with all
proceeds of Production  (regardless of whether Production to which such proceeds
relate  occurred on or before or after the date  hereof),  and together with all
liens and security interests securing payment of the proceeds of the Production,
including,  but not limited to, those liens and security  interests provided for
under  (i)  statutes  enacted  in  the  jurisdictions  in  which  the  Mortgaged
Properties  are located,  or (ii)  statutes  made  applicable  to the  Mortgaged
Properties under federal law (or some combination of federal and state law);

     (c) without  limitation  of any other  provisions  of this Section 1.2, all
payments   received  in  lieu  of  production  from  the  Mortgaged   Properties
(regardless of whether such payments accrued,  and/or the events which gave rise
to such payments  occurred,  on or before or after the date hereof),  including,
without  limitation,  "take or pay"  payments  and  similar  payments,  payments
received in  settlement  of or pursuant to a judgment  rendered  with respect to
take or pay or similar obligations or other obligations under a production sales
contract,  payments  received  in buyout or  buydown  or other  settlement  of a
production  sales  contract,  and  payments  received  under a gas  balancing or
similar  agreement as a result of (or received  otherwise  in  settlement  of or
pursuant to judgment  rendered  with  respect to) rights held by  Mortgagor as a
result of Mortgagor  (and/or its  predecessors  in title) taking or having taken
less gas from lands covered by a Mortgaged Property (or lands pooled or unitized
therewith) than their ownership of such Mortgaged Property would entitle them to
receive (the  payments  described  in this  subsection  (c) being herein  called
"Payments in Lieu of Production");

     (d) all equipment, inventory, improvements, fixtures, accessions, goods and
other personal  property or movable property of whatever nature now or hereafter
located on or used or held for use in connection  with the Mortgaged  Properties
(or in connection with the operation thereof or the treating, handling, storing,
processing,  transporting,  or  marketing of  Production),  and all licenses and
permits of whatever  nature now or hereafter  used or held for use in connection
with the Mortgaged  Properties (or in connection  with the operation  thereof or
the  treating,  handling,  storing,  processing,  transporting,  or marketing of
Production),  and all renewals or replacements of the foregoing or substitutions
for the foregoing;

                                      -3-


     (e) all  contract  rights,  choses  in  action  (i.e.,  rights  to  enforce
contracts  or to bring  claims  thereunder),  commercial  tort  claims and other
general  intangibles  (regardless  of whether the same arose,  and/or the events
which  gave rise to the same  occurred,  on or before or after the date  hereof)
related to the Mortgaged Properties, the operation thereof (whether Mortgagor is
operator or  non-operator),  or the  treating,  handling,  storing,  processing,
transporting, or marketing of Production (including,  without limitation, any of
the same  relating to payment of proceeds of Production or to payment of amounts
which could constitute Payments in Lieu of Production);

     (f) Without  limitation of the generality of the foregoing,  any rights and
interests  of Mortgagor  under any present or future  hedge or swap  agreements,
cap, floor, collar, exchange, forward or other hedge or protection agreements or
transactions  relating to crude oil, natural gas or other  hydrocarbons,  or any
option  with  respect to any such  agreement  or  transaction  now  existing  or
hereafter entered into by or on behalf of Mortgagor;

     (g) all geological, geophysical, engineering, accounting, title, legal, and
other  technical or business  data  concerning  the  Mortgaged  Properties,  the
Production or any other item of Property (as hereinafter  defined) which are now
or hereafter in the possession of Mortgagor or in which  Mortgagor can otherwise
grant a  security  interest,  and all books,  files,  records,  magnetic  media,
software and other forms of recording or obtaining access to such data;

     (h) all money,  documents,  instruments,  chattel paper (including  without
limitation,  electronic  chattel paper and tangible  chattel  paper),  rights to
payment evidenced by chattel paper, securities,  accounts,  payment intangibles,
general  intangibles,  letters of credit,  letter-of-credit  rights,  supporting
obligations  and  rights to payment  of money  arising  from or by virtue of any
transaction  (regardless  of whether such  transaction  occurred on or before or
after the date hereof)  related to the Mortgaged  Properties,  the Production or
any other item of Property;

     (i) all rights,  titles and  interests  now owned or hereafter  acquired by
Mortgagor in any and all goods, inventory,  equipment,  as-extracted collateral,
documents, money, instruments,  intellectual property,  certificated securities,
uncertificated  securities,  investment property,  letters of credit,  rights to
proceeds  of  written  letters  of  credit  and other  letter-of-credit  rights,
commercial  tort  claims,   deposit  accounts,   payment  intangibles,   general
intangibles,  contract rights,  chattel paper  (including,  without  limitation,
electronic  chattel  paper  and  tangible  chattel  paper),  rights  to  payment
evidenced by chattel  paper,  software,  supporting  obligations  and  accounts,
wherever located, and all rights and privileges with respect thereto (all of the
properties,  rights and interests  described in subsections  (a), (b), (c), (d),
(e),  (f),  (g) and (h) above and this  subsection  (i) being  herein  sometimes
collectively called the "Collateral"); and

     (j) all proceeds of the  Collateral,  whether such proceeds or payments are
goods,  money,  documents,  instruments,  chattel paper,  securities,  accounts,
payment intangibles,  general intangibles,  fixtures,  real/immovable  property,
personal/  movable  property or other  assets  (the  Mortgaged  Properties,  the
Collateral   and  the  proceeds  of  the  Collateral   being  herein   sometimes
collectively called the "Property").

                                      -4-


Except as  otherwise  expressly  provided  in this  Mortgage,  all terms in this
Mortgage  relating to the  Collateral  and the grant of the  foregoing  security
interest  which are  defined in the Texas  Uniform  Commercial  Code (the "UCC")
shall have the meanings  assigned to them in Article 9 (or, absent definition in
Article 9, in any other  Article) of the UCC, as those  meanings may be amended,
revised  or  replaced  from time to time.  Notwithstanding  the  foregoing,  the
parties  intend that the terms used herein which are defined in the UCC have, at
all times, the broadest and most inclusive  meanings possible.  Accordingly,  if
the UCC shall in the  future be  amended  or held by a court to define  any term
used herein more  broadly or  inclusively  than the UCC in effect on the date of
this  Mortgage,  then such term, as used herein,  shall be given such  broadened
meaning.  If the UCC shall in the future be amended or held by a court to define
any term used herein more narrowly, or less inclusively,  than the UCC in effect
on the date of this Mortgage,  such amendment or holding shall be disregarded in
defining terms used in this Mortgage

     Section 1.3 Secured  Indebtedness.  This Mortgage is executed and delivered
                 ---------------------
by the  Mortgagor  to secure and  enforce the  payment  and  performance  of the
following:

     (a) Payment of and performance of any and all indebtedness, obligations and
liabilities,   including  interest  (including,  without  limitation,   interest
accruing  after the  maturity  of the  "Loans"  (as  defined in the  hereinafter
defined Credit  Agreement)  made by each Lender and interest  accruing after the
filing of any petition in bankruptcy,  or the  commencement  of any  insolvency,
reorganization  or like  proceeding,  relating to the  Parent,  whether or not a
claim for post-filing or  post-petition  interest is allowed in such proceeding)
of the Parent  whether now existing or hereafter  arising under or in connection
with that certain  Credit  Agreement  dated as of January 27, 2003, by and among
Parent,  Wachovia Bank, National  Association,  as Administrative Agent (in such
capacity,  the "Agent") and the Lenders (as amended by First Amendment to Credit
Agreement dated as of January 27, 2003, and as the same may from time to time be
further  amended or  supplemented,  the "Credit  Agreement")  or any other "Loan
Document" (as defined in the Credit Agreement),  including,  without limitation,
the "Notes"  (as  defined in the Credit  Agreement)  in the  aggregate  original
principal  amount of  $300,000,000  with final maturity on or before January 27,
2006.

     (b) Payment and  performance of any and all  indebtedness,  obligations and
liabilities  of  Energy,  Nance,  Operating  and NPC  whether  now  existing  or
hereafter  arising under or in  connection  with the  "Guaranty  Agreement"  (as
defined in the Credit Agreement).

     (c) Any sums which may be advanced or paid by the Agent or any Lender under
the terms hereof or of the Credit  Agreement or any Loan  Document on account of
the failure of the  Mortgagor  to comply  with the  covenants  of the  Mortgagor
contained herein or in the Credit Agreement or any other Loan Document;  and all
other  indebtedness of the Mortgagor  arising pursuant to the provisions of this
Mortgage.

     (d) Payment of and performance of any and all present or future obligations
of the Mortgagor  according to the terms of any present or future  interest rate
or currency swap, rate cap, rate floor,  rate collar,  forward rate agreement or
other exchange or rate  protection  agreements or any option with respect to any
such  transaction  now existing or hereafter  entered into between the Mortgagor
and any Lender (or any Affiliate of such Lender).

     (e) Payment of and performance of any and all present or future obligations
of the  Mortgagor  according  to  the  terms  of  any  present  or  future  swap
agreements,   cap,  floor,  collar,  forward  agreement  or  other  exchange  or

                                      -5-


protection  agreements  relating to crude oil, natural gas or other hydrocarbons
or any option with  respect to any such  transaction  now  existing or hereafter
entered  into  between the  Mortgagor  and any Lender (or any  Affiliate of such
Lender).

     (f)  Performance  of all "Letter of Credit  Agreements"  (as defined in the
Credit Agreement)  executed from time to time by the Parent or any Subsidiary of
the Parent  under or  pursuant  to the Credit  Agreement  and all  reimbursement
obligations  for drawn or undrawn  portions  under any  "Letter  of Credit"  (as
defined in the Credit  Agreement) now  outstanding or hereafter  issued under or
pursuant to the Credit Agreement.

     Section 1.4 Secured  Indebtedness.  The indebtedness referred to in Section
                 ---------------------
1.3,  and  all  renewals,   extensions  and  modifications   thereof,   and  all
substitutions therefor, in whole or in part, are herein sometimes referred to as
the  "secured   indebtedness"  or  the  "indebtedness  secured  hereby".  It  is
contemplated  and  acknowledged  that  the  secured   indebtedness  may  include
revolving  credit loans and advances  from time to time,  and that this Mortgage
shall have effect,  as of the date hereof,  to secure all secured  indebtedness,
regardless  of whether any amounts are advanced on the date hereof or on a later
date or, whether having been advanced,  are later repaid in part or in whole and
further advances made at a later date.

     Section 1.5 MAXIMUM SECURED AMOUNT. NOTWITHSTANDING ANY PROVISION HEREOF TO
                 ----------------------
THE CONTRARY,  THE OUTSTANDING  INDEBTEDNESS  SECURED BY PROPERTY LOCATED IN THE
STATES OF  LOUISIANA,  MONTANA OR NEW MEXICO SHALL NOT, AT ANY TIME OR FROM TIME
TO TIME, EXCEED AN AGGREGATE MAXIMUM AMOUNT OF $400,000,000.

     Section  1.6 Line of Credit  Mortgage.  THIS  INSTRUMENT  SECURES A LINE OF
                  ------------------------
CREDIT USED PRIMARILY FOR BUSINESS,  COMMERCIAL,  OR AGRICULTURAL PURPOSES. THIS
MORTGAGE WILL  CONSTITUTE A LINE OF CREDIT  MORTGAGE IN ACCORDANCE  WITH SECTION
48-7-4.B NMSA 1978 COMP.

     Section  1.7  Limit  on  Secured  Indebtedness  and  Collateral.  It is the
                   -------------------------------------------------
intention of each Subsidiary Mortgagor, Agent and Lenders that this Mortgage not
constitute a fraudulent  transfer or  fraudulent  conveyance  under any state or
federal law that may be applied hereto.  Each  Subsidiary  Mortgagor and, by its
acceptance hereof, Agent hereby acknowledge and agree that,  notwithstanding any
other provision of this Mortgage:  (a) the  indebtedness  secured hereby by such
Subsidiary Mortgagor shall be limited to the maximum amount of indebtedness that
can be incurred or secured by such Subsidiary  Mortgagor  without rendering this
Mortgage subject to avoidance under Section 548 of the United States  Bankruptcy
Code or any comparable  provisions of any  applicable  state or federal law, and
(b) the Property granted by such Subsidiary Mortgagor hereunder shall be limited
to the  maximum  amount  of  Property  that can be  granted  by such  Subsidiary
Mortgagor without rendering this Mortgage subject to avoidance under Section 548
of the  United  States  Bankruptcy  Code  or any  comparable  provisions  of any
applicable state or federal law.

                                      -6-


                                  ARTICLE II.

                    Representations, Warranties and Covenants

     Section 2.1 Mortgagor represents, warrants, and covenants as follows:

     (a)  Title  and  Permitted  Encumbrances.   Mortgagor  has,  and  Mortgagor
          -----------------------------------
covenants to maintain, good and defensible title to the Property, free and clear
of all liens, security interests, and encumbrances except for (i) the contracts,
agreements,   burdens,   encumbrances   and  other  matters  set  forth  in  the
descriptions  of certain of the Mortgaged  Properties on Exhibit A hereto,  (ii)
the liens and security  interests  evidenced by this Mortgage,  (iii)  statutory
liens for  taxes  which  are not yet  delinquent,  (iv)  liens  under  operating
agreements,  pooling  orders and  unitization  agreements,  and  mechanics'  and
materialmen's  liens, with respect to obligations which are not yet due, and (v)
other  liens and  security  interests  (if any) in favor of Agent  (the  matters
described in the foregoing clauses (i), (ii), (iii),  (iv), and (v) being herein
called the "Permitted Encumbrances"); Mortgagor will warrant and defend title to
the Property,  subject as aforesaid,  against the claims and demands  (including
claims  which  would be a  Permitted  Encumbrance  under item (vi) above) of all
persons claiming or to claim the same or any part thereof. Without limitation of
the foregoing,  the ownership by Mortgagor of the Mortgaged  Properties does and
will,  with  respect to each well or unit  identified  on Schedule  I,  attached
hereto and made a part  hereof,  entitle  Mortgagor  to receive  (subject to the
terms and provisions of this Mortgage) a decimal or percentage share of the oil,
gas and other  hydrocarbons  produced  from,  or allocated to, such well or unit
equal to not less than the decimal or percentage  share set forth, for such well
or unit,  in the  column  headed  "Net  Revenue  Interest"  (or words of similar
import) on Schedule I, and cause  Mortgagor to be obligated to bear a decimal or
percentage share of the cost of operation of such well or unit equal to not more
than the decimal or  percentage  share set forth,  for such well or unit, in the
column headed "Working Interest" (or words of similar import) on Schedule I. The
above-described  shares of production which Mortgagor is entitled to receive and
shares of expenses which  Mortgagor is obligated to bear are not and will not be
subject to change  (other  than  changes  which arise  pursuant  to  non-consent
provisions of operating  agreements  described in Exhibit A in  connection  with
operations  hereafter  proposed),  except,  and only to the  extent  that,  such
changes are  reflected in Schedule I. There is not and will not be any unexpired
financing  statement  covering  any part of the  Property  on file in any public
office  naming any party  other than Agent as  secured  party.  Upon  request by
Agent, Mortgagor will deliver to Agent schedules of all internal and third party
information  identifying the Mortgaged  Properties (such as, for example,  lease
names and  numbers  assigned  by  Mortgagor  or the  operator  of any  Mortgaged
Property,  well  and/or  unit  and/or  property  names and  numbers  assigned by
purchasers of Production,  and internal identification names and numbers used by
Mortgagor in accounting for revenues,  costs,  and joint  interest  transactions
attributable to the Mortgaged Properties). The listing of Permitted Encumbrances
above is made for the purpose of limiting certain  warranties and covenants made
by Mortgagor  herein;  such  listing is not  intended to affect the  description
herein of the Mortgaged  Properties  nor to  subordinate  the liens and security
interests hereunder to any Permitted Encumbrances.

     (b) Leases and Contracts;  Performance of Obligations.  The oil, gas and/or
         -------------------------------------------------
mineral leases, contracts, servitudes and other agreements forming a part of the
Property, to the extent the same cover or otherwise relate to the Property,  are
in full force and effect, and Mortgagor agrees to so maintain them in full force

                                      -7-


and effect.  All rents,  royalties and other payments due and payable under such
leases,  contracts,  servitudes  and other  agreements,  or under the  Permitted
Encumbrances,  or  otherwise  attendant  to the  ownership  or  operation of the
Property,  have  been,  and will  continue  to be,  properly  and  timely  paid.
Mortgagor  is not in  default  with  respect  to  Mortgagor's  obligations  (and
Mortgagor  is not aware of any default by any third  party with  respect to such
third party's  obligations) under such leases,  contracts,  servitudes and other
agreements,  or under the Permitted Encumbrances,  or otherwise attendant to the
ownership  or operation of any part of the  Property,  where such default  could
adversely  affect the  ownership or operation of the  Property;  Mortgagor  will
fulfill all such obligations  coming due in the future.  There are no situations
where  Mortgagor is aware that a contingent  liability may exist to account on a
basis  less  favorable  to  Mortgagor  than on the basis on which  Mortgagor  is
currently accounting.

     (c) Sale of Production.  No Mortgaged Property is or will become subject to
         ------------------
any  contractual or other  arrangement  (i) whereby payment for production is or
can be  deferred  for a  substantial  period  after  the  month  in  which  such
production is delivered (i.e., for wells in pay status,  in the case of oil, not
in excess of 60 days,  and in the case of gas, not in excess of 90 days, and for
wells not in pay status,  the time period  provided by statute) or (ii)  whereby
payments  are made to  Mortgagor  other than by checks,  drafts,  wire  transfer
advises  or  other  similar  writings,  instruments  or  communications  for the
immediate  payment of money.  Except for production sales contracts,  processing
agreements or  transportation  agreements (or other  agreements  relating to the
marketing of Production)  listed on Exhibit A (in connection  with the Mortgaged
Properties  to where they  relate),  (1) except for the  contracts and Mortgaged
Properties  associated therewith as set forth on Schedule 2.1 (c)A, no Mortgaged
Property is or will become subject to any  contractual or other  arrangement for
the sale,  processing or  transportation  of Production (or otherwise related to
the  marketing of  Production)  which cannot be cancelled on 120 days' (or less)
notice and (ii) all contractual or other  arrangements for the sale,  processing
or  transportation  of  Production  (or  otherwise  related to the  marketing of
Production)  shall be bona fide  transactions,  and except for  contractual  and
other  arrangements  with Four Winds Marketing,  LLC, will be with third parties
not  affiliated  with  Mortgagor,  and shall,  with respect to all contracts and
other  arrangements  be at the best price (and on the best terms) then available
(such price shall,  in the case of  Production  sales which are subject to price
controls,  be  determined  giving  consideration  to such  fact).  Mortgagor  is
presently  receiving a price for all production from (or  attributable  to) each
Mortgaged Property covered by a production sales contract listed on Exhibit A as
computed  in  accordance  with the  terms of such  contract,  and is not  having
deliveries of production from such Mortgaged  Property  curtailed  substantially
below such  property's  delivery  capacity.  Neither  Mortgagor,  nor any of its
predecessors in title, has received prepayments (including,  but not limited to,
payments  for gas  not  taken  pursuant  to  "take  or  pay"  or  other  similar
arrangements) for any oil, gas or other hydrocarbons  produced or to be produced
from the  Mortgaged  Properties  after the date  hereof,  and  Mortgagor  hereby
covenants not to enter into any such advance or prepayment  arrangements whereby
it accepts consideration for oil, gas or other hydrocarbons not yet produced. No
Mortgaged  Property  is or will  become  subject  to any  "take or pay" or other
similar  arrangement  (i)  which  can be  satisfied  in  whole or in part by the
production or transportation of gas from other properties or (ii) as a result of
which  production from the Mortgaged  Properties may be required to be delivered
to one or more third parties without payment (or without full payment)  therefor
as a result of payments  made,  or other  actions  taken,  with respect to other
properties.  To the best of Mortgagor's knowledge,  the gas imbalances set forth

                                      -8-


in Schedule 7.19 of the Credit Agreement  reflects the gas balancing position of
the Mortgaged  Properties as of January 27, 2003. Except as otherwise  disclosed
to Agent in writing,  as of December  31, 2001,  there is no Mortgaged  Property
with respect to which  Mortgagor,  or its  predecessors in title,  has, prior to
such date, taken more ("overproduced"), or less ("underproduced"),  gas from the
lands  covered  thereby (or pooled or  unitized  therewith)  than its  ownership
interest in such Mortgaged Property would entitle it to take which has resulted,
on  such  date,  in  Mortgagor  being  materially   overproduced  or  materially
underproduced with respect to such Mortgaged Property.  Mortgagor will not after
the date hereof  become  "overproduced"  (as above  defined) with respect to any
well  on the  Mortgaged  Properties  (or on any  unit  in  which  the  Mortgaged
Properties  participate),  in an amount in  excess of  Mortgagor's  share of gas
produced from such well during the preceding four calendar months.  No Mortgaged
Property is or will become  subject to a gas balancing  arrangement  under which
one or more third parties may take a portion of the production  attributable  to
such Mortgaged  Property without payment (or without full payment) therefor as a
result of production  having been taken from, or as a result of other actions or
inactions with respect to, other properties. No Mortgaged Property is subject at
the  present  time to any  regulatory  refund  obligation  and,  to the  best of
Mortgagor's knowledge, no facts exist which might cause the same to be imposed.

     (d) Condition of Personal or Movable  Property.  The equipment,  inventory,
         ------------------------------------------
improvements,  fixtures,  goods and  other  tangible  personal/movable  property
forming a part of the Property are and will remain (and with respect to Property
not operated by Mortgagor, to the best of Mortgagor's knowledge, such equipment,
inventory,  fixtures, goods and other tangible personal/movable property are and
will remain) in good repair and  condition  and are and will be adequate for the
normal operation of the Property in accordance with prudent industry  standards;
all of such Property is, and will remain,  located on the Mortgaged  Properties,
except  for  that  portion  thereof  which  is or  shall  be  located  elsewhere
(including  that usually  located on the Mortgaged  Properties  but  temporarily
located  elsewhere) in the course of the normal  operation of the  Property,  or
which is hereafter sold or otherwise  disposed of as permitted  under the Credit
Agreement.

     (e) Operation of Mortgaged Properties.  The Mortgaged Properties,  and with
         ---------------------------------
respect to  Mortgaged  Properties  not  operated  by  Mortgagor,  to the best of
Mortgagor's knowledge,  such non-operated Mortgaged Properties,  (and properties
unitized  therewith)  are being  (and,  to the extent  the same could  adversely
affect the  ownership or operation of the  Mortgaged  Properties  after the date
hereof, have in the past been), and hereafter will be, maintained,  operated and
developed in a good and workmanlike  manner, in accordance with prudent industry
standards and in conformity with all applicable laws and all rules,  regulations
and  orders  of all duly  constituted  authorities  having  jurisdiction  and in
conformity with all oil, gas and/or other mineral leases and other contracts and
agreements  forming a part of the Property and in conformity  with the Permitted
Encumbrances;  specifically  in this  connection,  (i) no Mortgaged  Property is
subject to having  allowable  production after the date hereof reduced below the
full and regular allowable (including the maximum permissible tolerance) because
of any  overproduction  (whether  or not the same was  permissible  at the time)
prior to the date  hereof and (ii) none of the wells  located  on the  Mortgaged
Properties (or properties  unitized  therewith) are or will be deviated from the
vertical more than the maximum permitted by applicable laws, regulations,  rules
and orders,  and such wells are, and will remain,  bottomed  under and producing
from,  with the well bores wholly within,  the Mortgaged  Properties (or, in the
case  of  wells  located  on  properties  unitized   therewith,   such  unitized

                                      -9-


properties). There are no wells listed on Schedule I hereto ("Schedule I Wells")
being redrilled, deepened, plugged back or reworked, and no other operations are
being  conducted for which consent is required  under the  applicable  operating
agreement  (or which are other than normal  operation  of existing  wells on the
Mortgaged Properties);  except as otherwise disclosed to Agent in writing, there
are no  proposals in excess of $500,000 net to  Mortgagor's  interest  currently
outstanding  (whether  made by  Mortgagor  or by any other  party) to  re-drill,
deepen,  plug  back,  or  rework  Schedule  I Wells,  or to  conduct  any  other
operations  under the applicable  joint operating  agreement,  or to abandon any
Schedule I Wells  (nor are there any such  proposals  which  have been  approved
either by  Mortgagor or any other  party,  with respect to which the  operations
covered thereby have not been commenced). Except as otherwise disclosed to Agent
in writing,  there are no dry holes, or otherwise inactive wells, located on the
Mortgaged  Properties  or on lands  pooled  or  unitized  therewith  (including,
without  limitation,  any wells  which  would,  if  located  in  Texas,  require
compliance  with Railroad  Commission  Rule 14(b)(2)) that in the aggregate will
cost  more  than  $500,000,  net to  Mortgagor's  interest  and  net of  salvage
proceeds, to plug and abandon,  except for wells that have been properly plugged
and  abandoned.  Mortgagor  has, and will have in the future,  all  governmental
licenses and permits  necessary or  appropriate to own and operate the Property;
Mortgagor  has not  received  notice of any  violations  in  respect of any such
licenses or permits.

