CALPINE CORP
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>6
<FILENAME>ex10-17.txt
<TEXT>
                                                                   EXHIBIT 10.17




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                  MORTGAGE, DEED OF TRUST, ASSIGNMENT, SECURITY
                AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING

                                      FROM

                              CALPINE CORPORATION,
                             a Delaware corporation
                         (Taxpayer I.D. No. 77-0212977),
                                     Trustor

                                       TO

                              JON BURCKIN, Trustee

                                       AND

                              KEMP LEONARD, Trustee

                                       AND

                            THE BANK OF NOVA SCOTIA,
                        (Taxpayer I.D. No. 13-494-1099),
                            for itself and as Agent,
                                   Beneficiary

                          Dated as of [Month] __, 2002


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"THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS."

"THIS INSTRUMENT SECURES PAYMENT OF FUTURE ADVANCES."

"THOSE  PORTIONS OF THE MORTGAGED  PROPERTY  WHICH ARE  AS-EXTRACTED  COLLATERAL
(INCLUDING, WITHOUT LIMITATION, OIL AND GAS), AND THE ACCOUNTS RELATING THERETO,
WILL BE  FINANCED  AT THE  WELLHEADS  OF THE  WELLS  LOCATED  ON THE  PROPERTIES
DESCRIBED IN EXHIBIT A HERETO,  AND THIS FINANCING  STATEMENT IS TO BE FILED FOR
RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE RECORDS."



<PAGE>

"MORTGAGOR  HAS AN  INTEREST OF RECORD IN THE REAL  ESTATE  CONCERNED,  WHICH IS
DESCRIBED IN EXHIBIT A HERETO."

"SOME OF THE PERSONAL PROPERTY  CONSTITUTING A PORTION OF THE MORTGAGED PROPERTY
IS OR IS TO BE AFFIXED TO THE PROPERTIES  DESCRIBED IN EXHIBIT A HERETO AND THIS
FINANCING  STATEMENT IS TO BE FILED FOR RECORD,  AMONG OTHER PLACES, IN THE REAL
ESTATE RECORDS."

"A POWER OF SALE HAS BEEN  GRANTED IN THIS  MORTGAGE.  A POWER OF SALE MAY ALLOW
THE MORTGAGEE TO TAKE THE MORTGAGED  PROPERTY AND SELL IT WITHOUT GOING TO COURT
IN A FORECLOSURE ACTION UPON DEFAULT BY MORTGAGOR UNDER THIS MORTGAGE."

"MORTGAGOR AGREES BY EXPRESS LANGUAGE IN THIS MORTGAGE TO SUBJECT THE TRUST REAL
ESTATE TO THE TERMS OF THE DEED OF TRUST ACT (SECTIONS  48-10-1  THROUGH 21 NMSA
(1978))."

THIS INSTRUMENT WAS PREPARED BY AND
WHEN RECORDED AND/OR FILED
RETURN TO:

Kevin L. Shaw, Esq.
Mayer, Brown, Rowe & Maw
350 South Grand Avenue
Suite 2500
Los Angeles, California  90071




<PAGE>

                  MORTGAGE, DEED OF TRUST, ASSIGNMENT, SECURITY
                AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING


     THIS MORTGAGE,  DEED OF TRUST,  ASSIGNMENT,  SECURITY AGREEMENT,  FINANCING
STATEMENT AND FIXTURE FILING (this "Mortgage"), dated as of [Month] __, 2002, is
from  CALPINE  CORPORATION,  a  Delaware  corporation  (hereinafter  called  the
"Mortgagor"  or  "Borrower"),  to JON  BURCKIN  and KEMP  LEONARD,  as  Trustees
(hereinafter,  collectively, called the "Trustees"), and THE BANK OF NOVA SCOTIA
("Scotiabank"),  a Canadian  chartered  bank  having  offices at 580  California
Street,  Suite  2100,  San  Francisco,   CA  94119,  for  itself  and  as  agent
(hereinafter called the "Agent") for the Lender Parties (as defined below).

                                   ARTICLE I

                            Recitals and Definitions
                            ------------------------

     1.1 Borrower, certain institutional lenders (individually,  a "2002 Lender"
and collectively,  the "2002 Lenders") and Scotiabank have entered into a Credit
Agreement,  dated as of  March  8,  2002  (herein,  as the same may be  amended,
modified or supplemented  from time to time,  called the "2002 Loan Agreement"),
pursuant to which the 2002  Lenders  have  agreed to make loans to Borrower  and
issue or cause to be  issued  letters  of credit  for the  benefit  of  Borrower
(individually,  a "2002 Letter of Credit" and collectively, the "2002 Letters of
Credit")  in amounts not to exceed at any one time  outstanding  $1,600,000,000,
and Borrower,  to evidence its  indebtedness  to the 2002 Lenders under the 2002
Loan Agreement,  has executed and delivered (or will execute and deliver) to the
2002 Lenders its secured  promissory notes in the aggregate,  original principal
amount  of   $1,600,000,000,   to  mature  not  later   than  [May  24,   2003]1
(individually,  a "2002 Loan Note" and collectively, the "2002 Loan Notes"), the
2002 Loan Notes being payable to the order of the 2002 Lenders, bearing interest
as provided for therein,  and  containing  provisions  for payment of attorneys'
fees and acceleration of maturity in the event of default, as therein set forth.

     1.2 Borrower,  certain  institutional lenders  (individually,  an "Existing
Lender" and  collectively,  the "Existing  Lenders";  and together with the 2002
Lenders,  the "Lenders")  and Scotiabank  have entered into a Second Amended and
Restated Credit  Agreement dated as of May 23, 2000 (herein,  as the same may be
amended,  modified,  or  supplemented  from time to time,  called the  "Existing
Credit  Agreement")  pursuant to which the Existing  Lenders have agreed to make
loans to Borrower  and issue or cause to be issued any letters of credit for the
benefit  of  Borrower   (individually,   an  "Existing  Letter  of  Credit"  and
collectively,  the "Existing Letters of Credit") in amounts not to exceed at any
one time  $400,000,000,  and  Borrower,  to  evidence  its  indebtedness  to the
Existing Lenders under the Existing Credit Agreement, has executed and delivered
to the Existing  Lenders its secured  promissory  notes to mature not later than
May 24,


_______________
1    Per  definitions  of  "Stated  Maturity  Date" and "Term B Loan  Commitment
     Termination Date," this might be as late as June 8th, 2003.


                                      -1-
<PAGE>

  2003  (individually,  an  "Existing  Loan Note" and  collectively,  the
"Existing  Loan  Notes"),  the Existing Loan Notes being payable to the order of
the Existing Lenders,  bearing interest as provided for therein,  and containing
provisions for payment of attorneys'  fees and  acceleration  of maturity in the
event of default, as therein set forth. The 2002 Loan Agreement and the Existing
Credit  Agreement are herein  collectively  called the "Credit  Agreements." The
2002 Loan Notes and the  Existing  Loan Notes are herein  individually  called a
"Loan Note" and collectively called the "Loan Notes". The 2002 Letters of Credit
and the Existing Letters of Credit are herein  individually  called a "Letter of
Credit" and collectively called the "Letters of Credit".

     1.3 It is a condition  precedent to the  obligation  of the Lenders to make
Loans  under the Credit  Agreements,  to issue or cause to be issued  Letters of
Credit under the Credit  Agreements  and to the  obligations  of the Agent,  the
Lenders or the Lender Parties (as the case may be), that the Mortgagor  executes
and delivers this instrument.

     1.4 For all  purposes  of  this  Mortgage,  unless  the  context  otherwise
requires:

          A. "Affiliate" of any Person means any other Person which, directly or
     indirectly, controls, is controlled by or is under common control with such
     Person  (excluding any trustee under, or any committee with  responsibility
     for  administering,  any Plan (as  defined  in the Credit  Agreements)).  A
     Person shall be deemed to be "controlled by" any other Person if such other
     Person possesses, directly or indirectly, power

               (a) to vote  10% or more of the  securities  (on a fully  diluted
          basis) having  ordinary  voting power for the election of directors or
          managing general partners; or

               (b) to  direct  or cause  the  direction  of the  management  and
          policies of such Person whether by contract or otherwise.

          B. "Agent" is defined in the Preamble of this Mortgage.

          C.  "Applicable  Law" means with respect to any Person or matter,  any
     federal, state, regional, tribal or local statute, law, code, rule, treaty,
     convention,   application,   order,  decree,  consent  decree,  injunction,
     directive,  determination or other  requirement  (whether or not having the
     force of law) relating to such Person or matter and, where applicable,  any
     interpretation thereof by a Governmental Authority having jurisdiction with
     respect  thereto  or  charged  with the  administration  or  interpretation
     thereof.

          D. "Borrower" is defined in the Preamble of this Mortgage.

          E. "Credit Agreements" is defined in Section 1.2 of this Mortgage.

          F. "Deed of Trust" means each mortgage,  deed of trust,  or other real
     property collateral  security instrument in a form reasonably  satisfactory
     to the Agent,  executed and delivered pursuant to Section 8.1.8 of the 2002
     Credit


                                      -2-
<PAGE>

     Agreement,  as amended,  supplemented,  restated or otherwise modified from
     time to time, including, without limitation, this Mortgage.

          G. "Event of Default"  means any happening or occurrence  described in
     Article V hereinbelow,  and any other happening or occurrence  specifically
     designated  herein or in any of the other  Security  Documents  (as defined
     herein) as constituting an event of default thereunder.

          H.  "Environmental   Laws"  means  any  and  all  present  and  future
     Applicable  Laws  issued,  promulgated  or entered  thereunder  relating to
     pollution or  protection  of the  environment,  including  laws relating to
     reclamation   of  land  and  waterways  and  laws  relating  to  emissions,
     discharges,  releases or threatened  releases of pollutants,  contaminants,
     chemicals, or industrial,  toxic or hazardous substances or wastes into the
     environment  (including,  without  limitation,  ambient air, surface water,
     ground water, land surface or subsurface  strata) or otherwise  relating to
     the  manufacture,   processing,   distribution,  use,  treatment,  storage,
     disposal, transport or handling of pollutants, contaminants,  chemicals, or
     industrial, toxic or hazardous substances or wastes.

          I. "Existing  Assignment  Agreement" means that certain Assignment and
     Security  Agreement executed and delivered by Calpine Gilroy Cogen, L.P., a
     California limited  partnership,  pursuant to Section 6.1.3 of the Existing
     Credit  Agreement,  substantially  in the form of Exhibit F to the Existing
     Credit  Agreement,  as  amended,  supplemented,  amended  and  restated  or
     otherwise modified from time to time.

          J.  "Existing  Credit  Agreement"  is defined  in Section  1.2 of this
     Mortgage.

          K. "Existing Lenders" is defined in Section 1.2 of this Mortgage.

          L.  "Existing  Letters of  Credit"  is defined in Section  1.2 of this
     Mortgage.

          M. "Existing Loan Documents" means the Existing Credit Agreement,  the
     Existing  Loan Notes,  the Existing  Assignment  Agreement,  and each other
     relevant  agreement,  document  or  instrument  (including  the fee  letter
     described in Section 3.3.2 of the Existing Credit  Agreement)  delivered in
     connection therewith.

          N. "Existing Loan Notes" is defined in Section 1.2 of this Mortgage.

          O. "Fee Letter"  means the fee letter  agreement  described in Section
     3.3.2 of the 2002 Credit Agreement.

          P.  "Governmental   Authority"  means  any  and  all  courts,  boards,
     agencies, commissions,  offices or authorities of any nature whatsoever for
     any governmental unit (federal, state, county, district,  municipal,  city,
     tribe or


                                      -3-
<PAGE>

     otherwise)   whether  now  or  hereafter  in  existence  charged  with  the
     administration, interpretation or enforcement of any Applicable Law.

          Q.  "Guaranty"  means  the  guaranty  executed  and  delivered  by the
     Guarantors  pursuant to Section 6.1.3 of the 2002 Credit Agreement,  in the
     form of Exhibit H thereto,  as amended,  supplemented or otherwise modified
     from time to time.

          R.  "Hazardous  Materials  Indemnity"  means  that  certain  Hazardous
     Materials  Indemnity  executed and  delivered  by the Borrower  pursuant to
     Section  8.1.8 of the 2002  Credit  Agreement,  as  amended,  supplemented,
     restated or otherwise modified from time to time.

          S. "Hedging  Agreements"  means:  (a) interest  rate swap  agreements,
     basis  swap  agreements,   interest  rate  cap  agreements,   forward  rate
     agreements,  interest  rate  floor  agreements  and  interest  rate  collar
     agreements,  and all other  agreements or arrangements  designed to protect
     such Person against  fluctuations  in interest  rates or currency  exchange
     rates,  and (b) forward  contracts,  options,  futures  contracts,  futures
     options,  commodity swaps, commodity options,  commodity collars, commodity
     caps, commodity floors and all other agreements or arrangements designed to
     protect such Person against fluctuations in the price of commodities.

          T.  "Hedging  Obligations"  means  with  respect  to any  Person,  all
     liabilities  (including  without  limitation  obligations  and  liabilities
     arising in connection with or as a result of early or premature termination
     of a Hedging  Agreement,  whether or not occurring as a result of a default
     thereunder) of such Person under a Hedging Agreement.

          U. "Hydrocarbons"  means collectively,  oil, gas, casinghead gas, drip
     gasoline, natural gasoline, condensate,  distillate and all other liquid or
     gaseous  hydrocarbons and related minerals and all products  therefrom,  in
     each case whether in a natural or a processed state.

          V.  "Indebtedness",  "Note"  and  "Notes"  shall  have the  respective
     meanings set forth in Section 2.2 of this Mortgage.

          W. "Indemnification Claim" is defined in Section 4.6 of this Mortgage.

          X. "Indemnified Person" is defined in Section 3.10 of this Mortgage.

          Y. "Joint Operating  Agreements" shall mean, with respect to the lands
     described in Exhibit A, the respective  operating  agreement  burdening the
     lands described in Exhibit A.

          Z. "lands  described in Exhibit A" shall  include the real property or
     other  interest  in any  lands  which are  either  described  in  Exhibit A
     attached hereto or the description of which is incorporated in Exhibit A by
     reference to an


                                      -4-
<PAGE>

     instrument or document  containing in, or referring to, such a description,
     and shall also include any lands now or  hereafter  unitized or pooled with
     lands which are either  described in Exhibit A or the  description of which
     is  incorporated  in Exhibit A by  reference  and  Fixtures and all rights,
     titles and interests appurtenant thereto.

          AA. "Leases" means any and all leases  (including  without  limitation
     oil and gas leases and oil, gas and other minerals leases),  surface leases
     or easements, subleases, licenses,  concessions,  operating rights or other
     agreements  (written or verbal,  now or hereafter in effect)  which grant a
     possessory  interest  in and to,  or the  right  to  explore,  use,  lease,
     license,  possess, produce, process, store and transport Hydrocarbons from,
     operate from, or otherwise enjoy, the Mortgaged Property, together with all
     amendments, modifications, extensions and renewals thereof.

          BB.  "Legal  Requirements"  means (i) any and all  present  and future
     judicial  decisions,  statutes,  rulings,  rules,  regulations,   licenses,
     decisions,   orders,   injunctions,   decrees,  permits,   certificates  or
     ordinances  of  any  Governmental   Authority  in  any  way  applicable  to
     Mortgagor,  or  the  Mortgaged  Property,  including  the  ownership,  use,
     occupancy,  operation,  maintenance,  repair or reconstruction thereof, and
     any other Applicable Law enacted by any Governmental  Authority relating to
     health or the  environment,  (ii)  Mortgagor's  presently  or  subsequently
     effective  Organic  Documents,  (iii) any and all Leases,  (iv) any and all
     leases  and  other  contracts  (written  or  oral) of any  nature  to which
     Mortgagor,  or the  Mortgaged  Property  may be  bound  and (v) any and all
     restrictions,  restrictive covenants or zoning,  present and future, as the
     same may apply to the Mortgaged Property.

          CC.  "Lender  Party" or "Lender  Parties"  means,  as the  context may
     require,  the Agent,  any Lender and any Affiliate of any Lender that is an
     issuer under a letter of credit,  and each of their respective  successors,
     transferees and assigns.

          DD. "Loan  Documents"  means the Existing Loan  Documents and the 2002
     Loan Documents.

          EE. "Loan Note" is defined in Section 1.2 of this Mortgage.

          FF. "Losses" is defined in Section 3.10 of this Mortgage.

          GG.  "Maximum  Lawful  Rate"  means the  maximum  nonusurious  rate of
     interest that may be received,  charged or contracted for under  Applicable
     Law from time to time in effect.

          HH.  "Mortgaged  Property" means the properties,  rights and interests
     hereinafter described in Section 1.5 and defined as the Mortgaged Property.

          II. "Mortgagor" is defined in the Preamble of this Mortgage.


                                      -5-
<PAGE>

          JJ.  "Obligations"  means  any and all of the  covenants,  warranties,
     representations   and   other   obligations   (other   than  to  repay  the
     Indebtedness)  made or undertaken by Mortgagor or others to the Agent,  the
     Lender  Parties,  the  Trustees  or  others  as set  forth  in  the  Credit
     Agreements or other Loan Documents.

          KK. "oil and gas leases"  shall  include oil, gas and mineral  leases,
     subleases and assignments thereof, operating rights, and shall also include
     subleases and assignments of operating rights.

          LL. "Operating  Equipment" means all surface or subsurface  machinery,
     goods,  equipment,  fixtures,  inventory,  facilities,  supplies  or  other
     property of whatsoever  kind or nature  (excluding  drilling rigs,  trucks,
     automotive  equipment  or other  property  taken to the premises to drill a
     well or for other similar  temporary  uses) now or hereafter  located on or
     under any of the lands  described  in  Exhibit A which are  useful  for the
     production,  gathering, treatment, processing, storage or transportation of
     Hydrocarbons  (together with all  accessions,  additions and attachments to
     any thereof),  including, but not by way of limitation,  all oil wells, gas
     wells, water wells,  injection wells, casing,  tubing, tubular goods, rods,
     pumping  units  and  engines,   christmas   trees,   platforms,   derricks,
     separators,  compressors,  gun barrels, flow lines, tanks, gas systems (for
     gathering, treating and compression), pipelines (including gathering lines,
     laterals  and  trunklines),   chemicals,   solutions,  water  systems  (for
     treating, disposal and injection), steam generation and injection equipment
     and  systems,  power  plants,  poles,  lines,  transformers,  starters  and
     controllers,  machine  shops,  tools,  storage yards and  equipment  stored
     therein, buildings and camps, telegraph,  telephone and other communication
     systems, roads, loading docks, loading racks and shipping facilities.

