PRIDE COMPANIES LP, 10-K, 1999-04-19

PRIDE COMPANIES LP
10-K, 1999-04-19
PIPE LINES (NO NATURAL GAS)

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

FORM 10-K

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

For the fiscal year ended December 31, 1998
Commission file number 1-10473

PRIDE COMPANIES, L.P.
(Name of registrant)

Delaware 75-2313597
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1209 North Fourth Street, Abilene, Texas 79601
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code:
(915) 674-8000

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Name of Each
Title of Each Class: Exchange on Which Registered:
- ------------------- ----------------------------
Common Units NASDAQ OTC Bulletin Board

Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Number of Common Units outstanding as of March 26, 1999:4,950,000

The aggregate market value of the 4,690,465 Common Units
held by non-affiliates of the Partnership as of March 26, 1999
was approximately $704,000.00, which was computed using the
closing sales price of the Common Units on March 30, 1999.
PAGE
<PAGE>
TABLE OF CONTENTS

PART I

Items 1 and 2.

Business and Properties
General
Partnership Operations and Products
Markets and Competition
Customers
Long-Term Product Supply Agreement
Employees
Environmental Matters
Forward Looking Statements

Item 3. Legal Proceedings

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

PART II

Item 5. Market for Partnership's Common Units and Related
Unitholder Matters

Item 6. Selected Financial Data

Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations

Item 7a. Quantitative and Qualitative Disclosures About
Market Price

Item 8. Financial Statements and Supplementary Data

Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure

PART III

Item 10. Directors and Executive Officers of the Partnership
Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial
Owners and Management

Item 13. Certain Relationships and Related Transactions
PART IV

Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K<PAGE>
PART I

Items 1 and 2. Business and Properties

General

Pride Companies, L.P. (the "Partnership") was formed as a
limited partnership under the laws of the State of Delaware in
January 1990. The Partnership owns and operates (i) a crude oil
gathering business that gathers, transports, resells and
redelivers crude oil in the Texas market (the "Crude Gathering
System") and (ii) one common carrier products pipeline system and
three products terminals in Abilene, Texas (the "Abilene
Terminal"); San Angelo, Texas (the "San Angelo Terminal"); and
Aledo, Texas (the "Aledo Terminal") (collectively the "Products
Terminals") that are used to market conventional gasoline, low
sulfur diesel fuel, and military aviation fuel (the "Products
Marketing Business"). The Partnership also owns a modern
simplex petroleum refinery facility (the "Refinery") which was
mothballed on March 22, 1998. In April 1998, the Partnership
began purchasing refined products from Equilon, a refining and
marketing joint venture between Royal Dutch/Shell Group and
Texaco, Inc. (formerly Texaco Trading and Transportation, Inc.)
(the "Equilon Agreement") to market through its products pipeline
and Products Terminals.

Prior to mothballing the Refinery, the Partnership's
operations were considered a single industry segment, the
refining of crude oil and the sale of the resulting petroleum
products. The primary purpose of the Crude Gathering System was
to purchase and sell crude oil in order to provide a supply of
the appropriate grade of crude oil at strategic locations to be
used as feedstock for the Refinery.

As a result of the Equilon Agreement and the mothballing of
the Refinery, the Crude Gathering System now markets crude oil to
other refineries and the Partnership now operates two separate
and distinct industry segments, the Crude Gathering System
segment and the Products Marketing Business segment. For
financial information regarding these segments, see Note 11 to
the consolidated financial statements included herein. The
Crude Gathering System consists of pipeline gathering systems and
a fleet of trucks which transport crude oil into third party
pipelines and into the system's primary asset, a common carrier
pipeline. The Products Marketing Business operates one products
pipeline, that originates at the Abilene Terminal and terminates
at the San Angelo Terminal (the "San Angelo Pipeline"), and the
Products Terminals. In connection with the mothballing of the
Refinery, another products pipeline owned by the Partnership that
extends from the Abilene Terminal to the Aledo Terminal (the
"Aledo Pipeline") was idled, since Equilon's pipeline is
connected to the Aledo Terminal. The Partnership's operations
are conducted primarily in the State of Texas.

Pride Refining, Inc., a Texas corporation (the "Managing
General Partner"), owns a 1.9% general partner interest in and
serves as the managing general partner of the Partnership. The
Partnership succeeded in January 1990 to the businesses of Pride
SGP, Inc. ("Special General Partner" or "Pride SGP") which owns a
0.1% general partner interest in and serves as the special
general partner of the Partnership. The Managing General Partner
and the Special General Partner (collectively the "General
Partners") collectively own a 2% general partner interest. In
addition to its general partner interest, the Special General
Partner owns a 4.9% interest in the Partnership through ownership
of common limited partner units ("Common Units"). Public
ownership represented by the remaining Common Units is 93.1%. In
accordance with the Third Amended and Restated Agreement of
Limited Partnership of Pride Companies, L.P. (the "Partnership
Agreement"), the Managing General Partner conducts, directs and
exercises control over substantially all of the activities of the
Partnership. The Partnership has no directors or officers;
however, directors and officers of the Managing General Partner
perform services for the Partnership in this capacity.