     (f) Sale or Disposal. Mortgagor will not, without the prior written consent
         ----------------
of Agent, sell, exchange,  lease, transfer, or otherwise dispose of any part of,
or  interest  in,  the  Property  other  than (i)  sales,  transfers  and  other
dispositions of machinery,  equipment and other personal/  movable  property and
fixtures made in connection with a release, surrender or abandonment of a lease,
(ii) sales,  transfers and other dispositions of machinery,  equipment and other
personal/movable  property and fixtures in connection  with the abandonment of a
well, (iii) sales, transfers and other dispositions of machinery,  equipment and
other  personal/movable  property and fixtures  which are (A) obsolete for their
intended  purpose  and  disposed  of in the  ordinary  course of business or (B)
replaced by articles of at least equal  suitability and value owned by Mortgagor
free and clear of all liens except this Mortgage and the Permitted Encumbrances,
(iv) sales of Production  which are made in the ordinary  course of business and
in compliance  with Section 2.1(c) hereof;  provided that nothing in clause (iv)
shall  be  construed  as  limiting  Agent's  rights  under  Article  III of this
Mortgage, and (v) sales, transfers and other dispositions of oil and gas leases,
but only to the  extent  such  sale,  transfer  or other  disposition  is in the
ordinary  course of business and does not  materially  and adversely  affect the
value of the Property in the aggregate. In the event and during the continuation
of a default (as  hereinafter  defined),  Mortgagor  shall at all times keep the
Property and its proceeds separate and distinct from other property of Mortgagor
and shall keep accurate and complete records of the Property and its proceeds.

     (g) Suits and Claims.  Except as  otherwise  disclosed to Agent in writing,
         ----------------
there are no Suits, actions, claims, investigations,  inquiries,  proceedings or
demands  pending (or. to the best of Mortgagor's  knowledge,  threatened)  which
affect the Properties  (including,  without  limitation,  any which challenge or
otherwise  pertain to Mortgagor's  title to the  Properties)  and no judicial or
administrative  actions,  suits  or  proceedings  pending  (or,  to the  best of
Mortgagor's  knowledge,  threatened)  against  Mortgagor.   Notwithstanding  the
foregoing,  Mortgagor's  representation  in this Section with respect to pending
suits, actions, claims, investigations,  inquiries, proceedings or demands which
affect  Properties which are not operated by Mortgagor,  except those pertaining

                                      -10-


to Mortgagor's  title to such  non-operated  Properties,  will be limited to the
best of Mortgagor's knowledge.

     (h) Environmental.
         -------------

          (A) Current  Status.  The  Property  (and with respect to Property not
              ---------------
     operated  by  Mortgagor,  to  the  best  of  Mortgagor's  knowledge,   such
     non-operated  Property)  and  Mortgagor  are not in material  violation  of
     Applicable  Environmental Laws (below defined), or subject to any existing,
     pending or, to the best knowledge of Mortgagor, threatened investigation or
     inquiry by any  governmental  authority  or any other  person under or with
     respect to  Applicable  Environmental  Laws,  or  subject  to any  remedial
     obligations under Applicable Environmental Laws, and are in compliance with
     all permits and licenses required under Applicable  Environmental Laws, and
     this  representation  will  continue  to  be  true  and  correct  following
     disclosure  to the  applicable  governmental  authorities  of all  relevant
     facts, conditions and circumstances, if any, pertaining to the Property and
     Mortgagor.  "Applicable Environmental Laws" shall mean any applicable laws,
     orders, rules, or regulations  (including,  without limitation,  the common
     law) pertaining to safety, health or the environment, as such laws, orders,
     rules or regulations  now exist or are hereafter  enacted  and/or  amended.
     Applicable   Environmental   Laws   include,   without   limitation,    the
     Comprehensive  Environmental Response,  Compensation,  and Liability Act of
     1980, as amended by the Superfund  Amendments  and  Reauthorization  Act of
     1986 (as amended,  hereinafter called "CERCLA"),  the Resource Conservation
     and Recovery Act of 1976, as amended by the Used Oil Recycling Act of 1980,
     the Solid Waste  Disposal Act  Amendments  of 1980,  and the  Hazardous and
     Solid Waste Amendments of 1984 (as amended,  hereinafter called "RCRA") and
     applicable  state  and  local  law).  Mortgagor  undertook,  at the time of
     acquisition  of the  Property,  all  appropriate  inquiry into the previous
     ownership  and uses of the  Property  consistent  with good  commercial  or
     customary practice. Mortgagor has taken all commercial and reasonable steps
     necessary to determine and has determined  that no hazardous  substances or
     solid wastes have been disposed of or otherwise  released at, into, upon or
     under the Property.  The use which  Mortgagor  makes and intends to make of
     the Property will not result in the use, treatment,  storage or disposal or
     other release of any hazardous  substance or solid waste at, into,  upon or
     under  the  Property,   except  such  usage,   and  temporary   storage  in
     anticipation  of usage,  as is in the  ordinary  course of business  and in
     compliance  with  Applicable   Environmental  Laws.  The  terms  "hazardous
     substance"  and "release" as used in this Mortgage  shall have the meanings
     specified  in  CERCLA,  and the terms  "solid  waste"  and  "disposal"  (or
     "disposed")  shall have the meanings  specified in RCRA;  provided,  in the
     event either  CERCLA or RCRA is amended so as to broaden the meaning of any
     term defined  thereby,  such broader meaning shall apply  subsequent to the
     effective date of such amendment and provided  further,  to the extent that
     the laws of the  states  in which  the  Mortgaged  Properties  are  located
     establish a meaning for "hazardous substance," "release," "solid waste," or
     "disposal"  which is broader than that  specified in either CERCLA or RCRA,
     such broader meaning shall apply.  The "Associated  Property' (as such term
     is hereinafter defined) is not in violation of any Applicable Environmental
     Laws for which  Mortgagor  or its  predecessors  in the  Property  would be
     responsible.  The term "Associated Property" as used in this Mortgage shall
     mean any and all interests in and to (and or carved out of) the lands which

                                      -11-


     are  described or referred to in Exhibit A hereto,  or which are  otherwise
     described in any of the oil, gas and/or mineral leases or other instruments
     described in or referred to in such Exhibit A, whether or not such property
     interests are owned by Mortgagor.

          (B) Future  Performance.  Mortgagor  will use its best  efforts not to
              -------------------
     cause or permit the Property or the Associated  Property or Mortgagor to be
     in material  violation  of, or do  anything  or permit  anything to be done
     which will subject the Property or the Associated  Property to any material
     remedial  obligations  under,  or result  in  material  noncompliance  with
     applicable permits and licenses under, any Applicable  Environmental  Laws,
     assuming  disclosure  to the  applicable  governmental  authorities  of all
     relevant facts,  conditions and  circumstances,  if any,  pertaining to the
     Property or the  Associated  Property and Mortgagor  will  promptly  notify
     Agent in writing of any  existing,  pending  or, to the best  knowledge  of
     Mortgagor,  threatened  investigation,   claim,  suit  or  inquiry  by  any
     governmental  authority  or any person in  connection  with any  Applicable
     Environmental  Laws, provided that, with respect to Properties not operated
     by Mortgagor,  Mortgagor shall notify Agent of any investigations,  claims,
     suits or inquiries,  whether  existing,  pending,  or threatened,  of which
     Mortgagor becomes aware. Mortgagor will take all steps reasonably necessary
     to  determine  that no  hazardous  substances  or solid  wastes  have  been
     disposed of or otherwise  released on or to the Property or the  Associated
     Property. Mortgagor will use commercial and reasonable efforts not to cause
     or permit the disposal or other release of any hazardous substance or solid
     waste at, into,  upon or under the Property or the Associated  Property and
     covenants  and agrees to keep or cause the Property  and/or the  Associated
     Property to be kept free of any hazardous  substance or solid waste (except
     such use, and temporary  storage in  anticipation of use, as is required in
     the ordinary  course of business,  all while in compliance  with Applicable
     Environmental Laws), and to remove the same (or if removal is prohibited by
     law, to take whatever action is required by law) promptly upon discovery at
     its sole expense.  Upon Agent's  reasonable  request,  at any time and from
     time to time during the existence of this Mortgage,  Mortgagor will provide
     at Mortgagor's  sole expense an inspection or audit of the Property and the
     Associated  Property from an  engineering  or  consulting  firm approved by
     Agent, indicating the presence or absence of hazardous substances and solid
     waste on the Property  and/or the Associated  Property and compliance  with
     Applicable Environmental Laws. In the event of a violation,  Mortgagor will
     diligently  work  to  cure  such  violation,   including  remediation,   if
     necessary,  and so long as Mortgagor diligently  prosecutes efforts to cure
     the violation, Mortgagor will not be in breach of this provision.

     (i) Not Abandon  Wells;  Participate  in  Operations.  Mortgagor  will not,
         ------------------------------------------------
without prior written consent of Agent,  abandon,  or consent to the abandonment
of, any well  producing from the Mortgaged  Properties  (or properties  unitized
therewith)  so long as such well is capable (or is subject to being made capable
through  drilling,  reworking or other operations which it would be commercially
feasible to conduct)  of  producing  oil,  gas, or other  hydrocarbons  or other
minerals in commercial  quantities (as determined without considering the effect
of this  Mortgage).  In the event and  during  the  continuation  of a  default,
Mortgagor  will not,  without  prior  written  consent  of  Agent,  elect not to
participate in a proposed operation on the Mortgaged Properties where the effect
of such  election  would be the  forfeiture  either  temporarily  (i.e.  until a
certain sum of money is received out of the forfeited  interest) or  permanently

                                      -12-


of any material interest in the Mortgaged Properties.

     (j) Defense of Mortgage. If the validity or priority of this Mortgage or of
         -------------------
any rights, titles, liens or security interests created or evidenced hereby with
respect to the  Property or any part  thereof or the title of  Mortgagor  to the
Property  shall be endangered  or  questioned  or shall be attacked  directly or
indirectly or if any legal  proceedings  are instituted  against  Mortgagor with
respect thereto,  Mortgagor will give prompt written notice thereof to Agent and
at Mortgagor's own cost and expense will diligently  endeavor to cure any defect
that may be developed or claimed,  and will take all  necessary and proper steps
for the defense of such legal  proceedings,  including,  but not limited to, the
employment of counsel,  the prosecution or defense of litigation and the release
or discharge  of all adverse  claims,  and Trustee and Agent,  or either of them
(whether or not named as parties to legal proceedings with respect thereto), are
hereby  authorized  and  empowered  to take  such  additional  steps as in their
judgment and  discretion  may be necessary or proper for the defense of any such
legal proceedings or the protection of the validity or priority of this Mortgage
and the  rights,  titles,  liens and  security  interests  created or  evidenced
hereby,  including but not limited to the employment of independent counsel, the
prosecution or defense of litigation, the compromise or discharge of any adverse
claims made with respect to the Property,  the purchase of any tax title and the
removal of prior liens or security interests, and all reasonable expenditures so
made of every kind and character shall be a demand  obligation (which obligation
Mortgagor  hereby  expressly  promises  to pay) owing by  Mortgagor  to Agent or
Trustee  (as the case may be) and shall  bear  interest  from the date  expended
until paid at the rate described in Section 2.3 hereof,  and the party incurring
such expenses  shall be subrogated  to all rights of the person  receiving  such
payment.

     (k)  Fees  and  Expenses;  Indemnity.  Mortgagor  will  pay all  reasonable
          -------------------------------
appraisal fees, recording fees, taxes, brokerage fees and commissions,  abstract
and other  records  search  fees,  attorneys'  fees and  expenses  and all other
reasonable costs and expenses of every character  incurred by Mortgagor or Agent
or any Lender in connection  with the closing of the loan or loans  evidenced by
the Loan Documents and any and all amendments,  supplements or  modifications to
such loan transaction or transactions.  Mortgagor will reimburse Trustee,  Agent
and each Lender (for purposes of this paragraph,  the terms  "Trustee",  "Agent"
and "Lender"  shall include the  directors,  officers,  partners,  employees and
agents  of  Trustee,  Agent or any  Lender,  respectively,  and any  persons  or
entities owned or controlled by or affiliated with Trustee, Agent or any Lender,
respectively) for all  expenditures,  including  reasonable  attorneys' fees and
expenses, incurred or expended in connection with (i) the breach by Mortgagor of
any  covenant,  agreement  or  condition  contained  herein or in any other Loan
Document,  (ii) the exercise of any rights and  remedies  hereunder or under any
other Loan Document,  and (iii) the protection of the Property  and/or liens and
security interests therein.  Mortgagor will indemnify and hold harmless Trustee,
Agent and each Lender  from and against  (and will  reimburse  such  indemnified
parties  for) all  claims,  demands,  liabilities,  losses,  damages  (including
without  limitation  consequential  damages),   causes  of  action,   judgments,
penalties,   costs  and  expenses   (including  without  limitation   reasonable
attorneys'  fees and expenses)  which may be imposed upon,  asserted  against or
incurred  or paid by the  Trustee,  the Agent or any  Lender on  account  of, in
connection  with,  or arising  out of (A) any bodily  injury or death or natural
resource,  human health or property damage occurring in, at, into, under or upon
(or,  to the extent  such  injury,  death or damage is related to  Mortgagor  or
Mortgagor's  ownership  or operation  of the  Property,  in the vicinity of) the

                                      -13-


Property  through any cause  whatsoever,  (B) any act performed or omitted to be
performed  hereunder or the breach of any representation or warranty herein, (C)
the  exercise  of any  rights  and  remedies  hereunder  or under any other Loan
Document, (D) any transaction,  act, omission, event or circumstance arising out
of or in any way connected  with the Property or with this Mortgage or any other
Loan Document, (E) any violation on or prior to the Release Date (as hereinafter
defined) of any Applicable  Environmental Law, (F) any act,  omission,  event or
circumstance  existing or occurring  on or prior to the Release Date  (including
without  limitation  the  presence on or under the  Property  or the  Associated
Property or release at, into, upon, under or from the Property or the Associated
Property of  hazardous  substances  or solid  wastes  disposed  of or  otherwise
released)  resulting  from or in connection  with the  ownership,  construction,
occupancy,  operation,  use and/or maintenance of the Property or the Associated
Property,  regardless  of  whether  the act,  omission,  event  or  circumstance
constituted a violation of any Applicable  Environmental  Law at the time of its
existence  or  occurrence,  and (G) any and all claims or  proceedings  (whether
brought by private party or  governmental  agencies)  for human  health,  bodily
injury,  property  damage,  abatement  or  remediation.   environmental  damage.
cleanup. mitigation, removal, natural resource damage or impairment or any other
injury or damage resulting from or relating to any hazardous or toxic substance,
solid waste or  contaminated  material  located upon or migrating  into, from or
through the Property or the Associated  Property  (whether or not the release of
such  materials was caused by Mortgagor,  a tenant or subtenant or a prior owner
or tenant or subtenant on the Property or the Associated Property and whether or
not the alleged  liability  is  attributable  to the use,  treatment,  handling,
storage,  generation,  transportation,  removal or disposal  of such  substance,
waste or material or the mere presence of such  substance,  waste or material on
or under the Property or the Associated Property),  which the Trustee and/or the
Agent and/or any Lender may have  liability with respect to due to the making of
the loan or loans  evidenced by any Notes,  the granting of this  Mortgage,  the
exercise of any rights under the Loan Documents, or otherwise.  Agent shall have
the right to compromise and adjust any such claims,  actions and judgments.  and
in addition to the rights to be indemnified as herein provided, all amounts paid
in compromise,  satisfaction or discharge of any such claim, action or judgment,
and all court  costs,  reasonable  attorneys'  fees and other  expenses of every
character expended by Agent, Trustee or any Lender pursuant to the provisions of
this section shall be a demand  obligation  (which  obligation  Mortgagor hereby
expressly  promises  to pay)  owing  by  Mortgagor  to the  applicable  party or
parties.  The  "Release  Date" as used  herein  shall  mean the  earlier  of the
following  two dates:  (i) the date on which the  indebtedness  and  obligations
secured  hereby have been paid and  performed in full, or (ii) the date on which
the lien of this Mortgage is foreclosed or a deed in lieu of such foreclosure is
fully  effective  and  recorded.  WITHOUT  LIMITATION,  IT IS THE  INTENTION  OF
MORTGAGOR AND MORTGAGOR  AGREES THAT THE  FOREGOING  INDEMNITIES  SHALL APPLY TO
EACH INDEMNIFIED  PARTY WITH RESPECT TO CLAIMS,  DEMANDS,  LIABILITIES,  LOSSES,
DAMAGES, CAUSES OF ACTION, JUDGMENTS,  PENALTIES,  COSTS AND EXPENSES (INCLUDING
WITHOUT  LIMITATION  REASONABLE  ATTORNEYS'  FEES) WHICH IN WHOLE OR IN PART ARE
CAUSED BY OR ARISE OUT OF THE NEGLIGENCE OF SUCH (AND/OR ANY OTHER)  INDEMNIFIED
PARTY. However,  such indemnities shall not apply to any particular  indemnified
party  (but  shall  apply to the other  indemnified  parties)  to the extent the
subject  of the  indemnification  is  caused  by or  arises  out  of  the  gross
negligence  or willful  misconduct of such  particular  indemnified  party.  The
foregoing  indemnities  shall not  terminate  upon the Release  Date or upon the

                                      -14-


release,  foreclosure or other termination of this Mortgage but will survive the
Release Date, foreclosure of this Mortgage or conveyance in lieu of foreclosure,
and the repayment of the secured  indebtedness  and the discharge and release of
this Mortgage and the other  documents  evidencing  and/or  securing the secured
indebtedness.  Any amount to be paid  hereunder by  Mortgagor to Agent,  Trustee
and/or  any  Lender  shall be a demand  obligation  owing  by  Mortgagor  to the
applicable  party  or  parties  and  shall  be  subject  to and  covered  by the
provisions of Section 2.3 hereof.

     (l)  Insurance.  Mortgagor  will keep (and with  respect  to  Property  not
          ---------
operated  by  Mortgagor,  will use its best  efforts  to keep)  such part of the
Property which is of an insurable  nature and of a character  usually insured by
persons  operating  similar  properties,  insured with  companies of  recognized
responsibility  satisfactory  to Agent and in such amounts as are  acceptable to
Agent (and in the  absence of  specification  of such  amounts by Agent,  in the
amount of the full value of such property,  less  reasonable  deductibles not to
exceed deductibles  customary in the industry for similarly situated  businesses
and properties), against loss or damage by fire, casualty and from other hazards
customarily insured against by persons operating similar  properties.  Mortgagor
shall  also  provide  such  other  insurance  as  Agent  may  from  time to time
reasonably  require;  such  coverage to be carried with  companies of recognized
responsibility  satisfactory  to Agent.  All policies  evidencing such insurance
shall contain  clauses  providing that the proceeds  thereof shall be payable to
Agent as its interest  may appear and  providing  that such  policies may not be
cancelled, reduced or otherwise affected without at least thirty (30) days prior
written notice to Agent. Upon request by Agent, Mortgagor shall deliver to Agent
the original policies, evidence of payment of premiums,  certificates evidencing
renewals,  and such other  information  regarding  such  insurance  as Agent may
request.  In the event of any loss under any  insurance  policies  so carried by
Mortgagor,  Agent shall have the right (but not the obligation) to make proof of
loss and collect the same,  and all amounts so received  shall be applied toward
costs,  charges and expenses  (including  reasonable  attorneys'  fees), if any,
incurred in the collection thereof, then to the payment, in the order determined
by Agent in its own  discretion,  of the secured  indebtedness,  and any balance
remaining shall be subject to the order of Mortgagor. Agent is hereby authorized
but not obligated to enforce in its name or in the name of Mortgagor  payment of
any or all of said  policies  or  settle  or  compromise  any  claim in  respect
thereof,  and to collect and make receipts for the proceeds thereof and Agent is
hereby appointed  Mortgagor's agent and attorney-in-fact to endorse any check or
draft payable to Mortgagor in order to collect the proceeds of insurance. In the
event  of  foreclosure  of this  Mortgage,  or  other  transfer  of title to the
Property in extinguishment in whole or in part of the secured indebtedness,  all
right,  title and interest of Mortgagor  in and to such  policies  then in force
concerning the Property and all proceeds payable thereunder shall thereupon vest
in the purchaser at such  foreclosure  or other  transferee in the event of such
other  transfer  of  title.  Mortgagor  shall  at all  times  maintain  adequate
insurance  against its  liability  on account of damages to persons or property,
which  insurance  shall be carried by  companies  of  recognized  responsibility
satisfactory  to Agent,  and shall be for such  amounts and insure  against such
risks as are customary in the industry for  similarly  situated  businesses  and
properties.  Mortgagor shall at all times maintain cost of regaining  control of
well insurance and similar  insurance to the extent customary in the industry in
the pertinent area of operations.

     (m) Further  Assurances.  Mortgagor will, on request of Agent, (i) promptly
         -------------------
correct any defect, error or omission which may be discovered in the contents of
this  Mortgage,  or  in  any  other  Loan  Document,  or  in  the  execution  or

                                      -15-


acknowledgment  of this  Mortgage  or any other  Loan  Document;  (ii)  execute,
acknowledge, deliver and record and/or file such further instruments (including,
without  limitation,  further deeds of trust,  mortgages,  security  agreements,
financing statements,  continuation  statements,  and assignments of production,
accounts, funds, contract rights, general intangibles, and proceeds) and do such
further  acts as may be  necessary,  desirable  or  proper  to  carry  out  more
effectively  the purposes of this  Mortgage and the other Loan  Documents and to
more fully identify and subject to the liens and security  interests  hereof any
property  intended to be covered  hereby,  including  specifically,  but without
limitation,   any   renewals,   additions,   substitutions,   replacements,   or
appurtenances to the Property; and (iii) execute, acknowledge, deliver, and file
and/or record any document or instrument  (including  specifically any financing
statement)  desired  by  Agent to  protect  the  lien or the  security  interest
hereunder against the rights or interests of third persons.  Mortgagor shall pay
all costs connected with any of the foregoing.

     (n) Name and Place of Business  and  Formation.  Except as disclosed in the
         ------------------------------------------
Credit Agreement, Mortgagor has not, during the preceding five years, been known
by or used  any  other  corporate  or  partnership,  trade or  fictitious  name.
Mortgagor will not cause or permit any change to be made in its name,  identity,
state of  formation  or  corporate  or  partnership  structure,  or its  federal
employer  identification  number unless  Mortgagor  shall have notified Agent of
such  change at least  thirty  (30)  days  prior to the  effective  date of such
change,  and shall have first taken all action required by Agent for the purpose
of further  perfecting  or  protecting  the liens and security  interests in the
Property  created hereby.  Mortgagor's  exact name is the name set forth in this
Mortgage. Mortgagor's location is as follows:

               Mortgagor  is a  registered organization  which  is
               organized  under  the laws  of one  of  the  states
               comprising  the  United  States (e.g.  corporation,
               limited  partnership,  registered limited liability
               partnership    or    limited   liability  company).
               Mortgagor is  located (as  determined  pursuant  to
               the UCC) in  the state under the  laws which it was
               organized, as follows:


               Name of Mortgagor             State of Organization
               ---------------------------------------------------

               Parent                        Delaware
               Energy                        Delaware
               Minerals                      Colorado
               Nance                         Montana
               Roswell                       Texas
               Operating                     Colorado
               NPC                           Colorado

               Mortgagor's principal  lace of  business and  chief
               executive  office, and  the place  where  Mortgagor
               keeps its books and records concerning the Property
               (including, particularly,  the records with respect
               to "Production Proceeds", as defined in Section 3.1
               hereof, from the Mortgaged Properties) has  for the
               preceding  four months,  been, and will continue to
               be (unless  Mortgagor notified Agent of  any change
               in writing at  least thirty (30) days  prior to the

                                      -16-


               date  of   such   change), the  address  set  forth
               opposite   the   signature  of  Mortgagor  to  this
               Mortgage.

     (o) Not a Foreign  Person.  Mortgagor is not a "foreign  person" within the
         ---------------------
meaning of the Internal  Revenue Code of 1986, as amended,  (hereinafter  called
the "Code"), Sections 1445 and 7701 (i.e. Mortgagor is not a non-resident alien,
foreign  corporation,  foreign  partnership,  foreign trust or foreign estate as
those terms are defined in the Code and any regulations promulgated thereunder).

     Section  2.2  Compliance  by  Operator.  As to any  part  of the  Mortgaged
                   ------------------------
Properties  which is not a working  interest,  Mortgagor agrees to take all such
commercial and reasonable  action and to exercise all rights and remedies as are
reasonably  available  to  Mortgagor to cause the owner or owners of the working
interest  in such  properties  to  comply  with  the  covenants  and  agreements
contained  herein;  and as to any part of the  Mortgaged  Properties  which is a
working  interest  but  which  is  operated  by a party  other  than  Mortgagor,
Mortgagor  agrees  to take all such  commercial  and  reasonable  action  and to
exercise  all rights and  remedies  as are  reasonably  available  to  Mortgagor
(including,  but not limited to, all rights under any  operating  agreement)  to
cause  the  party  who is the  operator  of such  property  to  comply  with the
covenants and agreements contained herein.

     Section 2.3 Performance on Mortgagor's  Behalf.  Mortgagor  agrees that, if
                 ----------------------------------
Mortgagor  fails  to  perform  any act or to take  any  action  which  hereunder
Mortgagor  is required to perform or take,  or to pay any money which  hereunder
Mortgagor is required to pay, Agent,  in Mortgagor's  name or its own name, may,
but shall not be obligated to, perform or cause to be performed such act or take
such  action or pay such  money,  and any  expenses so incurred by Agent and any
money so paid by Agent shall be a demand  obligation owing by Mortgagor to Agent
(which  obligation  Mortgagor hereby expressly  promises to pay) and Agent, upon
making such  payment,  shall be  subrogated  to all of the rights of the person,
corporation or body politic receiving such payment. Each amount due and owing by
Mortgagor to Trustee  and/or Agent and/or any Lender  pursuant to this  Mortgage
shall bear interest each day, from the date of such expenditure or payment until
paid, at a rate equal to the rate as provided for past due  principal  under the
Notes (provided that,  should  applicable law provide for a maximum  permissible
rate of  interest  on such  amounts,  such rate shall not be  greater  than such
maximum  permissible  rate);  all such  amounts,  together  with  such  interest
thereon,  shall be a part of the  secured  indebtedness  and shall be secured by
this Mortgage.

                                  ARTICLE III.