          MM.  "Organic   Documents"   means  the  Articles  of   Incorporation,
     Certificate of  Incorporation,  limited  liability  company  certificate of
     formation and regulations or operating  agreement,  partnership  agreement,
     limited partnership agreement,  joint venture agreement, trust agreement or
     other  similar  documents  governing  the  organization  and operation of a
     business association.

          NN. "Permits" means all authorizations, approvals, permits, variances,
     land use entitlements, consents, licenses, franchises and agreements issued
     by or  entered  into  with  any  Governmental  Authority  now or  hereafter
     required for all stages of exploration, developing, operating, and plugging
     and  abandoning oil and gas wells  (including,  without  limitation,  those
     shown on Exhibit A) on all or any part of the lands  described in Exhibit A
     (or any other lands any production  from which, or profits or proceeds from
     such  production,  is attributed to any interest in the lands  described in
     Exhibit A).

          OO. "Permitted  Encumbrances" means the outstanding liens,  easements,
     building  lines,  restrictions,   exceptions,   reservations,   conditions,
     limitations,  security interests and other matters (if any) as reflected on
     Exhibit "B"


                                      -6-
<PAGE>

     attached hereto and the lien and security interests created by the Security
     Documents.

          PP.  "Person"  means any  natural  person,  corporation,  partnership,
     limited  liability   company,   firm,   association,   trust,   government,
     governmental  agency or any other entity,  whether acting in an individual,
     fiduciary or other capacity.

          QQ.  "Personalty"  means  all of the  right,  title  and  interest  of
     Mortgagor  now  owned  or  hereafter  acquired  in and  to  all  furniture,
     furnishings,  Equipment,  machinery,  Goods,  General  Intangibles,  money,
     Accounts,   receivables,   Contract  Rights,   Inventory,  all  refundable,
     returnable or  reimbursable  fees,  deposits or other funds or evidences of
     credit or  indebtedness  deposited  by or on behalf of  Mortgagor  with any
     Governmental  Authority,  agencies,  boards,  corporations,   providers  of
     utility services,  public or private,  including specifically,  but without
     limitation,  all refundable,  returnable or reimbursable tap fees,  utility
     deposits,  commitment  fees and development  costs,  and all other personal
     property  (other than the  Fixtures) of any kind or character as defined in
     and subject to the provisions of Article 9 of the Uniform  Commercial Code,
     now or hereafter located upon, within or about, or used in connection with,
     the  lands   described  in  Exhibit  A,  together  with  all   accessories,
     replacements  and  substitutions  thereto  or  therefor  and  the  Proceeds
     thereof.

          RR.  "Pledge  Agreements"  means the pledge  agreements  executed  and
     delivered  pursuant to Section 6.1.4 of the 2002 Credit Agreement,  as such
     agreements  may be amended,  supplemented,  restated or otherwise  modified
     from time to time.

          SS.  "Production  Sale Contracts"  means  contracts now in effect,  or
     hereafter  entered  into by  Mortgagor,  or  entered  into  by  Mortgagor's
     predecessors  in interest,  for the sale,  purchase,  exchange,  gathering,
     transportation,  treating or processing of  Hydrocarbons  produced from the
     lands described in Exhibit A.

          TT. "Rents and  Revenues"  means all of the rents,  revenues,  income,
     proceeds,  profits  and other  benefits  paid or  payable by parties to the
     Leases other than  Mortgagor  for using,  leasing,  licensing,  possessing,
     operating,  selling or otherwise enjoying the Mortgaged Property, including
     the proceeds from the sale of Hydrocarbons.

          UU. "Security Documents" means the Notes, this Mortgage, the financing
     statements and any and all other  instruments now or hereafter  executed by
     Mortgagor or any other person or party to evidence or secure the payment of
     the  Indebtedness or the performance and discharge of the  Obligations,  as
     any of the foregoing may be amended,  renewed or extended.  Notwithstanding
     that the  definition of Security  Documents  and various of the  components
     thereof include documents that may be amended, renewed or


                                           -7-
<PAGE>

     extended,  such definition shall in no way be construed to suggest that any
     party has agreed (or is obligated) to amend, renew or extend them.

          VV. "2002  Assignment  Agreement"  means that certain  Assignment  and
     Security  Agreement executed and delivered by Calpine Gilroy Cogen, L.P., a
     California  limited  partnership,  pursuant  to  Section  6.1.8 of the 2002
     Credit  Agreement,  substantially  in the  form of  Exhibit  K  hereto,  as
     amended, supplemented, amended and restated or otherwise modified from time
     to time.

          WW. "2002 Loan Agreement" is defined in Section 1.1 of this Mortgage.

          XX. "2002 Lenders" is defined in Section 1.1 of this Mortgage.

          YY.  "2002  Letters of  Credit"  is  defined  in  Section  1.1 of this
     Mortgage.

          ZZ. "2002 Loan Documents"  means the 2002 Credit  Agreement,  the 2002
     Loan Notes, the Pledge  Agreements,  the Guaranty,  the Deeds of Trust, the
     2002  Assignment  Agreement,  the Hazardous  Materials  Indemnity,  the Fee
     Letter, and each other relevant agreement, document or instrument delivered
     in connection therewith.

          AAA. "2002 Loan Notes" is defined in Section 1.1 of this Mortgage.

          BBB.  "Taxes"  means all real  property and personal  property  taxes,
     production taxes, assessments,  permit fees, water, gas, sewer, electricity
     and other utility rates and charges,  charges for any easement,  license or
     agreement  maintained  for the benefit of the Mortgaged  Property,  and all
     other taxes,  charges and assessments and any interest,  costs or penalties
     with respect thereto,  of any kind and nature  whatsoever which at any time
     prior to or after the execution hereof may be charged,  assessed, levied or
     imposed  upon the  Mortgaged  Property  or the  Rents and  Revenues  or the
     ownership, use, occupancy or enjoyment thereof.

          CCC.   "Transportation   Agreements"   shall  mean  any  contracts  or
     agreements entered into from time to time by Mortgagor,  or entered into by
     Mortgagor's  predecessors in interest,  relating to the  transportation  of
     Hydrocarbons,   as  any  such   agreement   or  contract  may  be  amended,
     supplemented, restated or otherwise modified from time to time.

          DDD.  "Trustees"  means the  Trustees  defined in the Preamble of this
     Mortgage and any  successor or substitute  trustee  appointed in accordance
     with the terms hereof.

          EEE.  "Water  Rights"  means  (including   without   limitation  those
     described  in Exhibit A hereto) all now or  hereafter  existing or acquired
     water and water rights,  reservoirs and reservoir rights, ditches and ditch
     rights,  wells and well rights,  whether  evidenced or initiated by permit,
     decree,   well  registration,   appropriation  not  decreed,   water  court
     application, shares of stock or other


                                      -8-
<PAGE>

     interests  in mutual  ditch or  reservoir  companies  or  carrier  ditch or
     reservoir  companies  or  otherwise,  appertaining  or  appurtenant  to  or
     beneficially  used or useful in  connection  with the  lands  described  in
     Exhibit A, together with all pumps,  well  casings,  wellheads,  electrical
     installations,  pumphouses, meters, monitoring wells and systems, measuring
     devices, pipes, pipelines,  and other structures or personal property which
     are or may be used to produce, regulate, measure, distribute, store, or use
     water  from the said  water  and water  rights,  reservoirs  and  reservoir
     rights, ditches and ditch rights, wells and well rights.

          FFF. "Uniform Commercial Code" means the Uniform Commercial Code as in
     effect from time to time in the State of __________ or any other applicable
     state,  and  the  terms  "Accounts",   "Account   Debtor",   "As  Extracted
     Collateral",   "Chattel  Paper",  "Contract  Rights",  "Deposit  Accounts",
     "Documents",  "Electronic Chattel Paper",  "General Intangibles",  "Goods",
     "Equipment",  "Fixtures", "Inventory",  "Instruments", and "Proceeds" shall
     have  the  respective  meanings  assigned  to  such  terms  in the  Uniform
     Commercial Code.

     1.5 Grant. NOW, THEREFORE, Mortgagor, to secure the full and timely payment
of the  Indebtedness  and the full and timely  performance  and discharge of the
Obligations,  has granted,  bargained,  sold,  warranted,  mortgaged,  assigned,
transferred  and  conveyed,  and by these  presents does grant,  bargain,  sell,
warrant, mortgage, assign, pledge and hypothecate,  transfer and convey unto the
Trustees,  IN TRUST,  WITH POWER OF SALE,  for the use and benefit of the Agent,
for itself and as agent for the Lender Parties, all Mortgagor's right, title and
interest,  whether  now  owned  or  hereafter  acquired,  in  and  to all of the
hereinafter  described  properties,  rights and interests;  and, insofar as such
properties,  rights and  interests  consist of Equipment,  General  Intangibles,
Accounts,  As  Extracted  Collateral,   Contract  Rights,  Inventory,  Fixtures,
Proceeds of  collateral  or any other  personal  property of a kind or character
defined in, or subject to the applicable  provisions of, the Uniform  Commercial
Code  (as in  effect  from  time to time in the  appropriate  jurisdiction  with
respect to each of said  properties,  rights and  interests),  Mortgagor  hereby
grants to said Trustees, for the use and benefit of the Agent, for itself and as
agent for the Lender Parties,  a security interest therein to the full extent of
Mortgagor's  legal and  beneficial  interest  therein,  now  owned or  hereafter
acquired, namely:

          (a) the lands  described in Exhibit A, and Leases,  the fee,  mineral,
     overriding  royalty,  royalty and other  interests  which are  described in
     Exhibit A,

          (b) the  presently  existing  and (subject to the terms of Section 3.7
     hereof) hereafter arising unitization, unit operating,  communitization and
     pooling agreements and the properties covered and the units created thereby
     (including, without limitation, all units formed under orders, regulations,
     rules,  approvals,  decisions or other  official  acts of any  Governmental
     Authority) which are specifically described in Exhibit A or which relate to
     any of the properties and interests specifically described in Exhibit A,


                                      -9-
<PAGE>

          (c) the  Hydrocarbons  which are in,  under,  upon,  produced or to be
     produced from or which are  attributed or allocated to the lands  described
     in Exhibit A,

          (d) the Production Sale Contracts,

          (e) the Joint Operating Agreements,

          (f) the Transportation Agreements,

          (g) the Operating Equipment,

          (h) the Permits,

          (i) the Water Rights,

          (j) the Hedging Agreements,

          (k) the Leases,

          (l) the Personalty,

          (m) the Rents and Revenues,

          (n)  without  duplication  of any  other  provision  of this  granting
     clause, Equipment, Fixtures and other Goods necessary or used in connection
     with,   and  Inventory,   Accounts,   As  Extracted   Collateral,   General
     Intangibles,  Contract Rights, Chattel Paper, Deposit Accounts,  Documents,
     Electronic  Chattel  Paper,  Instruments  and  Proceeds  arising  from,  or
     relating to, the properties and other interests described in Exhibit A,

          (o) any and all liens and security interests in Hydrocarbons  securing
     the payment of proceeds  from the sale of  Hydrocarbons,  including but not
     limited to those liens and security interests provided for in Section 9.343
     of the Texas  Business  and  Commerce  Code or  similar  statutes  of other
     jurisdictions or any successor statutes,

together with any and all corrections or amendments to, or renewals,  extensions
or ratifications  of, or replacements or substitutions  for, any of the same, or
any instrument relating thereto, and all accounts,  contracts,  contract rights,
options,  nominee  agreements,  unitization  or  pooling  agreements,  operating
agreements  and  unit  operating  agreements,   processing  agreements,   farmin
agreements, farmout agreements, joint venture agreements, partnership agreements
(including mining partnerships), exploration agreements, bottom hole agreements,
dry  hole  agreements,  support  agreements,  acreage  contribution  agreements,
surface use and surface damage agreements,  net profits  agreements,  production
payment  agreements,  Hedging Agreements,  insurance  policies,  title opinions,
title abstracts, title materials and information, files, records, writings, data
bases, information, systems, logs, well cores,


                                      -10-
<PAGE>

fluid samples, production data and reports, well testing data and reports, maps,
seismic  and   geophysical,   geological  and  chemical  data  and  information,
interpretative and analytical reports of any kind or nature (including,  without
limitation,  reserve  studies and reserve  evaluations),  computer  hardware and
software and all documentation therefor or relating thereto (including,  without
limitation,  all  licenses  relating  to or  covering  such  computer  hardware,
software and/or  documentation),  trade secrets,  trademarks,  service marks and
business names and the goodwill of the business  relating  thereto,  copyrights,
copyright registrations, unpatented inventions, patent applications and patents,
rights-of-way,   franchises,  bonds,  easements,   servitudes,  surface  leases,
permits,  licenses,  tenements,   hereditaments,   appurtenances,   concessions,
occupancy  agreements,  privileges,  development  rights,  condemnation  awards,
claims against third parties,  general intangibles,  rents,  royalties,  issues,
profits,  products and proceeds,  whether now or hereafter  existing or arising,
used or useful in connection with, covering,  relating to, or arising from or in
connection with, any of the aforesaid items (a) through (o), inclusive,  in this
granting clause  mentioned,  and all other things of value and incident  thereto
(including,  without  limitation,  any  and all  liens,  lien  rights,  security
interests and other  properties,  rights and interests) which Mortgagor might at
any time have or be  entitled  to,  but  excluding  any data or  contracts  with
respect to which  mortgaging  or  granting  of a lien or a security  interest is
prohibited by existing third party agreements,

all the aforesaid properties,  rights and interests, together with any additions
thereto  which  may be  subjected  to the lien  and  security  interest  of this
Mortgage by means of supplements hereto, being hereinafter, collectively, called
the "Mortgaged Property".

     Subject,  however, to (i) Permitted  Encumbrances  (including all presently
existing royalties,  overriding royalties,  payments out of production and other
burdens   which  are  referred  to  in  Exhibit  A  and  which  are  taken  into
consideration in computing any percentage, decimal or fractional interest as set
forth in Exhibit A), (ii) the  assignment of production  contained in Article IV
hereof,  but only insofar and so long as said  assignment  of  production is not
inoperative under the provisions of Section 4.5 hereof,  and (iii) the condition
that none of the Trustees,  the Agent nor any of the other Lender  Parties shall
be liable in any  respect for the  performance  of any  covenant  or  obligation
(including,  without limitation,  measures required to comply with Environmental
Laws) of Mortgagor in respect of the Mortgaged Property.

     TO HAVE AND TO HOLD  the  Mortgaged  Property  unto  the  Trustees  for the
benefit of the Agent, for itself and as agent for the Lender Parties, forever to
secure  the  payment  of the  Indebtedness  and to secure  the  performance  and
discharge of the Obligations of Mortgagor herein and therein contained.

     Mortgagor, in consideration of the premises and to induce the Agent and the
Lender  Parties,  as the case may be, to make the Loans and issue the Letters of
Credit, hereby covenants and agrees with each of the Trustees and the Agent, for
itself and as agent for the Lender Parties, as follows:


                                      -11-
<PAGE>

                                   ARTICLE II

                              Indebtedness Secured
                              --------------------

     2.1 Items of Indebtedness  Secured. The following items of indebtedness are
secured hereby:

          (a) The Loan Notes (including future advances to be made thereunder by
     the Agent or the Lenders), the Letter of Credit Outstandings (as defined in
     the  Credit  Agreements)  and all  other  obligations  and  liabilities  of
     Mortgagor under the Credit Agreements;

          (b) All indebtedness  and future advances  evidenced by any promissory
     notes  evidencing any  additional  loans which the Agent or the Lenders may
     from time to time make to Mortgagor,  if any, the Agent and the Lenders not
     being obligated, however, to make such additional loans;

          (c) Any sums  advanced or expenses or costs  incurred by the Trustees,
     the Agent or the Lender Parties,  or by any receiver  appointed  hereunder,
     which are made or incurred  pursuant to, or permitted by, the terms hereof,
     plus  interest  thereon at the rate herein  specified or  otherwise  agreed
     upon,  from the date of the advances or the  incurring of such  expenses or
     costs until reimbursed;

          (d) Any and all other  indebtedness  of Mortgagor or any  Affiliate of
     Mortgagor to the Agent or any Lender Party now or hereafter owing,  whether
     direct or indirect,  primary or secondary,  fixed or  contingent,  joint or
     several,   regardless  of  how  evidenced  or  arising,  including  without
     limitation, all Letters of Credit; and

          (e) Any  extensions,  refinancings,  modifications  or renewals of all
     such indebtedness described in subparagraphs (a) through (d) above, whether
     or not Mortgagor executes any extension agreement or renewal instrument.

     2.2 Indebtedness and the Notes Defined. All the above items of indebtedness
described in subparagraphs (a) through (e) of Section 2.1 hereof are hereinafter
collectively  referred to as the "Indebtedness".  Any promissory note evidencing
any part of the Indebtedness,  including,  without  limitation,  any of the Loan
Notes, is hereinafter referred to as a "Note", and all such promissory notes are
hereinafter referred to collectively as the "Notes".

     2.3 [Maximum  Amount.  The maximum amount of the  Indebtedness  that may be
outstanding  at any time, and from time to time, and secured by this Mortgage is
$__________.]


                                      -12-
<PAGE>

                                  ARTICLE III

                      Particular Covenants, Representations
                      -------------------------------------
                           and Warranties of Mortgagor
                           ---------------------------

     3.1 Payment of the Indebtedness  and Performance of Obligations.  Mortgagor
will duly and  punctually  pay the  Indebtedness,  as and when called for in the
Credit  Agreements  and the  Security  Documents  and on or before the due dates
thereof, and will timely perform and discharge all of the Obligations (including
each and every  obligation  owing on  account of the  Notes),  in full and on or
before the dates same are to be performed and discharged.

