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R E C E I V E D Mr. J . Rogers Pearcy U. S. Departmrnt o f t he I n t e r i o r e^p o-j jgcjg M i n e r a l s Management S e r v i c e

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R e ? i o n Minerals Management Service 1420 S. Clearv iew Parkway . . _6 . ' New Or leans , LA 70123 Uasing & Environment

Re: Lease Nos. OCS-G 4897 and 4479

Dear Mr. Pearcy:

Enclosed please f i n d an o r i g i n a l act of Coll a t e r a l Mortgage, Pledge and Assignment of Production executed by H. G. Kuntz, dated September 16, 1986, which affects interests of H. G. Kuntz i n the captioned leases.

The address f o r H. G. Kuntz i s 101 Fannin Street, Suite 1400, Houston, Texas 77002.

In order that t h i r d parties w i l l be put on notice as to the execution and ef f i c a c y of the enclosed act, please f i l e the o r i g i n a l act i n the appropriate mortgage f i l e of your o f f i c e and place an o r i g i n a l of t h i s l e t t e r i n Lease F i l e No. OCS-G 4897 and also i n Lease F i l e No. OCS-G 4479.

Enclosed you w i l l f i n d a check i n the amount of S50.00 in payment of your f i l i n g fees. Please acknowledge tha- the foregoing f i l i n g has been completed as requested by signing a

THESE DOCUMENTS WILL BE FOUND AT MORTGAGE FILE M- U O 7 ?

Mr. J. Rogers Pearcy U. S. Department of the I n t e r i o r Minerals Management Service Gulf of Mexico OCS Region September 19, 1986

counterpart of th i s l e t t e r i n the space provided below and returning a copy of t h i s l e t t e r to the undersigned.

WBB/tlh Encls.

FILED AND ACCOMPLISHED AS REQUESTED:

MINERALS MANAGEMENT SERVICE GULF OF MEXICO OCS REGION

Very t r u l y yours,

Wm. Blake Bennett

BY:,

DATE : SepMrnber 23, 1986

RECEIVED

SEP 2 3 1986

Minerals Management Service Leasing A Environment

STATE OF TEXAS

COUNTY OF HARRIS

COLLATERAL MORTGAGE, PLEDGE AND ASSIGNMENT CF PRODUCTION

BE KNOWN

1986,

, that on t h i s / / ^ ' day of v 'j'/;/'///('/ ',

BEFORE ME, the undersigned Notary Public, duly

commissioned and q u a l i f i e d i n and for the County and State

aforesaid, and i n the presence of the undersigned competent

witnesses,

RECEIVED PERSONALLY CAME AND APPEARED: C (- D 0 o 1 Q o r

oer C o .300 H. G. KUNTZ ("Mortgagor"), being of the f u l l age of m a j o r i t y , declared that he Minerals Management Service i s a s ingle man, Leasing & Environment

v/ho, being duly sworn, d i d declare and say that Mortgagor

i s j u s t l y and t r u l y indebted unto any future holder or

holders of the Note (as hereinafter defined), i n the

p r i n c i p a l sum of $1,000,000.00. To evidence such

indebtedness. Mortgagor has executed one cer t a i n c o l l a t e r a l

mortgage note for the p r i n c i p a l sum of $1,000,000.00, of even

date herewith, made payable to Bearer, due on demand at the

o f f i c e s of Cullen Center Bank & Trust, 600 Jefferson at

Smith, Houston, Texas 77002, and bearing i n t e r e s t at the rate

of twelve percent (12%) per annum from the date thereof u n t i l

paid, and twenty-five percent (25%) attorney's fees

(hereinafter referred to as the "Note"), which Note, a f t e r

having been paraphed "Ne Varietur" by me, said Notary Public,

f o r i d e n t i f i c a t i o n with t h i s instrument (hereinafter referred

to as the "Mortgage"), was delivered to Mortgagor who hereby

acknowledges receipt thereof.

Mortgagor further declared that the Note i s given

and t h i s Mortgage i s granted f o r the purpose of being used

as c o l l a t e r a l security by Mortgagor to secure any l i a b i l i t y ,

ii.uebtednesa or ob l i g a t i o n due any future holder or holders

of the Note, direct or con'-ingent. The Note may be issued

and re-issued by Mortgagor as i t s i n t e r e s t and convenience

may require to secure loans and advances made or to be made

or to secure the debt of Mortgagor or of any t h i r d party.

Upon payment of said indebtedness, the Note may be returned

to Mortgagor without extinguishment of the Mortgage herein

granted, and may, at any time and as many times thereafter

as the in t e r e s t of Mortgagor may require, be again reissued

or repledged by Mortgagor as c o l l a t e r a l security, and t h i s

Mortgage shall be and remain i n f u l l force and e f f e c t to

secure the Note u n t i l the Note has been cancelled on i t s face

and t h i s Mortgage has been released of record. As used

herein, the term "Mortgagee" shall mean any future holder

or holders cf the Note, whether one or more.

In case the Note should be placed i n the hands of

an attorney-at-law, to i n s t i t u t e legal proceedings to recover

the amount thereof, or any part thereof, i n p r i n c i p a l or

i n t e r e s t , or to protect the interests of the holder or

holders thereof, or i n case the same should be placed i n the

hands of an attorney f o r c o l l e c t i o n , compromise or other

a c t i o n , Mortgagor hereby binds i t s e l f t o pay the fee o i the

attorney who may be employed for that purpose, which fee i s

hereby f i x e d at twenty-five percent (25%) of the amount due

or sued for or claimed or sought to be protected, preserved,

or enforced.