                 Assignment of Production, Accounts and Proceeds
                 -----------------------------------------------

     Section 3.1 Assignment of Production.  Mortgagor does hereby absolutely and
                 ------------------------
unconditionally  assign,  transfer  and set over to Agent all  Production  which
accrues to  Mortgagor's  interest in the Mortgaged  Properties,  all proceeds of
such  Production  and all Payments in Lieu of  Production  (herein  collectively
referred to as the  "Production  Proceeds"),  together  with the  immediate  and
continuing  right to collect and receive  such  Production  Proceeds.  Mortgagor
directs and instructs any and all  purchasers of any  Production to pay to Agent
all of the Production Proceeds accruing to Mortgagor's  interest until such time

                                      -17-


as  such   purchasers  have  been  furnished  with  evidence  that  all  secured
indebtedness  has been paid and that this Mortgage has been released.  Mortgagor
agrees that no purchasers of the Production  shall have any  responsibility  for
the application of any funds paid to Agent.

     Section  3.2  Effectuating   Payment  of  Production   Proceeds  to  Agent.
                   ------------------------------------------------------------
Independent  of  the  foregoing   provisions  and  authorities  herein  granted,
Mortgagor  agrees to execute and deliver any and all transfer  orders,  division
orders  and  other  instruments  that may be  requested  by Agent or that may be
required by any  purchaser  of any  Production  for the purpose of  effectuating
payment  of the  Production  Proceeds  to  Agent.  If under any  existing  sales
agreements,  other than  division  orders or  transfer  orders,  any  Production
Proceeds  are  required to be paid by the  purchaser  to Mortgagor so that under
such existing  agreements payment cannot be made of such Production  Proceeds to
Agent,  Mortgagor's  interest  in  all  Production  Proceeds  under  such  sales
agreements and in all other Production Proceeds which for any reason may be paid
to  Mortgagor  shall,  when  received by  Mortgagor,  constitute  trust funds in
Mortgagor's  hands  and  shall  be  immediately  paid  over  to  Agent.  Without
limitation upon any of the foregoing,  Mortgagor hereby constitutes and appoints
Agent as Mortgagor's  special attorney in-fact (with full power of substitution,
either  generally or for such periods or purposes as Agent may from time to time
prescribe) in the name, place and stead of Mortgagor to do any and every act and
exercise  any and  every  power  that  Mortgagor  might or could do or  exercise
personally  with respect to all  Production  and  Production  Proceeds (the same
having been  assigned by  Mortgagor  to Agent  pursuant to Section 3.1  hereof),
expressly inclusive, but not limited to, the right, power and authority to:

     (a)  Execute  and  deliver in the name of  Mortgagor  any and all  transfer
orders,  division orders, letters in lieu of transfer orders,  indemnifications,
certificates  and other  instruments  of every  nature that may be  requested or
required by any purchaser of Production from any of the Mortgaged Properties for
the  purposes of  effectuating  payment of the  Production  Proceeds to Agent or
which Agent may otherwise deem necessary or appropriate to effect the intent and
purposes of the assignment contained in Section 3.1; and

     (b) If under any product sales  agreements  other than  division  orders or
transfer  orders,  any  Production  Proceeds  are  required  to be  paid  by the
purchaser to Mortgagor so that under such existing  agreements payment cannot be
made of such Production  Proceeds to Agent, to make, execute and enter into such
sales  agreements  or other  agreements  as are  necessary to direct  Production
Proceeds to be payable to Agent;

giving and granting  unto said  attorney-in-fact  full power and authority to do
and perform any and every act and thing whatsoever necessary and requisite to be
done as fully and to all intents and purposes, as Mortgagor might or could do if
personally  present;   and  Mortgagor  shall  be  bound  thereby  as  fully  and
effectively as if Mortgagor had personally executed,  acknowledged and delivered
any of the  foregoing  certificates  or  documents.  The powers and  authorities
herein conferred upon Agent may be exercised by Agent through any person who, at
the time of the execution of the particular instrument,  is an officer of Agent.
The power of attorney herein conferred is granted for valuable consideration and
hence is coupled  with an  interest  and is  irrevocable  so long as the secured
indebtedness, or any part thereof, shall remain unpaid. All persons dealing with
Agent or any  substitute  shall be fully  protected  in treating  the powers and
authorities  conferred by this  paragraph as continuing in full force and effect

                                      -18-


until  advised by Agent that all the secured  indebtedness  is fully and finally
paid.  Agent may,  but shall not be  obligated  to, take such action as it deems
appropriate in an effort to collect the  Production  Proceeds and any reasonable
expenses (including  reasonable attorney's fees) so incurred by Agent shall be a
demand  obligation of Mortgagor  and shall be part of the secured  indebtedness,
and shall bear interest each day, from the date of such  expenditure  or payment
until paid, at the rate described in Section 2.3 hereof.

     Section  3.3  Change of  Purchaser.  To the extent a default  has  occurred
                   --------------------
hereunder and is  continuing,  should any person now or hereafter  purchasing or
taking  Production  fail to make  payment  promptly  to Agent of the  Production
Proceeds, Agent shall, subject to then existing contractual  prohibitions,  have
the right to make, or to require  Mortgagor to make, a change of purchaser,  and
the right to  designate  or approve the new  purchaser,  and Agent shall have no
liability or responsibility in connection  therewith so long as ordinary care is
used in making such designation.

     Section 3.4 Application of Production  Proceeds.  So long as no default has
                 -----------------------------------
occurred  hereunder,  the  Production  Proceeds  received  by Agent  during each
calendar month shall on the first business day of the next  succeeding  calendar
month (or, at the option of Agent,  on any earlier  date) be applied by Agent as
follows:

          FIRST,  to the  payment  of all  secured  indebtedness  then  due  and
          -----
     payable, in such manner and order as Agent deems advisable;

          SECOND, to the prepayment of the remainder of the secured indebtedness
          ------
     in such manner and order and to such extent as Agent deems advisable; and

          THIRD, the remainder, if any, of the Production Proceeds shall be paid
          -----
     over to Mortgagor or to  Mortgagor's  order or to such other parties as may
     be entitled thereto by law.

After a default  hereunder has occurred,  all  Production  Proceeds from time to
time in the hands of Agent  shall be  applied  by it toward  the  payment of all
secured indebtedness  (principal,  interest,  attorneys' fees and other fees and
expenses) at such times and in such manner and order and to such extent as Agent
deems advisable.

     Section  3.5  Release  From  Liability;  Indemnification.   Agent  and  its
                   ------------------------------------------
successors  and assigns are hereby  released and absolved from all liability for
failure to enforce  collection  of the  Production  Proceeds  and from all other
responsibility  in connection  therewith,  except the  responsibility of each to
account to Mortgagor for funds actually  received by each.  Mortgagor  agrees to
indemnify and hold  harmless  Agent (for  purposes of this  paragraph,  the term
"Agent" shall include the directors, officers, partners, employees and agents of
Agent and any persons or entities  owned or  controlled  by or  affiliated  with
Agent)  from and  against  all claims,  demands,  liabilities,  losses,  damages
(including  without  limitation   consequential  damages),   causes  of  action,
judgments,   penalties,   costs  and  expenses   (including  without  limitation
reasonable  attorneys'  fees and  expenses)  imposed upon,  asserted  against or
incurred or paid by Agent by reason of the assertion that Agent received, either
before or after  payment  in full of the  secured  indebtedness,  funds from the
production of oil, gas, other  hydrocarbons  or other minerals  claimed by third

                                      -19-


persons (and/or funds attributable to sales of production which (i) were made at
prices in excess of the maximum price  permitted by applicable  law or (ii) were
otherwise made in violation of laws, rules,  regulations and/or orders governing
such sales), and Agent shall have the right to defend against any such claims or
actions,  employing  attorneys of its own  selection,  and if not furnished with
indemnity  satisfactory  to it,  Agent  shall have the right to  compromise  and
adjust any such claims, actions and judgments,  and in addition to the rights to
be  indemnified  as herein  provided,  all amounts paid by Agent in  compromise,
satisfaction or discharge of any such claim,  action or judgment,  and all court
costs, reasonable attorneys' fees and other expenses of every character expended
by Agent pursuant to the provisions of this section shall be a demand obligation
(which obligation Mortgagor hereby expressly promises to pay) owing by Mortgagor
to Agent and shall bear interest, from the date expended until paid, at the rate
described in Section 2.3 hereof.  The foregoing  indemnities shall not terminate
upon the Release Date or upon the release,  foreclosure or other  termination of
this Mortgage but will survive the Release Date, foreclosure of this Mortgage or
conveyance in lieu of foreclosure, and the repayment of the secured indebtedness
and  the  discharge  and  release  of this  Mortgage  and  the  other  documents
evidencing and/or securing the secured indebtedness.  WITHOUT LIMITATION,  IT IS
THE INTENTION OF MORTGAGOR AND MORTGAGOR AGREES THAT THE FOREGOING  RELEASES AND
INDEMNITIES  SHALL APPLY TO EACH  INDEMNIFIED  PARTY WITH RESPECT TO ALL CLAIMS,
DEMANDS,   LIABILITIES,    LOSSES,   DAMAGES   (INCLUDING   WITHOUT   LIMITATION
CONSEQUENTIAL  DAMAGES),  CAUSES  OF  ACTION,  JUDGMENTS,  PENALTIES,  COSTS AND
EXPENSES (INCLUDING WITHOUT LIMITATION  REASONABLE ATTORNEYS' FEES AND EXPENSES)
WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF THE  NEGLIGENCE  OF SUCH
(AND/OR ANY OTHER) INDEMNIFIED PARTY.  However, such indemnities shall not apply
to any particular  indemnified  party (but shall apply to the other  indemnified
parties) to the extent the subject of the indemnification is caused by or arises
out of the gross negligence or willful misconduct of such particular indemnified
party.

     Section 3.6 Mortgagor's  Absolute  Obligation to Pay Notes.  Nothing herein
                 ----------------------------------------------
contained  shall  detract  from or limit the  obligations  of  Mortgagor to make
prompt payment of the Notes, and any and all other secured indebtedness,  at the
time and in the manner provided herein and in the Loan Documents,  regardless of
whether the Production and Production Proceeds herein assigned are sufficient to
pay same, and the rights under this Article III shall be cumulative of all other
rights under the Loan Documents.

     Section 3.7 Rights Under  Oklahoma Oil and Gas Owners' Lien Act.  Mortgagor
                 ---------------------------------------------------
hereby grants,  sells,  assigns and sets over unto Agent during the term hereof,
all of  Mortgagor's  rights and interests  pursuant to the provisions of the Oil
and Gas Owners' Lien Act (OKLA. STAT. tit. 52, ss.ss. 548.l-548.6 (the "Oklahoma
Act"), hereby vesting in Agent all of Mortgagor's rights as an interest owner to
the continuing  security interest in and lien upon the oil or gas severed or the
proceeds of sale. Agent may, at its option,  file the verified notice of lien in
order to perfect  such lien,  but shall not be obligated to make such filing and
shall not be held liable to  Mortgagor  for any act or omission  pursuant to the
Oklahoma Act.

     Section 3.8 Rights Under New Mexico Act.  Mortgagor  hereby grants,  sells,
                 ---------------------------
assigns and sets over unto Agent,  during the term  hereof,  all of  Mortgagor's
rights and interests  pursuant to the  provisions of Sections  48-9-1,  et seq.,

                                      -20-


N.M.S.A.  1978 Comp.  (the "New  Mexico  Act"),  hereby  vesting in Agent all of
Mortgagor's  rights as an interest owner to the continuing  security interest in
and lien upon the oil or gas severed or the proceeds of sale.  Agent may, at its
option,  file the  verified  notice of lien in order to perfect  such lien,  but
shall not be  obligated  to make  such  filing  and shall not be held  liable to
Mortgagor for any act or omission pursuant to the New Mexico Act.

     Section 3.9 Rights Under Wyoming Statutes.  Mortgagor hereby appoints Agent
                 -----------------------------
as its  attorney-in-fact  to pursue any and all lien rights of the  Mortgagor to
liens and security  interests in the Mortgaged  Properties  securing  payment of
Production Proceeds attributable to the Mortgaged Properties, including, without
limitation,  those liens and security interests provided for by Section 34.1-9-3
19, Wyoming Statutes Annotated, 1988 Republished Edition (June 1991), as amended
or  recodified.  Mortgagor  further  assigns  to Agent  any and all such  liens,
security  interests,  financing  statements,  or similar  interests of Mortgagor
attributable to its interests in the Mortgaged Properties or Production Proceeds
therefrom arising under or created by statutory provision, judicial decision, or
otherwise.

                                  ARTICLE IV.

                              Remedies Upon Default
                              ---------------------

     Section 4.1 Default. The term "default" as used in this Mortgage shall mean
                 -------
the occurrence of any of the following events:


     (a) the  occurrence  of an "Event of  Default"  as  defined  in the  Credit
Agreement; or

     (b) the failure of Mortgagor  to make due and punctual  payment of any Note
or of any other secured  indebtedness or of any installment of principal thereof
or  interest  thereon,  or any part  thereof,  as the same shall  become due and
payable (taking into account any applicable  grace period,  if any,  provided in
the Loan  Documents),  whether at a date for payment of a fixed  installment  or
contingent or other payment, or as a result of acceleration, or otherwise; or

     (c) the failure of Mortgagor to pay over to Agent any  Production  Proceeds
which  are  receivable  by Agent  under  this  Mortgage  but  which  are paid to
Mortgagor  rather than Agent  (either as  provided  for in Section 3.2 hereof or
otherwise),  except  Production  Proceeds  paid over to Mortgagor by Agent under
clause THIRD of Section 3.4; or

     (d) the  failure of  Mortgagor  timely and  properly  to  observe,  keep or
perform any covenant,  agreement,  warranty or condition  herein or in any other
Loan Document required to be observed, kept or performed, if such failure is not
remedied  within the applicable  grace period provided for in such Loan Document
or, if such Loan Document  does not provide for such a grace  period,  within 30
days  after  written  notice  and  demand by Agent for the  performance  of such
covenant, agreement, warranty or condition; or

     (e) any representation contained herein (or in any certificate delivered by
Mortgagor in connection  herewith) or contained in any other Loan  Document,  or
otherwise heretofore or hereafter made by or on behalf of Mortgagor, shall prove
to have been false or misleading in any material respect on the date made (or on
the date as of which made); or

                                      -21-


     (f) the  occurrence  of a "default"  or "event of  default"  under any Loan
Document  other  than this  Mortgage,  which  default  is not cured  within  the
applicable grace period (if any) provided for in such other Loan Document; or

     (g) Mortgagor  suffers the entry against it of a judgment,  decree or order
for relief by a court of competent  jurisdiction  in an  involuntary  proceeding
commenced  under any applicable  bankruptcy,  insolvency or other similar law of
any  jurisdiction  now or  hereafter  in effect,  including  the  United  States
Bankruptcy  Code,  as from  time  to  time  amended,  or has  such a  proceeding
commenced against it which remains undismissed for a period of 30 days; or

     (h) Mortgagor  commences a voluntary case under any applicable  bankruptcy,
insolvency  or similar  law now or  hereafter  in effect,  including  the United
States Bankruptcy Code, as from time to time amended, or applies for or consents
to the entry of an order for relief in an  involuntary  case under any such law;
or Mortgagor makes a general assignment for the benefit of creditors or fails to
pay (or admits in writing its  inability  to pay) its debts as such debts become
due; or Mortgagor  takes  corporate or other action in furtherance of any of the
foregoing; or

     (i)  Mortgagor  suffers the  appointment  of or taking of  possession  by a
receiver,  liquidator,  assignee,  custodian,  trustee,  sequestrator or similar
official for a substantial part of its assets or for any part of the Property in
a proceeding  brought  against or initiated  by it and (1) such  appointment  or
taking is  neither  made  ineffective  nor  discharged  within 30 days after the
making of such  appointment  or within 30 days  after such  taking,  or (2) such
appointment  or taking is  consented  to,  requested  by,  or  acquiesced  to by
Mortgagor; or

     (j)  Mortgagor  suffers a writ or  warrant  of  attachment  or any  similar
process to be issued by any court  against  all or any  substantial  part of its
assets or any part of the  Property,  and such writ or warrant of  attachment or
any similar  process is not stayed or released within 30 days after the entry or
levy thereof or after any stay is vacated or set aside; or

     (k) Any of the events referred to above in subsections (g), (h), (i) or (j)
shall occur with respect to any guarantor of the secured  indebtedness and shall
not be remedied  within the  applicable  grace period (if any) set forth in such
subsections.

     Section 4.2 Acceleration of Secured Indebtedness.  Upon the occurrence of a
                 ------------------------------------
default  described in subsection (g), (h), (i) or (j) of Section 4.1 above,  all
of the secured  indebtedness  shall  thereupon be  immediately  due and payable,
without presentment,  demand, protest, notice of protest,  declaration or notice
of  acceleration  or intention to accelerate,  putting the Mortgagor in default,
dishonor, notice of dishonor or any other notice or declaration of any kind, all
of which are  hereby  expressly  waived by  Mortgagor,  and the liens  evidenced
hereby  shall be subject to  foreclosure  in any manner  provided  for herein or
provided  for by law as Agent may  elect.  During the  continuance  of any other
default, Agent at any time and from time to time may without notice to Mortgagor
or any other person declare any or all of the secured  indebtedness  immediately
due and payable and all such secured indebtedness shall thereupon be immediately
due and  payable,  without  presentment,  demand,  protest,  notice of  protest,
declaration or notice of  acceleration  or intention to accelerate,  putting the
Mortgagor  in  default,  dishonor,  notice of  dishonor  or any other  notice or
declaration of any kind, all of which are hereby  expressly waived by Mortgagor,

                                      -22-


and the liens  evidenced  hereby shall be subject to  foreclosure  in any manner
provided for herein or provided for by law as Agent may elect.

     Section 4.3 Pre-Foreclosure  Remedies. Upon the occurrence of a default, or
                 -------------------------
any event or circumstance which, with the lapse of time or the giving of notice,
or both,  would  constitute a default  hereunder,  and  following  any period to
attempt to cure such default, if any, provided in the Credit Agreement, Agent is
authorized,   prior  or  subsequent  to  the   institution  of  any  foreclosure
proceedings,  to enter  upon the  Property,  or any  part  thereof,  and to take
possession of the Property and all books and records  relating  thereto,  and to
exercise without  interference from Mortgagor any and all rights which Mortgagor
has  with  respect  to the  management,  possession,  operation,  protection  or
preservation of the Property. If necessary to obtain the possession provided for
above, Agent may invoke any and all remedies to dispossess Mortgagor, including,
without limitation, summary proceeding or restraining order, Mortgagor agrees to
peacefully  surrender  possession  of the  Property  upon  default.  All  costs,
expenses  and  liabilities  of every  character  incurred by Agent in  managing,
operating, maintaining, protecting or preserving the Property shall constitute a
demand obligation (which obligation  Mortgagor hereby expressly promises to pay)
owing by Mortgagor  to Agent and shall bear  interest  from date of  expenditure
until paid at the rate  described  in Section  2.3  hereof,  all of which  shall
constitute  a portion of the secured  indebtedness  and shall be secured by this
Mortgage  and by any other  instrument  securing  the secured  indebtedness.  In
connection  with any action taken by Agent  pursuant to this Section 4.3,  AGENT
SHALL NOT BE LIABLE FOR ANY LOSS  SUSTAINED BY MORTGAGOR  RESULTING FROM ANY ACT
OR OMISSION OF AGENT (INCLUDING AGENT'S OWN NEGLIGENCE) IN MANAGING THE PROPERTY
UNLESS  SUCH LOSS IS CAUSED BY THE WILLFUL  MISCONDUCT  OR GROSS  NEGLIGENCE  OF
AGENT, nor shall Agent be obligated to perform or discharge any obligation, duty
or liability  of Mortgagor  arising  under any  agreement  forming a part of the
Property  or arising  under any  Permitted  Encumbrance  or  otherwise  arising.
Mortgagor  hereby assents to, ratifies and confirms any and all actions of Agent
with respect to the Property taken under this Section 4.3.

     Section 4.4 Foreclosure.
                 -----------

     (a) Upon the  occurrence of a default,  Trustee is authorized and empowered
and it shall be Trustee's  special duty at the request of Agent to sell the Deed
of Trust Mortgaged Properties, or any part thereof, as an entirety or in parcels
as Agent may elect, at such place or places and otherwise in the manner and upon
such  notice  as  may be  required  by  law  or,  in  the  absence  of any  such
requirement, as Trustee may deem appropriate. If Trustee shall have given notice
of sale hereunder,  any successor or substitute Trustee thereafter appointed may
complete the sale and the conveyance of the property pursuant thereto as if such
notice had been given by the  successor or  substitute  Trustee  conducting  the
sale. Cumulative of the foregoing and the other provisions of this Section 4.4:

          (i) As to any  portion  of the  Deed  of  Trust  Mortgaged  Properties
     located in the State of Texas (or within the  offshore  area over which the
     United States of America asserts jurisdiction and to which the laws of such
     state are  applicable  with  respect to this  Mortgage  and/or the liens or
     security  interests created hereby),  such sales of all or any part of such
     Deed of Trust Mortgaged  Properties shall be conducted at the courthouse of

                                      -23-


     any  county  (whether  or not the  counties  in  which  such  Deed of Trust
     Mortgaged  Properties are located are  contiguous) in the State of Texas in
     which any part of such Deed of Trust  Mortgaged  Properties  is situated or
     which lies shoreward of any Deed of Trust Mortgaged  Property (i.e., to the
     extent a particular Deed of Trust  Mortgaged  Property lies offshore within
     the  reasonable   projected   seaward  extension  of  the  relevant  county
     boundary), at public venue to the highest bidder for cash between the hours
     of ten o'clock a.m. and four o'clock p.m. on the first Tuesday in any month
     or at such other  place,  time and date as provided by the  statutes of the
     State of Texas then in force  governing  sales of real estate  under powers
     conferred  by deed of  trust,  after  having  given  notice of such sale in
     accordance with such statutes.

          A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE MAY
          ----------------------------------------------------------------------
     ALLOW TRUSTEE TO TAKE THE MORTGAGED  PROPERTIES AND SELL THEM WITHOUT GOING
     ---------------------------------------------------------------------------
     TO COURT IN A  FORECLOSURE  ACTION  UPON  DEFAULT BY  MORTGAGOR  UNDER THIS
     ---------------------------------------------------------------------------
     MORTGAGE.
     --------

     (b) Upon the occurrence of a default, this Mortgage may be foreclosed as to
the Other Mortgaged Properties,  or any part thereof, in any manner permitted by
applicable  law.  Cumulative of the  foregoing and the other  provisions of this
Section 4.4:

          (i) As to Other Mortgaged Properties located in the State of Louisiana
     (or  within  the  offshore  area over  which the  United  States of America
     asserts  jurisdiction  and to which the laws of such  state are  applicable
     with  respect  to this  Mortgage  and/or  the liens or  security  interests
     created hereby), Agent may foreclose this Mortgage by executory process, or
     any other process,  subject to, and on the terms and conditions required or
     permitted by,  applicable law, and shall have the right to appoint a keeper
     of such Other Mortgaged Properties.

          (ii)  As to  Other  Mortgaged  Properties  located  in  the  State  of
     Oklahoma, Mortgagor hereby confers on Agent the power to sell the Mortgaged
     Properties  in  accordance   with  the  Oklahoma  Power  of  Sale  Mortgage
     Foreclosure  Act (OKLA.  STAT.  tit. 46, ss.ss.  41-49),  as the same maybe
     amended from time to time.  Mortgagor  hereby  represents and warrants that
     this Mortgage  transaction does not involve a consumer loan as said term is
     defined in Section 3-104 of Title 14A of the Oklahoma  Statutes,  that this
     Mortgage  does not  secure  an  extension  of  credit  made  primarily  for
     agricultural  purposes as defined in paragraph 4 of Section  1-301 of Title
     14A of the Oklahoma  Statutes,  and that this Mortgage is not a mortgage on
     the Mortgagor's homestead.

          (iii) As to Other  Mortgaged  Properties  located  in the State of New
     Mexico, Lender may, at its election, proceed by suit or suits, at law or in
     equity,  to enforce the payment of the secured  indebtedness  in accordance
     with the terms hereof and of the Notes or other instruments  evidencing it,
     to foreclose the lien and security interest of this Mortgage against all or
     any portion of the Other Mortgaged Properties,  and to have said properties
     sold  under the  judgment  or decree of a court of  competent  jurisdiction
     pursuant to Section  39-5-19 NMSA 1978, as that statutory  provision may be
     amended or recodified.