     3.2  Certain  Representations  and  Warranties.  Mortgagor  represents  and
warrants  (and  with  respect  to  those  matters  set  forth  in the  following
subsections (b) and (f), as to those portions of the Mortgaged Property that are
operated by persons other than Mortgagor,  Mortgagor  makes such  representation
and warranty to the best of its knowledge) that

          (a) the oil and gas  leases  described  in Exhibit A hereto are valid,
     subsisting  leases,  superior and paramount to all other oil and gas leases
     respecting the properties to which they pertain,

          (b) all producing  wells  located on the lands  described in Exhibit A
     have been drilled,  operated and produced in conformity with all Applicable
     Laws of all Governmental  Authorities having jurisdiction,  and are subject
     to no penalties on account of past  production,  and such wells are in fact
     bottomed  under and are  producing  from,  and the well  bores  are  wholly
     within,  the  lands  described  in  Exhibit A or lands  pooled or  unitized
     therewith,

          (c) Mortgagor,  to the extent of the interest  specified in Exhibit A,
     has  valid  and  indefeasible  title to each  property  right  or  interest
     constituting the Mortgaged  Property  described in Exhibit A and has a good
     and legal right to grant and convey the same to the Trustees; such interest
     entitles  Mortgagor to receive not less than the share of Hydrocarbons from
     such property  indicated as its net revenue interest or "NRI" share of such
     Hydrocarbons, and obligates Mortgagor to pay for not more than the share of
     operating and other costs,  liabilities  and expenses  associated with such
     property  indicated  as its  working  interest or "WI" share of such costs,
     liabilities and expenses,

          (d) the  Mortgaged  Property  is free from all  encumbrances  or liens
     whatsoever,  except for the Permitted  Encumbrances  or as permitted by the
     provisions of Section 3.4(e) hereof,

          (e) Mortgagor is not obligated,  by virtue of any prepayment under any
     contract providing for the sale by Mortgagor of Hydrocarbons which contains
     a "take or pay"  clause  or  under  any  similar  arrangement,  to  deliver
     Hydrocarbons at some future time without then or thereafter  receiving full
     payment therefor,


                                      -13-
<PAGE>

          (f) the Mortgaged Property is currently being operated, maintained and
     developed,  in all material  respects,  in accordance  with all  applicable
     currently  existing  Permits,  Legal  Requirements  and all Applicable Laws
     (including, without limitation, Environmental Laws),

          (g) the cover page to this  Mortgage  lists the correct  legal name of
     Mortgagor and Mortgagor has not been known by any legal name different from
     the one set forth on the cover page of this  Mortgage,  except as set forth
     on Schedule I to this Mortgage; Mortgagor is not now and has not been known
     by any trade  name,  nor has  Mortgagor  been the  subject of any merger or
     other corporate reorganization,

          (h) the  execution,  delivery  and  performance  by  Mortgagor  of the
     Security  Documents and the borrowing  evidenced by the Loan Notes, (i) are
     within  Mortgagor's  corporate  powers  and have  been duly  authorized  by
     Mortgagor's  Board  of  Directors,  shareholders  and all  other  requisite
     corporate  action,   (ii)  have  received  all  (if  any)  requisite  prior
     governmental  approval  and  consent  in order to be  legally  binding  and
     enforceable  in  accordance  with the terms  thereof,  and  (iii)  will not
     violate,  be in conflict with,  result in a breach or constitute  (with due
     notice or lapse of time, or both) a default under, any Legal Requirement or
     result in the creation or imposition of any lien,  charge or encumbrance of
     any nature whatsoever upon any of Mortgagor's property or assets, except as
     contemplated  by the  provisions  of the Security  Documents.  The Security
     Documents  constitute the legal, valid and binding obligations of Mortgagor
     and  others  obligated  under  the  terms  of the  Security  Documents,  in
     accordance with their respective terms, and

          (i) there are no  actions,  suits or  proceedings  pending,  or to the
     knowledge of Mortgagor  threatened,  against or affecting  Mortgagor or the
     Mortgaged Property that could materially  adversely affect Mortgagor or the
     Mortgaged  Property,  or involving the validity or  enforceability  of this
     Mortgage or the priority of the liens and security interests created by the
     Security  Documents,  and no event  has  occurred  (including  specifically
     Mortgagor's execution of the Security Documents and its consummation of the
     Loans described therein) which will violate, be in conflict with, result in
     the breach of, or constitute  (with due notice or lapse of time, or both) a
     material default under, any Legal  Requirement or result in the creation or
     imposition of any lien, charge or encumbrance of any nature whatsoever upon
     any of  Mortgagor's  property  other than the liens and security  interests
     created by the Security Documents.

     3.3 Further  Assurances.  Mortgagor  will  warrant  and forever  defend the
Mortgaged  Property unto the Trustees against every person  whomsoever  lawfully
claiming the same or any part thereof,  subject to Permitted  Encumbrances,  and
Mortgagor  will  maintain and preserve  the lien and  security  interest  hereby
created  so long  as any of the  Indebtedness  remains  unpaid.  Mortgagor  will
execute and deliver  such other and further  instruments  and will do such other
and  further  acts as, in the  opinion  of the  Trustees  or the  Agent,  may be
necessary or desirable to carry out more


                                      -14-
<PAGE>

effectually  the  purposes of this  Mortgage,  including,  without  limiting the
generality  of the  foregoing,  (i) prompt  correction  of any defect  which may
hereafter  be  discovered  in the  title  to the  Mortgaged  Property  or in the
execution and  acknowledgment of this Mortgage,  any Note, or any other document
executed in connection  herewith,  and (ii) prompt execution and delivery of all
notices to parties operating,  purchasing or receiving proceeds of production of
Hydrocarbons  from the Mortgaged  Property,  and all division orders or transfer
orders,  any of  which,  in the  opinion  of the  Agent,  is  needed in order to
transfer  effectually or to assist in transferring  effectually to the Agent the
assigned proceeds of production from the Mortgaged Property.

     3.4 Operation of the Mortgaged Property. So long as the Indebtedness or any
part thereof remains unpaid, and whether or not Mortgagor is the operator of any
particular part of the Mortgaged  Property,  Mortgagor shall, at Mortgagor's own
expense:

          (a) Do all things necessary to keep unimpaired  Mortgagor's  rights in
     the Mortgaged  Property and not, except in the ordinary course of business,
     abandon any well or  forfeit,  surrender  or release  any Lease  capable of
     producing  Hydrocarbons  in paying  quantities,  without the prior  written
     consent of the Agent;

          (b) Obtain  and  maintain  all  required  Permits  and cause the lands
     described  in  Exhibit A to be  maintained,  developed,  protected  against
     drainage,  and operated for the  production of  Hydrocarbons  in a good and
     workmanlike  manner as would a prudent  operator,  and in  accordance  with
     generally accepted industry practices,  Joint Operating Agreements, and all
     Applicable Laws, excepting those being contested in good faith;

          (c) Duly  pay and  discharge,  or  cause  to be paid  and  discharged,
     promptly as and when due and payable,  all rentals and royalties (including
     shut-in  royalties) payable in respect of the Mortgaged  Property,  and all
     expenses  incurred in or arising from the operation or  development  of the
     Mortgaged  Property  not later  than the due date  thereof,  or the day any
     fine, penalty, interest or cost may be added thereto or imposed, or the day
     any lien may be filed, for the non-payment  thereof (if such day is used to
     determine the due date of the respective item);

          (d) Cause the  Operating  Equipment  to be kept in good and  effective
     operating  condition,  ordinary  wear and tear  excepted,  and all repairs,
     renewals,  replacements,  additions  and  improvements  thereof or thereto,
     needful to the  production  of  Hydrocarbons  from the lands  described  in
     Exhibit A, to be promptly made;

          (e) Not, without the prior written consent of the Agent, create, place
     or permit to be created or  placed,  or through  any act or failure to act,
     acquiesce in the placing of, or allow to remain, any mortgage, pledge, lien
     (statutory,  constitutional or contractual), security interest, encumbrance
     or  charge,  or  conditional  sale  or  other  title  retention  agreement,
     regardless  of whether same are expressly  subordinate  to the liens of the
     Security  Documents,  with  respect to


                                      -15-
<PAGE>

     all or any portion of the Mortgaged  Property,  the Leases or the Rents and
     Revenues other than (1) the Permitted Encumbrances,  (2) Taxes constituting
     a lien but not due and payable, (3) defects or irregularities in title, and
     liens,  charges or encumbrances,  which, in the Agent's reasonable opinion,
     are not such as to interfere materially with the development,  operation or
     value of the Mortgaged  Property and not such as to affect materially title
     thereto,  (4) those  being  contested  by  Mortgagor  in good faith in such
     manner as not to jeopardize  the Trustees' and the Agent's rights in and to
     the Mortgaged Property,  (5) those liens permitted by each Section 8.2.3 of
     each of the Credit Agreements, and (6) those consented to in writing by the
     Agent;

          (f) Carry with financially sound and reputable insurance companies and
     in amounts satisfactory to the Agent the following insurance: (1) workmen's
     compensation  insurance and public  liability and property damage insurance
     in  respect of all  activities  in which  Mortgagor  might  incur  personal
     liability  for the death of or injury to an  employee or third  person,  or
     damage to or destruction of another's property;  and (2) to the extent such
     insurance is carried by similar companies  engaged in similar  undertakings
     in the same  general  areas in which the  Mortgaged  Property  is  located,
     insurance in respect of the Operating Equipment,  against loss or damage by
     fire, lightning, hail, tornado, explosion and other similar risks, hazards,
     casualties and contingencies  (including  business  interruption  insurance
     covering loss of Rents and Revenues); provided, that any such insurance may
     be provided by way of self  insurance to the extent that similar  companies
     engaged in similar undertakings in the same general areas also self-insure.
     Each insurance  policy issued in connection  therewith shall provide by way
     of  endorsements,  riders  or  otherwise  that (i) name the Agent as a loss
     payee on all property  insurance  policies and an additional insured on all
     liability  insurance  policies,  and provide that  proceeds  from  property
     insurance policies will be payable to the Agent as its interest may appear,
     which  proceeds  are  hereby  assigned  to the  Agent,  it being  agreed by
     Mortgagor  that such  payments  shall be applied A) if there be no Event of
     Default  existing or which would exist but for due notice or lapse of time,
     or  both,  to the  restoration,  repair  or  replacement  of the  Mortgaged
     Property,  or B) if there be an Event of Default  existing,  or which would
     exist but for due  notice or lapse of time,  or both,  at the option of the
     Agent,  either for the above  stated  purpose or toward the  payment of the
     Indebtedness;  (ii) the  coverage  of the Agent  shall  not be  terminated,
     reduced or affected in any manner  regardless of any breach or violation by
     Mortgagor of any  warranties,  declarations  or  conditions in such policy;
     (iii) no such  insurance  policy  shall be canceled,  endorsed,  altered or
     reissued  to effect a change in  coverage  for any reason and to any extent
     whatsoever unless such insurer shall have first given the Agent thirty (30)
     days prior written notice thereof; and (iv) the Agent may, but shall not be
     obligated   to,  make  premium   payments  to  prevent  any   cancellation,
     endorsement,  alteration or reissuance  and such payments shall be accepted
     by the  insurer  to  prevent  same.  The Agent  shall be  furnished  with a
     certificate  evidencing such coverage in form and content acceptable to the
     Agent.  All policies to be maintained  under this Mortgage are to be issued
     on forms and by companies  and with  endorsements  acceptable to the Agent.



                                      -16-
<PAGE>

     Mortgagor  shall  maintain  insurance  in an amount  sufficient  to prevent
     Mortgagor from becoming a co-insurer  under any policy required  hereunder.
     If Mortgagor  fails to maintain the level of insurance  required under this
     Mortgage,  then Mortgagor shall and hereby agrees to indemnify the Agent to
     the extent that a casualty  occurs and insurance  proceeds  would have been
     available had such insurance been maintained;

          (g) Furnish to the Agent as soon as possible  and in any event  within
     five (5) days after the  occurrence  from time to time of any change in the
     address of Mortgagor's location (as described on the signature page hereto)
     or in the name of Mortgagor, notice in writing of such change;

          (h) Not initiate or acquiesce in any change in any material  zoning or
     other land use or Water  Rights  classification  now or hereafter in effect
     and affecting the Mortgaged Property or any part thereof;

          (i) Notify the Agent in writing as soon as  possible  and in any event
     within five (5) days after it shall become aware of the  occurrence  of any
     Event of Default  under  Section 5.1 or any event which,  with notice,  the
     passage of time or both would be such an Event of Default;

          (j) Appear and defend,  with  counsel  acceptable  to the Agent in its
     reasonable  discretion2,  and hold the Agent  harmless  from,  any  action,
     proceeding  or claim  affecting  the  Mortgaged  Property or the rights and
     powers of the Agent or any of the Trustees  under the  Security  Documents,
     and all  costs  and  expenses  incurred  by the  Agent  in  protecting  its
     interests  hereunder  in such an  event  (including  all  court  costs  and
     attorneys' fees) shall be borne by Mortgagor;

          (k) Subject to Mortgagor's right to contest the same, promptly pay all
     Taxes legally imposed upon this  instrument or upon the Mortgaged  Property
     or upon  the  income  and  profits  thereof,  or upon the  interest  of the
     Trustees, the Agent or the other Lender Parties therein;  provided that the
     Mortgagor  shall not be liable for taxes  accruing  after a transfer of the
     Mortgaged Property following a foreclosure.

          (l) Comply with,  conform to and obey, in all material  respects,  all
     present  and future  Legal  Requirements  and not use,  maintain,  operate,
     occupy,  or allow the use,  maintenance,  operation  or  occupancy  of, the
     Mortgaged  Property in any manner which (a) violates any present and future
     Legal  Requirement,  (b) may be dangerous unless safeguarded as required by
     Applicable Law, (c)  constitutes a public or private  nuisance or (d) makes
     void,  voidable or  cancelable,  or increases the premium of, any insurance
     then in force with respect thereto; and


_______________
2    Calpine will propose revisions to this section.


                                      -17-
<PAGE>

          (m) Not, without the prior written consent of the Agent, permit any of
     the  Fixtures  or  Personalty  to be  removed  at any time  from the  lands
     described in Exhibit A unless (i) the removed  item is removed  temporarily
     for maintenance and repair, (ii) if removed permanently,  is replaced by an
     article of equal suitability and value, owned by Mortgagor,  free and clear
     of any lien or security  interest  except such as may be first  approved in
     writing by the Agent or (iii) such  Fixtures or  Personalty  are removed in
     connection  with the plugging and  abandoning of wells,  or  abandonment of
     other facilities, in each case as permitted by this Mortgage.

     3.5 Performance of Leases.  Mortgagor will: (a) duly and punctually perform
and  comply  with  any  and  all  representations,   warranties,  covenants  and
agreements  expressed  as  binding  upon it under  each of the  Leases;  (b) not
voluntarily  terminate,  cancel or waive its  rights or the  obligations  of any
other party under any of the Leases;  (c) use all reasonable efforts to maintain
each of the Leases in force and effect  during  the full term  thereof;  and (d)
appear in and defend (or cause its  operator to appear in and defend) any action
or proceeding arising under or in any manner connected with any of the Leases or
the  representations,  warranties,  covenants and  agreements of it or the other
party or parties thereto.

     3.6 Recording,  etc. Mortgagor will promptly,  and at Mortgagor's  expense,
record,  register,  deposit and file this and every other instrument in addition
or supplemental hereto in such offices and places and at such times and as often
as may be  necessary  to  preserve,  protect  and  renew  the lien and  security
interest hereof as a first lien on and prior perfected security interest in real
or  personal  property,  as the case may be, and the rights and  remedies of the
Trustees,  of the Agent and of the other Lender  Parties,  and otherwise will do
and observe all things or matters  necessary or expedient to be done or observed
by reason of any  Applicable  Law,  for the  purpose  of  effectively  creating,
maintaining  and preserving the lien and security  interest hereof on and in the
Mortgaged Property.

     3.7 Sale or Mortgage of the Mortgaged Property.  Except (a) as set forth in
Section 7.1 of this Mortgage; (b) as permitted by each Section 8.2.10 of each of
the Credit  Agreements;  (c) for sales of severed  Hydrocarbons  in the ordinary
course  of  Mortgagor's  business;  (d)  sales of or  dispositions  of  surplus,
obsolete or worn inventory or equipment;  and (e) the lien and security interest
created by this Mortgage,  Mortgagor will not sell,  convey,  mortgage,  pledge,
hypothecate,  pool,  unitize or otherwise  dispose of or encumber the  Mortgaged
Property  nor any  portion  thereof,  nor any of  Mortgagor's  right,  title  or
interest  therein,  without first securing the written consent of the Agent; and
Mortgagor will not enter into any arrangement  with any gas pipeline  company or
other consumer of Hydrocarbons regarding the Mortgaged Property whereby said gas
pipeline  company  or  consumer  may set  off any  claim  against  Mortgagor  by
withholding payment for any Hydrocarbons actually delivered.

     3.8 Records,  Statements  and Reports.  Mortgagor will keep proper books of
record  and  account  in which  complete  and  correct  entries  will be made of
Mortgagor's  transactions  in  accordance  with  generally  accepted  accounting
principles and will


                                      -18-
<PAGE>

furnish or cause to be furnished to the Agent such  information  concerning  the
business,  affairs and  financial  condition of Mortgagor as the Trustees or the
Agent may from time to time reasonably request.  Without limiting the generality
of the foregoing, Mortgagor shall furnish to the Agent upon its request, but not
more than every six (6) months: (a) reports prepared by an independent petroleum
engineer  acceptable to the Agent  concerning  (1) the quantity of  Hydrocarbons
recoverable  from the Mortgaged  Property,  (2) the projected income and expense
attributable to the Mortgaged Property,  and (3) the expediency of any change in
methods  of  treatment  or  operation  of  all  or  any  wells   productive   of
Hydrocarbons,  any new drilling or development, any method of secondary recovery
by repressuring or otherwise,  or any other action with respect to the Mortgaged
Property,  the  decision  as to which may  increase  or reduce the  quantity  of
Hydrocarbons  ultimately  recoverable or the rate of production thereof, and (b)
reports  for the  prior  period  showing  the  gross  proceeds  from the sale of
Hydrocarbons  produced  from the lands  described  in Exhibit A  (including  any
thereof  taken by  Mortgagor  for  Mortgagor's  own use),  the  quantity of such
Hydrocarbons  sold, the severance,  gross production,  occupation,  or gathering
taxes deducted from or paid out of such proceeds,  the number of wells operated,
drilled or abandoned,  and such other  information  as the Agent may  reasonably
request (upon request of the Agent,  such reports referred to in clauses (a) and
(b) above shall set forth such  information on a lease or unit basis,  and after
the occurrence of an Event of Default,  and upon the Agent's request,  Mortgagor
shall deliver the reports described in clause (b) on a monthly basis).

     3.9 Right of Entry.

          (a)  Upon  at  least  twenty-four  (24)  hours  notice  to  Mortgagor,
     Mortgagor will permit the Trustees or the Agent, or the agents of either of
     them,  at the cost and expense of  Mortgagor,  to enter upon the  Mortgaged
     Property  and all parts  thereof,  for the  purpose  of  investigating  and
     inspecting the condition and operation thereof, and shall permit reasonable
     access to the field offices and other  offices (to the fullest  extent that
     Mortgagor  may do so under  the  terms of the  applicable  Joint  Operating
     Agreements  and  other  applicable   agreements   affecting  the  Mortgaged
     Property),  including  the  principal  place of  business,  of Mortgagor to
     inspect and  examine  the  Mortgaged  Property  and to inspect,  review and
     reproduce as necessary  any books,  records,  accounts,  contracts or other
     documents of Mortgagor.