AND NOW, i n order to secure the f u l l , due, and

punctual payment of a l l indebtedness evidenced by the Note,

and/or any extension or renewal thereof, as well as a l l

costs, taxes, assessments, charges, insurance premiums,

compensation of a keeper, attorney's and c o l l e c t i o n fees,

and other costs and indebtedness incurred and paid hereunder.

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and to secure the f a i t h f u l observance and performance of a i i

of the obligations, agreements, covenants, and s t i p u l a t i o n s

contained herein and i n tha Note, Mortgagor declares that

i t does by these presents mortgage, a f f e c t , pledge, and

hypothecate unto Mortoagee, whether the Note be held by

Mortgagee as an o r i g i n a l obligation or i n pledge, the

f o l l o v i n g rights, i n t e r e s t s and properties:

A. A l l of the r i g h t , t i t l e and i n t e r e s t of Mortgagor in and to the overriding royalty interests which ara described or referred to i n Exhibit "A" attached hereto and made a part hereof, subject, however, to the r e s t r i c t i o n s , exceptions, reservations, conditions, l i m i t a t i o n s , interests and other matters, i f any, set f o r t h or referred to i n the descriptions of such interests i n Exhibit "A" (hereina:"er c o l l e c t i v e l y called the " I n t e r e s t s " ) , but subject to a l l operating agreements, o i l and gas sales, purchase, exchange and processing contracts and a l l other agreements, instruments and matters described or referred to i n Exhibit "A," together with a l l r i g h t s , interests, powers, priv:leges, options and other benefits of Mortgagor with respect thereto, including without l i m i t a t i o n , a l l credits, deposits, options, privileges and r i g h t s of Mortgagor and options to renew or purchase and and r i g h t s of f i r s t refusal to lease or purchase wich respect thereto;

B. A l l r i g h t , t i t l e and i n t e r e s t now or hereafter acquired by Mortgagor i n and to ( i ) the lands and leases affected by the Interests, and described or referred to i n Exhibit "A" ( c o l l e c t i v e l y , the "Lands"); ( i i ) the Lands now or hereafter pooled, communitized or unitized with any of the Lands; ( i i i ) a l l e x i s t i n g and future u n i t i z a t i o n , corfimunitization and pooling agreements and the units created thereby (including, without l i m i t a t i o n , a l l units formed v o l u n t a r i l y or under orders, regulations, rules or other o f f i c i a l acts of any federal, state or other governmental body or agency having j u r i s d i c t i o n ) which are described or referred to i n Exhibit "A" or which embrace or relate to any of the Lands or to the production of o i l , gas, casing head gas, d r i p gasoline, natural gasoline, condensate and a l l other l i q u i d or gaseous hydrocarbons therefrom (hereinafter c o l l e c t i v e l y called "Hydrocarbons") and any other minerals from the Lands; ( i v ) a l l operating agreements, contracts, instruments, r i g h t s of way, easements, surface leases, permits, licenses, franchises, servitudes and other agreements of every kind and description pertaining to or affecting the; Lands or which relate to any of the Lands or to the production, sale, purchase, exchange or processing of hydrocarbons or other minerals from or a t t r i b u t a b l e to the Lands; and (v) the Lands referred to are covered he"eby even though Mortgagor's interests i n said Lands or the Interests be i n c o r r e c t l y described i n , or the description of a part or a l l of such interests be omitted from Exhibit "A";

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C. A l l rig h t s , t i t l e s , interests and estates now owned or hereafter acquired by Mortgagor i n and Hydrocarbons i n and under and which may be and saved from or a t t r i b u t a b l e to the Lands, including a l l o i l i n tanks and a l l rents, issues, p r o f i t s , proceeds, products, revenues and other income from or a t t r i b u t a b l e to the Lands, which are subjected or required to be subjected to the liens and security i n t e r e s t s of t h i s Mortgage; and

D. A l l r i g h t , t i ' _ l e , and int e r e s t of every nature whatsoever now owned or hereafter acquired by Mortgagor i n and to the r i g h t s , interests and properties heretofore described or referred to under headings A, B, C ar.d D above, and every part and parcel thereof, including without l i m i t a t i o n said r i g h t s , i n t e r e s t s and properties as the same snail be enlarged by the discharge of a:./ payments out of production or by the removal of any charges, encumbrances, r e s t r i c t i o n s , exceptions, reserva­tions, conditions, l i m i t a t i o n s , interests and other matters to which any of said r i g h t s , interests and properties are subject, or otherwise; any and a l l renewals and extensions of any of said r i g h t s , interests and properties; a l l contracts and agreements supplemental to o: amendatory of or i n subst i t u t i o n f o r the contracts and agreements described or mentioned above; and any and a l l additional i n t e r e s t s of any kind hereafter acquired by Mortgagor i n and to aaid r i g h t s , interests and properties.

A l l of Mortgagor's r i g h t s , i n t e r e s t s and properties

hereinabove described or referred to under headings A, B,

C and D are hereinafter sometimes c o l l e c t i v e l y referred to

as the "Mortgaged Property."

ARTICLE I .