                                      -24-


                    A POWER OF SALE HAS BEEN GRANTED IN THIS  MORTGAGE.  A POWER
                    ------------------------------------------------------------
               OF SALE MAY ALLOW AGENT TO TAKE THE MORTGAGED PROPERTIES AND SELL
               -----------------------------------------------------------------
               THEM WITHOUT GOING TO COURT IN A FORECLOSURE  ACTION UPON DEFAULT
               -----------------------------------------------------------------
               BY MORTGAGOR UNDER THIS MORTGAGE.
               --------------------------------

     (c) Upon the  occurrence  of a default,  Agent may  exercise  its rights of
enforcement with respect to the Collateral under the Texas Business and Commerce
Code,  as amended,  the  Louisiana  Commercial  Laws,  as  amended,  the Uniform
Commercial  Code of the State of Oklahoma,  as amended,  the Uniform  Commercial
Code of the State of New  Mexico,  or under the Uniform  Commercial  Code or any
other  statute in force in any state to the extent the same is  applicable  law.
Cumulative of the foregoing and the other provisions of this Section 4.4:

          (i) To the extent permitted by law, Agent may enter upon the Mortgaged
     Properties or otherwise upon  Mortgagor's  premises to take  possession of,
     assemble and collect the Collateral or to render it unusable; and

          (ii) Agent may require  Mortgagor to assemble the  Collateral and make
     it available at a place Agent  designates  which is mutually  convenient to
     allow Agent to take possession or dispose of the Collateral; and

          (iii) Written  notice mailed to Mortgagor as provided  herein at least
     five (5) days prior to the date of public sale of the  Collateral  or prior
     to the date after which private sale of the  Collateral  will be made shall
     constitute reasonable notice; and

          (iv) in the  event  of a  foreclosure  of the  liens  and/or  security
     interests  evidenced hereby, the Collateral,  or any part thereof,  and the
     Mortgaged Properties,  or any part thereof, may, at the option of Agent, be
     sold, as a whole or in parts,  together or separately  (including,  without
     limitation,  where a  portion  of the  Mortgaged  Properties  is sold,  the
     Collateral related thereto may be sold in connection therewith); and

          (v) the  expenses of sale  provided for in clause FIRST of Section 4.7
     shall include the reasonable  expenses of retaking the  Collateral,  or any
     part  thereof,  holding the same and  preparing  the same for sale or other
     disposition; and

          (vi) should,  under this  subsection,  the  Collateral  be disposed of
     other than by sale, any proceeds of such disposition shall be treated under
     Section 4.7 as if the same were sales proceeds; and

          (vii) as to the Collateral located in or otherwise subject to the laws
     of the State of Louisiana,  Agent may foreclose this Mortgage as a security
     agreement  affecting  the  Collateral  by executory  process,  or any other
     process,  subject to, and on the terms and conditions required or permitted
     by  applicable  law,  and shall  have the right to appoint a keeper of such
     Collateral.

     (d) To the extent  permitted by applicable  law, the sale hereunder of less
than the whole of the  Property  shall not  exhaust  the  powers of sale  herein
granted or the right to judicial  foreclosure,  and successive sale or sales may
be made until the whole of the Property  shall be sold,  and, if the proceeds of

                                      -25-


such  sale of less  than  the  whole  of the  Property  shall  be less  than the
aggregate of the indebtedness  secured hereby and the expense of conducting such
sale, this Mortgage and the liens and security  interests hereof shall remain in
full force and effect as to the unsold portion of the Property just as though no
sale had been made; provided, however, that Mortgagor shall never have any right
to  require  the sale of less than the whole of the  Property.  In the event any
sale  hereunder is not  completed or is defective in the opinion of Agent,  such
sale shall not  exhaust  the powers of sale  hereunder  or the right to judicial
foreclosure,  and Agent shall have the right to cause a subsequent sale or sales
to be made.  Any sale may be  adjourned  by  announcement  at the time and place
appointed for such sale without further notice except as may be required by law.
The Trustee or his successor or substitute,  and the Agent acting under power of
sale,  may appoint or delegate  any one or more  persons as agent to perform any
act or acts  necessary  or incident to any sale held by it  (including,  without
limitation,  the  posting  of  notices  and  the  conduct  of  sale),  and  such
appointment  need not be in writing or recorded,  Any and all statements of fact
or other recitals made in any deed or deeds,  or other  instruments of transfer,
given in connection with a sale as to nonpayment of the secured  indebtedness or
as to the  occurrence of any default,  or as to all of the secured  indebtedness
having been declared to be due and payable,  or as to the request to sell, or as
to notice of time,  place and terms of sale and the properties to be sold having
been duly given,  or, with respect to any sale by the Trustee,  or any successor
or substitute trustee, as to the refusal, failure or inability to act of Trustee
or any substitute or successor  trustee or the  appointment of any substitute or
successor trustee,  or as to any other act or thing having been duly done, shall
be taken as prima  facie  evidence  of the  truth  of the  facts so  stated  and
recited.  Notwithstanding  any  reference  herein  to the  Notes  or the  Credit
Agreement or any other Loan  Document,  all persons  dealing with the  Mortgaged
Properties  shall be entitled to rely on any document,  or  certificate,  of the
Agent as to the occurrence of an event,  such as an Event of Default,  and shall
not be charged with or forced to review any  provision of any other  document to
determine the accuracy thereof.  With respect to any sale held in foreclosure of
the liens and/or security  interests  covered hereby,  it shall not be necessary
for the Trustee,  Agent,  any public officer acting under  execution or order of
the court or any other party to have  physically  present or  constructively  in
his/her  or its  possession,  either at the time of or prior to such  sale,  the
Property or any part thereof.

     (e) As to Property now or hereafter located in, or otherwise subject to the
laws  of,  the  State  of   Louisiana,   Mortgagor   acknowledges   the  secured
indebtedness,  whether now existing or to arise  hereafter,  and for  Mortgagor,
Mortgagor's heirs, devisees,  personal representatives,  successors and assigns,
hereby  confesses  judgment for the full amount of the secured  indebtedness  in
favor of the Lender.  Mortgagor  further  agrees that the Agent may cause all or
any part of the  Property  to be seized and sold after due  process of law,  the
Mortgagor  waiving  the  benefit  of all laws or parts of laws  relative  to the
appraisement of property seized and sold under executory  process or other legal
process, and consenting that all or any part of the Property may be sold without
appraisement,  either in its entirety or in lots and  parcels,  as the Agent may
determine,  to the highest  bidder for cash or on such terms as the plaintiff in
such  proceedings  may  direct.  Mortgagor  hereby  waives  (i) the  benefit  of
appraisement  provided  for in  articles  2332,  2336,  2723,  and  2724  of the
Louisiana Code of Civil  Procedure and all other laws  conferring the same; (ii)
the demand and three (3) days notice of demand as provided in articles  2639 and
2721 of the  Louisiana  Code of Civil  Procedure;  (iii) the  notice of  seizure
provided for in articles 2293 and 2721 of the Louisiana Code of Civil Procedure;
(iv) the three (3) days  delay  provided  for in  articles  2331 and 2722 of the
Louisiana Code of Civil  Procedure;  and (v) all other laws providing  rights of

                                      -26-


notice,  demand,  appraisement,  or delay.  Mortgagor  expressly  authorizes and
agrees  that Agent  shall  have the right to  appoint a keeper of such  Property
pursuant to the terms and  provisions  of La. R.S.  9:5131 et seq.  and La. R.S.
9:5136 et seq., which keeper may be the Agent, any agent or employee thereof, or
any other person,  firm, or  corporation.  Compensation  for the services of the
keeper is hereby  fixed at five  percent  (5%) of the  amount due or sued for or
claimed or sought to be protected,  preserved, or enforced in the proceeding for
the  recognition  or  enforcement  of this  Mortgage and shall be secured by the
liens and security interests of this Mortgage.

     Section  4.5  Effective  as  Mortgage.  As to the Deed of  Trust  Mortgaged
                   -----------------------
Properties,  this instrument  shall be effective as a mortgage as well as a deed
of trust and upon the  occurrence  of a default may be foreclosed as to the Deed
of Trust Mortgaged  Properties,  or any portion thereof, in any manner permitted
by  applicable  law,  and any  foreclosure  suit may be brought by Trustee or by
Agent.  To the  extent,  if any,  required  to cause  this  instrument  to be so
effective as a mortgage as well as a deed of trust,  Mortgagor  hereby mortgages
the Deed of Trust  Mortgaged  Properties  to Agent.  In the event a  foreclosure
hereunder as to the Deed of Trust  Mortgaged  Properties,  or any part  thereof,
shall be commenced by Trustee, or his substitute or successor,  Agent may at any
time before the sale of such properties  direct Trustee to abandon the sale, and
may  then  institute  suit  for  the  foreclosure  of this  Mortgage  as to such
properties.  It is  agreed  that  if  Agent  should  institute  a suit  for  the
foreclosure of this Mortgage,  Agent may at any time before the entry of a final
judgment in said suit dismiss the same, and require  Trustee,  its substitute or
successor, to sell the Deed of Trust Mortgaged Properties,  or any part thereof,
in accordance with the provisions of this Mortgage.

     Section 4.6 Receiver.  In addition to all other  remedies  herein  provided
                 --------
for,  Mortgagor  agrees that,  upon the  occurrence of a default or any event or
circumstance  which,  with the lapse of time or the giving of  notice,  or both,
would  constitute  a  default  hereunder,  Agent  shall as a matter  of right be
entitled to the  appointment  of a receiver or receivers  for all or any part of
the  Property,  whether  such  receivership  be incident to a proposed  sale (or
sales) of such  property or  otherwise,  and without  regard to the value of the
Property or the solvency of any person or persons  liable for the payment of the
indebtedness   secured  hereby,   and  Mortgagor  does  hereby  consent  to  the
appointment  of such receiver or receivers,  waives any and all defenses to such
appointment,  and agrees not to oppose any  application  therefor by Agent,  and
agrees that such appointment  shall in no manner impair,  prejudice or otherwise
affect the rights of Agent under Article III hereof.  Mortgagor expressly waives
notice of a hearing for  appointment of a receiver and the necessity for bond or
an  accounting  by the  receiver.  Nothing  herein is to be construed to deprive
Agent or any  Lender  of any other  right,  remedy  or  privilege  it may now or
hereafter have under the law to have a receiver appointed. Any money advanced by
Agent in  connection  with any such  receivership  shall be a demand  obligation
(which obligation Mortgagor hereby expressly promises to pay) owing by Mortgagor
to Agent and shall bear  interest,  from the date of making such  advancement by
Agent until paid, at the rate described in Section 2.3 hereof.

     Section  4.7  Proceeds  of  Foreclosure.  The  proceeds of any sale held in
                   -------------------------
foreclosure of the liens and/or  security  interests  evidenced  hereby shall be
applied:

          FIRST, to the payment of all necessary costs and expenses  incident to
          -----
     such  foreclosure  sale,  including  but not limited to all court costs and
     charges of every character in the event  foreclosed by suit or any judicial

                                      -27-


     proceeding and including but not limited to a reasonable fee to the Trustee
     if such sale was made by the Trustee acting under the provisions of Section
     4.4(a) and including but not limited to the compensation of the keeper,  if
     any;

          SECOND,  to  the  payment  of  the  secured  indebtedness   (including
          ------
     specifically without limitation the principal, interest and attorneys' fees
     due and unpaid on the Notes and the  amounts  due and unpaid and owed under
     this Mortgage) in such manner and order as Agent may elect; and

          THIRD,  the  remainder,  if any  there  shall  be,  shall  be  paid to
          -----
     Mortgagor, or to Mortgagor's heirs, devisees,  representatives,  successors
     or assigns, or such other persons as may be entitled thereto by law.

     Section 4.8 Lender as Purchaser.  Any Lender shall have the right to become
                 -------------------
the  purchaser  at any sale held in  foreclosure  of the liens  and/or  security
interests  evidenced  hereby,  and any Lender  purchasing at any such sale shall
have the right to credit upon the amount of the bid made therefor, to the extent
necessary to satisfy such bid, the secured indebtedness owing to such Lender, or
if such  Lender  holds  less  than all of such  indebtedness,  the pro rata part
thereof  owing to such Lender,  accounting  to all other  Lenders not joining in
such  bid in cash for the  portion  of such  bid or bids  apportionable  to such
non-bidding Lender or Lenders.

     Section  4.9  Foreclosure  as to Matured  Debt.  Upon the  occurrence  of a
                   --------------------------------
default,  Agent shall have the right to proceed  with  foreclosure  of the liens
and/or security interests  evidenced hereby without declaring the entire secured
indebtedness  due,  and in such  event,  any such  foreclosure  sale may be made
subject to the unmatured part of the secured  indebtedness  and shall not in any
manner affect the  unmatured  part of the secured  indebtedness,  but as to such
unmatured  part,  this  Mortgage  shall  remain in full force and effect just as
though no sale had been  made.  The  proceeds  of such sale  shall be applied as
provided in Section 4.7 except that the amount paid under clause SECOND  thereof
shall be only the matured portion of the secured  indebtedness  and any proceeds
of such  sale in excess  of those  provided  for in  clauses  FIRST  and  SECOND
(modified as provided  above) shall be applied as provided in clause  SECOND AND
THIRD of  Section  3.4  hereof.  Several  sales  may be made  hereunder  without
exhausting the right of sale for any unmatured part of the secured indebtedness.

     Section 4.10  Remedies  Cumulative.  All remedies  herein  provided for are
                   --------------------
cumulative of each other and of all other remedies  existing at law or in equity
and are cumulative of any and all other remedies  provided for in any other Loan
Document, and, in addition to the remedies herein provided, there shall continue
to be available all such other remedies as may now or hereafter  exist at law or
in equity for the collection of the secured  indebtedness and the enforcement of
the covenants herein and the foreclosure of the liens and/or security  interests
evidenced  hereby,  and the resort to any remedy provided for hereunder or under
any such  other Loan  Document  or  provided  for by law shall not  prevent  the
concurrent or subsequent employment of any other appropriate remedy or remedies.

     Section 4.11  Discretion  as to Security.  Agent may resort to any security
                   --------------------------
given by this Mortgage or to any other security now existing or hereafter  given
to secure the payment of the secured  indebtedness,  in whole or in part, and in

                                      -28-


such  portions  and in such  order  as may  seem  best to  Agent in its sole and
uncontrolled discretion,  and any such action shall not in any way be considered
as a  waiver  of  any of the  rights,  benefits,  liens  or  security  interests
evidenced by this Mortgage.

     Section  4.12  Mortgagor's  Waiver of Certain  Rights.  To the full  extent
                    --------------------------------------
Mortgagor may do so, Mortgagor agrees that Mortgagor will not at any time insist
upon, plead,  claim or take the benefit or advantage of any law now or hereafter
in  force  providing  for  any  appraisement,   valuation,  stay,  extension  or
redemption,   and  Mortgagor,   for  Mortgagor,   Mortgagor's  heirs,  devisees,
representatives,  successors  and  assigns,  and for any  and all  persons  ever
claiming any interest in the  Property,  to the extent  permitted by  applicable
law, hereby waives and releases all rights of appraisement,  valuation,  stay of
execution, redemption, notice of intention to mature or declare due the whole of
the secured indebtedness,  notice of election to mature or declare due the whole
of the  secured  indebtedness  and all  rights  to a  marshaling  of  assets  of
Mortgagor,  including the Property,  or to a sale in inverse order of alienation
in the  event of  foreclosure  of the liens  and/or  security  interests  hereby
created.  Mortgagor shall not have or assert any right under any statute or rule
of law  pertaining  to the  marshaling  of  assets,  sale in  inverse  order  of
alienation,  the  exemption  of  homestead,  the  administration  of  estates of
decedents, or other matters whatever to defeat, reduce or affect the right under
the terms of this  Mortgage to a sale of the Property for the  collection of the
secured  indebtedness  without any prior or different resort for collection,  or
the  right  under the  terms of this  Mortgage  to the  payment  of the  secured
indebtedness  out of the proceeds of sale of the Properly in preference to every
other  claimant  whatever.  If any law  referred  to in this  section and now in
force,  of which  Mortgagor or  Mortgagor's  heirs,  devisees,  representatives,
successors  or  assigns  or any  other  persons  claiming  any  interest  in the
Mortgaged  Properties  or the  Collateral  might  take  advantage  despite  this
section, shall hereafter be repealed or cease to be in force, such law shall not
thereafter be deemed to preclude the application of this section.

     Section 4.13 Mortgagor as Tenant Post-Foreclosure.  In the event there is a
                  ------------------------------------
foreclosure sale hereunder and at the time of such sale Mortgagor or Mortgagor's
heirs,  devisees,  representatives,  successors  or assigns or any other persons
claiming  any  interest  in the  Property  by,  through or under  Mortgagor  are
occupying  or using  the  Property,  or any  part  thereof,  each and all  shall
immediately become the tenant of the purchaser at such sale, which tenancy shall
be a  tenancy  from day to day,  terminable  at the will of either  landlord  or
tenant,  at a  reasonable  rental per day based  upon the value of the  property
occupied,  such rental to be due daily to the purchaser. To the extent permitted
by  applicable  law,  the  purchaser  at such sale  shall,  notwithstanding  any
language  herein  apparently  to the  contrary,  have the sole  option to demand
immediate  possession following the sale or to permit the occupants to remain as
tenants at will.  In the event the tenant fails to surrender  possession of said
property upon demand,  the purchaser shall be entitled to institute and maintain
a summary  action for possession of the property (such as an action for forcible
entry and detainer) in any court having jurisdiction.

     Section 4.14 Waiver of Oklahoma Appraisement. As to Property situated in or
                  -------------------------------
otherwise  subject  to the laws of the State of  Oklahoma,  appraisement  of the
Property  is hereby  waived (or not) at the option of Agent,  such  option to be
exercised at the time judgment is rendered in any  foreclosure  hereof or at any
time prior thereto.

                                      -29-


     Section  4.15  Limitation  on New Mexico  Redemption  Period.  Pursuant  to
                    ---------------------------------------------
Section 39-5-19 of New Mexico Statutes,  1978 Annotated,  the redemption  period
after  foreclosure sale for any Property situated in or otherwise subject to the
laws of the State of New Mexico shall be limited to one (1) month,

                                   ARTICLE V.

                                  Miscellaneous
                                  -------------

     Section  5.1  Scope of  Mortgage.  This  Mortgage  is a deed of  trust  and
                   ------------------
mortgage  of both  real/immovable  and  personal/movable  property,  a  security
agreement, a financing statement and an assignment, and also covers proceeds and
fixtures.

     Section 5.2 Effective as a Financing Statement.  This Mortgage, among other
                 ----------------------------------
things,  covers  goods which are or are to become  fixtures  related to the real
property  described herein,  and covers  as-extracted  collateral related to the
real property described herein.  This Mortgage shall be effective as a financing
statement  (i) filed as a fixture  filing with respect to all fixtures  included
within the Property,  (ii) covering as-extracted  collateral with respect to all
as-extracted  collateral  included  within  the  Property  (including,   without
limitation, all oil, gas, other minerals and other substances of value which may
be  extracted  from the earth and all  accounts  arising  out of the sale at the
wellhead or minehead  thereof),  and (iii)  covering  all other  Property.  This
Mortgage  is to be filed for record in the  real/immovable  property  records of
each county or parish where any part of the Mortgaged  Properties is situated or
which lies shoreward of any Mortgaged  Property (i.e., to the extent a Mortgaged
Property lies offshore  within the projected  seaward  extension of the relevant
county or parish boundaries), and may also be filed in the offices of the Bureau
of Land Management,  the Minerals Management Service, the General Land Office or
any relevant federal, state, local or tribal agency (or any successor agencies).
The mailing  address of Mortgagor  is the address of Mortgagor  set forth at the
end of this Mortgage and the address of Agent from which information  concerning
the  security  interests  hereunder  may be obtained is the address of Agent set
forth at the end of this Mortgage.  Nothing contained in this paragraph shall be
construed  to  limit  the  scope of this  Mortgage  nor its  effectiveness  as a
financing statement covering any type of Property.

     Section 5.3 Reproduction of Mortgage as Financing Statement;  Authorization
                 ---------------------------------------------------------------
to  File.  A  carbon,  photographic,  facsimile  or other  reproduction  of this
- --------
Mortgage  or of any  financing  statement  relating  to this  Mortgage  shall be
sufficient as a financing statement for any purpose.  Without limiting any other
provision  herein,  Mortgagor hereby  authorizes Agent to file, in any filing or
recording  office,  one  or  more  financing   statements  and  any  renewal  or
continuation  statements thereof,  describing the Property,  including,  without
limitation,  a  financing  statement  covering  "all  assets of  Mortgagor,  all
proceeds therefrom and all rights and privileges with respect thereto."

     Section  5.4  Notice to  Account  Debtors.  In  addition  to,  but  without
                   ---------------------------
limitation of, the rights granted in Article III hereof,  Agent may, at any time
after a default has occurred that is continuing,  notify the account  debtors or
obligors  of any  accounts,  chattel  paper,  negotiable  instruments  or  other
evidences of indebtedness included in the Collateral to pay Agent directly.

                                      -30-


     Section 5.5 Waivers. Agent may at any time and from time to time in writing
                 -------
waive  compliance by Mortgagor with any covenant herein made by Mortgagor to the
extent and in the manner  specified in such writing,  or consent to  Mortgagor's
doing  any act  which  hereunder  Mortgagor  is  prohibited  from  doing,  or to
Mortgagor's  failing to do any act which hereunder  Mortgagor is required to do,
to the extent and in the manner  specified in such writing,  or release any part
of the Property or any interest therein or any Production Proceeds from the lien
and  security  interest of this  Mortgage,  without the joinder of Trustee.  Any
party liable, either directly or indirectly, for the secured indebtedness or for
any covenant  herein or in any other Loan  Document may be released  from all or
any part of such obligations without impairing or releasing the liability of any
other party. No such act shall in any way impair any rights or powers  hereunder
except to the extent specifically agreed to in such writing.

     Section 5.6 No  Impairment  of Security.  The lien,  security  interest and
                 ---------------------------
other  security  rights  hereunder  shall  not be  impaired  by any  indulgence,
moratorium or release which may be granted,  including,  but not limited to, any
renewal,  extension  or  modification  which may be granted  with respect to any
secured indebtedness, or any surrender, compromise, release, renewal, extension,
exchange  or  substitution  which  maybe  granted  in  respect  of the  Property
(including without limitation Production  Proceeds),  or any part thereof or any
interest  therein,  or any  release  or  indulgence  granted  to  any  endorser,
guarantor or surety of any secured indebtedness.

     Section 5.7 Acts Not Constituting Waiver. Any default may be waived without
                 ----------------------------
waiving  any other  prior or  subsequent  default.  Any  default may be remedied
without waiving the default remedied.  Neither failure to exercise, nor delay in
exercising,  any right, power or remedy upon any default shall be construed as a
waiver of such  default or as a waiver of the right to exercise  any such right,
power or remedy at a later  date.  No single or partial  exercise  of any right,
power or remedy  hereunder shall exhaust the same or shall preclude any other or
further exercise thereof, and every such right, power or remedy hereunder may be
exercised at any time and from time to time,  No  modification  or waiver of any
provision  hereof nor consent to any departure by Mortgagor  therefrom  shall in
any event be  effective  unless the same shall be in writing and signed by Agent
and then  such  waiver  or  consent  shall  be  effective  only in the  specific
instances,  for the purpose for which given and to the extent therein specified.
No  notice to nor  demand  on  Mortgagor  in any case  shall of  itself  entitle
Mortgagor  to any  other  or  further  notice  or  demand  in  similar  or other
circumstances.  Acceptance of any payment in an amount less than the amount then
due on any secured  indebtedness  shall be deemed an  acceptance on account only
and shall not in any way excuse the existence of a default hereunder.

     Section  5.8  Mortgagor's  Successors.  In the event the  ownership  of the
                   -----------------------
Property or any part thereof  becomes  vested in a person other than  Mortgagor,
then, without notice to Mortgagor,  such successor or successors in interest may
be dealt with, with reference to this Mortgage and to the  indebtedness  secured
hereby,  in the same manner as with  Mortgagor,  without in any way vitiating or
discharging   Mortgagor's   liability  hereunder  or  for  the  payment  of  the
indebtedness  or performance of the obligations  secured hereby.  No transfer of
the Property,  no  forbearance,  and no extension of the time for the payment of
the  indebtedness  secured hereby shall operate to release,  discharge,  modify,
change or affect,  in whole or in part, the liability of Mortgagor  hereunder or
for the payment of the  indebtedness or performance of the  obligations  secured

                                      -31-


hereby or the liability of any other person  hereunder or for the payment of the
indebtedness secured hereby.

     Section 5.9 Place of Payment.  All secured  indebtedness which may be owing
                 ----------------
hereunder at any time by Mortgagor  shall be payable at the place  designated in
the Credit Agreement (or if no such designation is made, at the address of Agent
indicated  at the end of this  Mortgage),  or at such  other  place as Agent may
designate in writing.

     Section 5.10  Subrogation to Existing Liens. To the extent that proceeds of
                   -----------------------------
the Notes are used to pay indebtedness secured by any outstanding lien, security
interest,  charge or prior encumbrance against the Property,  such proceeds have
been advanced at  Mortgagor's  request,  and the party or parties  advancing the
same shall be  subrogated  to any and all rights,  security  interests and liens
owned by any owner or  holder of such  outstanding  liens,  security  interests,
charges or encumbrances, irrespective of whether said liens, security interests,
charges or encumbrances  are released,  and it is expressly  understood that, in
consideration of the payment of such  indebtedness,  Mortgagor hereby waives and
releases  all demands and causes of action for offsets and payments to, upon and
in connection with the said indebtedness.

     Section 5.11 Application of Payments to Certain  Indebtedness.  If any part
                  ------------------------------------------------
of the secured  indebtedness  cannot be lawfully  secured by this Mortgage or if
any part of the  Property  cannot be lawfully  subject to the lien and  security
interest hereof to the full extent of such indebtedness,  then all payments made
shall be applied on said indebtedness first in discharge of that portion thereof
which is not secured by this Mortgage.

     Section 5.12  Compliance  With Usury Laws.  It is the intent of  Mortgagor,
                   ---------------------------
Lender  and all  other  parties  to the Loan  Documents  to  contract  in strict
compliance with applicable usury law from time to time in effect. In furtherance
thereof,  it is  stipulated  and  agreed  that none of the terms and  provisions
contained  herein or in the other  Loan  Documents  shall ever be  construed  to
create a  contract  to pay,  for the use,  forbearance  or  detention  of money,
interest in excess of the maximum amount of interest  permitted to be charged by
applicable law from time to time in effect.