The Partnership's principal business consists of marketing
crude oil, military aviation fuel, conventional gasoline and low
sulfur diesel fuel. The Partnership operates over 900 miles of
crude oil pipelines, one common carrier products pipeline system,
and three products terminals . The common carrier products
pipeline system transports products from the Abilene Terminal to
Dyess Air Force Base ("Dyess") in Abilene and to the San Angelo
Terminal. Prior to mothballing the Refinery, the Partnership
operated the Aledo Pipeline which transported product from the
Abilene Terminal to the Aledo Terminal (southwest of Fort Worth,
Texas).

The Partnership's primary market area for refined products
includes Central and West Texas and is a region that is not
significantly served by the major refining centers of the Gulf
Coast. Fina, Inc. ("Fina"), a competitor of the Partnership,
currently has products pipeline access into Abilene, while the
Partnership is the only supplier with a products pipeline into
San Angelo. In April 1998, Equilon converted an existing crude
pipeline into a products pipeline that delivers conventional
gasoline, low sulfur diesel fuel and military aviation fuel to
the Abilene Terminal and Aledo Terminal for distribution to the
Partnership's existing customers. In the Partnership's primary
market area, product prices reflect a premium due to
transportation costs required to import refined products from
supply points outside of the market area. Joint Reserve - Fort
Worth, Dyess, and certain other military installations have been
long-time customers for the Partnership's military aviation fuel.
Management anticipates that the Partnership will continue to bid
for these and other military supply contracts in the future
although volumes awarded under the recently awarded contract have
been significantly reduced from prior years due to increasing
competition and since the Partnership no longer receives
preferential treatment under the small business set-aside
program. See "- Partnership Operations and Products" and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Factors and Trends Affecting Operating
Results." Gasoline and diesel tankage and sales facilities at
the Aledo Terminal allow the Partnership access to the smaller
communities west of the Dallas-Fort Worth ("DFW") market along
Interstate 20 for conventional gasoline and the DFW market for
low sulfur diesel fuel. See "- Markets and Competition" below.

Partnership Operations and Products

Products Marketing Business. The Partnership receives
refined products from Equilon at the Abilene Terminal and Aledo
Terminal to market through its Products Terminals in Abilene, San
Angelo, and Aledo. The Partnership transports refined products
from the Abilene Terminal to Dyess in Abilene and to the
Partnership's San Angelo Terminal through the San Angelo
Pipeline. Prior to mothballing the Refinery, the Partnership
operated the Aledo Pipeline that transported refined products
from the Abilene Terminal to the Aledo Terminal. The Aledo
Pipeline was idled in April, 1998, since Equilon's pipeline is
connected to the Aledo Terminal.

The Partnership delivers military aviation fuel to Dyess by
pipeline and trucks military aviation fuel from both the Abilene
Terminal and Aledo Terminal to other military installations
supplied by the Partnership. Conventional gasoline is marketed
through the Partnership's Products Terminals to non-military
customers in the Abilene area, San Angelo area, and in the
communities west of the Dallas-Fort Worth ("DFW") metropolitan
area along Interstate 20. Low sulfur diesel fuel is also marketed
through the Products Terminals to non-military customers in the
Abilene area, the San Angelo area, and in the DFW metropolitan
area.

Military aviation fuel delivered by the San Angelo Pipeline
to Dyess is sold f.o.b. the Refinery with title passing to the
purchaser as the product enters the pipeline. Prior to 1998, the
Partnership had the only pipeline capable of delivering jet fuel
directly into Dyess. In late 1997, Fina purchased Conoco's
products terminal in Abilene and built its own pipeline from its
terminal to Dyess that enables Fina to also deliver military
aviation fuel into Dyess.

Sales of military aviation fuel constitute a significant
portion of the Partnership's revenues. See "- Markets and
Competition" below. Such sales are under annual contracts
awarded by the Defense Energy Support Center after a bidding
process. The bidding process is conducted on a base-by-base
basis and is subject to the small business set-aside program.
When the bids are received, the Defense Energy Support Center
determines both the lowest overall bid and the lowest bid
submitted by a small business (defined as a refinery with a
throughput capacity of less than 75,000 BPD and fewer than 1,500
employees). If the lowest bid is not submitted by a small
business, the lowest small business bidder is offered the
opportunity to obtain a contract for a set percentage of the
base's requirements by matching the lowest overall bid. Prior to
the contract that began April 1, 1998 and ends March 31, 1999,
the Partnership was considered a small business. Since the
Partnership is purchasing the military aviation fuel from
Equilon, the Partnership could not bid as a small business for
the contract that began April 1, 1998, nor will the Partnership
be able to bid on any future contracts as a small business.
Since the Partnership cannot match the price of the lowest large
business under the small business set-aside program and due to
increased competition, the volumes under the recently awarded
contract were 25,250,000 gallons compared to 52,510,000 gallons
under last year's contract. Margins under the new contract will
be 1.5 cents per gallon lower than the prior contract. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Factors and Trends Affecting Operating
Results."