REPRESENTATIONS, WARRANTIES AND COVENANTS

So long as the indebtedness secured hereby or any

part hereof remains unpaid, Mortgagor, fo r i t s e l f , i t s

successors and assigns, covenants and agreea with Mortgagee

as follows:

1.1 To the extent of the overriding royalty interests specified i n Exhibit "A," Mortgagor has good and marketable t i t l e to and i s possessed of the Mortgaged Property; the Mortgaged Property i s free of any and a l l li e n s , encumbrances, security interests, contracts, agreements, p r e f e r e n t i a l purchase r i g h t s >r other r e s t r i c t i o n s or li m i t a t i o n s of any nature cr kind (herein c o l l e c t i v e l y c a l l e d the "Encumbrances") except those which may be specified heroin or on attached .Exhibit 'V (herein c o l l e c t i v e l y called "Permitted

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Encumbrances"); Mortgagor has f u l l power and lawful authority to bargain, grant, s e l l , mortgage, assign, transfer, convey and grant a security interest i n a l l of the Mortgaged Property a l l i n the manner and form herein provided and without obtaining the waiver, consent or approval of any lessor, sublessor, governmental agency or e n t i t y or party whomsoever or whatsoever; a l l amounts due and payable i n accordance with the terms of the Interests bave been duly paid or provided for and said Interests are i n f u l l force and ef f e c t ; none of the Permitted Encumbrances include "take or pay" or other comparable provisions i n accordance with which Hydrocarbons nave been or may be produced and delivered without Mo-tgagor then or thereafter receiving f u l l payment therefor;

1.2 Mortgagor w i l l warrant and defend the t i t l e to the Mortgaged Property against the claims and demands of a l l ether persons whomsoever and w i l l maintain and preserve the l i e n created hereby so long as any of the indebtedness secured hereby remains unpaid. Should an adverse claim be made against or a cloud develop upon the t i t l e to any part of the Mortgaged Property, Mortgagor agrees i t w i l l immediately defend against such adverse claim or take appropriate action to remove such cloud at Mortgagor's cost and expense, and ortgagor further agrees that Mortgagee may take such other action as i t deems advisable to protect and preserve i t s interests i n the Mortgaged Property, and i n such event Mortgagor w i i i indemnify Mortgagee against any and a l l costs, attorneys' fees and of. j r expenses which i t may incur i n defending against any such adverse claim or taking action to remove any such cloud;

1.3 This Mortgage i s , and always w i l l be kept, a d i r e c t mortgage l i e n , pledge and security interest upon the Mortgaged Property subject only to the Permitted Encumbrances, and except as provided herein, Mortgagor w i l l not create or suffer to be created cr permit to exist any l i e n , security interest or charge p r i o r or j u n i o r to or on a pa r i t y with the l i e n and security interest of t h i s Mortgage upon the Mortgaged Property, or any part thereof, or upon the rents, issues, revenues, p r o f i t s and other income therefrom, and Mortgagor w i l l , from time to time, pay or cause to be paid as they become due and payable a l l taxes, assessments and governmental charges la w f u l l y levied or assessed upon the Mortgaged Property, or any part thereof, cr upon or a r i s i n g from any of the rents, issues, revenues, p r o f i t s and other income therefrom, and Mortgagor w i l l , from tima to time, pay or cause to be paid as they become due and payable a l l taxes, assessments and governmental charges lawf- l l y levied or assessed upon the Mortgaged Proper / or any part thereof, or upon or a r i s i n g from any of the rents, issues, revenues, p r o f i t s and other income from the Mortgaged Prcperty, or incident to or i n connection with the proouction of Hydrocarbons or other minerals therefrom, or the operation and development thereof;

1.4 I f at any time the Mortgaged Property includes fix t u r e s or other corporeal movables situated i n the Lands, Mortgagor w i l l at i t s own expense do

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or cause to be done a l l things necessary to preserve and keep i n f u l l repair, working order and e f f i c i e n c y a l l of such Mortgaged Property, including, without l i m i t a t i o n , a l l equipment, machinery and f a c i l i t i e s , and from time to time w i l l make a l l the needful and proper repairs, renewals and replacements so that at a l l times the state and condition of such Mortgaged Property w i l l be f u l l y preserved and maintained;

1.5 Mortgagor w i l l promptly pay or cause to be paid and discharge or cause to be discharged a l l rentals, delay rentals, r o y a l t i e s and indebtedness accruing under, and perform or cause tc be performed each and every act, matter or thing required by, each and a l l of the assignments, deeds, leases, subleases, contracts and agreements described or referred to herein or a f f e c t i n g the Land?, and w i l l do a l l other things necessary to keep unimpaired Mortgagor's r i g h t s with respect thereto and prevent any f o r f e i t u r e thereof or default thereunder. Mortgagoi w i l l operate or cause to be operated the Lands and equipment thereon i n a careful and e f f i c i e n t manner i n accordance w i t h the practices of the industry and in compliance with a l l applicable contracts and agrees to comply with a l l applicable proration and conservation laws of the j u r i s d i c t i o n i n which such Lands are situated, and a l l applicable laws, rules and regulations of every other agency and authority from time to time constituted to regulate the development and operation of such Lands and the production and sale of Hydrocarbons and other minerals therefrom. Mortgagor w i l l do or cause to be done such development work as may be reasonably necessary to the prudent and economical operation of the Lands i n accordance with customary practices of operators i n the industry, including a l l to be done that may be appropriate to protect from diminution the produ.tive capacity of the Lands and each produc.ng well thereon including, without l i m i t a t i o n , cleaning out and reconditioning each well from time to time, plugging ar.d completing at a d i f f e r e n t l e v e l each such w e l l , d r i l l i n g a substitute well to conform to changed spacing regulations and to protect the Lands against drainage whenever and ac often as i s necessary;