     Section 5.13 Substitute Trustee. The Trustee may resign by an instrument in
                  ------------------
writing  addressed  to Agent,  or  Trustee  may be  removed  at any time with or
without  cause by an  instrument  in writing  executed by Agent.  In case of the
death,  resignation,  removal,  or  disqualification  of Trustee,  or if for any
reason  Agent  shall deem it  desirable  to appoint a  substitute  or  successor
trustee  to act  instead  of the  herein  named  trustee  or any  substitute  or
successor trustee,  then Agent shall have the right and is hereby authorized and
empowered to appoint a successor trustee, or a substitute trustee, without other
formality than  appointment and designation in writing executed by Agent and the
authority  hereby  conferred  shall extend to the appointment of other successor
and substitute trustees  successively until the indebtedness  secured hereby has
been paid in full,  or until the  Property is sold  hereunder.  In the event the
secured  indebtedness is owned by more than one person or entity,  the holder or
holders of not less than a majority  in the  amount of such  indebtedness  shall
also have the right and  authority  to make the  appointment  of a successor  or
substitute  trustee  as  provided  for in the  preceding  sentence  or to remove
Trustee as provided in the first sentence of this section,  Such appointment and
designation  by Agent shall be full  evidence of the right and authority to make

                                      -32-


the  same and of all  facts  therein  recited.  If  Agent  is a  corporation  or
association and such appointment is executed in its behalf by an officer of such
corporation or association,  such appointment shall be conclusively  presumed to
be executed with  authority and shall be valid and  sufficient  without proof of
any action by the board of directors or any superior  officer of the corporation
or  association.   Agent  may  act  through  an  agent  or  attorney-in-fact  in
substituting trustees.  Upon the making of any such appointment and designation,
all of the estate and title of Trustee in the Deed of Trust Mortgaged Properties
shall vest in the named  successor or substitute  Trustee and such  successor or
substitute shall thereupon succeed to, and shall hold, possess and execute,  all
the rights,  powers,  privileges,  immunities  and duties herein  conferred upon
Trustee; but nevertheless, upon the written request of Agent or of the successor
or substitute  Trustee,  the Trustee ceasing to act shall execute and deliver an
instrument  transferring  to such  successor  or  substitute  Trustee all of the
estate and title in the Deed of Trust  Mortgaged  Properties  of the  Trustee so
ceasing to act, together with all the rights, powers, privileges, immunities and
duties herein  conferred upon the Trustee,  and shall duly assign,  transfer and
deliver any of the properties and moneys held by said Trustee  hereunder to said
successor or  substitute  Trustee,  All  references  herein to Trustee  shall be
deemed to refer to Trustee (including any successor or substitute  appointed and
designated as herein provided) from time to time acting hereunder.

     Section 5.14 No Liability for Trustee.  THE TRUSTEE SHALL NOT BE LIABLE FOR
                  ------------------------
ANY ERROR OF  JUDGMENT  OR ACT DONE BY TRUSTEE IN GOOD  FAITH,  OR BE  OTHERWISE
RESPONSIBLE  OR  ACCOUNTABLE  UNDER  ANY  CIRCUMSTANCES  WHATSOEVER  (INCLUDING,
WITHOUT  LIMITATION,  THE  TRUSTEE'S  NEGLIGENCE),  EXCEPT FOR  TRUSTEE'S  GROSS
NEGLIGENCE  OR WILLFUL  MISCONDUCT.  The Trustee shall have the right to rely on
any instrument, document or signature authorizing or supporting any action taken
or  proposed to be taken by the  Trustee  hereunder,  believed by the Trustee in
good faith to be genuine.  All moneys  received by Trustee shall,  until used or
applied as herein  provided,  be held in trust for the  purposes  for which they
were  received,  but need not be  segregated in any manner from any other moneys
(except to the extent  required by law), and Trustee shall be under no liability
for interest on any moneys received by him hereunder.  Mortgagor hereby ratifies
and confirms any and all acts which the herein named Trustee or its successor or
successors,  substitute  or  substitutes,  shall do lawfully  by virtue  hereof.
Mortgagor  will reimburse  Trustee for, and indemnify and save Trustee  harmless
against, any and all liability and expenses (including attorneys fees) which may
be  incurred  by  Trustee  in the  performance  of  his  duties.  The  foregoing
indemnities  shall  not  terminate  upon  the  release,   foreclosure  or  other
termination of this Mortgage but will survive such release,  termination  and/or
foreclosure  of this  Mortgage,  or conveyance in lieu of  foreclosure,  and the
repayment  of the secured  indebtedness  and the  discharge  and release of this
Mortgage  and  the  other  documents  evidencing  and/or  securing  the  secured
indebtedness. Any amount to be paid hereunder by Mortgagor to Trustee shall be a
demand  obligation  owing by  Mortgagor  to Trustee  and shall be subject to and
covered by the provisions of Section 2.3 hereof.

     Section  5.15 Release of Mortgage.  If all of the secured  indebtedness  be
                   -------------------
paid as the same becomes due and payable,  all other  requirements of the Credit
Agreement are satisfied and all of the covenants,  warranties,  undertakings and
agreements  made in this  Mortgage  are kept and  performed,  and if neither the
Mortgagor  nor any Lender is bound to the other or to any third person to permit
any obligation or secured indebtedness to be incurred then or thereafter,  then,
upon sixty (60) days prior written  notice (or such lesser number of days as may
be mandated by applicable  law), the Mortgagor may request that this Mortgage be

                                      -33-


terminated.  Upon such  termination  the  Mortgagor  may further  request that a
written act of release of this Mortgage be provided  (except this Mortgage shall
be reinstated to the extent expressly  provided  herein,  and will continue with
respect to indemnification  and other rights which are to continue following the
release hereof).  Agent agrees to deliver such an act of release (subject to the
foregoing  limitation),  all at the cost and  expense of the  Mortgagor,  within
thirty (30) days (or such lesser number of days as may be mandated by applicable
law) of receiving such request unless Agent in good faith,  has cause to believe
that   Mortgagor  is  not   entitled  to  a   termination   of  this   Mortgage.
Notwithstanding  the  foregoing,  it  is  understood  and  agreed  that  certain
indemnifications,  and other  rights,  which  are  provided  herein to  continue
following the release  hereof,  shall  continue in effect  notwithstanding  such
release;  and  provided  that if any  payment  to Lender,  or Agent,  is held to
constitute a preference or a voidable transfer under applicable state or federal
laws or if for any other  reason  Lender,  or Agent,  is required to refund such
payment to the payor  thereof or to pay the amount  thereof to any third  party,
this Mortgage shall be reinstated to the extent of such payment or payments.

     Section 5.16 Notices. All notices,  requests,  consents,  demands and other
                  -------
communications  required or permitted hereunder shall be in writing and shall be
deemed  sufficiently  given or furnished if delivered by personal  delivery,  by
telecopy,  by delivery  service  with proof of  delivery,  or by  registered  or
certified United States mail, postage prepaid, at the addresses specified at the
end of this Mortgage  (unless  changed by similar notice in writing given by the
particular  party  whose  address  is  to  be  changed).   Any  such  notice  or
communication  shall be deemed to have  been  given (a) in the case of  personal
delivery or delivery service,  as of the date of first attempted delivery at the
address and in the manner  provided  herein,  (b) in the case of telecopy,  upon
receipt,  and (c) in the case of  registered  or certified  United  States mail,
three days after deposit in the mail. Notwithstanding the foregoing, or anything
else in the Loan Documents which may appear to the contrary, any notice given in
connection  with a foreclosure of the liens and/or  security  interests  created
hereunder,  or otherwise in connection with the exercise by Agent, any Lender or
Trustee of their  respective  rights hereunder or under any other Loan Document,
which is given in a manner permitted by applicable law shall  constitute  proper
notice; without limitation of the foregoing,  notice given in a form required or
permitted  by statute  shall (as to the  portion of the  Property  to which such
statute is applicable) constitute proper notice.

     Section 5.17 Invalidity of Certain  Provisions.  A  determination  that any
                  ---------------------------------
provision  of this  Mortgage is  unenforceable  or invalid  shall not affect the
enforceability or validity of any other provision and the determination that the
application of any provision of this Mortgage to any person or  circumstance  is
illegal or unenforceable shall not affect the enforceability or validity of such
provision  as it may  apply to other  persons  or  circumstances.

     Section  5.18 Gender;  Titles.  Within this  Mortgage,  words of any gender
                   ---------------
shall be held and  construed  to  include  any  other  gender,  and words in the
singular  number shall be held and  construed to include the plural,  unless the
context   otherwise   requires.   Titles  appearing  at  the  beginning  of  any
subdivisions hereof are for convenience only, do not constitute any part of such
subdivisions,  and shall be disregarded in construing the language  contained in
such subdivisions.

                                      -34-


     Section  5.19  Recording.  Mortgagor  will  cause  this  Mortgage  and  all
                    ---------
amendments and supplements thereto and substitutions  therefor and all financing
statements and continuation  statements relating thereto to be recorded,  filed,
re-recorded  and  refiled in such  manner and in such places as Trustee or Agent
shall reasonably request and will pay all such recording,  filing,  re-recording
and refiling taxes, fees and other charges.

     Section 5.20 Reporting Compliance.  Mortgagor agrees to comply with any and
                  --------------------
all reporting requirements  applicable to the transaction evidenced by the Notes
and secured by this Mortgage which are set forth in any law, statute, ordinance,
rule,  regulation,  order or determination of any  governmental  authority,  and
further  agrees  upon  request of Agent to furnish  Agent with  evidence of such
compliance.

     Section 5.21 Certain Consents.  Except where otherwise  expressly  provided
                  ----------------
herein, in any instance hereunder where the approval, consent or the exercise of
judgment  of Agent or any Lender is  required,  the  granting  or denial of such
approval or consent and the exercise of such  judgment  shall be within the sole
discretion  of such party,  and such party  shall not,  for any reason or to any
extent,  be required to grant such approval or consent or exercise such judgment
in any particular manner, regardless of the reasonableness of either the request
or the judgment of such party.

     Section 5.22 Certain Obligations of Mortgagor. Without limiting Mortgagor's
                  --------------------------------
obligations  hereunder,  Mortgagor's  liability  hereunder and the  indebtedness
secured hereby shall extend to and include all post petition interest, expenses,
and other  duties  and  liabilities  with  respect  to  Mortgagor's  obligations
hereunder  which  would  be  owed  but  for  the  fact  that  the  same  may  be
unenforceable  due to the existence of a bankruptcy,  reorganization  or similar
proceeding.

     Section 5.23 Authority of Agent.  The persons  constituting  Lender may, by.
                  ------------------
agreement  among  them,  provide  for and  regulate  the  exercise of rights and
remedies  hereunder,  but,  unless and until modified to the contrary in writing
signed by all such  persons and  recorded in the same  counties  and parishes as
this  Mortgage  is  recorded,  (i) all  persons  other  than  Mortgagor  and its
affiliates  shall  be  entitled  to rely  on the  releases,  waivers,  consents,
approvals,   notifications  and  other  acts  (including,   without  limitation,
appointment of substitute or successor trustee,  or trustees,  hereunder and the
bidding  in of all or any part of the  secured  indebtedness  held by any one or
more  Lenders,  whether the same be  conducted  under the  provisions  hereof or
otherwise) of Agent,  without  inquiry into any such agreements or the existence
of required consent or approval of any persons  constituting  Lender and without
the joinder of any party other than Agent in such releases,  waivers,  consents,
approvals, notifications or other acts and (ii) all notices, requests, consents,
demands and other communications required or permitted to be given hereunder may
be given to Agent.

     Section  5.24  Counterparts.  This  Mortgage  may be  executed  in  several
                    ------------
counterparts,  all of  which  are  identical,  except  that,  (a) to  facilitate
recordation,  certain  counterparts  hereof  may  include  only that  portion of
Exhibit A which contains descriptions of the properties located in (or otherwise
subject  to the  recording  or filing  requirements  and/or  protections  of the
recording or filing acts or regulations of) the recording  jurisdiction in which
the particular  counterpart  is to be recorded,  and other portions of Exhibit A
shall be included in such  counterparts  by reference only and (b) Schedule I is
attached only to the master  counterparts hereof being retained by Mortgagor and

                                      -35-


Agent, (c) only those counterparts  hereof being retained by Agent and Mortgagor
or otherwise containing counterpart descriptions of Mortgaged Properties located
in (or  otherwise  subject  to  the  recording  or  filing  requirements  and/or
protections  of the  recording  or filing acts or  regulations  of) the State of
Louisiana will have Annex I attached  thereto,  Annex I is included in all other
counterparts  by  reference  only,  and (d) the  execution  of this  Mortgage by
Mortgagor  may  not  be  witnessed  on  those  counterparts   hereof  containing
descriptions of Mortgaged  Properties  located in states where witnesses are not
required and/or encouraged by applicable law. All of such counterparts  together
shall constitute one and the same instrument.

     Section 5.25 Multiple Parties  Constituting  Mortgagor.  Unless the context
                  -----------------------------------------
clearly  indicates  otherwise,  as used in this Mortgage,  "Mortgagor" means the
Mortgagors  named in  Section  1.1  hereof or any of them.  The  obligations  of
Mortgagor hereunder shall be joint and several.

     Section 5.26  Successors  and Assigns.  The terms,  provisions,  covenants,
                   -----------------------
representations,  indemnifications  and conditions  hereof shall be binding upon
Mortgagor,  and the successors and assigns of Mortgagor,  and shall inure to the
benefit  of  Agent,  Trustee  and each  person  constituting  Lender  and  their
respective  successors and assigns,  and shall constitute covenants running with
the  Mortgaged  Properties.  Should  the  agency  under  which  Agent  serves be
terminated,  or otherwise  cease to exist,  Lenders  (including  the  respective
successors and assigns of each person constituting Lender named herein) shall be
deemed to be the  successors  to  Agent.  All  references  in this  Mortgage  to
Mortgagor,  Agent,  Trustee  or  Lenders  shall be  deemed to  include  all such
successors and assigns.

     Section 5.27 FINAL  AGREEMENT OF THE  PARTIES.  THE WRITTEN LOAN  DOCUMENTS
                  --------------------------------------------------------------
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
- --------------------------------------------------------------------------------
EVIDENCE  OF  PRIOR.  CONTEMPORANEOUS.  OR  SUBSEQUENT  ORAL  AGREEMENTS  OF THE
- --------------------------------------------------------------------------------
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
- -------------------------------------------------------------------

     Section 5.28 CHOICE OF LAW.  WITHOUT  REGARD TO  PRINCIPLES OF CONFLICTS OF
                  -------------
LAW,  THIS  MORTGAGE  SHALL BE  CONSTRUED  AND ENFORCED IN  ACCORDANCE  WITH AND
GOVERNED BY THE LAWS OF THE STATE OF TEXAS  APPLICABLE TO CONTRACTS  MADE AND TO
BE  PERFORMED  ENTIRELY  WITHIN SUCH STATE AND THE LAWS OF THE UNITED  STATES OF
AMERICA, EXCEPT THAT TO THE EXTENT THAT THE LAW OF A STATE IN WHICH A PORTION OF
THE  PROPERTY IS LOCATED (OR WHICH IS OTHERWISE  APPLICABLE  TO A PORTION OF THE
PROPERTY)  NECESSARILY  OR,  IN THE SOLE  DISCRETION  OF  LENDER,  APPROPRIATELY
GOVERNS WITH  RESPECT TO  PROCEDURAL  AND  SUBSTANTIVE  MATTERS  RELATING TO THE
CREATION,  PERFECTION AND ENFORCEMENT OF THE LIENS, SECURITY INTERESTS AND OTHER
RIGHTS AND REMEDIES OF THE TRUSTEE OR THE LENDER GRANTED HEREIN, THE LAW OF SUCH
STATE SHALL  APPLY AS TO THAT  PORTION OF THE  PROPERTY  LOCATED IN (OR WHICH IS
OTHERWISE SUBJECT TO THE LAWS OF) SUCH STATE.

                                      -36-


     Section 5.29  Reliance on  Certificate  or  Statement  of Agent.  All third
                   -------------------------------------------------
parties  may  rely  upon a  certificate  or  statement  of the  Agent  as to the
occurrence of any act or event, including, but not limited to, the occurrence of
a default  hereunder,  or the occurrence of an Event of Default under the Credit
Agreement.

     Section  5.30  Appearance.  Resolutions,  For  purposes of  Louisiana  law,
                    ----------
including but not limited to the  availability of executory  process,  Mortgagor
has appeared on this date before the undersigned  Notary Public and witnesses in
order to execute this Mortgage.  Mortgagor attaches, as Annex I, to counterparts
hereof  being  recorded  in  Louisiana  certified  resolutions  of its  Board of
Directors authorizing the execution and delivery of this Mortgage.

     Section 5.31 Paraph.  Mortgagor  acknowledges  that no  promissory  note or
                  ------
other  instrument  has been  presented to the  undersigned  Notary  Public to be
paraphed for identification herewith.

     Section 5.32  Acceptance  by Agent.  In accordance  with the  provisions of
                   --------------------
Louisiana  Civil Code  article  3289,  Agent has  accepted  the  benefits of the
Mortgage without the necessity of execution by Agent.

                         [Signatures Begin on Next Page]

                                      -37-





     THUS  DONE AND  PASSED  this  16th day of  April,  2003,  to be  effective,
however,  as of April 16th,  2003,  in my  presence  and in the  presence of the
undersigned competent witnesses who hereunto sign their names with Mortgagor and
me, Notary, after reading of the whole.


WITNESSES:                                ST. MARY LAND & EXPLORATION
/s/ BRANDY A. BROOKS                      COMPANY
- ----------------------------
Name: Brandy A. Brooks

                                          By:  /s/ MILAM RANDOLPH PHARO
                                               ---------------------------------
                                               Milam Randolph Pharo
/s/ KAREN M. POLLY                             Vice President - Land & Legal
- ----------------------------
Name: Karen M. Polly


                             /s/ JAMES C. ROBERTSON
                    -----------------------------------------
                                  NOTARY PUBLIC


The address and tax identification number of Parent are:
1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(Denver County)
Taxpayer I.D. No. 41-05 18430

The  address of Agent is:
201 South College Street
8th Floor NC 0680
Charlotte, NC 28288

The addresses of Trustees are:
Jay Chernosky
1001 Fannin Street, Suite 2255
Houston, Texas 77002

The First American Title Company of Utah
3300 East 400 South
Salt Lake City, Utah 84111

This instrument prepared by:
Craig W. Murray
Vinson & Elkins L.L.P.
1001 Fannin, Suite 2300
Houston, TX  77002


STATE OF COLORADO                 ss.

                                      -38-


                                  ss.
COUNTY OF DENVER                  ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby  certify that, on this 16th day of April,  2003,  THERE
personally  appeared before me: Milam Randolph Pharo,  the Vice President - Land
& Legal of St. Mary Land &  Exploration Company, a Delaware corporation,
known to me to be such officer,  such corporation being a party to the foregoing
instrument.

MONTANA, NEW        The foregoing instrument was acknowledged before  me on this
MEXICO, NORTH       day, by such  person, the above  designated  officer  of the
DAKOTA              corporation  specified  following  such  person's  name, on
OKLAHOMA, TEXAS,    behalf of said corporation.
UTAH, WYOMING and
LOUISIANA           On  this  date   before  me,  the   undersigned   authority,
                    personally  came and appeared such person,  to me personally
                    known  and  known  by me  to be  the  person  whose  genuine
                    signature is affixed to the foregoing  document as the above
                    designated  officer of the corporation  specified  following
                    such person's  name,  who signed said document  before me in
                    the presence of the two  witnesses,  whose names are thereto
                    subscribed  as  such,  being  competent  witnesses,  and who
                    acknowledged,  in my  presence  and in the  presence of said
                    witnesses,  that he signed the above and foregoing  document
                    as his own free act and deed on behalf  of such  corporation
                    by authority  of its board of directors  and as the free act
                    and deed of such  corporation  and for the uses and purposes
                    therein set forth and apparent.

     IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in the
City of Denver, Denver County, Colorado on the day and year first above written.
                                /s/ JAMES C. ROBERTSON
                               -------------------------------------------------
                               NOTARY PUBLIC, in and for the State of Colorado

                               James C. Robertson
My commission expires:         (printed name)
February 14, 2003
- ---------------------

[SEAL]

                                      -39-




     THUS  DONE AND  PASSED  this  16th day of  April,  2003,  to be  effective,
however,  as of April  16th,  2003,  in my presence  and in the  presence of the
undersigned competent witnesses who hereunto sign their names with Mortgagor and
me, Notary, after reading of the whole.

WITNESSES:                                ST. MARY ENERGY COMPANY
/s/ BRANDY A. BROOKS
- ----------------------------
Name: Brandy A. Brooks

                                          By:  /s/ MILAM RANDOLPH PHARO
                                               ---------------------------------
                                               Milam Randolph Pharo
/s/ KAREN M. POLLY                             Vice President - Land & Legal
- ----------------------------
Name: Karen M. Polly

                             /s/ JAMES C. ROBERTSON
                   ------------------------------------------
                                  NOTARY PUBLIC

The address and tax identification number of Energy are:

1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(Denver County)
Taxpayer ID. No. 76-0554924


STATE OF COLORADO           ss.
                            ss.
COUNTY OF DENVER            ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby  certify  that, on this 16th day of April,  2003, there
personally  appeared before me: Milam Randolph Pharo,  the Vice President - Land
& Legal of St. Mary Energy Company, a Delaware  corporation,  known to me to
be such officer, such corporation being a party to the foregoing instrument.

MONTANA, NEW        The foregoing instrument was acknowledged before me on this,
MEXICO, NORTH       day, by  such person, the above  designated  officer of  the
DAKOTA              corporation  specified  following  such  person's  name,  on
OKLAHOMA, TEXAS,    behalf of said corporation.
UTAH, WYOMING and
LOUISIANA           On  this  date   before  me,  the   undersigned   authority,
                    personally  came and appeared such person,  to me personally
                    known  and  known  by me  to be  the  person  whose  genuine
                    signature is affixed to the foregoing  document as the above
                    designated  officer of the corporation  specified  following
                    such person's  name,  who signed said document  before me in
                    the presence of the two  witnesses,  whose names are thereto
                    subscribed  as  such,  being  competent  witnesses,  and who

                                      -40-


                    acknowledged,  in my  presence  and in the  presence of said
                    witnesses,  that he signed the above and foregoing  document
                    as his own free act and deed on behalf  of such  corporation
                    by authority  of its board of directors  and as the free act
                    and deed of such  corporation  and for the uses and purposes
                    therein set forth and apparent.

     IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in the
City of Denver, Denver County, Colorado on the day and year first above written.
                                  /s/ JAMES C. ROBERTSON
                                ------------------------------------------------
                                NOTARY PUBLIC, in and for the State of Colorado

                                James C. Robertson
My commission expires:          (printed name)
February 14, 2005
- ---------------------

[SEAL]

                                      -41-




     THUS  DONE AND  PASSED  this  16th day of  April,  2003,  to be  effective,
however,  as of April  16th,  2003,  in my presence  and in the  presence of the
undersigned competent witnesses who hereunto sign their names with Mortgagor and
me, Notary, after reading of the whole.

WITNESSES:                                NANCE PETROLEUM CORPORATION
/s/ BRANDY A. BROOKS
- ----------------------------
Name:Brandy A. Brooks

                                          By:  /s/ ROBERT T. HANLEY
                                               ---------------------------------
                                               Robert T. Hanley
/s/ KAREN M. POLLY                             Vice President and Treasurer
- ----------------------------
Name: Karen M. Polly

                             /s/ JAMES C. ROBERTSON
                   ------------------------------------------
                                  NOTARY PUBLIC

The address and tax identification number of Nance are:

550 North 31st Street, Suite 500
Billings, Montana 59101
(Yellowstone County)
Taxpayer I.D. No. 8 1-0309883


STATE OF COLORADO              ss.
                               ss.
COUNTY OF DENVER               ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby  certify  that, on this 16th day of April,  2003, there
personally  appeared  before  me:  Robert  T.  Hanley,  the Vice  President  and
Treasurer of Nance Petroleum Corporation, a Montana corporation,  known to me to
be such officer, such corporation being a party to the foregoing instrument.

MONTANA, NEW        The foregoing instrument was acknowledged before me on this
MEXICO, NORTH       day, by such person, the above designated officer of the
DAKOTA              corporation specified following such person's name, on
OKLAHOMA, TEXAS,    behalf of said corporation.
UTAH, WYOMING and
LOUISIANA           On  this  date   before  me,  the   undersigned   authority,
                    personally  came and appeared such person,  to me personally
                    known  and  known  by me  to be  the  person  whose  genuine
                    signature is affixed to the foregoing  document as the above
                    designated  officer of the corporation  specified  following
                    such person's  name,  who signed said document  before me in
                    the presence of the two  witnesses,  whose names are thereto
                    subscribed  as  such,  being  competent  witnesses,  and who

                                      -42-


                    acknowledged,  in my  presence  and in the  presence of said
                    witnesses,  that he signed the above and foregoing  document
                    as his own free act and deed on behalf  of such  corporation
                    by authority  of its board of directors  and as the free act
                    and deed of such  corporation  and for the uses and purposes
                    therein set forth and apparent.

     IN WITNESS  WHEREOF.  I have  hereunto set my hand and official seal in the
City of  Denver,  Denver  County,  Colorado,  on the day and  year  first  above
written.
                                  /s/ JAMES C. ROBERTSON
                                ------------------------------------------------
                                NOTARY PUBLIC, in and for the State of Colorado

                                 James C. Robertson
My commission expires:           (printed name)
February 14, 2005
- ---------------------

[SEAL]

                                      -43-




     THUS  DONE AND  PASSED  this  16th day of  April,  2003,  to be  effective,
however,  as of April  16th,  2003,  in my presence  and in the  presence of the
undersigned competent witnesses who hereunto sign their names with Mortgagor and
me, Notary, after reading of the whole.