The Partnership and its predecessors have been supplying
products to Joint Reserve - Fort Worth and Dyess since the early
1960s. Management believes that there will continue to be strong
demand for military aviation fuel in the Partnership's market
area into the foreseeable future; however, due to increased
competition, the amount of military aviation fuel supplied by the
Partnership under the new contract and future contracts will
likely be at reduced volumes from previous contracts. Dyess is
an Air Combat Command facility, formerly a strategic air command
facility, and the primary training base for the B-1 bomber crews.
In addition, Dyess also has two worldwide deployable airlift
squadrons which fly the C-130 Hercules. Under the contract that
is effective from April 1, 1998 through March 31, 1999, the
Partnership contracted to sell military aviation fuel to Dyess,
Sheppard Air Force Base in Wichita Falls, Texas, Fort Hood
Military Installation in Killeen, Texas, E-Systems, Inc. in
Greenville, Texas, and Joint Reserve - Fort Worth. Under the new
contract that is effective from April 1, 1999 through March 31,
2000, the Partnership will supply military aviation fuel to
Dyess, AASF in Dallas, Texas, Joint Reserve - Fort Worth, and
E-Systems, Inc. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Factors and
Trends Affecting Operating Results - Other Factors."

Crude Gathering System. The Partnership's Crude Gathering
System is divided into two distinct areas: (i) truck-based crude
oil gathering and (ii) pipeline operations. The trucking
operations comprise five district offices located in the Abilene,
Dallas, Graham, Midland, and San Angelo, Texas areas. These
districts utilize a fleet of 103 trucks to transport crude oil
from individual leases or small gathering systems to injection
stations owned and operated by the Partnership along common
carrier pipeline systems. As of December 31, 1998, the Crude
Gathering System operated 32 crude oil injection stations located
on various common carrier pipeline systems including the Amoco,
Arco, Chevron, Comyn, Conoco, Mobil, Texaco, Texas Plains System
and other Texas-New Mexico pipeline systems. The Partnership
maintains 17 trucking locations throughout the area for operation
of its truck fleet. In December 1998, the average length of
travel for the Partnership's trucks in its gathering operations
was approximately 76 miles round trip.

As of December 31, 1998, the pipeline assets utilized in the
Crude Gathering System consisted of in excess of 900 miles of
active pipeline, the major portion of which is the Comyn pipeline
system ("Comyn System") with approximately 417 miles of trunkline
and 190 miles of gathering lines and the Texas Plains Pipeline
System ("Texas Plains System") consisting of an additional 242
miles of trunkline and 29 miles of gathering lines. Ownership of
the trunkline segments of the Comyn System from Hawley to Comyn,
Texas (90 miles), from Hearne to Comyn, Texas (143 miles), and
from Comyn to Ranger, Texas (37 miles) along with certain related
pumping facilities, was retained by Pride SGP when the
Partnership was formed, and the Partnership leases these assets
from Pride SGP. For the year ended December 31, 1998, the
Partnership transported 9,729 barrels per day ("BPD") of high
quality crude oil from the eastern portion of the Austin Chalk
formation through this pipeline.

The Partnership owns the Texas Plains System, a crude oil
pipeline system that prior to the mothballing of the Refinery
also transported vacuum gas oil. It consists of 271 miles of
pipeline extending from Hawley, Texas, which is located near the
Partnership's mothballed Refinery, to Borger, Texas. The system
has a total capacity of approximately 38,000 BPD, and an average
of 33,016 BPD of crude oil and vacuum gas oil was shipped on the
pipeline for the year ended December 31, 1998. After the
mothballing of the Refinery, the Partnership began shipping a
portion of the crude oil that previously would have gone to the
Refinery to Ultramar Diamond Shamrock's ("UDS") refinery in
McKee, Texas, in place of the vacuum gas oil. Prior to the
mothballing of the Refinery, the Partnership had sold all the
vacuum gas oil and a small portion of the crude oil transported
on the pipeline to UDS.

The Comyn System and Texas Plains System are common carrier
pipelines that charge a transportation fee in accordance with a
published tariff schedule filed with the Texas Railroad
Commission. The Comyn System and Texas Plains System are also
allowed to charge each customer's account with a line loss
allowance of 0.25% and 0.125%, respectively, for each barrel
transported in the system.

In addition to the Comyn System and Texas Plains System, the
Partnership owns and operates a small pipeline system in Tom
Green County.

Crude oil from the Crude Gathering System pipelines can be
delivered to a variety of locations, including storage tanks
located at the Abilene Terminal, tank storage areas which
facilitate trucking to injection stations, and several different
common carrier crude oil pipelines.

The Crude Gathering System is the first purchaser of a
portion of the crude oil it gathers. These first purchase
barrels have traditionally been either resold to other companies
or shipped to the Refinery prior to the mothballing of the
Refinery. The Partnership also gathers crude oil for custom
gathering customers and charges gathering fees depending on
several factors (including the transportation distance involved)
and delivers these barrels to an agreed upon location by
contract. The Crude Gathering System assumes title to both first
purchase and custom gathered barrels and the total of the two
categories is considered to be total gathered barrels. While
first purchase barrels have declined from 39,000 BPD in 1986 to
27,000 BPD for the year ended December 31, 1998, custom gathered
barrels have grown from 5,000 BPD to 17,000 BPD for the same
period. However, the custom gathered barrels have declined over
the last three years as the Partnership has eliminated some of
the marginal custom gathered contracts. Both first purchase
barrels and custom gathered barrels are subject to decline if
drilling activity slows down as a result of recent declines in
crude oil prices.

The Partnership has engaged an investment advisor to assist
the Partnership in considering and analyzing various potential
business opportunities involving the Crude Gathering System,
including possible strategic alliances and joint ventures and a
possible sale of the Crude Gathering System. Although the
Partnership has been and continues to be in discussions with
various third parties regarding possible transactions, the
Partnership (as of April 15, 1999) has not entered into any
binding agreements involving a business combination or sale
involving the Crude Gathering System and is unable to predict the
certainty of entering into or consummating any such transaction.