     (b) Without limiting the generality of the foregoing,  the Agent shall have
the right (to the fullest extent that Mortgagor may do so under the terms of the
applicable Joint Operating Agreements and other applicable  agreements affecting
the Mortgaged Property), on twenty-four (24) hours prior notice to Mortgagor, to
cause  such  persons  and  entities  as the  Agent  may  designate  to enter the
Mortgaged  Property  to conduct (at the cost and  expense of  Mortgagor),  or to
cause  Mortgagor to conduct (at the cost and expense of  Mortgagor),  such tests
and  investigations  as the Agent  deems  necessary  to  determine  whether  any
hazardous materials or solid waste is being generated,  transported,  stored, or
disposed of in accordance with applicable Environmental Laws. Such tests and


                                      -19-
<PAGE>

investigations may include,  without  limitation,  underground  borings,  ground
water  analyses  and  borings  from  the  floors,  ceilings  and  walls  of  any
improvements  located on the Mortgaged  Property.  This Section 3.9 shall not be
construed to affect or limit the  obligations  of Mortgagor  pursuant to Section
3.4 hereof.

          (c) The Agent  shall  have no duty to visit or observe  the  Mortgaged
     Property, or to conduct tests, and no site visit, observation or testing by
     the Agent (or its  agents and  independent  contractors)  shall  impose any
     liability on the Agent or any other Lender  Party,  nor shall  Mortgagor or
     any other obligor be entitled to rely on any visit,  observation or testing
     by the Agent in any respect. The Agent may, in its discretion,  disclose to
     Mortgagor or any other Person,  including any Governmental  Authority,  any
     report or finding  made as a result  of, or in  connection  with,  any site
     visit, observation or testing by the Agent. Mortgagor agrees that the Agent
     makes no warranty  or  representation  to  Mortgagor  or any other  obligor
     regarding  the  truth,  accuracy  or  completeness  of any such  report  or
     findings  that  may be so  disclosed.  Mortgagor  also  acknowledges  that,
     depending upon the results of any site visit, observation or testing by the
     Agent and disclosed to Mortgagor,  Mortgagor may have a legal obligation to
     notify one or more  Governmental  Authorities  of such  results,  that such
     reporting  requirements  are  site-specific,  and  are to be  evaluated  by
     Mortgagor without advice or assistance from the Agent.

     3.10 Environmental Laws.

          (a) Mortgagor  represents  and warrants,  to the best of its knowledge
     after  due  inquiry,  and  except  as set  forth in each  Item  7.12 of the
     Disclosure Schedule attached to each of the Credit Agreements that:

               (i) the  Mortgaged  Property  is in  compliance  in all  material
          respects  with all  applicable  Environmental  Laws and  there  are no
          conditions  existing  currently  which  would  be  likely  to  subject
          Mortgagor to damages,  penalties,  injunctive  relief or cleanup costs
          under any Environmental Laws or assertions  thereof,  or which require
          or are likely to require  cleanup,  removal,  remedial action or other
          response  pursuant to  Environmental  Laws by Mortgagor;  and all use,
          generation,   manufacturing,  release,  discharge,  storage,  deposit,
          treatment,  recycling or disposal of any materials on, under or at the
          Mortgaged  Property or transported  to or from the Mortgaged  Property
          (or tanks or other facilities  thereon  containing such materials) are
          being and will be conducted  in  accordance  in all material  respects
          with applicable  Environmental Laws including without limitation those
          requiring cleanup, removal or any other remedial action;

               (ii) Mortgagor is not a party to any litigation or administrative
          proceedings,  nor so far as is known by Mortgagor is any litigation or
          administrative  proceeding  threatened  against it,  which  asserts or
          alleges that Mortgagor has violated or is violating Environmental Laws
          or that


                                      -20-
<PAGE>

          Mortgagor  is required to clean up,  remove or take  remedial or other
          responsive action due to the disposal, depositing,  discharge, leaking
          or other release of any hazardous substances or materials; neither the
          Mortgaged  Property nor Mortgagor is subject to any judgment,  decree,
          order or citation related to or arising out of Environmental  Laws and
          neither has been named or listed as a potentially responsible party by
          any Governmental Authority in a matter arising under any Environmental
          Laws; and

               (iii)  Mortgagor  has also  obtained all Permits  required  under
          applicable  Environmental  Laws which are  necessary  for its  current
          exploration, production, transportation, storage, use, and development
          activities at the Mortgaged Property.

          (b) Mortgagor  shall not use or permit the  Mortgaged  Property or any
     part thereof to be used to generate, manufacture, refine, transport, treat,
     store,  handle,  dispose,   transfer,  produce  or  process  any  hazardous
     materials,  except in strict  compliance with all applicable  Environmental
     Laws, nor shall Mortgagor  cause or permit,  as a result of any intentional
     or unintentional  act or omission on the part of Mortgagor or any tenant or
     subtenant, a release of any hazardous materials onto the Mortgaged Property
     or onto  any  other  property.  Mortgagor  shall  comply,  in all  material
     respects,  with all  applicable  Environmental  Laws and shall  obtain  and
     comply with any and all  registrations or Permits required  thereunder.  To
     the extent any  hazardous  materials  are released or  discharged  onto the
     Mortgaged  Property on or after the date of this Mortgage,  Mortgagor shall
     conduct and complete all investigations,  studies,  sampling,  and testing,
     and all  remedial,  removal,  and other  actions  necessary to clean up and
     remove all such  hazardous  materials  on, from, or affecting the Mortgaged
     Property  or  any  part  thereof  (i) in  accordance  with  all  applicable
     Environmental  Laws; (ii) to the  satisfaction  of the Agent;  and (iii) in
     accordance with the orders and directives of all  Governmental  Authorities
     having jurisdiction over the Mortgaged  Property.  Mortgagor shall promptly
     notify  the  Agent of its  receipt  of any  notice  of a  violation  of any
     Environmental Laws.

          (c) Regardless of whether any site assessments are conducted  pursuant
     to this Mortgage,  and without  limiting the liability of Mortgagor for the
     breach of any warranty,  representation or covenant  contained herein or in
     any  other  Security  Document,   and  notwithstanding  any  limitation  of
     liability  contained  in the Note or other  Security  Documents,  Mortgagor
     hereby agrees to unconditionally and absolutely defend,  indemnify and hold
     harmless  the Agent and each of the Lender  Parties,  and their  respective
     employees,  affiliates,  agents and  attorneys,  and the Trustees under the
     Mortgage and any  successors or substitute  trustee under the Mortgage (any
     person to be  indemnified  being herein called the  "Indemnified  Person"),
     from  and  against,  and  be  responsible  for,  any  and  all  liabilities
     (including strict liability),  actions, demands,  penalties,  fines, taxes,
     assessments, losses (including, without limitation, diminution in the value
     of  the  Mortgaged  Property),  costs  and  expenses  (including,   without
     limitation,


                                      -21-
<PAGE>

     attorneys',  paralegals',  accountants' and other experts' and consultants'
     fees and expenses, and remedial costs, including, without limitation, costs
     of monitoring),  suits, damages,  including,  without limitation,  punitive
     damages and foreseeable and unforeseeable  consequential  damages, costs of
     any  settlement  or judgment  and claims  (including,  without  limitation,
     third-party claims for personal injury or real or personal property damage)
     of any and every kind  whatsoever  (hereinafter,  collectively,  called the
     "Losses"),  which  may now or in the  future  (whether  before or after the
     release,  or other  termination  of the  Mortgage  and the  other  Security
     Documents) be paid,  imposed  upon,  incurred or suffered by or asserted or
     awarded against any of the Indemnified Persons or the Mortgaged Property by
     any  person or entity or  Governmental  Authority  for,  with  respect  to,
     arising  out of, or as a direct or  indirect  result of, any one or more of
     the following: (i) the presence or suspected presence, release or suspected
     release of any hazardous materials at, upon, under, within, above, from, by
     or in connection  with the Mortgaged  Property or any portion  thereof,  or
     elsewhere in connection with the  transportation of hazardous  materials to
     or from the Mortgaged Property (including,  without limitation, in the air,
     soil,  groundwater  or surface  water),  or the escape,  seepage,  leakage,
     spillage, discharge, emission or release from the Mortgaged Property of any
     hazardous  materials;  (ii) any  violations of any  Environmental  Laws at,
     upon, under, within, from, by or in connection with the Mortgaged Property;
     (iii) the  environmental  condition  of the  Mortgaged  Property;  (iv) the
     imposition by any  Governmental  Authority of any lien or so-called  "super
     priority  lien" upon the Mortgaged  Property as a result of the presence or
     release of hazardous materials, or any violation of any Environmental Laws,
     at,  upon,  under,  within,  from,  by or  connection  with  the  Mortgaged
     Property;  (v) obligations to remediate hazardous materials  contamination,
     or to  remediate  any  condition  which  constitutes  a  violation  of  any
     Environmental  Laws; (vi) any site  assessments of the Mortgaged  Property;
     (vii)  liability  for personal  injury or property  damage or damage to the
     environment or fines,  penalties and punitive  damages,  resulting from the
     presence  or  release  of  hazardous  materials  or any  violations  of any
     Environmental Laws, at, upon, under, within, from, by or in connection with
     the Mortgaged  Property;  and (viii) any environmental  matter described in
     this Mortgage,  including,  without limitation,  matters arising out of any
     breach of the covenants, representations and warranties set forth herein in
     each instance  described in (i) through (viii) hereof regardless of whether
     any such Losses  arise out of or result  from any breach of the  covenants,
     representations  and  warranties  pertaining to  environmental  matters set
     forth in this Mortgage or the other Security  Documents,  and regardless of
     whether  or not  caused  by or  within  the  control  of  Mortgagor  or any
     Indemnified  Person;  or whether any such matters arise  before,  during or
     after any  foreclosure  of the  Mortgage or other taking of title to all or
     any  portion of the  Mortgaged  Property  or the  enforcement  of any other
     remedies under the Security Documents (if any such event occurs).  [WITHOUT
     LIMITATION,  THE FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON
     WITH RESPECT TO LOSSES WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT
     OF THE SOLE, CONCURRENT OR COMPARATIVE NEGLIGENCE OR THE STRICT


                                      -22-
<PAGE>

     LIABILITY OF ANY SUCH INDEMNIFIED  PERSON,  BUT NOT THE GROSS NEGLIGENCE OR
     WILLFUL  MISCONDUCT OF ANY SUCH  INDEMNIFIED  PERSON.3] The following shall
     apply to that portion of the Mortgaged Property located in the State of New
     Mexico: To the extent the foregoing indemnity is governed by Section 56-7-1
     NMSA (1978), said indemnity shall not extend to liability, claims, damages,
     losses  or  expenses,  including  attorneys  fees,  arising  out of (a) the
     preparation  or approval of maps,  drawings,  opinions,  reports,  surveys,
     change orders,  designs or specifications by an Indemnified  Person, or (b)
     the  giving of or the  failure to give  directions  or  instructions  by an
     Indemnified  Person  where such  giving or failure  to give  directions  or
     instructions  is the primary cause of bodily injury to persons or damage to
     property.  To the extent the  foregoing  indemnity  is  governed by Section
     56-7-2  NMSA  (1978),  said  indemnity  shall not extend to (a) the sole or
     concurrent  negligence of an Indemnified Person, (b) the sole or concurrent
     negligence of an independent  contractor who is directly  responsible to an
     Indemnified  Person,  or (c) an accident that occurs in operations  carried
     on, at the direction,  or under the supervision of an Indemnified Person or
     in accordance with methods and means specified by an Indemnified Person.

          (d)  Notwithstanding  the foregoing or any contrary  provision hereof,
     Mortgagor's  indemnification  obligations  set forth in this  Section  3.10
     shall  not  extend to any such  Losses  which  are  attributable  solely to
     contamination  by hazardous  materials  first  introduced  to the Mortgaged
     Property  after a foreclosure  of this Mortgage or other taking of title to
     the Mortgaged Property by any of Indemnified Persons.

          (e)  The   indemnification   provided  in  this   Section  3.10  shall
     specifically apply to and include claims or actions brought by or on behalf
     of tenants or employees of Mortgagor.  Mortgagor  hereby  expressly  waives
     (with respect to any claims of any  Indemnified  Person  arising under this
     Section  3.10) any immunity to which  Mortgagor  may  otherwise be entitled
     under any industrial or worker's compensation laws.

          (f) In the event any of the Indemnified  Persons shall suffer or incur
     any such Losses,  Mortgagor shall pay to such Indemnified Persons the total
     of all such Losses  suffered or incurred  within ten (10) days after demand
     therefore.

          (g) Mortgagor agrees that the representations,  covenants,  warranties
     and  indemnifications  contained in this Mortgage shall survive the release
     of the  Mortgage,  the  foreclosure  or the  taking  of a deed  in  lieu of
     foreclosure, other termination of the lien of the Mortgage, or the exercise
     by the  Agent of any  other  remedies  under the  Security  Documents,  the
     discharge  of  Mortgagor's  Obligations  under  any of the  other  Security
     Documents,  or any transfer of the


_______________
3    In  certain  states  the  Indemnification  provisions  should  appear  in a
     separate document.


                                      -23-
<PAGE>

     Mortgaged Property, even if as a part of such foreclosure,  deed in lieu of
     foreclosure or other enforcement  action,  the Indebtedness is satisfied in
     full.

     3.11 Corporate  Mortgagor.  Mortgagor will continue to be duly qualified to
transact business in each state where the conduct of its business requires it to
be  qualified,  and will not,  without the prior  written  consent of the Agent,
consolidate or merge with any other partnership,  company,  corporation or other
Person.

     3.12 Taxpayer I.D. Number. The taxpayer  identification number of Mortgagor
is 77-0212977. The taxpayer identification number of the Agent is 13-494-1099.

                                   ARTICLE IV

Assignment of Production4

     4.1 Assignment.

          (a) Mortgagor hereby transfers,  assigns,  warrants and conveys to the
     Agent,  effective  as of [Month] 1, 2002,  at 7:00 A.M.,  local  time,  all
     Hydrocarbons  which are  thereafter  produced  from and which accrue to the
     Mortgaged  Property,  and all proceeds  therefrom.  Subject to the terms of
     Section  4.1(b),  all parties  producing,  purchasing or receiving any such
     Hydrocarbons,  or having such, or proceeds  therefrom,  in their possession
     for which  they or  others  are  accountable  to the Agent by virtue of the
     provisions  of this  Article IV, are  authorized  and directed to treat and
     regard the Agent as the assignee and  transferee  of Mortgagor and entitled
     in  Mortgagor's  place  and  stead to  receive  such  Hydrocarbons  and all
     proceeds  therefrom;  and  said  parties  and  each of them  shall be fully
     protected  in so  treating  and  regarding  the Agent and shall be under no
     obligation to see to the  application  by the Agent of any such proceeds or
     payments  received by it;  provided,  however,  that, until the Agent shall
     have instructed such parties to deliver such  Hydrocarbons and all proceeds
     therefrom  directly to the Agent, such parties shall be entitled to deliver
     such  Hydrocarbons and all proceeds  therefrom to Mortgagor.  So long as no
     Default  (as  defined  in the  Credit  Agreements),  shall  have  occurred,
     Mortgagor  shall be entitled to keep and retain all such  proceeds from the
     sale of such Hydrocarbons.

          (b) Upon a Default (it being understood that the  determination of the
     occurrence of a Default by the Agent shall be conclusive  and binding as to
     all such parties for all purposes  hereof),  the Agent may at any time (and
     from time to time)  thereafter give notice thereof to any party  producing,
     purchasing or receiving any such Hydrocarbons,  or having such, or proceeds
     therefrom,  in their possession for which they or others are accountable to
     the  Agent,  directing  that  said  Hydrocarbons  and  products  are  to be
     delivered into pipelines connected


_______________
4    Mechanics of the assignment  subject to discussions with local counsel.  In
     some  states,  this should be absolute in form,  in others,  it may be more
     appropriate as an assignment for security purposes.


                                      -24-
<PAGE>

     with the oil and gas leases, or to the purchaser thereof, free and clear of
     all  Taxes,  and the  proceeds  from  the  sale of such  Hydrocarbons  paid
     directly to the Agent in  accordance  with  Section  4.5 of this  Mortgage.
     Mortgagor  agrees to perform all such acts, and to execute all such further
     assignments, transfers and division orders, and other instruments as may be
     required  or  desired  by the  Agent or any  party  in  order to have  said
     revenues and proceeds so paid to the Agent.  The Agent is fully  authorized
     to receive and give receipt for said revenues and proceeds;  to endorse and
     cash any and all checks and drafts payable to the order of Mortgagor or the
     Agent for the account of Mortgagor received from or in connection with said
     revenues or proceeds  and apply the  proceeds  thereof in  accordance  with
     Section 4.2 hereof, and to execute transfer and division orders in the name
     of Mortgagor, or otherwise, with warranties binding Mortgagor.

     4.2 Application of Proceeds. All payments received by the Agent pursuant to
Section 4.1 hereof shall be placed in a cash collateral account at the Agent and
on the last business day of each calendar month applied as follows:

          First:  To the  payment  and  satisfaction  of all costs and  expenses
     incurred in connection  with the  collection of such  proceeds,  and to the
     payment of all items of the  Indebtedness and the Obligations not evidenced
     by any Note.

          Second:  To the payment of the  interest  on the Notes  accrued to the
     date of such payment.

          Third:  To the payment of the amounts of principal  then due and owing
     on the Notes.

          Fourth:  The  balance,  if any,  shall  either be  applied on the then
     unmatured principal amounts of the Notes, such application to be on such of
     the Notes and  installments  thereof  as the Agent may  select,  or, at the
     option of the Agent, released to Mortgagor.

     4.3 No Liability of the Agent in Collecting.  The Agent is hereby  absolved
from all liability for failure to enforce collection of any proceeds so assigned
(and no such  failure  shall be  deemed to be a waiver of any right of the Agent
under  this  Article  IV)  and  from  all  other  responsibility  in  connection
therewith,  except the responsibility to account to Mortgagor for funds actually
received.

     4.4  Assignment  Not a Restriction  on the Agent's  Rights.  Nothing herein
contained  shall  detract from or limit the absolute  obligation of Mortgagor to
make payment of the Indebtedness  regardless of whether the proceeds assigned by
this  Article  IV are  sufficient  to pay the same,  and the  rights  under this
Article IV shall be in addition to all other security now or hereafter  existing
to secure the payment of the Indebtedness.