WITNESSES:                                ST. MARY MINERALS INC.
/s/ BRANDY A. BROOKS
- ----------------------------
Name: Brandy A. Brooks

                                          By: /s/ RICHARD C. NORRIS
                                              ----------------------------------
                                              Richard C. Norris
/s/ KAREN M. POLLY                            Vice President - Finance
- ----------------------------
Name: Karen M. Polly

                             /s/ JAMES C. ROBERTSON
                   ------------------------------------------
                                  NOTARY PUBLIC

The address and tax identification number of Minerals are:

1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(Denver County)
Taxpayer I.D. No. 84-12003 18


STATE OF COLORADO                ss.
                                 ss.
COUNTY OF DENVER                 ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby  certify  that, on this 16th day of April,  2003, there
personally  appeared before me: Richard C. Norris,  the Vice President - Finance
of St.  Mary  Minerals  Inc.,  a  Colorado  corporation,  known to me to be such
officer, such corporation being a party to the foregoing instrument.

MONTANA, NEW        The foregoing instrument was  acknowledged before me on this
MEXICO, NORTH       day, by  such  person, the above  designated officer of  the
DAKOTA              corporation  specified  following  such  person's  name,  on
OKLAHOMA, TEXAS,    behalf of said corporation.
UTAH, WYOMING and
LOUISIANA           On  this  date   before  me,  the   undersigned   authority,
                    personally  came and appeared such person,  to me personally
                    known  and  known  by me  to be  the  person  whose  genuine
                    signature is affixed to the foregoing  document as the above
                    designated  officer of the corporation  specified  following
                    such person's  name,  who signed said document  before me in
                    the presence of the two  witnesses,  whose names are thereto
                    subscribed  as  such,  being  competent  witnesses,  and who

                                      -44-


                    acknowledged,  in my  presence  and in the  presence of said
                    witnesses,  that he signed the above and foregoing  document
                    as his own free act and deed on behalf  of such  corporation
                    by authority  of its board of directors  and as the free act
                    and deed of such  corporation  and for the uses and purposes
                    therein set forth and apparent.

     IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in the
City of  Denver,  Denver  County,  Colorado,  on the day and  year  first  above
written.
                                /s/ JAMES C. ROBERTSON
                               -------------------------------------------------
                               NOTARY PUBLIC, in and for the State of Colorado

                               James C. Robertson
My commission expires:          (printed name)
February 14, 2005
- ---------------------

[SEAL]

                                      -45-




     THUS  DONE AND  PASSED  this  16th day of  April,  2003,  to be  effective,
however,  as of April  16th,  2003,  in my presence  and in the  presence of the
undersigned competent witnesses who hereunto sign their names with Mortgagor and
me, Notary, after reading of the whole.

WITNESSES:                                ROSWELL, L.L.C.
/s/ BRANDY A. BROOKS
- ----------------------------
Name: Brandy A. Brooks                By: St. Mary Land & Exploration
                                          Company, as Member


/s/ KAREN M. POLLY                        By: /s/ MILAM RANDOLPH PHARO
- ----------------------------                 -----------------------------------
Name: Karen M. Polly                          Milam Randolph Pharo
                                              Vice President - Land & Legal

                             /s/ JAMES C. ROBERTSON
                   ------------------------------------------
                                  NOTARY PUBLIC


The address and tax identification number of Roswell are:

1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(Denver County)
Taxpayer I.D. No. 74-2788509


STATE OF COLORADO                 ss.
                                  ss.
COUNTY OF DENVER                  ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby  certify  that, on this 16th day of April,  2003, there
personally  appeared before me: Milam Randolph Pharo,  the Vice President - Land
& Legal of St Mary Land &  Exploration Company, a Delaware  corporation,
in its  capacity  as a member of  Roswell,  L.L.C.,  a Texas  limited  liability
company,  known to me to be such officer of such  corporation,  such corporation
acting in its  capacity  as  member  and on  behalf  of such  limited  liability
company,  and such  limited  liability  company  being a party to the  foregoing
instrument.

MONTANA, NEW        The foregoing instrument was  acknowledged before me on this
MEXICO, NORTH       day, by  such person,  the  above designated  officer  of St.
DAKOTA              Mary  Land & Exploration Company acting in  its capacity
OKLAHOMA, TEXAS,    as  member  of   the limited  liability  company   specified
UTAH,               following such person's name,  on behalf of said corporation
WYOMING and         acting  in its capacity  as member of  the limited liability
LOUISIANA           company,and on behalf of said limited liability and company.

                                      -46-


                    On  this  date   before  me,  the   undersigned   authority.
                    personally  came and appeared such person,  to me personally
                    known  and  known  by  me  o be  the  person  whose  genuine
                    signature is affixed to the foregoing  document as the above
                    designated officer of the above mentioned corporation acting
                    in its capacity as member of the limited  liability  company
                    specified  following  such  person's  name,  who signed said
                    document  before me in the  presence  of the two  witnesses,
                    whose names are thereto  subscribed as such, being competent
                    witnesses,  and who acknowledged,  in my presence and in the
                    presence  of said  witnesses,  that he signed  the above and
                    foregoing document as his own free act and deed on behalf of
                    such  corporation  acting in its  capacity as member of such
                    limited  liability  company,  and on behalf of such  limited
                    liability  company,  by  authority of its board of directors
                    and by authority of its  members,  respectively,  and as the
                    free  act  and  deed  of  such  corporation,  acting  in its
                    capacity as member of such limited liability company, and of
                    such limited liability company and for the uses and purposes
                    therein set forth and apparent.

     IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in the
City of  Denver,  Denver  County,  Colorado,  on the day and  year  first  above
written.
                                /s/ JAMES C. ROBERTSON
                              --------------------------------------------------
                              NOTARY PUBLIC, in and for the State of Colorado

                              James C. Robertson
My commission expires:         (printed name)
February 14, 2005
- ---------------------

[SEAL]


                                      -47-




     THUS  DONE AND  PASSED  this  16th day of  April,  2003,  to be  effective,
however,  as of April  16th,  2003,  in my presence  and in the  presence of the
undersigned competent witnesses who hereunto sign their names with Mortgagor and
me, Notary, after reading of the whole.

WITNESSES:                                ST. MARY OPERATING COMPANY
/s/ BRANDY A. BROOKS
- ----------------------------
Name:Brandy A. Brooks

                                          By: /s/ MILAM RANDOLPH PHARO
                                              ----------------------------------
                                              Milam Randolph Pharo
/s/ KAREN M. POLLY                            Vice President - Land & Legal
- -----------------------------------
Name: Karen M. Polly

                             /s/ JAMES C. ROBERTSON
                   ------------------------------------------
                                  NOTARY PUBLIC

The address and tax identification number of Operating are:

1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(Denver County)
Taxpayer I.D. No. 84-0723492


STATE OF COLORADO           ss.
                            ss.
COUNTY OF DENVER            ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby  certify  that, on this 16th day of April,  2003, there
personally  appeared before me: Milam Randolph Pharo,  the Vice President - Land
& Legal of St. Mary Operating Company, a Colorado  corporation.  known to me
to be such officer, such corporation being a party to the foregoing instrument.

MONTANA, NEW        The foregoing instrument  was acknowledged before me on this
MEXICO, NORTH       day, by  such  person, the  above designated  officer of the
DAKOTA              corporation specified following such person's name, on
OKLAHOMA, TEXAS,    behalf of said corporation.
UTAH, WYOMING and
LOUISIANA           On  this  date   before  me,  the   undersigned   authority,
                    personally  came and appeared such person,  to me personally
                    known  and  known  by me  to be  the  person  whose  genuine
                    signature is affixed to the foregoing  document as the above
                    designated  officer of the corporation  specified  following
                    such person's  name,  who signed said document  before me in
                    the presence of the two  witnesses,  whose names are thereto
                    subscribed  as  such,  being  competent  witnesses,  and who

                                      -48-


                    acknowledged,  in my  presence  and in the  presence of said
                    witnesses,  that he signed the above and foregoing  document
                    as his own free act and deed on behalf  of such  corporation
                    by authority  of its board of directors  and as the free act
                    and deed of such  corporation  and for the uses and purposes
                    therein set forth and apparent.

     IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in the
City of  Denver,  Denver  County,  Colorado,  on the day and  year  first  above
written.
                                  /s/ JAMES C. ROBERTSON
                                 -----------------------------------------------
                                 NOTARY PUBLIC, in and for the State of Colorado

                                 James C. Robertson
My commission expires:           (printed name)
February 14, 2005
- ---------------------

[SEAL]

                                      -49-




     THUS  DONE AND  PASSED  this  16th day of  April,  2003,  to be  effective,
however,  as of April  16th,  2003,  in my presence  and in the  presence of the
undersigned competent witnesses who hereunto sign their names with Mortgagor and
me, Notary, after reading of the whole.

WITNESSES:                                NPC INC.
/s/ BRANDY A. BROOKS
- ----------------------------
Name: Brandy A. Brooks

                                          By:  /s/ ROBERT T. HANLEY
                                              ----------------------------------
                                               Robert T. Hanley
/s/ KAREN M. POLLY                             Vice President and Treasurer
- ----------------------------
Name: Karen M. Polly

                             /s/ JAMES C. ROBERTSON
                   ------------------------------------------
                                  NOTARY PUBLIC

The address and tax identification number of Operating are:

550 North 31st Street, Suite 500
Billings, Montana 59101
(Yellowstone County)
Taxpayer I.D. No. 11-3668557


STATE OF COLORADO                 ss.
                                  ss.
COUNTY OF DENVER                  ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby  certify  that, on this 16th day of April,  2003, there
personally  appeared  before  me:  Robert  T.  Hanley,  the Vice  President  and
Treasurer of NPC Inc., a Colorado  corporation.  known to me to be such officer,
such corporation being a party to the foregoing instrument.

MONTANA, NEW        The foregoing instrument  was acknowledged before me on this
MEXICO, NORTH       day, by  such  person, the above  designated  officer of the
DAKOTA              corporation  specified  following  such  person's   name, on
OKLAHOMA, TEXAS,    behalf of said corporation.
UTAH, WYOMING and
LOUISIANA           On  this  date   before  me,  the   undersigned   authority,
                    personally  came and appeared such person,  to me personally
                    known  and  known  by me  to be  the  person  whose  genuine
                    signature is affixed to the foregoing  document as the above
                    designated  officer of the corporation  specified  following
                    such person's  name,  who signed said document  before me in
                    the presence of the two  witnesses,  whose names are thereto
                    subscribed  as  such,  being  competent  witnesses,  and who

                                      -50-


                    acknowledged,  in my  presence  and in the  presence of said
                    witnesses,  that he signed the above and foregoing  document
                    as his own free act and deed on behalf  of such  corporation
                    by authority  of its board of directors  and as the free act
                    and deed of such  corporation  and for the uses and purposes
                    therein set forth and apparent.

     IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in the
City of  Denver,  Denver  County,  Colorado,  on the day and  year  first  above
written.
                                /s/ JAMES C. ROBERTSON
                               -------------------------------------------------
                               NOTARY PUBLIC, in and for the State of Colorado

                               James C. Robertson
My commission expires:           (printed name)
February 14, 2005
- ---------------------

[SEAL]

                                      -51-

EX-10

                                                                   EXHIBIT 10.14

           FIRST SUPPLEMENT AND AMENDMENT TO DEED OF TRUST, MORTGAGE,
            LINE OF CREDIT MORTGAGE, ASSIGNMENT, SECURITY AGREEMENT,
                     FIXTURE FILING AND FINANCING STATEMENT


     THIS FIRST  SUPPLEMENT  AND AMENDMENT TO DEED OF TRUST,  MORTGAGE,  LINE OF
CREDIT MORTGAGE,  ASSIGNMENT,  SECURITY AGREEMENT,  FIXTURE FILING AND FINANCING
STATEMENT (this  "Supplement") is entered into as of the effective time and date
hereinafter  stated (the  "Effective  Date") by ST. MARY LAND &  EXPLORATION
COMPANY ("Parent"),  a Delaware corporation (Taxpayer I.D. No. 41-0518430);  ST.
MARY ENERGY  COMPANY  ("Energy"),  a Delaware  corporation  (Taxpayer  I.D.  No.
76-0554924);  NANCE  PETROLEUM  CORPORATION  ("Nance"),  a  Montana  corporation
(Taxpayer I.D. No. 81-0309883);  ST. MARY MINERALS INC. ("Minerals"), a Colorado
corporation (Taxpayer I.D. No. 84-1200318); ROSWELL, L.L.C. ("Roswell"), a Texas
limited  liability company  (Taxpayer I.D. No.  74-2788509);  ST. MARY OPERATING
COMPANY ("Operating"), a Colorado corporation (Taxpayer I.D. No. 84-0723492) and
NPC Inc. ("NPC"),  a Colorado  corporation  (Parent,  Energy,  Nance,  Minerals,
Roswell,  Operating and NPC being herein  individually and  collectively  called
"Mortgagor");  to Jay Chernosky,  as Trustee with respect to Property located in
the State of Texas, whose address for notice is 1001 Fannin Street,  Suite 2255,
Houston,  Texas 77002,  and First American Title Company of Utah, as Trustee for
Property located in the State of Utah, whose address for notice is 3300 East 400
South,  Salt Lake City,  Utah  84111,  in both cases for the benefit of WACHOVIA
BANK,  NATIONAL  ASSOCIATION,  as  Administrative  Agent (in such capacity,  the
"Agent") for the lenders (collectively,  the "Lenders") party to the hereinafter
defined Credit Agreement.

                                    RECITALS

     A.  Parent,  the Agent and the Lenders  entered  into that  certain  Credit
Agreement dated as of January 27, 2003, by and among Parent, the Agent, and each
of the  Lenders  (together  with all  amendments  or  modifications  thereof and
supplements thereto the "Credit Agreement").

     B. The  indebtedness  of the Parent under or in connection  with the Credit
Agreement  is secured  by,  among  other  things,  that  certain  Deed of Trust,
Mortgage,  Line of Credit  Mortgage,  Assignment,  Security  Agreement,  Fixture
Filing and Financing  Statement  dated January 27, 2003, from Mortgagor to Agent
(together with all supplements and amendments thereto, the "Mortgage").

     C. The Mortgage was duly  recorded as set forth on Annex I attached  hereto
and made a part hereof for all purposes.

     D. Mortgagor  hereby desires to supplement and amend the Mortgage by adding
to the  Mortgaged  Property  described  therein and covered  thereby all rights,
titles,  interests  and estates now owned or hereafter  acquired by Mortgagor in
and to the properties  described on Exhibit A-1 attached  hereto and made a part
hereof for all purposes.

                                      -1-


     NOW,  THEREFORE,  for  good  and  valuable  consideration  in hand  paid by
Mortgagor  to Agent and in  consideration  of the debts and  trusts  hereinafter
mentioned,  the receipt and sufficiency of all of which is hereby  acknowledged,
Mortgagor and Agent do hereby agree as follows:

                                   ARTICLE I
                               Grant and Mortgage
                               ------------------

     Section 1.1 Mortgagor,  for and in  consideration of the sum of Ten Dollars
($10.00) to  Mortgagor  in hand paid,  and in order to secure the payment of the
secured  indebtedness  referred to in the Mortgage,  as supplemented and amended
hereby,  and  the  performance  of  the  obligations,   covenants,   agreements,
warranties  and  undertakings  of  Mortgagor  described  in  the  Mortgage,   as
supplemented and amended hereby, does hereby (a) GRANT,  BARGAIN,  SELL, CONVEY,
TRANSFER,  ASSIGN AND SET OVER to Jay  Chernosky,  as Trustee  ("Trustee"),  and
grant to Trustee a POWER OF SALE (pursuant to the Mortgage,  as supplemented and
amended  hereby,  and  applicable  law) with respect to, those of the  following
described  properties,  rights  and  interests  which are  located  in (or cover
properties located in) the State of Utah and to which the laws of any such state
are applicable with respect to the Mortgage, as supplemented and amended hereby,
and/or the liens or security  interests  created hereby (the "Additional Deed of
Trust Mortgaged  Properties"),  and (b) MORTGAGE,  ASSIGN,  WARRANT,  PLEDGE AND
HYPOTHECATE  to  Agent,  and  grant to Agent a POWER  OF SALE  (pursuant  to the
Mortgage,  as supplemented and amended hereby,  and applicable law) with respect
to, all of the following  described rights,  interests and properties which were
not granted to Trustee in clause (a) above (including, without limitation, those
of the following described properties, rights and interests which are located in
(or cover properties located in ) the States of Montana, North Dakota or Wyoming
and to which  the laws of any such  state are  applicable  with  respect  to the
Mortgage,  as  supplemented  and  amended  hereby,  and/or the liens or security
interests created hereby) (the "Additional Other Mortgaged Properties"):

          A. The oil, gas and/or other mineral  properties,  mineral servitudes,
and/or  mineral  rights which are  described in Exhibit A-1 attached  hereto and
made a part hereof;

          B. Without  limitation of the  foregoing,  all other right,  title and
interest  of  Mortgagor  of whatever  kind or  character  (whether  now owned or
hereafter  acquired by operation of law or otherwise) in and to (i) the oil, gas
and/or mineral leases or other agreements  described in Exhibit A-1 hereto, (ii)
the lands  described  or referred to in Exhibit A-1 (or  described in any of the
instruments  described  or referred to in Exhibit  A-1),  without  regard to any
limitations  as to specific lands or depths that may be set forth in Exhibit A-1
hereto or in any of the leases or other  agreements  described  in  Exhibit  A-1
hereto and (iii) any other lands (including submerged lands) located anywhere in
the United States of America;

          C.  All of  Mortgagor's  interest  (whether  now  owned  or  hereafter
acquired by operation of law or otherwise) in and to all presently  existing and
hereafter   created  oil,  gas  and/or  mineral   unitization,   pooling  and/or
communitization  agreements,  declarations  and/or  orders,  and  in  and to the
properties,   rights  and  interests  covered  and  the  units  created  thereby
(including, without limitation, units formed under orders, rules, regulations or

                                      -2-


other  official  acts  of  any  federal,   state  or  other   authority   having
jurisdiction), which cover, affect or otherwise relate to the properties, rights
and interests described in clause A or B above;

          D. All of Mortgagor's  interest in and rights under (whether now owned
or hereafter  acquired by operation of law or otherwise) all presently  existing
and hereafter created operating agreements,  equipment leases,  production sales
contracts,  processing  agreements,  transportation  agreements,  gas  balancing
agreements,  farmout and/or farm-in agreements,  salt water disposal agreements,
area of mutual interest agreements,  and other contracts and/or agreements which
cover,  affect,  or otherwise  relate to the  properties,  rights and  interests
described  in clause  A, B or C above or to the  operation  of such  properties,
rights  and  interests  or  to  the  treating,  handling,  storing,  processing,
transporting  or marketing of oil, gas,  other  hydrocarbons,  or other minerals
produced  from  (or  allocated  to)  such   properties,   rights  and  interests
(including,  but not limited to, those contracts  listed in Exhibit A-1 hereto),
as same may be amended or supplemented from time to time;

          E.  All of  Mortgagor's  interest  (whether  now  owned  or  hereafter
acquired by operation of law or otherwise) in and to all improvements, fixtures,
movable  or  immovable   property  and  other  real  and/or  personal   property
(including,  without limitation,  all wells, pumping units,  wellhead equipment,
tanks, pipelines, flow lines, gathering lines,  compressors,  dehydration units,
separators,   meters,  buildings,  injection  facilities,  salt  water  disposal
facilities,  and power,  telephone  and  telegraph  lines),  and all  easements,
servitudes,  rights-of-way,  surface leases, licenses, permits and other surface
rights, which are now or hereafter used, or held for use, in connection with the
properties,  rights and  interests  described  in clause A, B or C above,  or in
connection with the operation of such  properties,  rights and interests,  or in
connection with the treating,  handling,  storing,  processing,  transporting or
marketing of oil, gas, other  hydrocarbons,  or other minerals produced from (or
allocated to) such properties, rights and interests; and

          F. All  rights,  estates,  powers and  privileges  appurtenant  to the
foregoing rights, interests and properties.

     TO HAVE AND TO HOLD (a) the Additional Deed of Trust  Mortgaged  Properties
unto the Trustee, and its successors or substitutes in this trust, and to its or
their successors and assigns, in trust, however, upon the terms,  provisions and
conditions  herein set forth, and (b) the Additional Other Mortgaged  Properties
unto Agent, and Agent's successors and assigns,  upon the terms,  provisions and
conditions  herein set forth (the Additional Deed of Trust Mortgaged  Properties
and the Additional Other Mortgaged Properties are herein sometimes  collectively
called the "Additional Mortgaged Properties").

     Section 1.2  Mortgagor  hereby  confirms  that it has  heretofore  granted,
bargained,   sold,  conveyed,   transferred,   assigned,  set  over,  mortgaged,
warranted,  pledged  and  hypothecated  to the  Agent,  and  granted a  security
interest to the Agent in, the "Property" (as such term is amended  hereby),  and
Mortgagor hereby further grants, bargains, sells, conveys,  transfers,  assigns,
sets over, mortgages,  warrants, pledges and hypothecates to Agent, and grants a
security  interest  to Agent  in,  the  Property,  to  secure  the  payment  and
performance of the "secured indebtedness" (as defined in the Mortgage).

                                      -3-


     Section 1.3 Mortgagor hereby confirms that it has heretofore absolutely and
unconditionally  assigned,  transferred and set over and does hereby  absolutely
and unconditionally  assign,  transfer and set over to Agent, its successors and
assigns,  all of the "Production"  (as defined in the Mortgage,  as supplemented
and amended  hereby) which  accrues to  Mortgagor's  interest in the  "Mortgaged
Properties" (as such term is amended hereby), and all "Production  Proceeds" (as
defined in the Mortgage, as supplemented and amended hereby),  together with the
immediate  and  continuing  right to collect  and  receive  all such  Production
Proceeds.

                                   ARTICLE II
                             Definitions; References
                             -----------------------

     Section 2.1 All  capitalized  terms used but not defined  herein shall have
the meanings assigned to such terms in the Mortgage, as supplemented and amended
hereby.

     Section 2.2 All  references in the Mortgage to "this  Mortgage"  shall mean
the Mortgage as supplemented and amended hereby and as the same may from time to
time be further amended or supplemented.

     Section 2.3 All  references in the Mortgage to "Mortgaged  Properties"  are
hereby supplemented and amended to include the Additional  Mortgaged  Properties
as defined and described in this  Supplement as if reference  thereto were fully
made in the Mortgage at the time the Mortgage was executed and recorded.

     Section  2.4 All  references  in the  Mortgage  to  "Property"  are  hereby
supplemented  and  amended to include the  Additional  Mortgaged  Properties  as
defined and described in this Supplement as if reference thereto were fully made
in the Mortgage at the time the Mortgage was executed and recorded.

     Section  2.5 All  references  in the  Mortgage to  "Schedule  I" are hereby
amended and supplemented to include the Wells described on Schedule I-A attached
to this  Supplement  as if reference  thereto were fully made in the Mortgage at
the time the Mortgage was executed.

     Section 2.6 All references in the Mortgage to "Schedule I Wells" are hereby
amended and supplemented to include the Wells described on Schedule I-A attached
to this  Supplement  as if reference  thereto were fully made in the Mortgage at
the time the Mortgage was executed.

                                   ARTICLE III
                                  Miscellaneous
                                  -------------

     Section 3.1 The parties hereto hereby  acknowledge and agree that except as
specifically  amended,  changed or modified hereby, the Mortgage shall remain in
full force and effect in accordance with its terms.  None of the rights,  titles
and  interests  existing and to exist under the  Mortgage  are hereby  released,
diminished  or  impaired,   and  Mortgagor   hereby   reaffirms  all  covenants,
representations and warranties made in the Mortgage.

     Section 3.2 This Supplement may be executed in several counterparts, all of
which  are  identical,  except  that,  (a) to  facilitate  recordation,  certain

                                      -4-


counterparts  hereof may include only that  portion of Exhibit A which  contains
descriptions of the properties located in (or otherwise subject to the recording
or filing  requirements  and/or  protections  of the recording or filing acts or
regulations of) the recording  jurisdiction in which the particular  counterpart
is to be recorded,  and other  portions of Exhibit A-I shall be included in such
counterparts  by reference  only and (b)  Schedule  I-A is attached  only to the
master counterparts hereof being retained by Mortgagor and Agent.




                          [SIGNATURES BEGIN NEXT PAGE]

                                      -5-




     EXECUTED  this 16th day of April,  2003, to be  effective,  however,  as of
April 16, 2003.

                                         ST. MARY LAND & EXPLORATION
                                         COMPANY


                                         By:  /s/ MILAM RANDOLPH PHARO
                                             -----------------------------------
                                              Milam Randolph Pharo
                                              Vice President - Land & Legal






The address and tax identification number of Parent are:

1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(Denver County)
Taxpayer ID. No. 41-05 18430

The  address of Agent is:
201 South College Street
8th Floor NC 0680
Charlotte, NC 28288

The addresses of Trustees are:
Jay Chernosky
1001 Fannin Street, Suite 2255
Houston, Texas 77002

The First American Title Company of Utah
3300 East 400 South
Salt Lake City, Utah 84111

This instrument prepared by:
Craig W. Murray
Vinson & Elkins L.L.P.
1001 Fannin, Suite 2300
Houston, TX  77002



                                      -6-




STATE OF COLORADO                 ss.
                                  ss.
COUNTY OF DENVER                  ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby  certify that, on this 16th day of April,  2003,  THERE
personally  appeared before me: Milam Randolph Pharo,  the Vice President - Land
& Legal of St. Mary Land &  Exploration Company, a Delaware corporation,
known to me to be such officer,  such corporation being a party to the foregoing
instrument.

MONTANA,            The foregoing instrument was acknowledged before me on this
NORTH DAKOTA,       day, by such person, the above designated officer of the
UTAH and WYOMING    corporation specified  following such person's name, on
                    behalf of said corporation.