1.6 Mortgagor w i l l keep adequately insured by insurers of recognized r e s p o n s i b i l i t y , a l l of the Mortgaged Property of an insurable nature and of a character usually insured by persons engaged i n the same or similar business, against a l l risks customarily insured against by such persons. Mortgagor s h a l l maintain: l i a b i l i t y insurance against claims f o r personal i n j u r y or death or property damage suffered by members of the public or others i n or about the Lands or occurring by reason of Mortgagor's ownership, maintenance, use or operation of any plants, shops, machinery, automobiles, trucks or other vehicles, or other f a c i l i t i e s on or i n connection with such Lands; a l l such workmen's compensation or similar insurance as may be required under the lsws of any j u r i s d i c t i o n i n which any of the Lands may be situated; and well control insurance, including o i l s p i l l clean-up insurance. A l l such insurance shall be maintained i n such amounts as is usually

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carried by persons engaged i n the same or a similar business and s h a l l be effected under a v a l i d and enforceable p o l i c y or p o l i c i e s issued by insurers of recognised r e s p o n s i b i l i t y . The character, coverage, amount and insurers, of a l l such insurance s h a l l be s a t i s f a c t o r y to and approved by Mortgagee. I f requested by Mortga7ee, the loss payable clauses or provisiens i n said policy or policies s h a l l be endorsed in favor of and made payable to Mortgagee as i t s i n t e r e s t nay appear. Mortgagee s h a l l hav/e the r i g h t to c o l l e c t , and Mortgagor hereby assigns to Mortgagee, any and a l l monies that may become payable undo, any such policies of insurance by reason of damage, loss or destruction of any of the Mortgaged Property, and Mortgagee may apply a l i or any part of the sums so collected, at i t s e lection, toward payment of the indebtedness, whether or not such indebtedness is then due and payable, i n such manner as Mortgagee may ele c t ;

1.7 Mortgagor w i l l permit Mortgagee and i t s agents to v i s i t and inspect any of the Lands, to examine the books of account of Mortgagor and to discuss the a f f a i r s , finances or accounts of Mortgagor, and to be advised as to the same by any o f f i c e r or employee of Mortgagor, a l l at such reasonable times or in t a r v a l s as Mortgagee may desire;

1.8 Mortgagor w i l l , upon request by Mortgagee, furnish or cause to be furnished to Mortgagee reports prepared by or f o r Mortgagor concerning the productivity and the productive l i f e of a l l or any wells included i n the Lands; the quantity of the Hydrocarbons and other minerals recoverable therefrom; the projected income and expense at t r i b u t a b l e thereto; and the e: ->ediency of any change i n methods of treatment c- operation of a l l or any wells included thereon; any new d r i l l i n g or develcpment; any abandonment or proposed abandonment of any well; any plugging of any well or reopening of same at a d i f f e r e n t l e v e l ; any method of repressuring i n the f i e l d or any other action with respect to the Lands and equipment thereon, and f u r t h e r upon request of Mortgagee, w i l l f urnish a report of an independent engineer designated by Mortgagee covering such of the foregoing matters as shall be so requested. Mortgagor w i l l , also upon request by Mortgagee, furnish Mortgagee w i t h i n t h i r t y (30) days a f t e r the end of each calendar month a report showing for such calendar month the gross proceeds of the sale of Hydrocarbons and other minerals from the Lands, the q u a n t i t i e s so sold, the taxes deducted from or paid out of such proceeds, the number of wells operated, d r i l l e d and abandoned and such other information as Mortgagee may reasonably request,

1.9 Mortgagor w i l l promptly upon demand by Mortgagee pay a l l costs and expenses heretofore or hereafter incurred by Mortgagee f o r legal, engineering, geological or accounting services rendered to i t in connection with the making and documenting of the i n i t i a l or any future loan to Mortgagor secured in whole or i n part by the l i e n and security interest hereof and/or i n connection with the enforcement of any of Mortgagee's r i g h t s hereunder;

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1.10 Mortgagor w i l l execute and de l i v e r such further instruments and do such f u r t h e r acts as may be necessary or desirable or as may be reasonably requested by Mortgagee to carry out more e f f e c t i v e l y the purposes of t h i s Mortgage and to subject to the l i e n created hereby any properties, r i g h t s and interests covered or intended to be covered he *by;

1.11 Mortgagor w i l l duly and punctually pay a l l indebtedness secured hereby i n p r i n c i p a l and int e r e s t , as the same sh a l l become due and payable;

1.12 Mortqagor, i f a corporation, w i l l maintain i t s existence as a corporation and w i l l maintain and procure a l l necessary franchises and permits -o the end that Mortgagor s h a l l be and continue .s a corporation i n good standing i n the State of Louisiana with f u l l power and authority to own and operate the Mortgaged Property as contemplated herein u n t i l t h i s Mortgage s h a l l have been f u l l y s a t i s f i e d ;