Refining. Prior to March 22, 1998, the principal business
of the Partnership was crude oil refining at its Refinery located
approximately ten miles north of Abilene, Texas. The Refinery
had a throughput capacity of 49,500 barrels per day ("BPD") and
was permitted to process 44,500 BPD. For the first three months
of 1998, the Refinery processed crude oil into refined products
at an average rate of approximately 28,090 BPD.

As a result of the mothballing of the Refinery, the
Partnership wrote down such assets $40.0 million at December 31,
1997. In December 1998, the Partnership sold its diesel
desulfurization unit for $3.1 million.

Markets and Competition

Fina, the Partnership's principal competitor in its primary
market area, operates a products pipeline in the Abilene area.
This competitor's pipeline originates in Big Spring, Texas (105
miles west of Abilene) and supplies Abilene, Midland, and Wichita
Falls, Texas and the Midcontinent. However, the Partnership
currently has the only products pipeline access to the San Angelo
area. Retailers and jobbers who are not supplied by the
Partnership or one of its exchange partners must truck their
products into San Angelo from locations as far away as 90 to 200
miles. Equilon recently converted an existing crude pipeline into
a products pipeline that delivers conventional gasoline, low
sulfur diesel fuel and military aviation fuel from the Gulf Coast
to the Partnership's Abilene Terminal and Aledo Terminal, and the
Partnership ships product from the Abilene Terminal to the San
Angelo Terminal through the San Angelo Pipeline. Other Gulf
Coast refiners ship their products primarily throughout the
southeast and central United States. Total petroleum product
demand for the Partnership's market area is determined by demand
for conventional gasoline, low sulfur diesel fuel, and military
aviation fuel. In the case of each product, however, demand
tends to vary by locality and season. Aviation fuel consumption
is from regional military and civilian air facilities.

In February 1997, Fina and Holly Corp. ("Holly") announced a
plan to convert existing crude oil and natural gas pipelines and
lay 110 miles of new pipeline to bring additional gasoline and
diesel products to West Texas, New Mexico and Arizona. The
system will be supplied by Fina's refineries in Big Spring and
Port Arthur, Texas, a pipeline terminal in Duncan, Oklahoma, and
Holly's refinery in Artesia, New Mexico. Fina has indicated that
it believes Gulf Coast petroleum products will not be needed for
another five years. Other companies are also considering
projects to bring petroleum products into West Texas, New Mexico
and Arizona from the Gulf Coast. These proposals, if
implemented, would increase competition in the Partnership's
primary market areas.

In addition to its primary market areas in Abilene and San
Angelo for conventional gasoline and low sulfur diesel fuel, the
Partnership has access to a secondary market in the small
communities west of Dallas-Fort Worth along Interstate 20 for
conventional gasoline and the Dallas-Fort Worth metropolitan area
for low sulfur diesel fuel. As a result of the reformulated
gasoline requirement for the Dallas-Fort Worth metropolitan area
effective January 1, 1995, most products terminals are supplying
reformulated gasoline in the area with only a small number having
the capability of supplying conventional gasoline, which is in
more limited demand. The Aledo Terminal is strategically located
to take advantage of this marketing opportunity, and the
Partnership has entered into supply and exchange agreements with
three major oil companies at that location. The San Angelo
market area is accessible via the San Angelo Pipeline that is
connected to storage tanks at the Abilene Terminal. Market
demand for gasoline and diesel in Abilene and in San Angelo is
estimated to be approximately 17,500 BPD and 11,000 BPD,
respectively. Market demand for petroleum products in the Dallas
- - Fort Worth area is estimated to be approximately 343,000 BPD,
with reformulated gasoline, diesel and a limited amount of
conventional gasoline accounting for an aggregate of 195,000 BPD.

The Partnership does not generally sell its gasoline
products through its own direct retail distribution system, but
primarily sells to other branded product companies with some
gasoline being sold directly to unbranded dealers. Low sulfur
diesel fuel is primarily sold to truck stops and end users with a
limited amount sold to other branded product companies. A number
of major petroleum product marketers in West Texas do not have
local refinery facilities or sales terminals. Accordingly, such
marketers supplement their local needs by purchases or product
exchanges with local suppliers, such as the Partnership. The
Partnership currently sells or exchanges diesel, conventional
gasoline, and military aviation fuel, depending on local market
needs throughout the region. Some of the marketers in the area
that purchase or exchange refined products include Chevron,
Citgo, Conoco,UDS, Exxon, Fina, Phillips, Shell, Star Enterprise
and Texaco. The Partnership has two exchange agreements and one
sales agreement with these companies for product supplied out of
the Abilene Terminal; five exchange agreements and two sales
agreements with these companies for products supplied out of the
San Angelo Terminal; and one exchange agreement and two sales
agreements with these companies for product supplied out of the
Aledo Terminal. The exchange agreements have enabled the
Partnership to expand its marketing area to Amarillo, Texas, El
Paso, Texas, Lubbock, Texas, Midland/Odessa, Texas, and Wichita
Falls, Texas without incurring transportation costs to these
cities. The Partnership also currently operates five retail
fueling facilities. These facilities are located in Central and
West Texas. Sales by such facilities accounted for less than 1%
of the Partnership's revenues for the year ended December 31,
1998.