                    On  this  date   before  me,  the   undersigned   authority,
                    personally  came and appeared such person,  to me personally
                    known  and  known  by me  to be  the  person  whose  genuine
                    signature is affixed to the foregoing  document as the above
                    designated  officer of the corporation  specified  following
                    such person's  name,  who signed said document  before me in
                    the presence of the two  witnesses,  whose names are thereto
                    subscribed  as  such,  being  competent  witnesses,  and who
                    acknowledged,  in my  presence  and in the  presence of said
                    witnesses,  that he signed the above and foregoing  document
                    as his own free act and deed on behalf  of such  corporation
                    by authority  of its board of directors  and as the free act
                    and deed of such  corporation  and for the uses and purposes
                    therein set forth and apparent.

     IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in the
City of Denver, Denver County, Colorado on the day and year first above written.
                                /s/ JAMES C. ROBERTSON
                              --------------------------------------------------
                              NOTARY PUBLIC, in and for the State of Colorado

                              James C. Robertson
My commission expires:        (printed name)
February 14, 2005
- ---------------------

[SEAL]

                                      -7-




     EXECUTED  this 16th day of April,  2003, to be  effective,  however,  as of
April 16th, 2003.

                                         ST. MARY ENERGY COMPANY



                                         By:  /s/ MILAM RANDOLPH PHARO
                                             -----------------------------------
                                              Milam Randolph Pharo
                                              Vice President - Land & Legal



The address and tax identification number of Energy are:

1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(Denver County)
Taxpayer ID. No. 76-0554924


STATE OF COLORADO            ss.
                             ss.
COUNTY OF DENVER             ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby  certify  that, on this 16th day of April,  2003, there
personally  appeared before me: Milam Randolph Pharo,  the Vice President - Land
& Legal of St. Mary Energy Company, a Delaware  corporation,  known to me to
be such officer, such corporation being a party to the foregoing instrument.

MONTANA,            The foregoing instrument was acknowledged  before me on this
NORTH DAKOTA,       day, by  such person, the  above designated  officer  of the
UTAH and WYOMING    corporation  specified  following  such person's   name,  on
                    behalf of said corporation.

                    On  this  date   before  me,  the   undersigned   authority,
                    personally  came and appeared such person,  to me personally
                    known  and  known  by me  to be  the  person  whose  genuine
                    signature is affixed to the foregoing document as tile above
                    designated  officer of the corporation  specified  following
                    such person's  name,  who signed said document  before me in
                    the presence of the two  witnesses,  whose names are thereto
                    subscribed  as  such,  being  competent  witnesses,  and who
                    acknowledged,  in my presence  and in tile  presence of said
                    witnesses,  that he signed the above and foregoing  document
                    as his own free act and deed on behalf  of such  corporation
                    by authority  of its board of directors  and as the free act

                                      -8-


                    and deed of such  corporation  and for the uses and purposes
                    therein set forth and apparent.

     IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in the
City of Denver, Denver County, Colorado on the day and year first above written.
                                /s/ JAMES C. ROBERTSON
                               -------------------------------------------------
                               NOTARY PUBLIC, in and for the State of Colorado

                               James C. Robertson
My commission expires:         (printed name)
February 14, 2005
- ---------------------

[SEAL]

                                      -9-




     EXECUTED  this 16th day of April,  2003, to be  effective,  however,  as of
April 16th, 2003.

                                         NANCE PETROLEUM CORPORATION



                                         By:  /s/ ROBERT T. HANLEY
                                            ------------------------------------
                                              Robert T. Hanley
                                              Vice President and Treasurer



The address and tax identification number of Nance are:

550 North 31st Street, Suite 500
Billings, Montana 59101
(Yellowstone County)
Taxpayer ID. No. 8 1-0309883


STATE OF COLORADO                 ss.
                                  ss.
COUNTY OF DENVER                  ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby  certify  that, on this 16TH day of April,  2003, there
personally  appeared  before  me:  Robert  T.  Hanley,  the Vice  President  and
Treasurer of Nance Petroleum Corporation, a Montana corporation,  known to me to
be such officer, such corporation being a party to the foregoing instrument.

MONTANA,            The foregoing instrument was acknowledged before mc on this
NORTH DAKOTA,       day, by such person, the above designated officer of the
UTAH and WYOMING    corporation specified following such person's name, on
                    behalf of said corporation.

                    On  this  date   before  me,  the   undersigned   authority,
                    personally  came and appeared such person,  to me personally
                    known  and  known  by me  to be  the  person  whose  genuine
                    signature is affixed to the foregoing  document as the above
                    designated  officer of the corporation  specified  following
                    such person's  name,  who signed said document  before me in
                    the presence of the two  witnesses,  whose names are thereto
                    subscribed  as  such,  being  competent  witnesses,  and who
                    acknowledged,  in my  presence  and in the  presence of said
                    witnesses,  that he signed the above and foregoing  document
                    as his own free act and deed on behalf  of such  corporation
                    by authority  of its board of directors  and as the free act

                                      -10-


                    and deed of such  corporation  and for the uses and purposes
                    therein set forth and apparent.

     IN WITNESS  WHEREOF.  I have  hereunto set my hand and official seal in the
City of  Denver,  Denver  County,  Colorado,  on the day and  year  first  above
written.
                               /s/ JAMES C. ROBERTSON
                             ---------------------------------------------------
                             NOTARY PUBLIC, in and for the State of Colorado

                             James C. Robertson
My commission expires:       (printed name)
February 14, 2005
- ---------------------

[SEAL]

                                      -11-




     EXECUTED  this 16th day of April,  2003, to be  effective,  however,  as of
April 16th, 2003.

                                         ST. MARY MINERALS INC.



                                         By:  /s/ RICHARD C. NORRIS
                                             -----------------------------------
                                              Richard C. Norris
                                              Vice President - Finance




The address and tax identification number of Minerals are:

1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(Denver County)
Taxpayer ID. No. 84-12003 18


STATE OF COLORADO            ss.
                             ss.
COUNTY OF DENVER             ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby  certify  that, on this 16TH day of April,  2003, there
personally  appeared before me: Richard C. Norris,  the Vice President - Finance
of St.  Mary  Minerals  Inc.,  a  Colorado  corporation,  known to me to be such
officer, such corporation being a party to the foregoing instrument.

MONTANA,            The foregoing instrument was acknowledged before me on this
NORTH DAKOTA,       day, by such person, the above designated officer of the
UTAH and WYOMING    corporation specified following such person's name,on behalf
                    of said corporation.

                    On  this  date   before  me,  the   undersigned   authority,
                    personally  came and appeared such person,  to me personally
                    known  and  known  by me  to be  the  person  whose  genuine
                    signature is affixed to the foregoing  document as the above
                    designated  officer of the corporation  specified  following
                    such person's  name,  who signed said document  before me in
                    the presence of the two  witnesses,  whose names are thereto
                    subscribed  as  such,  being  competent  witnesses,  and who
                    acknowledged,  in my  presence  and in the  presence of said
                    witnesses,  that he signed the above and foregoing  document
                    as his own free act and deed on behalf  of such  corporation
                    by authority  of its board of directors  and as the free act

                                      -12-


                    and deed of such  corporation  and for the uses and purposes
                    therein set forth and apparent.

     IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in the
City of  Denver,  Denver  County,  Colorado,  on the day and  year  first  above
written.
                                  /s/ JAMES C. ROBERTSON
                                ------------------------------------------------
                                NOTARY PUBLIC, in and for the State of Colorado

                                James C. Robertson
My commission expires:          (printed name)
February 14, 2005
- ---------------------

[SEAL]

                                      -13-




     EXECUTED  this 16th day of April,  2003, to be  effective,  however,  as of
April 16th, 2003.

                                         ROSWELL, L.L.C.


                                         By:  St. Mary Land & Exploration
                                              Company, as Member

                                         By:  /s/ MILAM RANDOLPH PHARO
                                             -----------------------------------
                                              Milam Randolph Pharo
                                              Vice President - Land & Legal




The address and tax identification number of Roswell are:

1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(Denver County)
Taxpayer ID. No. 74-2788509


STATE OF COLORADO                 ss.
                                  ss.
COUNTY OF DENVER                  ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby  certify  that, on this 16th day of April,  2003, there
personally  appeared before me: Milam Randolph Pharo,  the Vice President - Land
& Legal of St Mary Land &  Exploration Company, a Delaware  corporation,
in its  capacity  as a member of  Roswell,  L.L.C.,  a Texas  limited  liability
company,  known to me to be such officer of such  corporation,  such corporation
acting in its  capacity  as  member  and on  behalf  of such  limited  liability
company,  and such  limited  liability  company  being a party to the  foregoing
instrument.

MONTANA,            The foregoing instrument was acknowledged before me on this
NORTH DAKOTA,       day, by such person,the above designated officer of St. Mary
UTAH and WYOMING    Land & Exploration Company acting in its capacity as
                    member of the limited liability company specified following
                    such person's name, on behalf of said corporation acting ill
                    its capacity as member of the limited liability company, and
                    on behalf of said limited liability company.

                    On  this  date   before  me,  the   undersigned   authority.
                    personally  came and appeared such person,  to me personally
                    known  and  known  by  me o be  tile  person  whose  genuine

                                      -14-


                    signature is affixed to the foregoing  document as the above
                    designated officer of the above mentioned corporation acting
                    in its capacity as member of the limited  liability  company
                    specified  following  such  person's  name,  who signed said
                    document  before me in the  presence  of the two  witnesses,
                    whose names are thereto  subscribed as such, being competent
                    witnesses,  and who acknowledged,  in my presence and in the
                    presence  of said  witnesses,  that he signed  the above and
                    foregoing document as his own free act and deed on behalf of
                    such  corporation  acting in its  capacity as member of such
                    limited  liability  company,  and on behalf of such  limited
                    liability  company,  by  authority of its board of directors
                    and by authority of its  members,  respectively,  and as the
                    free  act  and  deed  of  such  corporation,  acting  in its
                    capacity as member of such limited liability company, and of
                    such limited liability company and for the uses and purposes
                    therein set forth and apparent.

     IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in the
City of  Denver,  Denver  County,  Colorado,  on the day and  year  first  above
written.
                                  /s/ JAMES C. ROBERTSON
                                ------------------------------------------------
                                NOTARY PUBLIC, in and for the State of Colorado

                                James C. Robertson
My commission expires:            (printed name)
February 14, 2005
- ---------------------

[SEAL]


                                      -15-




     EXECUTED  this 16th day of April,  2003, to be  effective,  however,  as of
April 16th, 2003.

                                         ST. MARY OPERATING COMPANY


                                         By:  /s/ MILAM RANDOLPH PHARO
                                              ----------------------------------
                                              Milam Randolph Pharo
                                              Vice President - Land & Legal




The address and tax identification number of Operating are:

1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(Denver County)
Taxpayer ID. No. 84-0723492


STATE OF COLORADO                 ss.
                                  ss.
COUNTY OF DENVER                  ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby  certify  that, on this 16th day of April,  2003, there
personally  appeared before me: Milam Randolph Pharo,  the Vice President - Land
& Legal of St. Mary Operating Company, a Colorado  corporation,  known to me
to be such officer, such corporation being a party to the foregoing instrument.

MONTANA,            The foregoing  instrument  was acknowledge before me on this
NORTH DAKOTA,       day, by  such  person, the  above  designated officer of the
UTAH and WYOMING    corporation   specified  following  such  person's  name, on
                    behalf of said corporation.

                    On  this  date   before  me,  the   undersigned   authority,
                    personally  came and appeared such person,  to me personally
                    known  and  known  by me  to be  the  person  whose  genuine
                    signature is affixed to the foregoing  document as the above
                    designated  officer of the corporation  specified  following
                    such person's  name,  who signed said document  before me in
                    the presence of the two  witnesses,  whose names are thereto
                    subscribed  as  such,  being  competent  witnesses,  and who
                    acknowledged,  in my  presence  and in the  presence of said
                    witnesses,  that he signed the above and foregoing  document
                    as his own free act and deed on behalf  of such  corporation

                                      -16-


                    by authority  of its board of directors  and as the free act
                    and deed of such  corporation  and for the uses and purposes
                    therein set forth and apparent.

     IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in the
City of  Denver,  Denver  County,  Colorado,  on the day and  year  first  above
written.
                                 /s/ JAMES C. ROBERTSON
                               -------------------------------------------------
                               NOTARY PUBLIC, in and for the State of Colorado

                               James C. Robertson
My commission expires:           (printed name)
February 14, 2005
- ---------------------

[SEAL]

                                      -17-




     EXECUTED  this 16th day of April,  2003, to be  effective,  however,  as of
April 16, 2003.

                                         NPC INC.


                                         By:  /s/ ROBERT T. HANLEY
                                             -----------------------------------
                                               Robert T. Hanley
                                               Vice President and Treasurer




The address and tax identification number of Operating are:

1776 Lincoln Street, Suite 700
Denver, Colorado 80203
(Denver County)
Taxpayer ID. No. 84-0723492


STATE OF COLORADO                 ss.
CITY AND                          ss.
COUNTY OF DENVER                  ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby  certify that, on this 16th day of April,  2003,  there
personally  appeared  before  me:  Robert  T.  Hanley,  the Vice  President  and
Treasurer of NPC INC., a Colorado  corporation,  known to me to be such officer,
such corporation being a party to the foregoing instrument.

MONTANA,            The foregoing  instrument was acknowledged before me on this
NORTH DAKOTA,       day, by  such  person, the  above designated o fficer of the
UTAH and WYOMING    corporation  specified  following  such   person's  name, on
                    behalf of said corporation.

                    On  this  date   before  me,  the   undersigned   authority,
                    personally  came and appeared such person,  to me personally
                    known  and  known  by me  to be  the  person  whose  genuine
                    signature is affixed to the foregoing  document as the above
                    designated  officer of the corporation  specified  following
                    such person's  name,  who signed said document  before me in
                    the presence of the two  witnesses,  whose names are thereto
                    subscribed  as  such,  being  competent  witnesses,  and who
                    acknowledged,  in my  presence  and in the  presence of said
                    witnesses,  that he signed the above and foregoing  document
                    as his own free act and deed on behalf  of such  corporation
                    by authority  of its board of directors  and as the free act

                                      -18-


                    and deed of such  corporation  and for the uses and purposes
                    therein set forth and apparent.

     IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in the
City of  Denver,  Denver  County,  Colorado,  on the day and  year  first  above
written.
                                /s/ JAMES C. ROBERTSON
                              --------------------------------------------------
                               NOTARY PUBLIC, in and for the State of Colorado

                               James C. Robertson
My commission expires:          (printed name)

February 14, 2005

[SEAL]


                                      -19-





     EXECUTED  this 16th day of April,  2003, to be  effective,  however,  as of
April 16th, 2003.

                                         WACHOVIA BANK, NATIONAL
                                         ASSOCIATION, as Administrative Agent


                                         By:   /s/ PHILIP J. TRINDER
                                               ---------------------------------
                                         Name: Philip J. Trinder
                                         Title:Vice President




The address of Agent is:

201 South College Street
8th Floor NC 0680
Charlotte, North Carolina 28288


STATE OF TEXAS              ss.
                            ss.
COUNTY OF HARRIS            ss.

     BE IT REMEMBERED  THAT I, the undersigned  authority,  a notary public duly
qualified,  commissioned,  sworn  and  acting  in and for the  county  and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby  certify  that, on this 16th day of April,  2003, there
personally appeared before me: Philip J. Trinder, the Vice President of Wachovia
Bank, National  Association,  a national banking association,  known to me to be
such  officer,   such  banking  association  being  a  party  to  the  foregoing
instrument.

MONTANA,            The foregoing instrument was  acknowledged before me on this
NORTH DAKOTA,       day, by  such  person, the above designated  officer  of the
UTAH and WYOMING    banking association specified following  such person's name,
                    on behalf of said banking association.

                    On  this  date   before  me,  the   undersigned   authority,
                    personally  came and appeared such person,  to me personally
                    known  and  known  by me  to be  the  person  whose  genuine
                    signature is affixed to the foregoing  document as the above
                    designated  officer  of the  banking  association  specified
                    following  such  person's  name,  who signed  said  document
                    before me in the presence of the two witnesses,  whose names
                    are thereto  subscribed as such, being competent  witnesses,
                    and who acknowledged,  in my presence and in the presence of
                    said  witnesses,  that he signed  the  above  and  foregoing
                    document  as his own  free act and  deed on  behalf  of such

                                      -20-


                    banking  association  by authority of its board of directors
                    and as the free act and deed of such banking association and
                    for the uses and purposes therein set forth and apparent.

     IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in the
City of Houston, Harris County, Texas, on the day and year first above written.
                                 /s/ GLORIA D. SINGLETON
                                ------------------------------------------------
                                NOTARY PUBLIC, in and for the State of Texas
                                  Gloria D. Singleton
                                ------------------------------------------------
My commission expires:          (printed name)
9-12-03
- ---------------------

[SEAL]

                                      -21-

EX-10

                                                                   EXHIBIT 10.15

           SECOND SUPPLEMENT AND AMENDMENT TO DEED OF TRUST, MORTGAGE,
            LINE OF CREDIT MORTGAGE, ASSIGNMENT, SECURITY AGREEMENT,
                     FIXTURE FILING AND FINANCING STATEMENT

         THIS SECOND SUPPLEMENT AND AMENDMENT TO DEED OF TRUST,  MORTGAGE,  LINE
OF CREDIT MORTGAGE, ASSIGNMENT, SECURITY AGREEMENT, FIXTURE FILING AND FINANCING
STATEMENT (this  "Supplement") is entered into as of the effective time and date
hereinafter  stated (the  "Effective  Date") by ST. MARY LAND &  EXPLORATION
COMPANY ("Parent"),  a Delaware corporation (Taxpayer I.D. No. 41-0518430);  ST.
MARY ENERGY  COMPANY  ("Energy"),  a Delaware  corporation  (Taxpayer  I.D.  No.
76-0554924);  NANCE  PETROLEUM  CORPORATION  ("Nance"),  a  Montana  corporation
(Taxpayer I.D. No. 81-0309883);  ST. MARY MINERALS INC. ("Minerals"), a Colorado
corporation (Taxpayer I.D. No. 84-1200318); ROSWELL, L.L.C. ("Roswell"), a Texas
limited  liability company  (Taxpayer I.D. No.  74-2788509);  ST. MARY OPERATING
COMPANY ("Operating"), a Colorado corporation (Taxpayer I.D. No. 84-0723492) and
NPC INC. ("NPC"),  a Colorado  corporation  (Parent,  Energy,  Nance,  Minerals,
Roswell,  Operating and NPC being herein  individually and  collectively  called
"Mortgagor");  to Jay Chernosky,  as Trustee with respect to Property located in
the State of Texas, whose address for notice is 1001 Fannin Street,  Suite 2255,
Houston,  Texas 77002,  and First American Title Company of Utah, as Trustee for
Property located in the State of Utah, whose address for notice is 3300 East 400
South,  Salt Lake City,  Utah  84111,  in both cases for the benefit of WACHOVIA
BANK,  NATIONAL  ASSOCIATION,  as  Administrative  Agent (in such capacity,  the
"Agent") for the lenders (collectively,  the "Lenders") party to the hereinafter
defined Credit Agreement.

                                    RECITALS

         A. Parent,  the Agent and the Lenders  entered into that certain Credit
Agreement dated as of January 27, 2003, by and among Parent, the Agent, and each
of the  Lenders  (together  with all  amendments  or  modifications  thereof and
supplements thereto the "Credit Agreement").

         B. The  indebtedness  of the  Parent  under or in  connection  with the
Credit Agreement is secured by, among other things,  that certain Deed of Trust,
Mortgage,  Line of Credit  Mortgage,  Assignment,  Security  Agreement,  Fixture
Filing and Financing  Statement  dated January 27, 2003, from Mortgagor to Agent
(as  supplemented  and amended as of January 27,  2003,  and  together  with all
future supplements and amendments thereto, the "Mortgage").

         C. The  Mortgage  was duly  recorded  as set forth on Annex I  attached
hereto and made a part hereof for all purposes.

         D.  Mortgagor  hereby  desires  to  further  supplement  and  amend the
Mortgage  by adding to the  Mortgaged  Property  described  therein  and covered
thereby  all  rights,  titles,  interests  and  estates  now owned or  hereafter
acquired by Mortgagor in and to the properties described on Exhibit A-1 attached
hereto and made a part hereof for all purposes.

                                       -1-



         NOW,  THEREFORE,  for good and valuable  consideration  in hand paid by
Mortgagor  to Agent and in  consideration  of the debts and  trusts  hereinafter
mentioned,  the receipt and sufficiency of all of which is hereby  acknowledged,
Mortgagor and Agent do hereby agree as follows:

                                    ARTICLE I
                               Grant and Mortgage
                               ------------------

         Section  1.1  Mortgagor,  for  and in  consideration  of the sum of Ten
Dollars  ($10.00) to Mortgagor in hand paid,  and in order to secure the payment
of the secured  indebtedness  referred to in the Mortgage,  as supplemented  and
amended hereby, and the performance of the obligations,  covenants,  agreements,
warranties  and  undertakings  of  Mortgagor  described  in  the  Mortgage,   as
supplemented and amended hereby, does hereby (a) GRANT,  BARGAIN,  SELL, CONVEY,
TRANSFER,  ASSIGN AND SET OVER to Jay  Chernosky,  as Trustee  ("Trustee"),  and
grant to Trustee a POWER OF SALE (pursuant to the Mortgage,  as supplemented and
amended  hereby,  and  applicable  law) with respect to, those of the  following
described  properties,  rights  and  interests  which are  located  in (or cover
properties located in) the State of Utah and to which the laws of any such state
are applicable with respect to the Mortgage, as supplemented and amended hereby,
and/or the liens or security  interests  created hereby (the "Additional Deed of
Trust Mortgaged  Properties"),  and (b) MORTGAGE,  ASSIGN,  WARRANT,  PLEDGE AND
HYPOTHECATE  to  Agent,  and  grant to Agent a POWER  OF SALE  (pursuant  to the
Mortgage,  as supplemented and amended hereby,  and applicable law) with respect
to, all of the following  described rights,  interests and properties which were
not granted to Trustee in clause (a) above (including, without limitation, those
of the following described properties, rights and interests which are located in
(or cover properties located in ) the States of Montana, North Dakota or Wyoming
and to which  the laws of any such  state are  applicable  with  respect  to the
Mortgage,  as  supplemented  and  amended  hereby,  and/or the liens or security
interests created hereby) (the "Additional Other Mortgaged Properties"):

               A.  The  oil,  gas  and/or  other  mineral  properties,   mineral
servitudes,  and/or  mineral  rights which are described in Exhibit A-1 attached
hereto and made a part hereof;

               B. Without  limitation of the foregoing,  all other right,  title
and interest of Mortgagor  of whatever  kind or character  (whether now owned or
hereafter  acquired by operation of law or otherwise) in and to (i) the oil, gas
and/or mineral leases or other agreements  described in Exhibit A-1 hereto, (ii)
the lands  described  or referred to in Exhibit A-1 (or  described in any of the
instruments  described  or referred to in Exhibit  A-1),  without  regard to any
limitations  as to specific lands or depths that may be set forth in Exhibit A-1
hereto or in any of the leases or other  agreements  described  in  Exhibit  A-1
hereto and (iii) any other lands (including submerged lands) located anywhere in
the United States of America;

               C. All of  Mortgagor's  interest  (whether now owned or hereafter
acquired by operation of law or otherwise) in and to all presently  existing and
hereafter   created  oil,  gas  and/or  mineral   unitization,   pooling  and/or
communitization  agreements,  declarations  and/or  orders,  and  in  and to the
properties,   rights  and  interests  covered  and  the  units  created  thereby
(including, without limitation, units formed under orders, rules, regulations or

                                      -2-


other  official  acts  of  any  federal,   state  or  other   authority   having
jurisdiction), which cover, affect or otherwise relate to the properties, rights
and interests described in clause A or B above;

               D. All of  Mortgagor's  interest in and rights under (whether now
owned or  hereafter  acquired by operation of law or  otherwise)  all  presently
existing  and  hereafter   created  operating   agreements,   equipment  leases,
production sales contracts,  processing agreements,  transportation  agreements,
gas balancing agreements, farmout and/or farm-in agreements, salt water disposal
agreements,  area of mutual  interest  agreements,  and other  contracts  and/or
agreements which cover,  affect,  or otherwise relate to the properties,  rights
and  interests  described in clause A, B or C above or to the  operation of such
properties,  rights  and  interests  or  to  the  treating,  handling,  storing,
processing,  transporting or marketing of oil, gas, other hydrocarbons, or other
minerals  produced from (or allocated to) such properties,  rights and interests
(including,  but not limited to, those contracts  listed in Exhibit A-1 hereto),
as same may be amended or supplemented from time to time;

               E. All of  Mortgagor's  interest  (whether now owned or hereafter
acquired by operation of law or otherwise) in and to all improvements, fixtures,
movable  or  immovable   property  and  other  real  and/or  personal   property
(including,  without limitation,  all wells, pumping units,  wellhead equipment,
tanks, pipelines, flow lines, gathering lines,  compressors,  dehydration units,
separators,   meters,  buildings,  injection  facilities,  salt  water  disposal
facilities,  and power,  telephone  and  telegraph  lines),  and all  easements,
servitudes,  rights-of-way,  surface leases, licenses, permits and other surface
rights, which are now or hereafter used, or held for use, in connection with the
properties,  rights and  interests  described  in clause A, B or C above,  or in
connection with the operation of such  properties,  rights and interests,  or in
connection with the treating,  handling,  storing,  processing,  transporting or
marketing of oil, gas, other  hydrocarbons,  or other minerals produced from (or
allocated to) such properties, rights and interests; and

               F. All rights,  estates, powers and privileges appurtenant to the
foregoing rights, interests and properties.

         TO  HAVE  AND TO HOLD  (a)  the  Additional  Deed  of  Trust  Mortgaged
Properties  unto the Trustee,  and its  successors or substitutes in this trust,
and to its or their successors and assigns, in trust,  however,  upon the terms,
provisions  and  conditions  herein  set  forth,  and (b) the  Additional  Other
Mortgaged  Properties unto Agent, and Agent's  successors and assigns,  upon the
terms,  provisions and conditions herein set forth (the Additional Deed of Trust
Mortgaged  Properties and the Additional  Other Mortgaged  Properties are herein
sometimes collectively called the "Additional Mortgaged Properties").