1.13 I f any tax i s levied or assessed against the indebtedness secured hereby or any part thereof, or against t h i s Mortgage, or against Mortgagee with respect to said indebtedness or any part thereof or t h i s Mortgage, Mortgagor s h a l l promptly pay the same; and

1.14 To the extent any of the Mortgaged Property may be comprised of interests i n leases which are other than working interests or which may be operated by a party or parties other than Mortgagor and with respect to a l l or any such lease interests and properties as may be comprised of inte r e s t s other than working interests or which may be operated by pa r t i e s other than Mortgagor, Mortgagor's covenants as expressed i n subparagraphs 1.4 through 1.7 inc l u s i v e of t h i s A r t i c l e I are modified to require t h a t Mortgagor use i t s best e f f o r to obtain compliance with such covenants by the working i n t e r e s t owners or the cperator or operators of such leases or properties.

ARTICLE I I .

ASSIGNMENT AND PLEDGE OF PRODUCTION

2.1 For the purpose of a d d i t i o n a l l y securing the

payment of a l l indebtedness secured hereby and a l l

indebtedness which may be secured by a pledge of the Note,

up to the aggregate sum of $1,000,000.00 outstanding at any

one time, and to f a c i l i t a t e the discharge of a l l such

indebtedness, and as cumulative of any and a l l r i g l i t s and

remedies herein provided for, and subject only to the

Permitted Encumbrances, Mortgagor, e f f e c t i v e as of the date

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hereof at 7:00 a.IT. New 0'leans time, ..-reby transfers,

assigns, conveys, pledges, sets over ar.d delivers to

Mortgagee one huncL i percent (?00%) of Hydrocarbons ac.truirg

to or receivable by Mortgagor by v i r t u e of * La ownership i n

the Leases, and a l l proceeds from the Hycrocarbons (aft»r

ceJuction for production and severance taxes applicable

t h e r e t o ) . Mortgagor s h a l l immediate^* • suae a l l Hydrocarbons

anu proceeds th<*: «if rom to be Jelive.cd to the cr e d i t of

Mortgagee at Cullen Center Ba.ik & Trus: 600 Jefferson at

Smith, Houston, Texas 77C02, Attention: Thomas Byargeon,

or at such other address or account -s Mortgagee may

designate i*\ writin< w*' no duty or obl i g a t i o n of any party

paying the same tc inquire i n t o the r i g h t of Morcgagee to

receive the same, at application i s made thereof, or as

to any other mate*-. Furthermore, Mortgagor w i l l furnish

to Mortgagee the /.ames of a l l parties purchasing or receiving

any Hydrocarbons and the names of a l l parcies having i n t h e i r

possession any Hydroca.-bons or proceeds therefron .̂nd

Mortgagor w i l l promptly execute and deliver any ard a l l

transfer orders, d i v i s i o n orders, ana ^i-ntr instruments that

may be requested by Mortgagee f o r the p u r r e e of effe c t u a t i n g

the pledge and assignment made hereunder. A l l parties

producing, purchasing, or receiving an Hycrocarbons or

having i n t h e i r possession any Hydrocarbons or proceed*

therefrom are hereby authorizeJ ana directed to tr e a t and

regard Mortgagee as the assigner md transferee of Mortgagor

and e n t i t l e d i n :s place and. .ead to receive the

Hydrocarbons and the proceeda therefr >m and each of them

sha l l be f u l l y protected i n so t r e a t i n g and o regarding

Mortgagee ao such assignee and oit? 11 be under no ob l i g a t i o n

to see to the application by Mortgagee of any such proceeds

received by i t .

2.2 Mortgagee -s hereby absolved from '11 l i a b i l i t y

for f a i l u r e to enforce c o l l e c t i o n of the proceeds of the o i l .

gas and other hydrocarbons so issi.j.ed and from a l l other

r e s p o n s i b i l i t y i n connection therewith, except the

r e s p o n s i b i l i t y to account to Mortgagor for funjs actually

r t ~ e i v e d . Mortgagor agrees to indemnify and to hold harmless

.""orcgagee against any and a l l l i a b i l i t i e s , actions, claims,

judgments, costs, charges, and attorney's fees incurred by

reascn c f the assertion that the Mortgagee has received,

e i t h e r before or a f t e r the payment Ln ful ' of the

indebtedness Secured hereby, proceed? <-f Hydrocarbons cla*..ied

by t h i r d persons. Mortgagee shall have the r i g h t to i ofend

against any au claims or actions. mploying attorney of

i t s own selection, and Mortgage-* c..:*ll have the r i g h t to

compromise and adjust any ouch claii. s actions and judgments;

and i n addition to che r i g h t s to oe i r i e m n i f i e d , as her in

pi '-vided, a l l amounts paid by Mortgage i i n compromise,

S'/ • i f action, or discharge of any suci". claim, i c t i o n , or

udgment and a l l court: costs, attorney's fees, and other

expenses of every character incurred by them, shall be a

demand obligation owing by Mortgagor to Mortgagee, and sh a l l

bear i n t e r e s t at the same rate of i n t e r e s t as provided i n

the Note from the date of expenditure u n t i l paid, a l l of

which s h a l l constitute a p< ion of the indebtednesss secured

by the l i e n idenced by t n i s Mortgage.