As a result of the Refinery being mothballed on March 22,
1998, the Partnership now markets to third parties the crude oil
it previously sold to the Refinery. These third parties include
other refiners and companies that buy, sell and exchange crude
oil. The Partnership entered into two two-year contracts to sell
Gary-Williams Energy, Corporation (Gary-Williams) beginning in
April 1998 and UDS beginning in August 1998, a portion of the
crude oil previously sold to the Refinery.

Generally, the Partnership competes primarily on the basis
of price for the crude oil it gathers in a particular market
area.

Customers

The Partnership entered into an agreement with UDS to supply
it with crude oil through July 31, 2000 and shall continue for
one year thereafter, unless canceled by either party upon six
months' prior written notice, for use in UDS's refining
operations. The Partnership's revenues pursuant to the UDS
agreement and the prior vacuum gas oil agreement accounted for
23% of its total revenues for the year ended December 31, 1998.

Long-Term Product Supply Agreement

In 1997, the Partnership executed a long-term product supply
agreement (the "Agreement") with Equilon to supply gasoline,
diesel fuel and jet fuel to the Partnership. The Agreement has a
10-year primary term which began in April 1998, the date Equilon
completed its system of pipelines and terminals. The Agreement
also has two-year renewal provisions for up to an additional 10
years. After the initial five years of the initial ten-year term
("Primary Term"), if Equilon determines that shipment of products
on its new products pipeline is no longer economical due to
product prices, then Equilon may notify the Partnership of
proposed redetermined prices. If the Partnership does not accept
such redetermined prices, then Equilon may elect to terminate the
Agreement by 18 months' written notice. After the Primary Term,
if either party under the Agreement can demonstrate that the
prices for delivered products under the Agreement are producing
cash flows materially below that received during the Primary
Term, then such party may notify the other party of proposed
prices it must receive to continue. If the other party does not
accept such redetermined pricing, then the other party may elect
not to renew the Agreement not less than one year prior to the
end of the current term. The Agreement may furthermore be
terminated upon any breach by the other party which continues
beyond 30 days following notice of breach. Additionally, the
Agreement provides that the Partnership will purchase all
gasoline, diesel and jet fuel which it may desire to purchase,
exclusively from Equilon. The Partnership's cost for such
product is based primarily on the market price in the area in
which the products are received less a discount. The Partnership
will use Equilon products to supply its existing customer base,
which includes wholesale customers, exchange partners, and
military bases, primarily using the Products Terminals and San
Angelo Pipeline.

In connection with the Agreement, the Partnership mothballed
its Refinery, but will continue to utilize part of the Refinery
for a refined products and crude oil storage and terminalling
facility (the Abilene Terminal). See also "Financial Condition -
Financial Resources and Liquidity." The Partnership spent $1.3
million on closure cost and related severance costs for the year
ended December 31, 1998, all of which was accrued as of December
31, 1997. The agreement with Equilon effectively makes the Crude
Gathering System an independent operation. It is no longer
responsible for supplying the Refinery with crude oil and is free
to handle and trade grades of crude oil that would have
previously been inconsistent with the Refinery's needs. The
arrangement with Equilon also enables the Partnership to
transport the crude oil it previously gathered and shipped to the
Refinery to other attractive markets. A large portion of Pride
Pipeline Company's gathered crude oil was restricted to use as
feedstock for the Refinery. Based on recent results, the
Partnership now anticipates that the new arrangement will produce
lower operating cash flows than historical levels. However, the
Partnership's cash flows would have likely been even lower had it
continued to operate the Refinery and had to compete in its
market area against other Gulf Coast refineries. The Partnership
believes that cash flows will likely be less volatile since the
Agreement will result in more stable product margins and
eventually decrease the Partnership's exposure to volatility in
refining margins. The Partnership also believes that the
Agreement will better enable the Partnership to remain
competitive as environmental standards change and the industry
trends toward consolidation and realignments in the future.

Employees

As of December 31, 1998, the Partnership had 249 employees,
of which 60 were employed in the Products Marketing Business and
189 were employed in the Crude Gathering System.

Environmental Matters

The Partnership's activities involve the transportation,
storage, and handling of crude oil and petroleum products that
constitute or contain substances regulated under certain federal
and state environmental laws and regulations. The Partnership is
also subject to federal, state and local laws and regulations
relating to air emissions and disposal of wastewater as well as
other environmental laws and regulations, including those
governing the handling, release and cleanup of hazardous
materials and wastes. The Partnership has from time to time
expended resources, both financial and managerial, to comply with
environmental regulations and permit requirements and anticipates
that it will continue to be required to expend financial and
managerial resources for this purpose in the future. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Factors and Trends Affecting Operating
Results" and "Legal Proceedings."

Forward Looking Statements

This Form 10-K contains certain forward looking statements.
Such statements are typically punctuated by words or phrases such
as "anticipate," "estimate," "projects," "should," "may,"
"management believes," and words or phrases of similar import.
Such statements are subject to certain risks, uncertainties or
assumptions. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated,
estimated or projected. Among the key factors that may have a
direct bearing on the Partnership's results of operations and
financial condition in the future are: (i) the margins between
the revenue realized by the Partnership on the sale of refined
products and the cost of those products purchased from Equilon
and the availability of such products, (ii) the volume of
throughput at the Products Terminals, (iii) the volume of
throughput on and margins from the transportation and resale of
crude oil from the Partnership's Crude Gathering System, (iv) the
amount of crude oil produced in the areas the Partnership
gathers, (v) the impact of current and future laws and
governmental regulations affecting the petroleum industry in
general and the Partnership's operations in particular, (vi) the
ability of the Partnership to sustain cash flow from operations
sufficient to realize its investment in operating assets of the
Partnership and meet its debt obligations, and (vii) fluctuations
in crude oil and refined product prices and their impact on
working capital and the borrowing base under the Partnership's
credit agreements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation - Financial
Condition."