     4.5 Status of  Assignment.  Notwithstanding  the other  provisions  of this
Article IV and in addition to the other  rights  hereunder,  the  Trustees,  the
Agent or any receiver  appointed in judicial  proceedings for the enforcement of
this Mortgage shall have the


                                      -25-
<PAGE>

right to  receive  all of the  Hydrocarbons  herein  assigned  and the  proceeds
therefrom after the occurrence and during the continuance of any Default and, in
any event,  after any Note or other item of  Indebtedness  has been declared due
and payable in accordance with the provisions of Section 5.1 hereof and to apply
all of said  proceeds as  provided  in Section 4.2 hereof.  Upon any sale of the
Mortgaged  Property or any part thereof pursuant to Article VI, the Hydrocarbons
thereafter produced from the property so sold, and the proceeds therefrom, shall
be included in such sale and shall pass to the  purchaser  free and clear of the
assignment contained in this Article IV.

     4.6 Indemnification  Obligations.  The following provisions shall apply to,
and be deemed in each case to modify,  each of the  provisions  of this Mortgage
(except those set forth in Section 3.10 hereof) and the other Security Documents
(except to the extent otherwise expressly provided therein) wherein Mortgagor is
obligated to indemnify each of the Indemnified Persons:

          (a)  Mortgagor  agrees to indemnify the Trustees and the Agent against
     all  legal   and   administrative   proceedings   for  which  a  claim  for
     indemnification   may  be  made   by  the   Indemnified   Person   (herein,
     collectively,  called "Indemnification Claims") made against or incurred by
     them or any of them as a  consequence  of the  assertion,  either before or
     after the  payment  in full of the  Indebtedness,  that they or any of them
     received  Hydrocarbons  herein assigned or the proceeds  thereof claimed by
     third persons and the Trustees and the Agent shall have the right to defend
     against any such Indemnification Claims,  employing attorneys therefor, and
     unless furnished with reasonable indemnity,  they or any of them shall have
     the right to pay or compromise and adjust all such Indemnification  Claims.
     Mortgagor  will  indemnify and pay to the Trustees or the Agent any and all
     such  amounts as may be paid in respect  thereof or as may be  successfully
     adjudged against the Trustees and the Agent or any of them. The obligations
     of Mortgagor as hereinabove set forth in this Section 4.6 shall survive the
     release termination, foreclosure or assignment of this Mortgage or any sale
     hereunder.

          (b)  Mortgagor  shall pay when due any  judgments  with  respect to an
     Indemnification  Claim against any of the Indemnified Persons and which are
     rendered  by a final order or decree of a court of  competent  jurisdiction
     from  which no further  appeal  may be taken or has been  taken  within the
     applicable  appeal period.  In the event that such payment is not made, any
     of the  Indemnified  Persons  at its  sole  discretion  may  pay  any  such
     judgments,  in whole or in part,  and look to Mortgagor  for  reimbursement
     pursuant to this Mortgage, or may proceed to file suit against Mortgagor to
     compel such payment.

          (c) Any  amount  which  Mortgagor  is  obligated  to pay to or for the
     benefit of an Indemnified Person with respect to an Indemnification  Claim,
     but which is not paid when due,  shall bear interest at the default or post
     maturity  rate of  interest  provided  for in the Note  from the date  such
     amount is due until such amount is paid.


                                      -26-
<PAGE>

                                   ARTICLE V

                                Events of Default
                                -----------------

     5.1 Events of Default  Hereunder.  In case any one or more of the following
events of default (each,  an "Event of Default")  shall occur and shall not have
been remedied:

          (a) default in the payment of principal of or interest on any Note, or
     in the  payment  of  any  other  Indebtedness  or in  the  performance  and
     discharge of the Obligations secured hereby, when due;

          (b) the  occurrence of an event of default (other than any relating to
     non-payment  of  principal  of or interest on any Note) under the terms and
     provisions of either Credit  Agreement and the continuance of such event of
     default for the applicable period of grace, if any;

          (c) any  warranty or  representation  made by  Mortgagor  herein shall
     prove to be untrue in any  material  respect  as of the date made or deemed
     made; or

          (d) failure by Mortgagor,  within the applicable  period of grace,  if
     any, to cure a default in the due performance or observance of any covenant
     or agreement  contained in this Mortgage and not  constituting a default in
     the payment of principal of or interest  upon any Note or in the payment of
     any other Indebtedness;

then and in any such event the Agent,  at its  option,  may  enforce  any of the
provisions of Article VI hereof,  without any notice or demand of any kind, both
of which are hereby expressly waived.

                                   ARTICLE VI

                           Enforcement of the Security
                           ---------------------------

     6.1  Acceleration.  Upon the  occurrence of an Event of Default and if such
Event of Default  shall be  continuing,  the  Trustees  shall have the right and
power to declare  the then  unpaid  principal  balance on the Note,  the accrued
interest  and any other  accrued but unpaid  portion of the  Indebtedness  to be
immediately  due and payable,  without  further  notice,  presentment,  protest,
demand or action of any nature  whatsoever  (each of which  hereby is  expressly
waived by  Mortgagor),  whereupon  the same  shall  become  immediately  due and
payable.

     6.2 Title  Examination.  Upon the  occurrence of an Event of Default and if
such Event of Default shall be continuing, the Trustees shall have the right and
power to cause to be brought down to date a title  examination and tax histories
of the  Mortgaged  Property,  procure  title  opinions  or title  reports or, if
necessary, procure new abstracts and tax histories.


                                      -27-
<PAGE>

     6.3 Environmental  Audit. Upon the occurrence of an Event of Default and if
such Event of Default shall be continuing, the Trustees shall have the right and
power to procure an updated or entirely new environmental audit of the Mortgaged
Property  including the lands  described in Exhibit A, buildings,  soil,  ground
water and subsurface investigations; have the buildings inspected by an engineer
or other qualified inspector;  enter upon the Mortgaged Property at any time and
from time to time to show the  Mortgaged  Property to potential  purchasers  and
potential  bidders at foreclosure  sale; make available to potential  purchasers
and potential bidders all information obtained pursuant to the foregoing and any
other  information  in the  possession  of the  Agent  regarding  the  Mortgaged
Property.

     6.4 Power of Sale of Real  Property  Constituting  a Part of the  Mortgaged
Property.  Upon  the  occurrence  of an Event of  Default  and if such  Event of
Default  shall be  continuing,  the  Trustees  shall have the right and power to
sell,  to the extent  permitted by Applicable  Law, at one or more sales,  as an
entirety or in parcels, as they may elect, the real property constituting a part
of the Mortgaged Property,  at such place or places and otherwise in such manner
and upon such notice as may be required by Applicable Law, or, in the absence of
any  such  requirement,  as the  Trustees  may  deem  appropriate,  and to  make
conveyance to the purchaser or purchasers;  and Mortgagor shall warrant title to
such real property to such  purchaser or  purchasers.  The Trustees may postpone
the sale of all or any portion of such real property by public  announcement  at
the time and place of such sale,  and from time to time  thereafter  may further
postpone such sale by public  announcement made at the time of sale fixed by the
preceding  postponement.  The right of sale hereunder  shall not be exhausted by
one or any sale, and the Trustees may make other and successive  sales until all
of the trust estate be legally sold.  With respect to that  portion,  if any, of
the Mortgaged  Property  situated in the State of Wyoming,  this Mortgage may be
foreclosed by advertisement and sale as provided by applicable Wyoming statutes.
With respect to that portion,  if any, of the Mortgaged Property situated in the
State of  Oklahoma,  the Agent  shall  have the right and power at its option to
declare the  Indebtedness  secured hereby due and payable and to sell, or direct
the  Trustees  to sell,  the "real  estate,"  as such term is defined  under the
provisions of 46 O.S. Supp.  1986,  ss.42,  constituting a part of the Mortgaged
Property,  all under the terms of 46 O.S. Supp.  1986, ss.40 et seq., and shall,
to the extent  permitted by Applicable  Law, have the other rights  conferred on
the Trustees under the provisions of this Mortgage.

     6.5 Rights of the Trustees with Respect to Personal Property Constituting a
Part of the Mortgaged  Property.  Upon the occurrence of an Event of Default and
if such Event of Default shall be continuing,  the Trustees will have all rights
and  remedies  granted  by  Applicable  Law,  and  particularly  by the  Uniform
Commercial Code, including,  but not limited to, the right to take possession of
all personal  property  constituting a part of the Mortgaged  Property,  and for
this  purpose the Trustees or the Agent may enter upon any premises on which any
or all of such personal  property is situated and take possession of and operate
such  personal  property (or any portion  thereof) or remove it  therefrom.  The
Trustees or the Agent may require  Mortgagor to assemble such personal  property
and make it available  to the Trustees or the Agent at a place to be  designated
by the Trustees or the Agent which is reasonably convenient to all parties.



                                      -28-
<PAGE>

Unless such personal  property is perishable or threatens to decline speedily in
value or is of a type customarily sold on a recognized  market,  the Trustees or
the Agent  will give  Mortgagor  reasonable  notice of the time and place of any
public sale or of the time after which any private sale or other  disposition of
such personal  property is to be made.  This  requirement of sending  reasonable
notice will be met if the notice is mailed by first-class mail, postage prepaid,
to  Mortgagor  at the  address  shown  below the  signatures  at the end of this
Mortgage at least five (5) days before the time of the sale or disposition.

     6.6 Rights with Respect to Fixtures  Constituting  a Part of the  Mortgaged
Property.  Upon  the  occurrence  of an Event of  Default  and if such  Event of
Default  shall be  continuing,  the  Trustees  may elect to treat  the  fixtures
constituting a part of the Mortgaged Property as either real property collateral
or personal  property  collateral  and then  proceed to exercise  such rights as
apply to such type of collateral.

     6.7 Judicial Proceedings. Upon the occurrence of an Event of Default and if
such  Event of  Default  shall be  continuing,  the  Trustees,  in lieu of or in
addition to exercising  any power of sale  hereinabove  given,  may proceed by a
suit or suits in equity or at law, whether for a foreclosure  hereunder for each
or upon credit in one or more  parcels or portions  under  executory or ordinary
process, at the Agent's sole option,  without  appraisement  (appraisement being
expressly  waived),  or for  the  sale  of the  Mortgaged  Property,  or for the
specific  performance of any covenant or agreement herein contained or in aid of
the execution of any power herein granted,  or for the appointment of a receiver
pending any foreclosure  hereunder or the sale of the Mortgaged Property, or for
the enforcement of any other appropriate  legal or equitable  remedy.  Mortgagor
hereby acknowledges the Indebtedness secured hereby,  whether now existing or to
arise  hereafter,  and  confesses  judgment  thereon  in the full  amount of the
Indebtedness in favor of the Agent and any future holder or holders of the Notes
if such obligations are not paid at maturity.

     6.8 Possession of the Mortgaged Property. It shall not be necessary for the
Trustees  or the Agent to have  physically  present or  constructively  in their
possession  at any sale  held by the  Trustees  or the  Agent  or by any  court,
receiver or public officer any or all of the Mortgaged  Property;  and Mortgagor
shall  deliver to the  purchasers at such sale on the date of sale the Mortgaged
Property  purchased  by  such  purchasers  at such  sale,  and if it  should  be
impossible or  impracticable  for any of such purchasers to take actual delivery
of the  Mortgaged  Property,  then the  title  and  right of  possession  to the
Mortgaged Property shall pass to such purchaser at such sale as completely as if
the same had been actually present and delivered.

     6.9 Certain Aspects of a Sale. The Agent shall have the right to become the
purchaser at any sale held by the  Trustees or by any court,  receiver or public
officer, and the Agent shall have the right to credit upon the amount of the bid
made  therefor  the amount  payable out of the net  proceeds of such sale to it.
Recitals  contained  in any  conveyance  made to any  purchaser at any sale made
hereunder  shall  conclusively  establish  the truth and accuracy of the matters
therein  stated,  including,  without  limiting the generality of the foregoing,
nonpayment  of the unpaid  principal  sum of, and the  interest  accrued on, the
Notes, after the same have become due and payable,


                                      -29-
<PAGE>

advertisement  and  conduct  of  such  sale in the  manner  provided  herein  or
appointment of any successor Trustee hereunder.

     6.10 Receipt to Purchaser.  Upon any sale,  whether made under the power of
sale herein  granted and  conferred  or by virtue of judicial  proceedings,  the
receipt  of  the  Trustees,  or  of  the  officer  making  sale  under  judicial
proceedings, shall be sufficient discharge to the purchaser or purchasers at any
sale for his or their purchase money,  and such purchaser or purchasers,  or his
or their  assigns or  personal  representatives,  shall not,  after  paying such
purchase  money and  receiving  such  receipt of the Trustees or of such officer
therefor,  be obliged to see to the application of such purchase money, or be in
anywise answerable for any loss, misapplication or nonapplication thereof.

     6.11 Effect of Sale. Any sale or sales of the Mortgaged  Property,  whether
under the power of sale herein  granted and  conferred  or by virtue of judicial
proceedings,  shall  operate  to divest all right,  title,  interest,  claim and
demand  whatsoever  either at law or in equity,  of Mortgagor  of, in and to the
premises and the property sold, and shall be a perpetual bar, both at law and in
equity,  against Mortgagor,  and Mortgagor's  successors or assigns, and against
any and all  persons  claiming or who shall  thereafter  claim all or any of the
property  sold from,  through or under  Mortgagor or  Mortgagor's  successors or
assigns. Nevertheless, Mortgagor, if requested by the Agent so to do, shall join
in the  execution  and  delivery  of all  proper  conveyances,  assignments  and
transfers of the properties so sold.

     6.12  Application  of Proceeds.  The proceeds of any sale of, and the Rents
and Revenues and other amounts generated by the holding,  leasing,  operation or
other use of,  the  Mortgaged  Property  shall be  applied  by the Agent (or the
receiver,  if one is  appointed)  to the  extent  that  funds  are so  available
therefrom in the following orders of priority:

          (a)  first,  to the  payment  of the  costs  and  expenses  of  taking
     possession  of the  Mortgaged  Property  and of  holding,  using,  leasing,
     repairing,  improving and selling the same, including,  without limitation,
     (i) trustees' and receivers'  fees, (ii) court costs,  (iii) attorneys' and
     accountants' fees, (iv) costs of advertisement,  and (v) the payment of any
     and all  Taxes,  liens,  security  interests  or  other  rights,  title  or
     interests  equal or  superior  to the lien and  security  interest  of this
     Mortgage  (except  those to which  the  Mortgaged  Property  has been  sold
     subject to and without in any way implying the Agent's prior consent to the
     creation thereof);

          (b)  second,  to the  payment  of all  amounts,  other than the unpaid
     principal  balance and accrued but unpaid  interest due on the Note,  which
     may be due to the  Agent  or the  Lenders  under  the  Security  Documents,
     together with interest thereon as provided therein;

          (c) third,  to the payment of all accrued but unpaid  interest  due on
     the Note;


                                      -30-
<PAGE>

          (d) fourth,  to the payment of the unpaid principal balance due on the
     Note in the inverse order of maturity,  and interest  shall cease as to the
     amount so paid;

          (e) fifth, to the extent funds are available  therefor out of the sale
     proceeds or the Rents and Revenues and to the extent known by the Agent, to
     the payment of any  indebtedness  or  obligation  secured by a  subordinate
     Mortgage on or security interest in the Mortgaged Property; and

          (f) sixth, to Mortgagor or Mortgagor's successors or assigns, as their
     interests shall appear.

     6.13  Mortgagor's  Waiver of  Appraisement,  Marshalling  and Other Rights.
Mortgagor  agrees, to the full extent that Mortgagor may lawfully so agree, that
Mortgagor  will not at any time insist  upon or plead or in any manner  whatever
claim the benefit of any appraisement,  valuation, stay, extension or redemption
law now or hereafter in force,  in order to prevent or hinder the enforcement or
foreclosure  of this Mortgage or the absolute sale of the Mortgaged  Property or
the  possession  thereof  by any  purchaser  at any sale  made  pursuant  to any
provision  hereof,  or  pursuant  to  the  decree  of  any  court  of  competent
jurisdiction;  but  Mortgagor,  for  Mortgagor  and all who may claim through or
under  Mortgagor,  so far as  Mortgagor  or  those  claiming  through  or  under
Mortgagor now or hereafter  lawfully may,  hereby waives the benefit of all such
laws;  provided,  however,  that  appraisement of any of the Mortgaged  Property
located  in the State of  Oklahoma  is hereby  expressly  waived or not,  at the
option of the Trustees,  such option to be exercised prior to or at the time the
judgment is rendered in any foreclosure hereof. Mortgagor, for Mortgagor and all
who may claim through or under Mortgagor,  waives,  to the extent that Mortgagor
may lawfully do so, any and all right to have the Mortgaged Property  marshalled
upon any foreclosure of the lien hereof, or sold in inverse order of alienation,
and agrees that the  Trustees,  the Agent or any court  having  jurisdiction  to
foreclose such lien may sell the Mortgaged  Property as an entirety.  Mortgagor,
for Mortgagor and all who may claim through or under Mortgagor,  further waives,
to the full extent  that  Mortgagor  may  lawfully  do so, any  requirement  for
posting a receiver's  bond or replevin bond or other similar type of bond if the
Trustees  or the Agent  commence an action for  appointment  of a receiver or an
action for replevin to recover possession of any of the Mortgaged  Property.  If
any law in this paragraph  referred to and now in force,  of which  Mortgagor or
Mortgagor's  successor or successors might take advantage despite the provisions
hereof,  shall hereafter be repealed or cease to be in force, such law shall not
thereafter be deemed to constitute any part of the contract herein  contained or
to preclude the operation or application  of the  provisions of this  paragraph.
Pursuant to Section  39-5-19,  New Mexico  Statutes,  Annotated,  1978 Comp., as
amended,  Mortgagor  agrees that as to the  Mortgaged  Property  situated in the
State of New Mexico,  the redemption period shall be shortened to one (1) month.
Mortgagor  hereby  waives  all  rights  of  appraisement,   sale,  homestead  or
redemption  allowed  under  any  law or  laws  of the  State  of  Arkansas,  and
especially  redemption  under the Act of the  General  Assembly  of the State of
Arkansas approved May 8, 1899, and acts amendatory  thereto.  If Mortgagor is an
individual, Mortgagor


                                      -31-
<PAGE>

waives and releases all rights of dower, courtesy and homestead in the Mortgaged
Property  insofar as such  rights may in any way  affect  the  purposes  of this
Mortgage.