2.3 Nothing herein contained s h a l l detract from cr

l i m i t the obligation of Mortgagor to make prompt payment of

the Note or any other indebtedness secured hereby when and

hB the same become** due, regardless of whether the proceeds

of said Hydrocarbons are s u f f i c i e n t to pay t' *» same.

ARTICLE I I I .

WAIVER AND PARTIAL RELEASE

3.1 Mortgagee may, at any time and from time to time

i n w r i t i n g :

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\ i

(a) aive compliance by Mortgagor with any covenant i ?rom made by Mortgagor to the extent anc1 i n the manner specified i n such w r i t i n g ; or

(b) consent to Mortgagor's commission of any act vhich hereunder Mortgagor i s prohibited from doing, or to Mortgagor's f a i .ure to do any act whn ch herenrJer Mortgago* i s required to fco the extenc and i n the manner specified i n t h w r i t i n g ; or

( r ) release any part of the Mortgag Property, cr any interest therein or any proceed of Hydrocaroons frn\i> t v t i l i e n ot t h i s Mortgage.

N •> such act shall i n any way impair the r i g h t s of Mortgagee

hex sunder.

ARTICLE IV.

REMEDIES IN EVENT OF DEFAULT

4.1 The term "Event cf Default" as used i n t h i s

Mortgage shall mean the occurrence of any of the following

events:

(a) Mortgagor s h a l l default i . i the payment of p r i n c i p a l or i n t e r e s t on tka Note or on any obligation f o r l,'.ich the Note may be pledged as security; or

(b) Mortgagor s h a l l default . n the performance or observance of any term, ..->ranty, covenant, representation, condition, or aoreeraent contained herein; or

(c) I f the property herein mortjaged, cr any po-rion thereof, be seized i n t.io cecution of the w i i 4 -

f* executory process, Attainment, or f i e r i f a ' i a s, >L of any other legal pioces^.: or

(ti) Itoitgagor becomes insolvent or makes an assignment i*JK the b e n e i i t of creditors; or

(e) A receiver i s appointed f o r a l l or substantially a l l of the properties of Mortgagor (cr any one or more of them) or of Mortgagor's i n t e r e s t (cr anv one or more of chem) i n any Mortgaged Property; or

( f ) f.o r eg agr r i a ad.-iudicatsd a bankrupt or requests, i i t h e r by way of peel'ion or answer, co be adjudicated a ban' J\ , or f o r any composition, rearrangement, extension, reorganizat on or other law for the r e l i e f ». i debtors now or hereafter existing, or a p^.i-ion i s f i l e d by creditors of fcaid party i n which i t i s sought t h i t the party be adjudicated a bankrupt or that there be granted w:th respect co said party any composition, rear, ar.gemenu. extension, reorganization, or other r e l i e f under any bankruptcy law or under any other lav Jor the r e l i e f of c sbtors now or hereafter exis :ing.

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4.2 Upon tlie occurrence of an Event of Default, at the

option of Mortgagee, a l l indebtedness secured herebv i n i t s

e n t i r e t y shall be immediately aue aid payable, and the liens

evidenced r" .oy shal 1 be subject to f->reclo.-ire i n any

manner provided for herein or provided f c r by law.

Furthermore, 100% of the proceeds cf the Hydrocarbons pledged

herein s h a l l thereafter be applied by Mortgagee u n t i l the

Note and a l l other indebtedness ot Mortgagor to Mortgagee

i s paid i n f u l l .

4.3 Upon the occurrence of an Event of Default,

Mortgagee its authorized p r i o r to or subsequent to the

i n s t i t u t i o n wf any foreclosure proceedings to enter upon the

Mortgaged Property, or any par thereof, and to exercise

without interference from Mortgagor any and a l l r i g h t s which

Mortgagor has with respect to the management, possession,

and operation of the Mortgaged Property. A l l costs,

expenses, and l i a b i l i t i e s of every character incurred by

Mortgagee or i t s keeper ( I J provided i n A r t i c l e 4.7 below)

i n managing, operating and maintaining such properties, s h a l l

c o n s t i t u t e a dsmnnd o b l i g a t i o n owing by Mortgagor to

Mortgagee, shall draw inv.erest from date nf expenditure u n t i l

paid at the saro<s rate of i n t e r e s t as provided i n the Note,

a l l of whicb hail c o n s t i t u t e a portion of the indebtedness

-..re* by the l i e n eviriei.cjd by the Mortgage.

4.4 Mortgagor, fc*- i t s e l f . I t a successors and assigns,

does by these : resents -gree and coipulate that i t s h a l l be

l a w f u l f o r , and Mortgagor hereby authorizes Mortgagee, upon

the occurrence of an Eve.it r .f Default, to cause a l l and

singular ti.«% Mortgaged Property to be seized and soid by

executory pro.-?ss, without appraisement, either i n i t r

e n t i r e t y or i n l o t s or parcels, as Mortgagee may determine,

to the highest r Md.tr f o r cash cr on such ^erms as Mortgagor

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i n si'jh proceed i... TS may d i r e c t ; and Mortgagor, for i t s e l f

and ies successors and issigns, hereby acknowledges the

obli g a t i ' n s secured hereby whether now exi s t i n g or to arise

hereafte- an'.' reby confesses judgment thereon i f the

obligations ars not paid at maturity.