Item 3. Legal Proceedings

On September 5, 1995, the Partnership filed a substantial
claim in the United States Court of Federal Claims against the
United States of America (Defense Energy Support Center) relating
to erroneous pricing of fuel purchased over a period of several
years from the Partnership and its predecessors (the "DESC
Claim"). The Partnership seeks recovery of the difference
between the market value of the jet fuel and the amount
originally paid by the Defense Energy Support Center for such jet
fuel. The ultimate outcome of this matter cannot presently be
determined.

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

No matters were submitted to a vote of security holders
during fiscal year 1998.
<PAGE>
<PAGE>
PART II

Item 5. Market for Partnership's Common Units and Related
Unitholder Matters

The Partnership's Common Units are currently traded on the
NASDAQ OTC bulletin board under the symbol PRDE. Prior to August
17, 1998, the Partnership was listed on the New York Stock
Exchange but was delisted for failing to meet certain listing
requirements. The following tables set forth, for the periods
indicated, the high and low closing prices of the Common Units in
1998 and 1997 as reported on the New York Stock Exchange
Composite Tape and the high and low bid information of the Common
Units in 1998 on the NASDAQ OTC bulletin board. Quotations on
the NASDAQ OTC bulletin board reflect interdealer prices and may
not necessarily represent actual transactions. No distributions
were made on the Common Units during the past two fiscal years.

New York Stock Exchange Composite Tape
- --------------------------------------

1997 HIGH LOW
____ ____ ___
<S> <C> <C>
First Quarter $ 3-3/4 $ 3-1/4

Second Quarter 3-3/4 2-15/16

Third Quarter 3-3/16 2-7/16

Fourth Quarter 2-1/2 1-9/16

1998
____

First Quarter $ 2 $ 1-5/16

Second Quarter 1-9/16 1

Third Quarter thru 8/14/98 1-1/8 7/16

NASDAQ OTC Bulletin Board
- -------------------------

Third Quarter beginning
8/20/98 $ 1/2 $ 1/4

Fourth Quarter 13/16 1/8

</TABLE>

The Unsecured Note A is convertible into 436,000 Common
Units, and the Partnership's Series B Preferred Units, Series C
Preferred Units, and Series E Preferred Units are convertible
into 1,480,000, 794,000 and 317,000 Common Units, respectively.
See "Management's Discussion and Analysis of Financial Condition
and Results of Operation - Financial Condition - Financial
Resources and Liquidity." Since cash distributions were not paid
on the preferred equity, the preferred equity accumulated
arrearages of $1,763,000 for the year ended December 31, 1998.

Based on information received from its transfer agent and
servicing agent, the Partnership estimates the number of
beneficial common unitholders of the Partnership at December 31,
1998 to be approximately 3,800.

See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Financial Condition -
Financial Resources and Liquidity" for a discussion of certain
restrictions imposed by the Partnership's lenders on the payment
of distributions to unitholders throughout the term of the
Partnership's credit facility with such lenders, which terminates
on January 2, 2001.

Item 6. Selected Financial Data

The following table sets forth, for the periods and at the
dates indicated, selected financial data for the Partnership.
The table is derived from the financial statements of the
Partnership and should be read in conjunction with those
financial statements. The summary income statement data for each
of the five years in the period ended December 31, 1998, as well
as the summary balance sheet data for December 31, 1994, 1995,
1996, 1997 and 1998 are all extracted from the audited financial
statements of the Partnership. See also "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

The earnings per share amounts prior to 1997 have been
restated as required to comply with Statement of Financial
Accounting Standards No. 128, Earnings per Share. For further
discussion of earnings per share and the impact of Statement No.
128, see the notes to the consolidated financial statements
beginning on page F-7.
<PAGE>
<PAGE>
(The following table should be printed on 14" x 8.5" paper)

<TABLE>
SELECTED FINANCIAL DATA
(In thousands, except per unit amounts and footnote amounts)
<CAPTION>

Year Ended December 31,
________________________________________________________________
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues
Products Marketing Business <F1> $ 220,610 $ 235,136 $ 294,328 $ 277,180 $ 121,189
Crude Gathering System 553,847 527,212 597,425 494,155 300,566
Intrasystem and other (184,551) (201,735) (276,550) (236,437) (41,128)
________ ________ ________ ________ ________
Total revenues 589,906 560,613 615,203 534,898 380,627
________ ________ ________ ________ ________
Costs of sales and operating
expenses, excluding depreciation 570,877 543,425 596,841 516,146 369,280<F2>
Refinery closure costs - - - 41,396<F3> -
Marketing, general and administrative
expenses 11,059 10,274 10,111 8,955 8,001
Depreciation 6,546 7,006 6,976 6,872 3,438
________ ________ ________ ________ ________
Operating income (loss) 1,424 (92) 1,275 (38,471) (92)
________ ________ ________ ________ ________
Other net 28 175 179 564 346
Interest expense (5,191) (6,575) (5,808) (5,316) (6,144)<F4>
Credit and loan fees <F5> (1,651) (2,172) (2,109) (1,952) (2,753)
________ ________ ________ ________ ________
Loss before income taxes (5,390) (8,664) (6,463) (45,175) (8,643)
Income tax benefit - 47 48 144 86
________ ________ ________ ________ ________
Net loss $ (5,390) $ (8,617) $ (6,415) $ (45,031) $ (8,557)
======== ======== ======== ======== ========