     6.14 Costs and Expenses. All costs and expenses (including attorneys' fees)
incurred by the Trustees or the Agent in protecting  and enforcing  their rights
hereunder shall  constitute a demand  obligation owing by Mortgagor to the party
incurring  such costs and  expenses  and shall draw  interest  at an annual rate
equal to the  highest  rate of interest  from time to time  accruing on the Loan
Note plus one percent (1%) until paid,  all of which shall  constitute a portion
of the Indebtedness.

     6.15 Sale of the Mortgaged  Property in Texas. If any Note is not paid when
due,  whether by acceleration or otherwise,  the Trustees are hereby  authorized
and empowered to sell any part of the Mortgaged Property located in the State of
Texas at public  sale to the  highest  bidder for cash in the area at the county
courthouse  of the county in Texas in which the Texas  portion of the  Mortgaged
Property or any part thereof is situated,  as herein  described,  designated  by
such county's  commissioner's  court for such  proceedings,  or if no area is so
designated,  at the door of the  county  courthouse  of said  county,  at a time
between the hours of 10:00 A.M.  and 4:00 P.M.  which is no later than three (3)
hours after the time  stated in the notice  described  immediately  below as the
earliest  time at which such sale would occur on the first Tuesday of any month,
after  advertising the earliest time at which said sale would occur,  the place,
and terms of said sale, and the portion of the Mortgaged Property to be sold, by
(a) posting (or by having some person or persons  acting for the Trustees  post)
for at least  twenty-one  (21) days  preceding the date of the sale,  written or
printed  notice of the proposed  sale at the  courthouse  door of said county in
which the sale is to be made; and if such portion of the Mortgaged Property lies
in more  than one  county,  one such  notice  of sale  shall  be  posted  at the
courthouse  door of each county in which such part of the Mortgaged  Property is
situated and such part of the Mortgaged  Property may be sold in the area at the
county  courthouse  of any  one of such  counties  designated  by such  county's
commissioner's  court for such proceedings,  or if no area is so designated,  at
the courthouse door of such county,  and the notice so posted shall designate in
which county such  property  shall be sold,  and (b) filing in the office of the
county  clerk of each  county  in which  any part of the  Texas  portion  of the
Mortgaged  Property  which is to be sold at such sale is  situated a copy of the
notice posted in accordance  with the preceding  clause (a). In addition to such
posting  and filing of  notice,  the Agent or other  holder of the  Indebtedness
shall, at least  twenty-one (21) days preceding the date of sale, serve or cause
to be served  written notice of the proposed sale by certified mail on Mortgagor
and on each other debtor, if any, obligated to pay the Indebtedness according to
the records of the Agent or other  holder of the  Indebtedness.  Service of such
notice  shall be completed  upon  deposit of the notice,  enclosed in a postpaid
wrapper  properly  addressed to Mortgagor  and such other  debtors at their most
recent address or addresses as shown by the records of the Agent or other holder
of the  Indebtedness in a post office or official  depository under the care and
custody of the United States Postal Service.  The affidavit of any person having
knowledge of the facts to the effect that such a service was completed  shall be
prima facie evidence of the fact of service.  Mortgagor agrees that no notice of
any sale, other than as set out in this Section,  need be given by the Trustees,
the Agent or any other person, except as may


                                      -32-
<PAGE>

otherwise be required by  Applicable  Law.  Mortgagor  hereby  designates as its
address for the purpose of such notice the address set out on the signature page
hereof;  and agrees that such address shall be changed only by depositing notice
of such  change  enclosed  in a postpaid  wrapper in a post  office or  official
depository  under the care and  custody of the  United  States  Postal  Service,
certified mail,  postage  prepaid,  return receipt  requested,  addressed to the
Agent or other holder of the  Indebtedness  at the address for the Agent set out
herein  (or  to  such  other  address  as  the  Agent  or  other  holder  of the
Indebtedness  may have designated by notice given as above provided to Mortgagor
and such other  debtors).  Any such notice of change of address of  Mortgagor or
other  debtors or of the Agent or of other holder of the  Indebtedness  shall be
effective  three (3)  business  days after such  deposit if such post  office or
official depository is located in the State of Texas,  otherwise to be effective
upon receipt.  Mortgagor  authorizes and empowers the Trustees to sell the Texas
portion of the  Mortgaged  Property in lots or parcels or in its entirety as the
Trustees  shall deem  expedient;  and to execute and deliver to the purchaser or
purchasers thereof good and sufficient deeds of conveyance thereto by fee simple
title,  with evidence of general  warranty by  Mortgagor,  and the title of such
purchaser or purchasers when so made by the Trustees,  Mortgagor binds itself to
warrant and forever  defend.  Where  portions of the  Mortgaged  Property lie in
different  counties,  sales in such  counties may be conducted in any order that
the Trustees may deem expedient;  and one or more such sales may be conducted in
the same month,  or in successive  or different  months as the Trustees may deem
expedient.  Notwithstanding  anything  to the  contrary  contained  herein,  the
Trustees  may  postpone  the sale  provided for in this Section 5.16 at any time
without the  necessity  of a public  announcement.  The  provisions  hereof with
respect to the posting and giving of notices of sale are intended to comply with
the  provisions  of Section  51.002 of the Property  Code of the State of Texas,
effective  January 1, 1984,  and in the event the  requirements,  or any notice,
under such Section  51.002 of the  Property  Code of the State of Texas shall be
eliminated or the  prescribed  manner of giving such notices  modified by future
amendment  to, or  adoption of any statute  superseding,  Section  51.002 of the
Property Code of the State of Texas, the requirement for such particular notices
shall be deemed  stricken from or modified in this  Mortgage in conformity  with
such  amendment  or  superseding  statute,  effective as of the  effective  date
thereof.

     6.16 Fair Market  Value.  It is expressly  agreed by Mortgagor  that to the
extent  Section  51.003 of the Texas  Property  Code, or any amendment  thereto,
requires  that the  "fair  market  value"  of the  Mortgaged  Property  shall be
determined as of the foreclosure  date in order to enforce a deficiency  against
Mortgagor or any other party liable for repayment of the Indebtedness,  the term
"fair market value" shall include those matters  required by Applicable  Law and
shall also include the additional factors set forth below:

          (a) The  Mortgaged  Property  is to be  valued  "AS IS" and  "WITH ALL
     FAULTS" and there shall be no assumption of restoration of or refurbishment
     of improvements, if any, after the date of the foreclosure;


                                      -33-
<PAGE>

          (b) An offset to the fair market value of the Mortgaged  Property,  as
     determined  hereunder,  shall be made by  deducting  from  such  value  the
     reasonable  estimated  closing costs  relating to the sale of the Mortgaged
     Property,  including  but  not  limited  to  brokerage  commissions,  title
     examination and curative expenses,  tax prorations,  escrow fees, and other
     common charges which are incurred by a seller of property; and

          (c) After  consideration of the factors required by Applicable Law and
     those required  above,  an additional  discount  factor shall be calculated
     based  upon the  estimated  time it will take to  effectuate  a sale of the
     Mortgaged  Property so that the "fair  market  value" as so  determined  is
     discounted  to be as of the date of the  foreclosure  sale of the Mortgaged
     Property.

     6.17 Operation of the Mortgaged Property by the Trustees or the Agent. Upon
the  occurrence of an Event of Default and during the  continuance of such Event
of Default and in addition to all other rights herein conferred on the Trustees,
the Trustees or the Agent (or any person, firm or corporation  designated by the
Trustees  or the  Agent)  shall  have the  right  and  power,  but  shall not be
obligated,  to enter upon and take possession of any of the Mortgaged  Property,
and to exclude Mortgagor, and Mortgagor's agents or servants,  wholly therefrom,
and to hold,  use,  administer,  manage and  operate the same to the extent that
Mortgagor  shall  be at the  time  entitled  and in its  place  and  stead.  The
Trustees,  the Agent,  or any  person,  firm or  corporation  designated  by the
Trustees or the Agent,  may operate the same without any  liability to Mortgagor
in connection with such operations, except to use ordinary care in the operation
of  such  properties,  and  the  Trustees,  the  Agent  or any  person,  firm or
corporation  designated  by the  Trustees or the Agent,  shall have the right to
collect,  receive and receipt for all  Hydrocarbons  produced and sold from said
properties, to make repairs, purchase machinery and equipment, conduct work-over
operations,  drill  additional  wells and to  exercise  every  power,  right and
privilege of Mortgagor with respect to the Mortgaged  Property.  When and if the
expenses of such  operation and  development  (including  costs of  unsuccessful
work-over  operations or additional  wells) paid by the Trustees or the Agent or
attributable to Mortgagor's  undivided interest therein and withheld,  or offset
against,  by an operator or other party have been paid or  reimbursed in full by
Mortgagor and the Indebtedness paid, said properties shall, if there has been no
sale or foreclosure, be returned to Mortgagor.

     6.18  Separate  Sales.  The  Mortgaged  Property may be sold in one or more
parcels and in such manner and order as the Agent, in its sole  discretion,  may
elect, it being  expressly  understood and agreed that the right of sale arising
out of any Event of Default  shall not be exhausted by any one or more sales but
other and successive  sales may be made until all of the Mortgaged  Property has
been sold or until the Indebtedness has been fully satisfied.

     6.19 Remedies  Cumulative,  Concurrent and  Non-Exclusive.  The Agent shall
have all rights,  remedies and recourses  granted in the Security  Documents and
available at law or equity (including  specifically those granted by the Uniform
Commercial  Code in effect and  applicable  to the  Mortgaged  Property,  or any
portion


                                      -34-
<PAGE>

thereof),  and same (a) shall be cumulative and  concurrent,  (b) may be pursued
separately,  successively or concurrently  against any one or more of Mortgagor,
any  Guarantor,  or others  obligated  under the Note,  or against the Mortgaged
Property,  at the sole discretion of the Agent, (c) may be exercised as often as
occasion therefor shall arise, it being agreed by Mortgagor that the exercise or
failure to exercise  any of same shall in no event be  construed  as a waiver or
release thereof or of any other right, remedy or recourse,  and (d) are intended
to be, and shall be, non-exclusive.

     6.20 Release of and Resort to Collateral. The Agent may release, regardless
of  consideration,  any  part  of  the  Mortgaged  Property  without,  as to the
remainder, in any way impairing, affecting,  subordinating or releasing the lien
or security interests created in or evidenced by the Security Documents or their
stature as a first and prior lien and security  interest in and to the Mortgaged
Property.  For  payment of the  Indebtedness,  the Agent may resort to any other
security  therefor  held by  Trustees  in such order and manner as the Agent may
elect.

     6.21 Discontinuance of Proceedings.  In case the Agent shall have proceeded
to invoke any right,  remedy or recourse  permitted under the Security Documents
and shall  thereafter  elect to discontinue or abandon same for any reason,  the
Agent shall have the unqualified right so to do and, in such an event, Mortgagor
and the Agent shall be restored to their  former  positions  with respect to the
Indebtedness,  the Obligations,  the Security Documents,  the Mortgaged Property
and otherwise, and the rights, remedies, recourses and powers of the Agent shall
continue as if same had never been invoked.

     6.22  Uniform  Commercial  Code  Remedies.  The Agent (or  Trustees  in the
Agent's  behalf) shall have all the rights,  remedies and recourses with respect
to the Personalty,  Fixtures,  Leases and Rents and Revenues  afforded a Secured
Party by the aforesaid  Uniform  Commercial  Code (being  Chapter 9 of the Texas
Business and Commerce Code, as to property within the scope thereof and situated
in the State of Texas) in  addition  to,  and not in  limitation  of,  the other
rights,  remedies  and  recourses  afforded  the Agent  and/or  Trustees  by the
Security Documents.

     6.23 No Obligation of Trustees or the Agent.  The  assignment  and security
interest  herein  granted  shall not be deemed or  construed  (a) to  constitute
Trustees or the Agent as a trustee in possession  of the  Mortgaged  Property or
(b) to  obligate  Trustees or the Agent to (i) lease the  Mortgaged  Property or
attempt to do same, (ii) take any action, (iii) incur any expenses or perform or
discharge any obligation,  duty or liability  whatsoever under any of the Leases
or otherwise.

                                  ARTICLE VII

                            Miscellaneous Provisions
                            ------------------------

     7.1 Pooling and Unitization.  Mortgagor shall have the right, and is hereby
authorized, to pool or unitize all or any part of the lands described in Exhibit
A, insofar as relates to the Mortgaged Property, with adjacent lands, leaseholds
and other


                                      -35-
<PAGE>

interests,  when, in the  reasonable  judgment of Mortgagor,  it is necessary or
advisable  to do so in  order  to  form a  drilling  and/or  production  unit to
facilitate  the  orderly  development  of that  part of the  Mortgaged  Property
affected  thereby,  or to comply with the  requirements of any Applicable Law or
governmental  order or regulation  relating to the spacing of wells or proration
of the production therefrom;  provided, however, that any unit so formed for the
production  of oil shall not  substantially  exceed 160  acres,  and any unit so
formed  for the  production  of gas shall not  substantially  exceed  640 acres,
unless a larger area is required to conform to an Applicable Law or governmental
order or  regulation  relating  to the spacing of wells or to obtain the maximum
allowable   production  under  any  Applicable  Law  or  governmental  order  or
regulation  relating  to the  proration  of  production  therefrom;  and further
provided  that  the  Hydrocarbons  produced  from any  unit so  formed  shall be
allocated among the separately owned tracts or interests  comprising the unit in
a uniform manner consistently  applied.  Any unit so formed may relate to one or
more zones or horizons,  and a unit formed for a particular zone or horizon need
not conform in area to any other unit  relating to a different  zone or horizon,
and a unit  formed for the  production  of oil need not conform in area with any
unit formed for the production of gas.  Immediately  after formation of any such
unit,  Mortgagor  shall furnish to the Trustees and the Agent a true copy of the
pooling  agreement,  declaration  of pooling or other  instrument  creating such
unit, in such number of counterparts as the Trustees may reasonably request. The
interest in any such unit  attributable  to the Mortgaged  Property (or any part
thereof)  included  therein  shall become a part of the  Mortgaged  Property and
shall be subject to the lien  hereof in the same manner and with the same effect
as though such unit and the  interest of  Mortgagor  therein  were  specifically
described  in  Exhibit  A.  Mortgagor  may enter  into  pooling  or  unitization
agreements not hereinabove authorized only with the prior written consent of the
Agent, which consent shall not be unreasonably withheld.

     7.2 No Liability.  Trustees and the Agent shall not be liable for any error
of judgment or act done by Trustees and the Agent in good faith, or be otherwise
responsible or accountable under any circumstances whatsoever,  except for their
negligence or bad faith.  Trustees and the Agent shall not be personally  liable
in case of entry by them,  or anyone  entering  by virtue of the  powers  herein
granted them, upon the Mortgaged  Property for debts  contracted or liability or
damages  incurred in the  management  or  operation of the  Mortgaged  Property.
Trustees and the Agent shall have the right to rely on any instrument,  document
or signature  authorizing or supporting any action taken or proposed to be taken
by them hereunder,  believed by them in good faith to be genuine. Trustees shall
be entitled to reimbursement for expenses incurred by them in the performance of
their duties hereunder and to reasonable compensation for such of their services
hereunder  as shall be  rendered.  Mortgagor  will,  from time to time,  pay the
compensation due to Trustees and the Agent hereunder and reimburse  Trustees and
the Agent  for,  and save  them  harmless  against,  any and all  liability  and
expenses which may be incurred by them in the performance of their duties.

     7.3 Successor Trustees.  Any Trustee may resign in writing addressed to the
Agent or may be removed at any time with or without  cause by an  instrument  in
writing duly executed by the Agent. In case of the death, resignation or removal
of a Trustee,


                                      -36-
<PAGE>

one or more  successor  Trustees may be appointed by the Agent by  instrument of
substitution  complying with any applicable  requirements of Applicable Law, and
in the absence of any such requirement  without formality other than appointment
and  designation in writing.  Such  appointment  and  designation  shall be full
evidence of the right and  authority  to make the same and of all facts  therein
recited,  and upon the  making  of any such  appointment  and  designation  this
conveyance shall vest in the named successor Trustee or Trustees, all the estate
and title of the prior Trustee in all of the Mortgaged Property,  and he or they
shall thereupon succeed to all the rights,  powers,  privileges,  immunities and
duties hereby  conferred  upon the prior Trustee.  All references  herein to the
Trustees  shall be deemed  to refer to the  Trustees  from  time to time  acting
hereunder.  7.4 Actions or Advances by the Agent or the Trustees. Each and every
covenant  herein  contained  shall be performed and kept by Mortgagor  solely at
Mortgagor's  expense.  If  Mortgagor  shall  fail to  perform or keep any of the
covenants of whatsoever kind or nature contained in this Mortgage, the Agent, or
the Trustees or any receiver  appointed  hereunder or under Applicable Law, may,
but shall not be obligated  to, take action  and/or make advances to perform the
same in Mortgagor's  behalf, and Mortgagor hereby agrees to repay the expense of
such action and such  advances upon demand plus interest at an annual rate equal
to the  Alternate  Base Rate (as defined in the Credit  Agreements)  of interest
from  time to time  accruing  on the Loan Note plus the  Applicable  Margin  (as
defined in the Credit  Agreements)  plus two percent  (2%) until paid or, in the
event  any  promissory  note  evidences  such  indebtedness,  upon the terms and
conditions  thereof. No such advance or action by the Agent, the Trustees or any
receiver  appointed  hereunder  shall be deemed to  relieve  Mortgagor  from any
default hereunder.

     7.5 No Waiver.  Any  failure  by  Trustees  or the Agent to insist,  or any
election  by Trustees or the Agent not to insist,  upon  strict  performance  by
Mortgagor  of  any  of the  terms,  provisions  or  conditions  of the  Security
Documents  shall not be  deemed  to be a waiver  of same or of any  other  term,
provision or condition  thereof,  and Trustees or the Agent shall have the right
at any time or times  thereafter to insist upon strict  performance by Mortgagor
of any and all of such terms, provisions and conditions.