         Section 1.2 Mortgagor  hereby confirms that it has heretofore  granted,
bargained,   sold,  conveyed,   transferred,   assigned,  set  over,  mortgaged,
warranted,  pledged  and  hypothecated  to the  Agent,  and  granted a  security
interest to the Agent in, the "Property" (as such term is amended  hereby),  and
Mortgagor hereby further grants, bargains, sells, conveys,  transfers,  assigns,
sets over, mortgages,  warrants, pledges and hypothecates to Agent, and grants a
security  interest  to Agent  in,  the  Property,  to  secure  the  payment  and
performance of the "secured indebtedness" (as defined in the Mortgage).

                                      -3-


         Section 1.3 Mortgagor hereby confirms that it has heretofore absolutely
and  unconditionally  assigned,   transferred  and  set  over  and  does  hereby
absolutely  and  unconditionally  assign,  transfer  and set over to Agent,  its
successors and assigns, all of the "Production" (as defined in the Mortgage,  as
supplemented  and amended  hereby) which accrues to Mortgagor's  interest in the
"Mortgaged  Properties"  (as such term is amended  hereby),  and all "Production
Proceeds"  (as defined in the Mortgage,  as  supplemented  and amended  hereby),
together with the immediate and continuing right to collect and receive all such
Production Proceeds.

                                   ARTICLE II
                             Definitions; References
                             -----------------------

         Section 2.1 All  capitalized  terms used but not defined  herein  shall
have the meanings  assigned to such terms in the Mortgage,  as supplemented  and
amended hereby.

         Section 2.2 All  references  in the Mortgage to "this  Mortgage"  shall
mean the Mortgage as  supplemented  and amended  hereby and as the same may from
time to time be further amended or supplemented.

         Section 2.3 All  references in the Mortgage to  "Mortgaged  Properties"
are  hereby  supplemented  and  amended  to  include  the  Additional  Mortgaged
Properties as defined and described in this  Supplement as if reference  thereto
were  fully made in the  Mortgage  at the time the  Mortgage  was  executed  and
recorded.

         Section 2.4 All  references  in the Mortgage to  "Property"  are hereby
supplemented  and  amended to include the  Additional  Mortgaged  Properties  as
defined and described in this Supplement as if reference thereto were fully made
in the Mortgage at the time the Mortgage was executed and recorded.

         Section 2.5 All  references  in the Mortgage to "Schedule I" are hereby
amended and supplemented to include the Wells described on Schedule I-A attached
to this  Supplement  as if reference  thereto were fully made in the Mortgage at
the time the Mortgage was executed.

         Section 2.6 All  references  in the  Mortgage to "Schedule I Wells" are
hereby amended and  supplemented  to include the Wells described on Schedule I-A
attached  to this  Supplement  as if  reference  thereto  were fully made in the
Mortgage at the time the Mortgage was executed.

                                   ARTICLE III
                                  Miscellaneous
                                  -------------

         Section 3.1 The parties hereto hereby acknowledge and agree that except
as specifically  amended,  changed or modified hereby, the Mortgage shall remain
in full  force and effect in  accordance  with its  terms.  None of the  rights,
titles  and  interests  existing  and to exist  under the  Mortgage  are  hereby
released,  diminished or impaired, and Mortgagor hereby reaffirms all covenants,
representations and warranties made in the Mortgage.

         Section 3.2 This  Supplement  may be executed in several  counterparts,
all of which are identical, except that, (a) to facilitate recordation,  certain
counterparts  hereof may include only that  portion of Exhibit A which  contains

                                      -4-


descriptions of the properties located in (or otherwise subject to the recording
or filing  requirements  and/or  protections  of the recording or filing acts or
regulations of) the recording  jurisdiction in which the particular  counterpart
is to be recorded,  and other  portions of Exhibit A-I shall be included in such
counterparts  by reference  only and (b)  Schedule  I-A is attached  only to the
master counterparts hereof being retained by Mortgagor and Agent.




                          [SIGNATURES BEGIN NEXT PAGE]

                                      -5-




         EXECUTED this 16th day of April, 2003, to be effective,  however, as of
April 16th, 2003.

                                           ST. MARY LAND & EXPLORATION
                                           COMPANY


                                           By: /s/ MILAM RANDOLPH PHARO
                                              ----------------------------------
                                               Milam Randolph Pharo
                                               Vice President - Land & Legal






The address and tax identification number of Parent are:

1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(Denver County)
Taxpayer ID. No. 41-05 18430

The  address of Agent is:
201 South College Street
8th Floor NC 0680
Charlotte, NC 28288

The addresses of Trustees are:
Jay Chernosky
1001 Fannin Street, Suite 2255
Houston, Texas 77002

The First American Title Company of Utah
3300 East 400 South
Salt Lake City, Utah 84111

This instrument prepared by:
Craig W. Murray
Vinson & Elkins L.L.P.
1001 Fannin, Suite 2300
Houston, TX  77002

                                      -6-






STATE OF COLORADO                 ss.
                                  ss.
COUNTY OF DENVER                  ss.

         BE IT REMEMBERED  THAT I, the  undersigned  authority,  a notary public
duly qualified,  commissioned,  sworn and acting in and for the county and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby  certify that, on this 16th day of April,  2003,  THERE
personally  appeared before me: Milam Randolph Pharo,  the Vice President - Land
& Legal of St. Mary Land &  Exploration Company, a Delaware corporation,
known to me to be such officer,  such corporation being a party to the foregoing
instrument.

MONTANA,          The  foregoing instrument  was acknowledged before  me on this
NORTH DAKOTA,     day, by  such  person, the  above  designated officer  of  the
UTAH and WYOMING  corporation   specified   following  such  person's  name,  on
                  behalf of said corporation.

                  On this date before me, the undersigned authority, personally
                  came and appeared  such  person,  to me  personally  known and
                  known  by me to be  the  person  whose  genuine  signature  is
                  affixed  to the  foregoing  document  as the above  designated
                  officer of the corporation  specified  following such person's
                  name,  who signed said  document  before me in the presence of
                  the two witnesses, whose names are thereto subscribed as such,
                  being  competent  witnesses,  and  who  acknowledged,   in  my
                  presence and in the presence of said witnesses, that he signed
                  the above and foregoing  document as his own free act and deed
                  on behalf of such  corporation  by  authority  of its board of
                  directors and as the free act and deed of such corporation and
                  for the uses and purposes therein set forth and apparent.

         IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in
the City of Denver,  Denver  County,  Colorado  on the day and year first  above
written.
                                /s/ JAMES C. ROBERTSON
                               -------------------------------------------------
                               NOTARY PUBLIC, in and for the State of Colorado

                               James C. Robertson
My commission expires:         (printed name)
February 14, 2005
- ---------------------

[SEAL]


                                      -7-




         EXECUTED this 16th day of April, 2003, to be effective,  however, as of
April ____, 2003.

                                           ST. MARY ENERGY COMPANY



                                           By: /s/ MILAM RANDOLPH PHARO
                                              ----------------------------------
                                               Milam Randolph Pharo
                                               Vice President - Land & Legal



The address and tax identification number of Energy are:

1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(Denver County)
Taxpayer ID. No. 76-0554924


STATE OF COLORADO            ss.
                             ss.
COUNTY OF DENVER             ss.

         BE IT REMEMBERED  THAT I, the  undersigned  authority,  a notary public
duly qualified,  commissioned,  sworn and acting in and for the county and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby  certify  that, on this 16th day of April,  2003, there
personally  appeared before me: Milam Randolph Pharo,  the Vice President - Land
& Legal of St. Mary Energy Company, a Delaware  corporation,  known to me to
be such officer, such corporation being a party to the foregoing instrument.

MONTANA,          The foregoing  instrument was acknowledged  before  me on this
NORTH DAKOTA,     day, by  such  person,  the  above designated  officer  of the
UTAH AND WYOMING  corporation specified following such  person's name, on behalf
                  of said corporation.

                  On this date before me, the undersigned authority,  personally
                  came and appeared  such  person,  to me  personally  known and
                  known  by me to be  the  person  whose  genuine  signature  is
                  affixed to the  foregoing  document  as tile above  designated
                  officer of the corporation  specified  following such person's
                  name,  who signed said  document  before me in the presence of
                  the two witnesses, whose names are thereto subscribed as such,
                  being  competent  witnesses,  and  who  acknowledged,   in  my
                  presence  and in  tile  presence  of said  witnesses,  that he
                  signed the above and  foregoing  document  as his own free act
                  and deed on behalf of such  corporation  by  authority  of its
                  board  of  directors  and as the  free  act  and  deed of such

                                      -8-

                  corporation  and for the uses and  purposes  therein set forth
                  and apparent.

         IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in
the City of Denver,  Denver  County,  Colorado  on the day and year first  above
written.
                                   /s/ JAMES C. ROBERTSON
                                 -----------------------------------------------
                                 NOTARY PUBLIC, in and for the State of Colorado

                                 James C. Robertson
My commission expires:           (printed name)
February 14, 2005
- ---------------------

[SEAL]

                                      -9-




         EXECUTED this 16th day of April, 2003, to be effective, however,  as of
April 16th, 2003.

                                           NANCE PETROLEUM CORPORATION



                                           By: /s/ ROBERT T. HANLEY
                                              ----------------------------------
                                               Robert T. Hanley
                                               Vice President and Treasurer



The address and tax identification number of Nance are:

550 North 31st Street, Suite 500
Billings, Montana 59101
(Yellowstone County)
Taxpayer ID. No. 8 1-0309883


STATE OF COLORADO         ss.
                          ss.
COUNTY OF DENVER          ss.

         BE IT REMEMBERED  THAT I, the  undersigned  authority,  a notary public
duly qualified,  commissioned,  sworn and acting in and for the county and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby  certify  that, on this 16th day of April,  2003, there
personally  appeared  before  me:  Robert  T.  Hanley,  the Vice  President  and
Treasurer of Nance Petroleum Corporation, a Montana corporation,  known to me to
be such officer, such corporation being a party to the foregoing instrument.

MONTANA,          The foregoing  instrument was  acknowledged before  mc on this
NORTH DAKOTA,     day, by  such  person, the  above  designated  officer of  the
UTAH and WYOMING  corporation specified following  such person's name, on behalf
                  of said corporation.

                  On this date before me, the undersigned authority,  personally
                  came and appeared  such  person,  to me  personally  known and
                  known  by me to be  the  person  whose  genuine  signature  is
                  affixed  to the  foregoing  document  as the above  designated
                  officer of the corporation  specified  following such person's
                  name,  who signed said  document  before me in the presence of
                  the two witnesses, whose names are thereto subscribed as such,
                  being  competent  witnesses,  and  who  acknowledged,   in  my
                  presence and in the presence of said witnesses, that he signed
                  the above and foregoing  document as his own free act and deed

                                      -10-

                  on behalf of such  corporation  by  authority  of its board of
                  directors and as the free act and deed of such corporation and
                  for the uses and purposes therein set forth and apparent.

         IN WITNESS  WHEREOF.  I have  hereunto set my hand and official seal in
the City of Denver,  Denver  County,  Colorado,  on the day and year first above
written.
                                   /s/ JAMES C. ROBERTSON
                                 -----------------------------------------------
                                 NOTARY PUBLIC, in and for the State of Colorado

                                 James C. Robertson
My commission expires:           (printed name)
February 14, 2005
- ---------------------

[SEAL]

                                      -11-




         EXECUTED this 16th day of April, 2003, to be effective,  however, as of
April 16th, 2003.

                                           ST. MARY MINERALS INC.



                                           By:  /s/ RICHARD C. NORRS
                                               ---------------------------------
                                               Richard C. Norris
                                               Vice President - Finance




The address and tax identification number of Minerals are:

1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(Denver County)
Taxpayer ID. No. 84-12003 18


STATE OF COLORADO            ss.
                             ss.
COUNTY OF DENVER             ss.

         BE IT REMEMBERED  THAT I, the  undersigned  authority,  a notary public
duly qualified,  commissioned,  sworn and acting in and for the county and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby  certify  that, on this 16th day of April,  2003, there
personally  appeared before me: Richard C. Norris,  the Vice President - Finance
of St.  Mary  Minerals  Inc.,  a  Colorado  corporation,  known to me to be such
officer, such corporation being a party to the foregoing instrument.

MONTANA,          The foregoing  instrument  was acknowledged before  me on this
NORTH DAKOTA,     day, by  such  person, the  above  designated  officer  of the
UTAH and WYOMING  corporation specified following such  person's name, on behalf
                  of said corporation.

                  On this date before me, the undersigned authority,  personally
                  came and appeared  such  person,  to me  personally  known and
                  known  by me to be  the  person  whose  genuine  signature  is
                  affixed  to the  foregoing  document  as the above  designated
                  officer of the corporation  specified  following such person's
                  name,  who signed said  document  before me in the presence of
                  the two witnesses, whose names are thereto subscribed as such,
                  being  competent  witnesses,  and  who  acknowledged,   in  my
                  presence and in the presence of said witnesses, that he signed
                  the above and foregoing  document as his own free act and deed
                  on behalf of such  corporation  by  authority  of its board of
                  directors and as the free act and deed of such corporation and

                                      -12-


                  for the uses and purposes therein set forth and apparent.

         IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in
the City of Denver,  Denver  County,  Colorado,  on the day and year first above
written.
                                   /s/ JAMES C. ROBERTSON
                                 -----------------------------------------------
                                 NOTARY PUBLIC, in and for the State of Colorado

                                 James C. Robertson
My commission expires:           (printed name)
February 14, 2005
- ---------------------

[SEAL]

                                      -13-




         EXECUTED this 16th day of April, 2003, to be effective,  however, as of
April 16th, 2003.

                                           ROSWELL, L.L.C.


                                           By: St. Mary Land & Exploration
                                               Company, as Member

                                           By: /s/ MILAM RANDOLPH PHARO
                                              ----------------------------------
                                               Milam Randolph Pharo
                                               Vice President - Land & Legal




The address and tax identification number of Roswell are:

1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(Denver County)
Taxpayer ID. No. 74-2788509


STATE OF COLORADO          ss.
                           ss.
COUNTY OF DENVER           ss.

         BE IT REMEMBERED  THAT I, the  undersigned  authority,  a notary public
duly qualified,  commissioned,  sworn and acting in and for the county and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby  certify  that, on this 16th day of April,  2003, there
personally  appeared before me: Milam Randolph Pharo,  the Vice President - Land
& Legal of St Mary Land &  Exploration Company, a Delaware  corporation,
in its  capacity  as a member of  Roswell,  L.L.C.,  a Texas  limited  liability
company,  known to me to be such officer of such  corporation,  such corporation
acting in its  capacity  as  member  and on  behalf  of such  limited  liability
company,  and such  limited  liability  company  being a party to the  foregoing
instrument.

MONTANA,          The foregoing  instrument was  acknowledged  before me on this
NORTH DAKOTA,     day, by such person, the above designated officer of  St. Mary
UTAH and WYOMING  Land &  Exploration  Company  acting in  its  capacity  as
                  member of the  limited liability  company specified  following
                  such  person's name, on behalf  of said corporation acting ill
                  its capacity  as member of  the limited liability company, and
                  on behalf of said limited liability company.

                  On this date before me, the undersigned authority.  personally
                  came and appeared  such  person,  to me  personally  known and
                  known  by me o be  tile  person  whose  genuine  signature  is

                                      -14-

                  affixed  to the  foregoing  document  as the above  designated
                  officer  of the  above  mentioned  corporation  acting  in its
                  capacity as member of the limited  liability company specified
                  following such person's name, who signed said document  before
                  me in the  presence  of the two  witnesses,  whose  names  are
                  thereto subscribed as such, being competent witnesses, and who
                  acknowledged,  in my  presence  and in the  presence  of  said
                  witnesses,  that he signed the above and foregoing document as
                  his own free act and deed on behalf of such corporation acting
                  in its capacity as member of such limited  liability  company,
                  and on behalf of such limited liability company,  by authority
                  of its board of  directors  and by  authority  of its members,
                  respectively,   and  as  the   free   act  and  deed  of  such
                  corporation,  acting in its capacity as member of such limited
                  liability  company,  and of such limited liability company and
                  for the uses and purposes therein set forth and apparent.

         IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in
the City of Denver,  Denver  County,  Colorado,  on the day and year first above
written.
                                   /s/ JAMES C. ROBERTSON
                                 -----------------------------------------------
                                 NOTARY PUBLIC, in and for the State of Colorado

                                 James C. Robertson
My commission expires:             (printed name)
February 14, 2005
- ---------------------

[SEAL]


                                      -15-




         EXECUTED this 16th day of April, 2003, to be effective,  however, as of
April 16th, 2003.

                                           ST. MARY OPERATING COMPANY


                                           By:  /s/ MILAM RANDOLPH PHARO
                                               ---------------------------------
                                               Milam Randolph Pharo
                                               Vice President - Land & Legal




The address and tax identification number of Operating are:

1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(Denver County)
Taxpayer ID. No. 84-0723492


STATE OF COLORADO                 ss.
                                  ss.
COUNTY OF DENVER                  ss.

         BE IT REMEMBERED  THAT I, the  undersigned  authority,  a notary public
duly qualified,  commissioned,  sworn and acting in and for the county and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby  certify  that, on this 16th day of April,  2003, there
personally  appeared before me: Milam Randolph Pharo,  the Vice President - Land
& Legal of St. Mary Operating Company, a Colorado  corporation,  known to me
to be such officer, such corporation being a party to the foregoing instrument.

MONTANA,          The foregoing  instrument was  acknowledged before  me on this
NORTH DAKOTA,     day, by  such  person, the  above  designated  officer  of the
UTAH and WYOMING  corporation specified  following such person's name, on behalf
                  of said corporation.

                  On this date before me, the undersigned authority,  personally
                  came and appeared  such  person,  to me  personally  known and
                  known  by me to be  the  person  whose  genuine  signature  is
                  affixed  to the  foregoing  document  as the above  designated
                  officer of the corporation  specified  following such person's
                  name,  who signed said  document  before me in the presence of
                  the two witnesses, whose names are thereto subscribed as such,
                  being  competent  witnesses,  and  who  acknowledged,   in  my
                  presence and in the presence of said witnesses, that he signed
                  the above and foregoing  document as his own free act and deed
                  on behalf of such  corporation  by  authority  of its board of
                  directors and as the free act and deed of such corporation and

                                      -16-


                  for the uses and purposes therein set forth and apparent.

         IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in
the City of Denver,  Denver  County,  Colorado,  on the day and year first above
written.
                                  /s/ JAMES C. ROBERTSON
                                 -----------------------------------------------
                                 NOTARY PUBLIC, in and for the State of Colorado

                                 James C. Robertson
My commission expires:            (printed name)
February 14, 2005
- ---------------------

[SEAL]

                                      -17-




         EXECUTED this 16th day of April, 2003, to be effective,  however, as of
April 16, 2003.

                                           NPC INC.


                                           By:  /s/ ROBERT T. HANLEY
                                               ---------------------------------
                                               Robert T. Hanley
                                               Vice President and Treasurer




The address and tax identification number of Operating are:

1776 Lincoln Street, Suite 700
Denver, Colorado 80203
(Denver County)
Taxpayer ID. No. 84-0723492


STATE OF COLORADO                 ss.
CITY AND                          ss.
COUNTY OF DENVER                  ss.

         BE IT REMEMBERED  THAT I, the  undersigned  authority,  a notary public
duly qualified,  commissioned,  sworn and acting in and for the county and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby  certify that, on this 16th day of April,  2003,  there
personally  appeared  before  me:  Robert  T.  Hanley,  the Vice  President  and
Treasurer of NPC INC., a Colorado  corporation,  known to me to be such officer,
such corporation being a party to the foregoing instrument.

MONTANA,          The  foregoing instrument  was acknowledged  before me on this
NORTH DAKOTA,     day, by  such person, the  above  designated  officer  of  the
UTAH and WYOMING  corporation specified following such person's name, on behalf
                  of said corporation.

                  On this date before me, the undersigned authority,  personally
                  came and appeared  such  person,  to me  personally  known and
                  known  by me to be  the  person  whose  genuine  signature  is
                  affixed  to the  foregoing  document  as the above  designated
                  officer of the corporation  specified  following such person's
                  name,  who signed said  document  before me in the presence of
                  the two witnesses, whose names are thereto subscribed as such,
                  being  competent  witnesses,  and  who  acknowledged,   in  my
                  presence and in the presence of said witnesses, that he signed
                  the above and foregoing  document as his own free act and deed
                  on behalf of such  corporation  by  authority  of its board of
                  directors and as the free act and deed of such corporation and

                                      -18-

                  for the uses and purposes therein set forth and apparent.

         IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in
the City of Denver,  Denver  County,  Colorado,  on the day and year first above
written.
                                  /s/ JAMES C. ROBERTSON
                                ------------------------------------------------
                                 NOTARY PUBLIC, in and for the State of Colorado

                                 James C. Robertson
My commission expires:            (printed name)

February 14, 2005
- ---------------------
[SEAL]


                                      -19-





         EXECUTED this 16th day of April, 2003, to be effective,  however, as of
April 16th, 2003.

                                           WACHOVIA BANK, NATIONAL
                                           ASSOCIATION, as Administrative Agent


                                           By:  /s/ PHILIP J. TRINDER
                                               ---------------------------------
                                           Name: Philip J. Trinder
                                           Title:Vice President




The address of Agent is:

201 South College Street
8th Floor NC 0680
Charlotte, North Carolina 28288


STATE OF TEXAS              ss.
                            ss.
COUNTY OF HARRIS            ss.

         BE IT REMEMBERED  THAT I, the  undersigned  authority,  a notary public
duly qualified,  commissioned,  sworn and acting in and for the county and state
aforesaid,   and   being   authorized   in  such   county   and  state  to  take
acknowledgments,  hereby  certify  that, on this 16th day of April,  2003, there
personally appeared before me: Philip J. Trinder, the Vice President of Wachovia
Bank, National  Association,  a national banking association,  known to me to be
such  officer,   such  banking  association  being  a  party  to  the  foregoing
instrument.

MONTANA,          The foregoing  instrument was  acknowledged before  me on this
NORTH DAKOTA,     day, by  such  person, the  above  designated  officer of  the
UTAH and WYOMING  banking association specified following such person's name, on
                  behalf of said banking association.

                  On this date before me, the undersigned authority,  personally
                  came and appeared  such  person,  to me  personally  known and
                  known  by me to be  the  person  whose  genuine  signature  is
                  affixed  to the  foregoing  document  as the above  designated
                  officer of the banking  association  specified  following such
                  person's  name,  who  signed  said  document  before me in the
                  presence  of  the  two  witnesses,  whose  names  are  thereto
                  subscribed  as  such,  being  competent  witnesses,   and  who
                  acknowledged,  in my  presence  and in the  presence  of  said
                  witnesses,  that he signed the above and foregoing document as
                  his  own  free  act  and  deed  on  behalf  of  such   banking
                  association  by authority of its board of directors and as the
                  free act and deed of such banking association and for the uses

                                      -20-


                  and purposes therein set forth and apparent.

         IN WITNESS  WHEREOF,  I have  hereunto set my hand and official seal in
the City of  Houston,  Harris  County,  Texas,  on the day and year first  above
written.
                                     /s/ GLORIA D. SINGLETON
                                    --------------------------------------------
                                    NOTARY PUBLIC, in and for the State of Texas
                                     Gloria D. Singleton
                                    --------------------------------------------
My commission expires:              (printed name)
9-12-03
- ---------------------

[SEAL]

                                      -21-

EX-31

                                                                    EXHIBIT 31.1

                                  CERTIFICATION

I, Mark A. Hellerstein, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of St. Mary Land &
     Exploration Company;

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

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

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

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

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

     (c)  Disclosed in this report any change in the registrant's internal
          control over financial reporting that occurred during the registrant's
          most recent fiscal quarter that has materially affected, or is
          reasonably likely to materially affect, the registrant's internal
          control over financial reporting; and

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

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

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


Date:  August 12, 2003
/s/ MARK A. HELLERSTEIN
- -----------------------
Mark A. Hellerstein
Chief Executive Officer

EX-31

                                                                    EXHIBIT 31.2

                                  CERTIFICATION

I, David W. Honeyfield, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of St. Mary Land &
     Exploration Company;

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

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

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

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

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

     (c)  Disclosed in this report any change in the registrant's internal
          control over financial reporting that occurred during the registrant's
          most recent fiscal quarter that has materially affected, or is
          reasonably likely to materially affect, the registrant's internal
          control over financial reporting; and

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

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

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


Date:  August 12, 2003
/s/ DAVID W. HONEYFIELD
- -----------------------
David W. Honeyfield
Vice President - Finance

EX-32

                                                                    EXHIBIT 32.1

                                  CERTIFICATION
                                   PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


     In connection with the Quarterly Report on Form 10-Q of St. Mary Land &
Exploration Company (the "Company") for the quarterly period ended June 30, 2003
as filed with the Securities and Exchange Commission on the date hereof (the
"Report"), Mark A. Hellerstein, as Chief Executive Officer of the Company, and
David W. Honeyfield, as Vice President - Finance of the Company, each hereby
certifies, pursuant to and solely for the purpose of 18 U.S.C. ss. 1350, as
adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, to the best of
his knowledge and belief, that:

     (1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

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



/s/ MARK A. HELLERSTEIN
- -----------------------
Mark A. Hellerstein
Chief Executive Officer
August 12, 2003


/s/ DAVID W. HONEYFIELD
- -----------------------
David W. Honeyfield
Vice President - Finance
(principal financial officer)
August 12, 2003