Before conversion <F6>:
Basic and diluted net loss per Unit:
Preferred Unit $ (0.53) $ (0.85) $ (0.63) - -
Old Common Unit $ (0.53) $ (0.85) $ (0.63) - -

After conversion <F6>:
Basic and diluted net loss per Common
Unit $ (1.07) $ (1.71) $ (1.27) $ (8.92) $ (2.04)

Numerator:
Net loss $ (5,390) $ (8,617) $ (6,415) $ (45,031) $ (8,557)
Preferred distributions in arrears<F7> - - - - (1,763)
-------- -------- -------- -------- --------
Net loss less preferred distributions (5,390) (8,617) (6,415) (45,031) (10,320)
Net loss allocable to
2% general partners' interest 108 172 128 901 206
-------- -------- -------- -------- --------
Numerator for basic and diluted
earnings per unit $ (5,282) $ (8,445) $ (6,287) $ (44,130) $ (10,114)
======== ======== ======== ======== ========

Denominator: <F8>
Denominator for basic and diluted
earnings per unit before
conversion <F6>:
Preferred Units 4,700 4,700 4,700 - -
Old Common Units 5,250 5,250 5,250 - -
Denominator for basic and diluted
earnings per unit after
conversion <F6>:
Common Units 4,950 4,950 4,950 4,950 4,950

Balance Sheet Data (at end of period):
Net property, plant and equipment $ 110,884 $ 104,837 $ 99,554 $ 47,588 $ 45,534
Total assets 146,552 138,306 139,716 95,281 76,462
Long-term debt (including current
maturities) <F8> 58,890 56,500 56,933 43,171 45,096
Redeemable preferred equity - - - 19,529 19,529
Partners' capital (deficiency) 44,630 36,013 29,598 (15,433) (23,990)

Operating Data (BPD):
Products Marketing Business
Product sales 13,267<F9>
Refinery
Crude oil throughput 30,483 29,806 32,555 31,449 28,090<F9>
Products refined 29,815 29,031 31,681 30,619 27,438<F9>
Products System
Transportation volumes 13,722 15,585 13,509 11,415 7,335<F9>
Crude Gathering System
Crude oil gathered 74,676 66,869 58,775 51,305 43,508
<FN>
<F1>
Prior to mothballing the Refinery on March 22, 1998, this data represents information for the Refinery and products
pipelines and terminals.
<F2>
Cost of sales and operating expenses, excluding depreciation, included a $1,197,000 lower of cost or market inventory
adjustment due to the decline in inventory values.
<F3>
Refinery closure costs for the year ended December 31, 1997 includes a $40,000,000 noncash charge for impairment of
fixed assets, $1,750,000 related to closure of the Refinery and related severance costs, and $367,000 related to the
writeoff of certain Refinery assets offset by $721,000 in accruals that were reversed as a result of the Refinery being
mothballed.
<F4>
Since a portion of the debt is subject to increasing rates of interest, the Partnership is accruing interest at the
effective rate over the term of the debt. Interest expense in 1998 reflects an accrual of $1,030,000 which is based on
the difference between the effective interest rates and the stated rates.
<F5>
Credit and loan fees include costs associated with the restructuring and refinancing of the Partnership of $873,000,
$1,064,000, $613,000 and $1,325,000 for 1995, 1996, 1997 and 1998, respectively.
<F6>
On December 31, 1996 after the market closed the convertible preferred limited partner units ("Preferred Units") were
converted to Common Units on a one-for-one basis. At the same time, existing common limited partner units ("Old Common
Units") were converted to Common Units on a one-for-twenty-one reverse unit split. The "Before Conversion" section
reflects the per unit information based on both the outstanding Preferred Units and Old Common Units, whereas the "After
Conversion" section reflects the pro forma per unit information based on the outstanding Common Units.
<F7>
Since cash distributions were not paid on the preferred equity, the preferred equity accumulated arrearages of
$1,763,000 for the year ended December 31, 1998.
<F8>
In 1998, the calculations of diluted earnings per unit exclude 300,000 officer and employee unit appreciation rights and
3,027,000 units attributed to the convertible preferred equity and convertible debt because the effect would be
antidilutive. Likewise, in 1997, the calculations of diluted earnings per unit exclude 300,000 officer and employee
unit appreciation rights and 2,987,000 units attributed to the convertible preferred equity and convertible debt because
the effect would also be antidilutive. Both years also exclude 70,000 director unit appreciation rights because the
plan states they will be settled for cash.
<F9>
At December 31, 1994, 1995, 1996, 1997 and 1998 current maturities were $6,626,000, $3,447,000, $6,516,000, $2,084,000
and $237,000, respectively.
<F10>
Due to the Refinery being mothballed on March 22, 1998, the operating data in 1998 for the Products Marketing Business
is for the period April 1, 1998 through December 31, 1998 and for the Refinery and Products System is for the period
January 1, 1998 through March 31, 1998.
</FN>
</TABLE>
PAGE
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations

Results of Operations

General

The following is a discussion of the financial condition and
results of operations of the Partnership. This discussion should
be read in conjunction with the financial statements included in
this report.