     7.6 Defense of Claims. Mortgagor will notify the Trustees and the Agent, in
writing,  promptly of the  commencement of any legal  proceedings  affecting the
lien or security interest hereof or the Mortgaged Property, or any part thereof,
and will take such action, employing attorneys agreeable to the Trustees and the
Agent5,  as may  be  necessary  or  appropriate  to  preserve  Mortgagor's,  the
Trustees' and the Agent's  rights  affected  thereby and/or to hold harmless the
Trustees,  the Agent and the Lender Parties in respect of such proceedings;  and
should  Mortgagor  fail or refuse to take any such  action,  the Trustees or the
Agent may, upon giving prior  written  notice  thereof to  Mortgagor,  take such
action  in  behalf  and in the name of  Mortgagor  and at  Mortgagor's  expense.
Moreover,  the  Agent or the  Trustees  on behalf  of the  Agent,  may take such
independent  action in  connection  therewith  as it or they may in its or their
discretion


_______________
5    Calpine will propose revisions to this section.


                                      -37-
<PAGE>

deem proper,  Mortgagor  hereby  agreeing that all sums advanced or all expenses
incurred in such actions plus  interest at an annual rate equal to the Alternate
Base Rate (as defined in the Credit  Agreements)  of interest  from time to time
accruing on the Loan Note plus the  Applicable  Margin (as defined in the Credit
Agreements) plus two percent (2%) until paid, will, on demand, be reimbursed, as
appropriate,  to the Agent, the Trustees or any receiver appointed  hereunder or
under  Applicable  Law. The obligations of Mortgagor as hereinabove set forth in
this  Section  7.6  shall  survive  the  release,  termination,  foreclosure  or
assignment of this Mortgage or any sale hereunder.

     7.7 The Mortgaged  Property to Revert.  If the Indebtedness  shall be fully
paid and the covenants herein contained shall be well and truly performed,  then
all of the Mortgaged  Property  shall revert to Mortgagor and the entire estate,
right,  title and interest of the Trustees and the Agent shall thereupon  cease;
and the Trustees and the Agent in such case shall, upon the request of Mortgagor
and at Mortgagor's  cost and expense,  deliver to Mortgagor  proper  instruments
acknowledging satisfaction of this Mortgage.

     7.8  Covenants  Running with the Land.  All  Obligations  contained in this
Mortgage are intended by the parties to be, and shall be construed as, covenants
running with the Mortgaged Property.

     7.9 Renewals, Amendments and Other Security. Renewals and extensions of the
Indebtedness  and  modifications  of any kind of the Obligations may be given at
any time and amendments may be made to agreements with third parties relating to
any part of such Indebtedness or the Mortgaged Property and the Trustees and the
Agent may take or may now hold other security from others for the  Indebtedness,
all without  notice to or consent of  Mortgagor.  The  Trustees or the Agent may
resort first to such other security or any part thereof or first to the security
herein given or any part thereof,  or from time to time to either or both,  even
to the partial or complete abandonment of either security, and such action shall
not be a waiver of any rights  conferred by this Mortgage,  which shall continue
as a first lien upon and prior  perfected  security  interest  in the  Mortgaged
Property  not  expressly  released  until the  Notes and all other  Indebtedness
secured hereby are fully paid.

     7.10 Mortgage, Assignment, etc. This Mortgage shall be deemed to be and may
be enforced from time to time as an assignment, chattel mortgage, contract, deed
of trust, financing statement,  real estate mortgage, or security agreement, and
from time to time as any one or more thereof.

     7.11 Limitation on Interest. No provision of this Mortgage or of the Notes,
the Credit  Agreements or any other Loan  Document  shall require the payment or
permit the  collection of interest in excess of the Maximum Lawful Rate or which
is  otherwise  contrary  to  Applicable  Law.  If any excess of interest in such
respect  is herein or in the  Notes,  the  Credit  Agreements  or any other Loan
Document  provided for, or shall be  adjudicated to be so provided for herein or
in the Notes, the Credit Agreements or any other Loan Document,  Mortgagor shall
not be obligated to pay such excess.


                                      -38-
<PAGE>

     7.12  Severability.  The Security Documents are intended to be performed in
accordance  with,  and only to the extent  permitted  by, all  applicable  Legal
Requirements.  If  any  provision  of  any  of  the  Security  Documents  or the
application  thereof to any person or circumstance  shall, for any reason and to
any extent, be invalid or unenforceable, neither the remainder of the instrument
in which such  provision is contained nor the  application  of such provision to
other persons or circumstances nor the other instruments referred to hereinabove
shall be affected  thereby,  but rather shall be enforced to the greatest extent
permitted by Applicable Law. It is hereby expressly  stipulated and agreed to be
the intent of Mortgagor and the Agent at all times to comply with the usury, and
all  other,  laws  relating  to the  Security  Documents.  If, at any time,  the
applicable  Legal  Requirements  render  usurious  any amount  called for in any
Security  Document,  then it is  Mortgagor's,  Trustees' and the Agent's express
intent  that such  document  be  immediately  deemed  reformed  and the  amounts
collectible reduced, without the necessity of the execution of any new document,
so as to comply with the then Applicable Law but so as to permit the recovery of
the fullest amount otherwise called for in such Security Documents.

     7.13 Waiver by the  Trustees.  Any and all  covenants in this  Mortgage may
from time to time by instrument in writing  signed by the Trustees and the Agent
be waived to such  extent and in such manner as the  Trustees  and the Agent may
desire,  but no such waiver shall ever affect or impair  either the Trustees' or
the  Agent's  rights or liens or  security  interests  hereunder,  except to the
extent specifically stated in such written instrument.

     7.14 Action by  Individual  Trustee.  Any Trustee from time to time serving
hereunder shall have the absolute right, acting individually, to take any action
and to give any consent and to exercise any right, remedy,  power,  privilege or
authority  conferred  upon the Trustees,  and any action taken by either Trustee
from time to time serving  hereunder shall be binding upon the other Trustee and
no person dealing with either Trustee from time to time serving  hereunder shall
be obligated  to confirm the power and  authority of such Trustee to act without
the concurrence of the other Trustee. In this Mortgage, the term "Trustee" means
the Trustees hereinabove named, or either of them, as the context requires,  and
any successor Trustee.

     7.15 No Partnership.  Nothing contained in this Mortgage is intended to, or
shall be construed as, creating to any extent and in any manner whatsoever,  any
partnership,  joint venture, or association among Mortgagor,  the Trustees,  the
Agent and their respective Affiliates, or in any way as to make the Agent or the
Trustee's co-principals with Mortgagor with reference to the Mortgaged Property,
and any inferences to the contrary are hereby expressly negated.

     7.16  Successors  and Assigns.  This  Mortgage is binding  upon  Mortgagor,
Mortgagor's  successors  and  assigns,  and shall  inure to the  benefit  of the
Trustees,  their successors,  and the Agent, its successors and assigns, and the
provisions hereof shall likewise be covenants running with the land.


                                      -39-
<PAGE>

     7.17 Article and Section Headings. The article and section headings in this
Mortgage are inserted for convenience of reference and shall not be considered a
part of this Mortgage or used in its interpretation.

     7.18 Execution in Counterparts. This Mortgage may be executed in any number
of  counterparts,  each of which  shall  for all  purposes  be  deemed  to be an
original and all of which are identical,  except that, to facilitate recordation
or filing,  in any  particular  counterpart  portions of Exhibit A hereto  which
describe  properties  situated in parishes or counties  other than the parish or
county  in which  such  counterpart  is to be  recorded  or filed  may have been
omitted.

     7.19 Special Filing as Financing Statement. This Mortgage shall likewise be
a Security Agreement and a Financing Statement. This Mortgage shall be filed for
record,  among other places, in the real estate records of each county or parish
in which any  portion  of the real  property  covered  by the oil and gas leases
described in Exhibit A hereto is situated,  and,  when filed in such counties or
parishes shall be effective as a financing  statement  covering Fixtures located
on oil and gas properties,  which oil and gas properties  (and accounts  arising
therefrom) are to be financed at the wellheads of the wells located on the lands
described in Exhibit A. At the option of the Agent,  a carbon,  photographic  or
other  reproduction of this Mortgage or of any financing  statement covering the
Mortgaged  Property or any portion  thereof  shall be  sufficient as a financing
statement and may be filed as such.

     7.20 Notices. Except as otherwise required by Sections 6.5 and 6.15 hereof,
any notice, request, demand or other Mortgage which may be required or permitted
to be given or served upon Mortgagor shall be sufficiently  given when mailed by
first-class  mail,  addressed  to  Mortgagor  at the  address  shown  below  the
signatures at the end of this Mortgage or to such different address as Mortgagor
shall have designated by written notice received by the Agent or the Trustees.

     7.21  Reliance.   Notwithstanding   any  reference  herein  to  the  Credit
Agreements,  the  Notes  or the  Letters  of  Credit,  no party  shall  have any
obligation to inquire into the terms or conditions of any such documents and all
parties shall be fully  authorized to rely upon any statement,  certificate,  or
affidavit of Agent or any future holder of any portion of the Indebtedness as to
the occurrence of any event such as the occurrence of any event of default.

     7.22 The Agent as Agent for the Lender Parties. As described above, certain
Affiliates  of the Agent and the  Lenders  are or may become  parties to certain
Hedging Agreements with Mortgagor and/or Affiliates of Mortgagor.  This Mortgage
secures the  obligations of Mortgagor and such  Affiliates,  as the case may be,
under such Hedging Agreements, and the parties acknowledge for all purposes that
the Agent acts for itself and as agent on behalf of such Affiliates of the Agent
and such  Lenders  which are so  entitled  to share in the rights  and  benefits
accruing to the Agent under this Mortgage in respect of the Mortgaged Property.


                                      -40-
<PAGE>

     7.23 Applicable Law. As to any tract or parcel of land comprising a portion
of the  Mortgaged  Property,  this  Mortgage  shall be governed by and construed
according to the Applicable Laws of the State where such tract or parcel of land
is situated.

     7.24 Subrogation.  If any or all of the proceeds of the Note have been used
to extinguish,  extend or renew any indebtedness heretofore existing against the
Mortgaged Property,  then, to the extent of such funds so used, the Indebtedness
and this  Mortgage  shall be  subrogated  to all of the rights,  claims,  liens,
titles and  interests  heretofore  existing  against the  Mortgaged  Property to
secure the  indebtedness  so  extinguished,  extended  or renewed and the former
rights,  claims, liens, titles and interests,  if any, are not waived but rather
are continued in full force and effect in favor of the Agent and are merged with
the lien and security  interest  created  herein as cumulative  security for the
repayment of the Indebtedness and the satisfaction of the Obligations.

     7.25  Fixture  Filing.  Portions of the  Mortgaged  Property  are or are to
become  fixtures  relating to the above  described  real estate,  and  Mortgagor
herein  expressly  covenants  and agrees that the filing of this Mortgage in the
Real Estate Records in the county where the Mortgaged  Property is located shall
also operate from the time of filing therein as a financing statement filed as a
fixture  filing in accordance  with Section  9.502(c) of the Uniform  Commercial
Code - Secured Transactions of the State of Texas.

     7.26  Subordination by The Agent.  From time to time at the Agent's option,
by instrument  executed by the Agent and recorded in the real  property  records
where  this  Mortgage  has been  recorded,  the Agent may  subordinate  the lien
created by this  Mortgage to any interest in the  Mortgaged  Property.  Any such
subordination  shall be solely at the Agent's option,  and in no event shall the
Agent be obligated to subordinate the lien or security  interest created by this
Mortgage.


                                      -41-
<PAGE>



     IN WITNESS  WHEREOF,  Mortgagor  has executed or caused to be executed this
Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and
Fixture  Filing in the presence of the  undersigned  Notary Public on this _____
day of __________, 2002.6



                              MORTGAGOR AND DEBTOR
                              --------------------




                                       CALPINE CORPORATION, a Delaware
                                       corporation


                                       By ______________________________________

                                       Title___________________________________7

                                       Printed Name_____________________________


ATTEST:


____________________________________
Secretary
Printed Name________________________



The name and mailing address of Mortgagor is:


Calpine Corporation
1000 Louisiana Street, Suite 800
Houston, TX  77002


_______________
6    Exact content and formatting of the signature and acknowledgement  pages is
     being revised to account for execution at different  times and places,  and
     before different notaries by the various parties.
7    Please  furnish  the  names  and  titles of  Calpine  Corporation  officers
     executing this instrument.


                                      -42-
<PAGE>



SECURED PARTIES


                                       _________________________________________
                                       JON BURCKIN, Trustee


                                       _________________________________________
                                       KEMP LEONARD, Trustee


                                       THE BANK OF NOVA SCOTIA, as Agent


                                       By_______________________________________
                                            Vice President
                                            Printed Name________________________



ATTEST:


_______________________________________
Banking Officer/Clerk
Printed Name___________________________



The names and mailing addresses of the Secured Parties are:

THE BANK OF NOVA SCOTIA

JON BURCKIN, Trustee and KEMP LEONARD, Trustee

580 California Street
Suite 2100
San Francisco, CA  9411


                                      -43-
<PAGE>



STATE OF TEXAS    )
                  )  SS.
COUNTY OF HARRIS  )


     BE IT REMEMBERED  that I, , a Notary Public duly  qualified,  commissioned,
sworn and acting in and for the County and State aforesaid, hereby certify that,
on this day of , 2002,  there appeared before me severally each of the following
persons,  each  being  either a Trustee  or else the  designated  officer of the
corporation  or  association  set  opposite  his name,  and each  such  Trustee,
corporation and association being a party to the foregoing instrument:

     __________, the __________, and __________, the _____________ Secretary, of
Calpine  Corporation,  a Delaware  corporation,  [which has no corporate  seal]8
whose address is _____________;


     __________, Vice President, and __________,  Banking Officer/Clerk,  of THE
BANK OF NOVA SCOTIA, a Canadian  chartered bank, whose address is 580 California
Street, Suite 2100, San Francisco, CA 94111; and

     __________ and __________ whose addresses are 580 California Street,  Suite
2100, San Francisco, CA 94111, as Trustees.

ARKANSAS       Before  me on this day  appeared  in  person  the  aforementioned
               persons,  to me personally well known,  who stated that they held
               the offices in the  corporation or association set forth opposite
               their names above (or, in the case of the Trustees,  were validly
               appointed  Trustees) and were duly authorized in their respective
               capacities  to execute the  foregoing  instrument  for and in the
               name and on  behalf of said  corporation  or  association  (or as
               Trustees,   as  the  case  may  be),   and  further   stated  and
               acknowledged that they had so signed, executed and delivered said
               foregoing  instrument  for the  consideration,  uses and purposes
               therein mentioned and set forth.

COLORADO       The foregoing  instrument was acknowledged  before me this day by
               each such person on behalf of said corporation or association, or
               himself, as a Trustee, as the case may be.

KANSAS         On this day  before me  personally  appeared  the  aforementioned
               persons,  who acknowledged  themselves to hold the offices in the
               corporation set forth opposite their names above (or, in the case
               of the  Trustees,  were validly  appointed  Trustees) and as such
               officers or Trustees,  hereby  authorized to do so,  executed the
               foregoing


_______________
8    New Mexico and Wyoming requirement, if applicable. Presumably Calpine has a
     seal and it will be available at the closing.


                                       -1-
<PAGE>

               instrument for the purposes therein contained.

MISSISSIPPI    Personally  appeared before me, the undersigned  authority in and
               for the said  county  and state,  on this ____ day of  _________,
               2002,     within    my    jurisdiction     the    within    named
               _______________________________  who acknowledged  that (he)(she)
               is the  ___________________________  of  Calpine  Corporation,  a
               Delaware  corporation,  and  that  for  and  on  behalf  of  said
               corporation and as its act and deed (he)(she)  executed the above
               and foregoing  instrument after first having been duly authorized
               by said corporation so to do.

MONTANA        On this day before me personally  appeared each such person, each
               of whom is known to me to be the officer of the corporation  that
               executed  the within  instrument  (or a Trustee,  as the case may
               be), and acknowledged to me that such corporation (or Trustee, as
               the case may be) executed the same.

NEBRASKA       The foregoing  instrument was acknowledged  before me this day by
 and           each  such  person as  the designated officers of the corporation
NEW MEXICO     or association set opposite their names (or as Trustees,  as  the
               case  may  be) on  behalf of  said corporation or association, or
               himself as a Trustee, as the case may be.

OKLAHOMA       Before  me on this day  personally  appeared  the  aforementioned
               persons,  to me known to be the identical  persons who subscribed
               the  names of the  respective  makers  thereof  to the  foregoing
               instrument in the capacities set forth opposite the names of such
               persons above,  and each such person  acknowledged  to me that he
               executed the same as his free and  voluntary  act and deed and as
               the  free  and  voluntary  act  and  deed of the  corporation  or
               association  set opposite his name (or of himself as Trustee,  as
               the case may be) for the uses and purposes therein set forth.

TEXAS          This  instrument was  acknowledged  before me on this day by each
               such  person as the  designated  officer  of the  corporation  or
               association set opposite his name (or a Trustee,  as the case may
               be), on behalf of said  corporation or  association  set opposite
               his name (or of himself as Trustee, as the case may be).

WYOMING        The foregoing  instrument was acknowledged before me by the above
               individuals on this day.


                                      -2-
<PAGE>



                       Witness my hand and official seal.





                                       _________________________________________
                                       Notary Public
                                       Residing at______________________________


My commission expires:


                                      -3-
<PAGE>



STATE OF TEXAS    )
                  )  SS.
COUNTY OF HARRIS  )


     BE IT REMEMBERED  that I, , a Notary Public duly  qualified,  commissioned,
sworn and acting in and for the County and State aforesaid, hereby certify that,
on this day of , 2002,  there appeared before me severally each of the following
persons,  each  being  either a Trustee  or else the  designated  officer of the
corporation  or  association  set  opposite  his name,  and each  such  Trustee,
corporation and association being a party to the foregoing instrument:

     __________, the __________, and __________, the _____________ Secretary, of
Calpine  Corporation,  a Delaware  corporation,  [which has no corporate  seal]9
whose address is __________;

     __________, Vice President, and __________,  Banking Officer/Clerk,  of THE
BANK OF NOVA SCOTIA, a Canadian  chartered bank, whose address is 580 California
Street, Suite 2100, San Francisco, CA 94111; and

     __________ and __________ whose addresses are 580 California Street,  Suite
2100, San Francisco, CA 94111, as Trustees.

ARKANSAS       Before  me on this day  appeared  in  person  the  aforementioned
               persons,  to me personally well known,  who stated that they held
               the offices in the  corporation or association set forth opposite
               their names above (or, in the case of the Trustees,  were validly
               appointed  Trustees) and were duly authorized in their respective
               capacities  to execute the  foregoing  instrument  for and in the
               name and on  behalf of said  corporation  or  association  (or as
               Trustees,   as  the  case  may  be),   and  further   stated  and
               acknowledged that they had so signed, executed and delivered said
               foregoing  instrument  for the  consideration,  uses and purposes
               therein  mentioned  and  set  forth.