4.5 To the extent allowed by law. Mortgagor hereby

waives: ( i ) the b e n e f i t of appraisement as provided i n

A r t i c l e s 2332, 2336, 2723, --nd 2724 of the Louisiana Code

of C i v i l Procedure, and f i l l .->ther laws conferring the same;

( i i ) the demand and thr-ae da/s delay accorded by A r t i c l e s

2639 a r i 2721 of the Lousiana Code of C i v i l Procedure; ( i i i )

the not.-s of seizure required by A r t i c l e s 2293 and 2721 of

the Louisiana Code of C i v i l P joedure; ( i v ) the three days

delay provided by A r t i c l e * 2331 and 2722 of the Louisiana

Code of C i v i l Procedure; (v) the ben e f i t of the other

provisions of Article.-- 2331. 2722, and 2723 of the Louisiana

Ccue of C i v i l Procoiure; and ( v i ) any other a r t i c l e s not

s p e c i f i c a l l y mentioned above.

4.6 Tlie proceeds of any sale helJ by any receiver or

public o f f i c e r i n foreclosure of the li e n s evidenced hereby

s h a l l be applied:

F r a t : To the payment of a l l racessary costs and expenses incident to such foreclosure sale, i n d u c i n g , but not l i m i t e d t o , a l l court costs and chart*** of every character;

Second: To the payment of tV.« indebtedness secured hereby, f i r s t to the unpaid in-.ereat thereon, and seconc, t c unpaid p r i n c i p a l thereon; and.

Third: The remainder i f . i f , cno re shall be, ahall be paid to Mortgagor, i t n euceaaora or assigns aa t h i i r i n t e r e s t s nu appear.

Mort?.-.gee shall bave the r i g h t to oecome the purchaser at

any sale held by any receiver r r public o f f i c e r , and

Mortgagee shall have tha r i g l i 1 to c r e d i t upon the amount of

che b*d made therefor, to th> ext»;it necessary ts s a t i s f y

such bid, the iebtednes-; -.tcured hereby owing to Mortgagee.

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4.7 A l l remedies herein expressly provided for are

cumulative of any and a l l other remedies now ex i s t i n g at law,

and Mortgagee s h a l l , i n addition to the remedies herein

provided, be e n t i t l e d t o av a i l i t s e l f of a l l such other

remedies as may now or hereafter e x i s t at law for the

c o l l e c t i o n of said indebtedness, the enforcement of the

covenants herein, and ;he foreclosure of the l i e n evidenced

hereby; the resort to any remedy provided f o r hereunder, or

provided for by law s h a l l not prevent the concurrent or

subsequent employment of any other appropriate remedy or

remedies. Mortgagor expressly authorir.es and agrees that

Mortgagee shall have the r i g h t to appoint a keeper of the

Mortgaged Property pursuant to the terms and provisions of

La. R.S. 9:5131, et 3eq. The compensation of the keeper i s

hereby fixed at one percent (1%) of the amount due or sued

f o r or claimed or sought to be protected, preserved, or

enforced, and shall be secured by the l i e n of t h i s Mortgage.

4.8 Mortgagee may recort to any security given by t h i s

Mortgage or to iny other security now e x i s t i n g or hereafter

given to secure the payment of the i r :ebtedness secured

hereby, i n whole or i n part, and i n such portions and i n such

order as may seem best to Mortgagee i n i t s sole d i s c r e t i o n ,

and any such action s h a l l not i n anywise be considered as

a waiver of any of the r i g h t s , benefits, or liens evidenced

by t h i s instrument.

4.9 I f , while the Mortgage i s i n e f f e c t , the t i t l e of

Mortgagor, i t s successors or assigns, to the Mortgaged

?**operty cr any part thereof, or the p r i o r i t y of the l i '

of the Mortgage, i s questioned or attacked, d i r e c t l y or

i n d i r e c t l y , by s u i t or other j u d i c i a l proceedings, or i n any

manner, or i f a controversy of any nature arises r e l a t i v e

to such t i t l e or the p r i o r i t y of tueh l i e n , or i f a f t e r t h i s

Mortgage i s released, any person shall make a ciaim or demand

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against Mortgagee on account of any action or omission of

Mortgagee, Mortgagor agrees to protect and to save harmless

Mortgagee from any such costs, los3, damage, or claim by

reason of such attack, controversy, s u i t , claim or demand,

and Mortgagee i s hereby authorized and instructed at the cost

and expense Mortgagor, to take such steps as i n the judgment

of Mortgagee may be necessary or proper to defend against

such claim, demand, controversy, s u i t or attack, including

the employment of counssl and the prosecution and defense

of l i t i g a t i o n ; and the expenses incurred i n such proceeding,

including a l l sums paid f o r attorney's fees, court costs,

and a l l other expenses of every kind and nature, shall become

an additional part of the debt secured hereby, bearing

i n t e r e s t at the same rate of interest as provided i n the

Note, be payable on demand, and be secured by the l i e n and

p r i v i l e g e of t h i s Mortgage (the same not having been

previously released) upon the Mortgaged Property and whether

before or after t h i s Mortgage i s released. Mortgagor agrees

to pay to Mortgagee on demand a l l such sums and expenses paid

and suffered by Mortgagee and that the aame sh a l l be secured

by subrogation to a l l the r i g h t s , l i e n s , equities, superior

t i t l e , and benefits held, owned, possessed, and received at

any time by any owner or holder of any claim, l i e n ,

assessment, charge, or expense so paid. The r i g h t s of

Mortgagee secured hereby under t h i s paragraph may be availed

of by Mortgagee and exercised at any time regardless of

whether the indebtedness secured hereby be then due or not;

and i t i s d i s t i n c t l y understood that the release of t h i s

Mortgage shall not r e l i e v e Mortgagor of i t s l i a b i l i t y to save

Mortgagee harmless from any damage suffered by Mortgagee on

account of any claim or demand made against i t a f t e r release

of t h i s Mortgage.