COLORADO10     The foregoing  instrument was acknowledged  before me this day by
               each such person on behalf of said corporation or association, or
               himself, as a Trustee, as the case may be.

KANSAS         On this day  before me  personally  appeared  the  aforementioned
               persons,  who acknowledged  themselves to hold the offices in the
               corporation set forth opposite their names above (or, in the case
               of the  Trustees,  were validly  appointed  Trustees) and as such
               officers or Trustees,  hereby  authorized to do so,  executed the
               foregoing


_______________
9    New Mexico and Wyoming requirement, if applicable.
10   Add blocks for Kansas and Montana


                                      -1-
<PAGE>

               instrument for the purposes therein contained.

MISSISSIPPI    Personally  appeared before me, the undersigned  authority in and
               for the said county and state,  on this _____ day of  __________,
               2002,     within    my    jurisdiction     the    within    named
               _______________________________  who acknowledged  that (he)(she)
               is the  ___________________________  of  Calpine  Corporation,  a
               Delaware  corporation,  and  that  for  and  on  behalf  of  said
               corporation and as its act and deed (he)(she)  executed the above
               and foregoing  instrument after first having been duly authorized
               by said  corporation  so to do.

MONTANA        On this day before me personally  appeared each such person, each
               of whom is known to me to be the officer of the corporation  that
               executed  the within  instrument  (or a Trustee,  as the case may
               be), and acknowledged to me that such corporation (or Trustee, as
               the case may be) executed the same.

NEBRASKA       The foregoing  instrument was acknowledged  before me this day by
 and           each such person as the designated officers of the corporation or
NEW MEXICO     association set opposite their names (or as Trustees, as the case
               may be) on behalf of said corporation or association,  or himself
               as a Trustee, as the case may be.

OKLAHOMA       Before  me on this day  personally  appeared  the  aforementioned
               persons,  to me known to be the identical  persons who subscribed
               the  names of the  respective  makers  thereof  to the  foregoing
               instrument in the capacities set forth opposite the names of such
               persons above,  and each such person  acknowledged  to me that he
               executed the same as his free and  voluntary  act and deed and as
               the  free  and  voluntary  act  and  deed of the  corporation  or
               association  set opposite his name (or of himself as Trustee,  as
               the case may be) for the uses and purposes therein set forth.

TEXAS          This  instrument was  acknowledged  before me on this day by each
               such  person as the  designated  officer  of the  corporation  or
               association set opposite his name (or a Trustee,  as the case may
               be), on behalf of said  corporation or  association  set opposite
               his name (or of himself as Trustee, as the case may be).

WYOMING        The foregoing  instrument was acknowledged before me by the above
               individuals on this day.


                                      -2-
<PAGE>



                       Witness my hand and official seal.





                                       _________________________________________
                                       Notary Public
                                       Residing at______________________________



My commission expires:



                                      -3-
<PAGE>



STATE OF TEXAS    )
                  )  SS.
COUNTY OF HARRIS  )


     BE IT REMEMBERED  that I, , a Notary Public duly  qualified,  commissioned,
sworn and acting in and for the County and State aforesaid, hereby certify that,
on this day of , 2002,  there appeared before me severally each of the following
persons,  each  being  either a Trustee  or else the  designated  officer of the
corporation  or  association  set  opposite  his name,  and each  such  Trustee,
corporation and association being a party to the foregoing instrument:

     __________, the __________, and __________, the _____________ Secretary, of
Calpine  Corporation,  a Delaware  corporation,  [which has no corporate seal]11
whose address is__________;


     __________, Vice President, and __________,  Banking Officer/Clerk,  of THE
BANK OF NOVA SCOTIA, a Canadian  chartered bank, whose address is 580 California
Street, Suite 2100, San Francisco, CA 94111; and

     __________ and __________ whose addresses are 580 California Street,  Suite
2100, San Francisco, CA 94111, as Trustees.

ARKANSAS       Before  me on this day  appeared  in  person  the  aforementioned
               persons,  to me personally well known,  who stated that they held
               the offices in the  corporation or association set forth opposite
               their names above (or, in the case of the Trustees,  were validly
               appointed  Trustees) and were duly authorized in their respective
               capacities  to execute the  foregoing  instrument  for and in the
               name and on  behalf of said  corporation  or  association  (or as
               Trustees,   as  the  case  may  be),   and  further   stated  and
               acknowledged that they had so signed, executed and delivered said
               foregoing  instrument  for the  consideration,  uses and purposes
               therein mentioned and set forth.

COLORADO12     The foregoing  instrument was acknowledged  before me this day by
               each such person on behalf of said corporation or association, or
               himself, as a Trustee, as the case may be.

KANSAS         On this day  before me  personally  appeared  the  aforementioned
               persons,  who acknowledged  themselves to hold the offices in the
               corporation set forth opposite their names above (or, in the case
               of the  Trustees,  were validly  appointed  Trustees) and as such
               officers or Trustees,  hereby  authorized to do so,  executed the
               foregoing


_______________
11   New Mexico and Wyoming requirement, if applicable.
12   Add blocks for Kansas and Montana.


                                      -1-
<PAGE>

               instrument for the purposes therein contained.

MISSISSIPPI    Personally  appeared before me, the undersigned  authority in and
               for the said county and state,  on this _____ day of  __________,
               2002,     within    my    jurisdiction     the    within    named
               _______________________________  who acknowledged  that (he)(she)
               is the  ___________________________  of  Calpine  Corporation,  a
               Delaware  corporation,  and  that  for  and  on  behalf  of  said
               corporation and as its act and deed (he)(she)  executed the above
               and foregoing  instrument after first having been duly authorized
               by said corporation so to do.

MONTANA        On this day before me personally  appeared each such person, each
               of whom is known to me to be the officer of the corporation  that
               executed  the within  instrument  (or a Trustee,  as the case may
               be), and acknowledged to me that such corporation (or Trustee, as
               the case may be) executed the same.

NEBRASKA       The foregoing  instrument was acknowledged  before me this day by
 and           each such person as the designated officers of the corporation or
NEW MEXICO     association set opposite their names (or as Trustees, as the case
               may be) on behalf of said corporation or association,  or himself
               as a Trustee, as the case may be.

OKLAHOMA       Before  me on this day  personally  appeared  the  aforementioned
               persons,  to me known to be the identical  persons who subscribed
               the  names of the  respective  makers  thereof  to the  foregoing
               instrument in the capacities set forth opposite the names of such
               persons above,  and each such person  acknowledged  to me that he
               executed the same as his free and  voluntary  act and deed and as
               the  free  and  voluntary  act  and  deed of the  corporation  or
               association  set opposite his name (or of himself as Trustee,  as
               the case may be) for the uses and purposes therein set forth.

TEXAS          This  instrument was  acknowledged  before me on this day by each
               such  person as the  designated  officer  of the  corporation  or
               association set opposite his name (or a Trustee,  as the case may
               be), on behalf of said  corporation or  association  set opposite
               his name (or of himself as Trustee, as the case may be).

WYOMING        The foregoing  instrument was acknowledged before me by the above
               individuals on this day.


                                      -2-
<PAGE>



                       Witness my hand and official seal.





                                       _________________________________________
                                       Notary Public
                                       Residing at______________________________



My commission expires:


                                      -3-
<PAGE>



STATE OF TEXAS    )
                  )  SS.
COUNTY OF HARRIS  )


     BE IT REMEMBERED  that I, , a Notary Public duly  qualified,  commissioned,
sworn and acting in and for the County and State aforesaid, hereby certify that,
on this day of , 2002,  there appeared before me severally each of the following
persons,  each  being  either a Trustee  or else the  designated  officer of the
corporation  or  association  set  opposite  his name,  and each  such  Trustee,
corporation and association being a party to the foregoing instrument:

     __________, the __________, and __________, the _____________ Secretary, of
Calpine  Corporation,  a Delaware  corporation,  [which has no corporate seal]13
whose address is ;

     __________, Vice President, and __________,  Banking Officer/Clerk,  of THE
BANK OF NOVA SCOTIA, a Canadian  chartered bank, whose address is 580 California
Street, Suite 2100, San Francisco, CA 94111; and

     __________ and __________ whose addresses are 580 California Street,  Suite
2100, San Francisco, CA 94111, as Trustees.

ARKANSAS       Before  me on this day  appeared  in  person  the  aforementioned
               persons,  to me personally well known,  who stated that they held
               the offices in the  corporation or association set forth opposite
               their names above (or, in the case of the Trustees,  were validly
               appointed  Trustees) and were duly authorized in their respective
               capacities  to execute the  foregoing  instrument  for and in the
               name and on  behalf of said  corporation  or  association  (or as
               Trustees,   as  the  case  may  be),   and  further   stated  and
               acknowledged that they had so signed, executed and delivered said
               foregoing  instrument  for the  consideration,  uses and purposes
               therein mentioned and set forth.

COLORADO14     The foregoing  instrument was acknowledged  before me this day by
               each such person on behalf of said corporation or association, or
               himself, as a Trustee, as the case may be.

KANSAS         On this day  before me  personally  appeared  the  aforementioned
               persons,  who acknowledged  themselves to hold the offices in the
               corporation set forth opposite their names above (or, in the case
               of the  Trustees,  were validly  appointed  Trustees) and as such
               officers or Trustees,  hereby  authorized to do so,  executed the
               foregoing


_______________
13   New Mexico and Wyoming requirement, if applicable.
14   Add blocks for Kansas and Montana


                                      -1-
<PAGE>

               instrument for the purposes therein contained.

MISSISSIPPI    Personally  appeared before me, the undersigned  authority in and
               for the said county and state,  on this _____ day of  __________,
               2002,     within    my    jurisdiction     the    within    named
               _______________________________  who acknowledged  that (he)(she)
               is the  ___________________________  of  Calpine  Corporation,  a
               Delaware  corporation,  and  that  for  and  on  behalf  of  said
               corporation and as its act and deed (he)(she)  executed the above
               and foregoing  instrument after first having been duly authorized
               by said corporation so to do.

MONTANA        On this day before me personally  appeared each such person, each
 and           of whom is known to me to be the officer of the corporation  that
NEW MEXICO     executed  the within  instrument  (or a Trustee,  as the case may
               be), and acknowledged to me that such corporation (or Trustee, as
               the case may be) executed the same.

NEBRASKA       The foregoing  instrument was acknowledged  before me this day by
               each such person as the designated officers of the corporation or
               association set opposite their names (or as Trustees, as the case
               may be) on behalf of said corporation or association,  or himself
               as a Trustee, as the case may be.

OKLAHOMA       Before  me on this day  personally  appeared  the  aforementioned
               persons,  to me known to be the identical  persons who subscribed
               the  names of the  respective  makers  thereof  to the  foregoing
               instrument in the capacities set forth opposite the names of such
               persons above,  and each such person  acknowledged  to me that he
               executed the same as his free and  voluntary  act and deed and as
               the  free  and  voluntary  act  and  deed of the  corporation  or
               association  set opposite his name (or of himself as Trustee,  as
               the case may be) for the uses and purposes therein set forth.

TEXAS          This  instrument was  acknowledged  before me on this day by each
               such  person as the  designated  officer  of the  corporation  or
               association set opposite his name (or a Trustee,  as the case may
               be), on behalf of said  corporation or  association  set opposite
               his name (or of himself as Trustee, as the case may be).

WYOMING        The foregoing  instrument was acknowledged before me by the above
               individuals on this day.


                                      -2-
<PAGE>



                       Witness my hand and official seal.





                                       _________________________________________
                                       Notary Public
                                       Residing at______________________________



My commission expires:


                                      -3-
<PAGE>



                EXHIBIT A To Mortgage, Deed of Trust, Assignment,
                ------------------------------------------------
        Security Agreement, Financing Statement and Fixture Filing, dated
                   [Month] __, 2002, from CALPINE CORPORATION
                                   to       and
                           and THE BANK OF NOVA SCOTIA


                               List of Properties
                               ------------------

     1.  Depth  limitations,  unit  designations,  unit tract  descriptions  and
descriptions  (including  percentages,   decimals  or  fractions)  of  undivided
leasehold interests, well names, "Operating Interests",  "Working Interests" and
"Net  Revenue  Interests"  contained  in this  Exhibit A and the  listing of any
percentage, decimal or fractional interest in this Exhibit A shall not be deemed
to limit or  otherwise  diminish  the  interests  being  subjected  to the lien,
security interest and encumbrance of this Mortgage.

     2. Some of the land  descriptions  in this  Exhibit  A may refer  only to a
portion of the land covered by a particular  lease. This Mortgage is not limited
to the land described in Exhibit A but is intended to cover the entire  interest
of Mortgagor in any lease  described in Exhibit A even if such interest  relates
to land not described in Exhibit A.  Reference is made to the land  descriptions
contained in the documents of title  recorded as described in this Exhibit A. To
the  extent  that  the  land  descriptions  in this  Exhibit  A are  incomplete,
incorrect  or not legally  sufficient,  the land  descriptions  contained in the
documents so recorded are incorporated herein by this reference.

     3. References in Exhibit A to instruments on file in the public records are
made for all purposes.  Unless provided otherwise,  all recording  references in
Exhibit A are to the official  real  property  records of the county or counties
(or parish or parishes) in which the mortgaged  property is located and in which
records  such  documents  are or in the past  have  been  customarily  recorded,
whether Deed  Records,  Oil and Gas Records,  Oil and Gas Lease Records or other
records.

     4. A statement herein that a certain  interest  described herein is subject
to the terms of certain  described  or referred to  agreements,  instruments  or
other matters shall not operate to subject such interest to any such  agreement,
instrument or other matter except to the extent that such agreement,  instrument
or matter is otherwise  valid and presently  subsisting nor shall such statement
be deemed to  constitute  a  recognition  by the  parties  hereto  that any such
agreement, instrument or other matter is valid and presently subsisting.

                                                       [Do not detach this page]


                                      -1-
<PAGE>



               SCHEDULE I To Mortgage, Deed of Trust, Assignment,
               -------------------------------------------------
        Security Agreement, Financing Statement and Fixture Filing, dated
                   [Month] __, 2002, from CALPINE CORPORATION
                                   to       and
                           and THE BANK OF NOVA SCOTIA


                          Prior Names of the Mortgagor
                          ----------------------------


Calpine Natural Gas Company L.P.
[List others]15


_______________
15   Calpine  needs to  complete  this page  (perhaps a  universal  list for all
     mortgages, or a separate list for each state, etc.)


                                      -2-
<PAGE>



                EXHIBIT B To Mortgage, Deed of Trust, Assignment,
                ------------------------------------------------
        Security Agreement, Financing Statement and Fixture Filing, dated
                   [Month] __, 2002, from CALPINE CORPORATION
                                   to       and
                           and THE BANK OF NOVA SCOTIA

                             Permitted Encumbrances
                             ----------------------

          All initially-capitalized terms used in this Exhibit B, whether or not
     defined in this instrument,  shall have the respective  meanings given such
     terms in the Credit Agreements.

     (a) Liens securing payment of the Obligations  granted pursuant to any Loan
Document and Liens securing  payment of the obligations  granted pursuant to the
loan documents relating to the Existing Credit Agreement;

     (b)  Liens  granted  prior  to the  Effective  Date to  secure  payment  of
Indebtedness  of the type permitted and described in clause (a) of Section 8.2.2
of the Credit Agreements;

     (c) Liens granted to secure payment of  Indebtedness  of the type permitted
and  described  in clause (b) of Section  8.2.2 of the Credit  Agreements  where
recourse is limited as  described  in clause (b) of Section  8.2.2 of the Credit
Agreements;

     (d) Liens for taxes,  assessments or other  governmental  charges or levies
not at the time  delinquent  or  thereafter  payable  without  penalty  or being
diligently  contested  in good faith by  appropriate  proceedings  and for which
adequate  reserves  in  accordance  with GAAP  shall  have been set aside on its
books;

     (e) Liens of carriers,  warehousemen,  mechanics, materialmen and landlords
incurred  in the  ordinary  course of  business  for sums not  overdue  or being
diligently  contested  in good faith by  appropriate  proceedings  and for which
adequate  reserves  in  accordance  with GAAP  shall  have been set aside on its
books;

     (f) Liens  incurred in the ordinary  course of business in connection  with
workmen's  compensation,  unemployment  insurance or other forms of governmental
insurance  or  benefits,   or  to  secure  performance  of  tenders,   statutory
obligations,  leases and contracts  (other than for borrowed money) entered into
in the ordinary course of business or to secure  obligations on surety or appeal
bonds;

     (g) judgment  Liens in existence  less than 15 days after the entry thereof
or with  respect to which  execution  has been stayed or the payment of which is
covered in full (subject to a customary deductible) by insurance maintained with
responsible insurance companies;

     (h) Liens granted to secure payment of  Indebtedness  of the type permitted
and described in clauses (e) and (g) of Section  8.2.2 of the Credit  Agreements
where recourse is limited as described in clauses (e) or (g), as applicable,  of
Section 8.2.2 of the Credit Agreements;


                                      -3-
<PAGE>

     (i) Zoning restrictions, easements, rights of way, title irregularities and
other similar  encumbrances  which alone or in the  aggregate do not  materially
detract from the value of the property subject thereto;

     (j) Liens on the  property or assets of any  Subsidiary  of the Borrower in
favor of the Borrower;

     (k) Banker's Liens and similar Liens (including  set-off rights) in respect
of bank deposits;

     (l) Landlord's Liens and similar Liens in respect of leased property;

     (m) Liens securing  Attributable  Debt with respect to  outstanding  leases
entered into pursuant to Sale/Leaseback Transactions so long as, with respect to
Sale/Leaseback  Transactions  closing after January 1, 2002,  the amount thereof
does not exceed 10% of the consolidated  tangible assets of the Borrower and its
Subsidiaries; and

     (n) Liens incurred in connection with the extension, renewal or refinancing
of Indebtedness secured by Liens permitted and described in clauses (b), (c) and
(h) of Section 8.2.3 of the Credit Agreements;  provided, however, that (x) such
new Lien shall be limited to all or part of the same  property  that secured the
original Lien and (y) the Indebtedness  secured by such Lien at such time is not
increased (other than by an amount necessary to pay fees and expenses, including
premiums,  related  to  the  refinancing,   refunding,   extension,  renewal  or
replacement of such Indebtedness);  provided,  further, that the limitations set
forth in this clause (n) shall not apply to Liens which are otherwise  permitted
under  Section  8.2.3  of the  Credit  Agreements,  even  if such  Liens  secure
Indebtedness  issued to repay or refinance existing  Indebtedness  permitted and
described in clauses (b), (c) and (h) of Section 8.2.3 of the Credit Agreements.


                                      -4-

</TEXT>
</DOCUMENT>