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ARTICLE V.

M:SCELLANEOUS PROVISIONS

5.1 The maximum amount of a l l obligations, indebtedness

and l i a b i l i t i e s secured by the mortgage l i e n and pledge of

the Mortgage shall not exceed the sum of $1,000,000.00 at

any one time outstanding.

5.2 This act i s i n a l l respects to be construed under

the laws of the State of Louisiana, including but not l i m i t e d

to La. R.S. 31:197 et seq., as ( i ) a mortgage, hypothecation,

pledge, and confession of judgment by Mortgagor i n favor of

Mortgagee, and ( i i ) as a pledge and assignment of production

i n favor of Mortgagee, *o secure the payment of the p r i n c i p a l

and i n t e r e s t of the Note and also to secure a l l attorney's

fees, costs, charges, and the performance of a l l obligations

of Mortgagor contained herein and i n the Note.

5.3 Mortgagor hereby acknowledges and recognizes that

the Note may be given as security f c r an obligation maturing

beyond the prescriptive period applicable to the Note and

agrees that i t shall be an Event of Default hereunder and

under any obligations f o r which the Note i s given as security

i f Mortgagor f a i l s to acknowledge the Note or furnish such

other security as may be acceptable to Mortgagee p r i o r to

the date on which the Note may be barred by any applicable

p r e s c r i p t i v e period.

5.4 The parties hereto waive the production of any

mortgage, conveyance, and tax c e r t i f i c a t e s and agree to hold

the undersigned Notary harmless i n the premises.

5.5 The terms, provisions, covenants, and conditions

hereof s h a l i be binding upon Mortgagor, i t s successors and

assigns, and shall inure to the benefit of Mortgagee, whether

or not expressly provided f o r herein.

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The undersigned intervenes to accept t h i s Act of

C o l l a t e r a l Mortgage, Pledge and Assignment of Production on

behalf of Mortgagee.

Thu3 Done and Passed on the date f i r s t above

w r i t t e n , i n multiple o r i g i n a l s , i n my presence and i n the

presence of the undersigned competent witnesses, who have

hereunto signed t h e i r names with the said Appearers and me,

Notary.

WITNESSES:

I N T E R V E N O R v / / W. Thonas ByairReon

NOTARY PUBLIC Pat r ic ia Schmid 9 . iQ i f f My Ccmnission Expires 0 ' j j x J 7

WBB-670

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EXHIBIT "A" TO COLLATERAL MORTGAGE, PLEDGE AND ASSIGNMENT OF PRODUCTI ON

I .

Overriding r o y a l t y interest equal to 20.5% of two

percent (2%) of a l l o i l , gas and other hydrocarbons ( e x c r c

helium) produced and saved from that c e r t a i n O i l and Gas

Lt.-ase bearing Serial No. OCS-G 1897, e f f e c t i v e as of

December 1, 1981, granted by the United States of America,

as Lessor, to and in favor of Roberts O i l and Cas, inc.,

et a l . , as Lessees, covering a l l of Block 46, South Pass

Area, as shown on OCS Leasing Map, Louisiana No. 9.

SUBJECT TO:

(1) Overriding Royalty Assignment by and among McMcPn Offshore Exploration Co., as Assignor and H. G. Kuntz, et a l . , as Assignees, dated e f f e c t i v e as of August 7, 1985, recorded i n COB , f o l i o of the records of Plaquemines Parish, Louisiana.

I I .

Overriding r o y a l t y interest equal to 20.5% of two

percent (2%) of a l l o i l , gas and other hydrocarbons (except

helium) produced and saved from that c e r t a i n O i l and Gas

Lease bearing Serial No. OCS-G 4479, e f f e c t i v e as of

November 1, 1980, granted by the United States of America,

as Lessor, to and i n favor of Texaco, Inc., Pogo Producing

Company and AMAX Petroleum Corporation, as Lessees, covaring

a l l of Block 45, South Pass Area, OCS O f f i c i a l Leasing Map

Louisiana Map No. 9, containing 4,999.96 acres, more or less.

SUBJECT TO:

(1) Overriding Royalty Assignment by and among FMP Operating Company, as Assignor, and H. G. Kuntz, et a l . , aa Assignees, dated e f f e c t i v e as of August 7, 1985, recorded i n COB 636, f o l i o 119 ot tne records of Plaquemines Parish, Louisiana.

(2) Operating Agreement, dated November 1, 1980 between Texaco Inc., Pogo Producing Company and AMAX Petroleum Corporation r e l a t i n g to said Lease OCS-G 4479.

(3) Farmout Letter Agreement, dated July 5, 1984, as amended, by and between Texaco, Inc. and AMAX Petroleum Corporation, as Farmors, and FMP Operating Company, a Limited Partnership, by McMoRan O i l & Gas Co., i t s Managing General Partner, as Farmee.

WBB-670

RECEIVED

SEP 2 3 1986

Minerals Management Service Leasing & Environment

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