As a result of mothballing the Refinery at the end of the
first quarter of 1998 and redirecting its business to focus on
crude oil and products marketing and distribution, the
Partnership's operating results now depend principally on (i)
the margins between the revenue realized by the Partnership on
the sale of refined products and the cost of those refined
products purchased from Equilon and the availability of such
products, (ii) the volume of throughput at the Products
Terminals, (iii) the volume of throughput on and margins from the
transportation and resale of crude oil from the Partnership's
Crude Gathering System, and (iv) the amount of crude oil produced
in the areas the Partnership gathers. The price the Partnership
is able to realize on the resale of its petroleum products is
influenced by the level of competition in the Partnership's
markets. Due to the change in its core business, a comparison of
the Products Marketing Business to the Refinery and the prior
products pipeline business ("Products System") would not be
meaningful and, therefore, is not included with this Form 10-K.

Prior to mothballing the Refinery and entering into the
Equilon Agreement, the Partnership's operating results depended
principally on (i) the rate of utilization of the Refinery, (ii)
the margins between the prices of its refined petroleum products
and the cost of crude oil, (iii) the volume throughput on the
Products System, and (iv) the volume throughput on and margins
from the transportation and resale of crude oil from its Crude
Gathering System.

Margins from the Crude Gathering System are influenced by
the level of competition and the price of crude oil. When prices
are higher, crude oil can generally be resold at higher margins.
Additionally, transportation charges trend upward when higher
crude oil prices result in increased exploration and development.
Conversely, when crude oil prices decrease, exploration and
development decline and margins on the resale of crude oil as
well as transportation charges tend to decrease.

Beginning in April 1998, the Partnership began selling crude
oil to third parties that in the past would have been refined at
the Refinery. The gross margin per barrel from such sales are
based in part on the sales price of crude oil above the
Partnership's posted price for the purchase of such crude oil
(the "Premium"). The Premium for crude oil is primarily based on
the prompt NYMEX price of crude oil versus the posted price of
crude oil.

Prior to April 1998, a substantial portion of the crude
gathered by the Crude Gathering System was sold to the Refinery.
The intrasystem pricing of crude oil between the Refinery and the
Crude Gathering System was based in part on an adjusted Midland
spot price for crude oil above the Partnership's posted price for
the purchase of such crude oil (the "Intracompany Premium"),
which represented the approximate amount above posting that would
be realized on the sale of such crude oil to an unrelated third
party. The total intrasystem price for crude oil between the
Refinery and the Crude Gathering System included the Intracompany
Premium, the Partnership's posted price and transportation costs.
An increase in the Intracompany Premium for crude oil had a
negative impact on the Refinery and a positive impact on the
Crude Gathering System. On the other hand, a decrease in the
Intracompany Premium for crude oil had a positive impact on the
Refinery and a negative impact on the Crude Gathering System.
For the first three months of 1998 and the years ended December
31, 1997 and 1996, the average Intracompany Premium for crude oil
was $1.72, $1.91, and $2.38, respectively.

In evaluating the financial performance of the Partnership,
management believes it is important to look at operating income,
excluding depreciation, in addition to operating income which is
after depreciation. Operating income, excluding depreciation,
measures the Partnership's ability to generate and sustain
working capital and ultimately cash flows from operations.
However, such measure is before debt service, so it does not
indicate the amount available for distribution, reinvestment or
other discretionary uses. Gross revenues primarily reflect the
level of crude oil prices and are not necessarily an accurate
reflection of the Partnership's profitability. Also important to
the evaluation of the Refinery's performance are barrels of crude
oil refined, gross margin (revenue less cost of crude) per
barrel, and operating expenses per barrel, excluding
depreciation.

Year ended December 31, 1998 compared with year ended December
31, 1997

General. Net loss for the year ended December 31, 1998
decreased to $8.6 million as compared to $45.0 million for the
year ended December 31, 1997. The results for the year ended
December 31, 1997 included $41.4 million of costs associated with
ceasing Refinery operations. Excluding the $41.4 million of
costs associated with ceasing Refinery operations, net loss was
$3.6 million for the year ended December 31, 1997. The closure
costs included a $40.0 million noncash charge for impairment of
certain Refinery fixed assets, $1.8 million related to the
closure of the Refinery and related severance costs and $367,000
related to the writeoff of certain Refinery assets offset by
$721,000 in accruals that were reversed since the Refinery was
mothballed. Non-operating expenses increased $1.8 million for
the year ended December 31, 1998 as compared to the same period
in 1997 due to increased interest expense and credit and loan
fees. Interest expense increased $828,000 which is attributable
to higher interest rates under the new credit facilities executed
December 31, 1997. Credit and loan fees increased for the year
as a result of the amortization of deferred financing costs
associated with the refinancing that occurred on December 31,
1997.

Operating loss for the year ended December 31, 1998 was
$92,000 as compared to an operating loss of $38.5 million for the
year ended December 31, 1997. Excluding the $41.4 million of
costs associated with ceasing Refinery operations, operating
income was $2.9 million for the year ended December 31, 1997.
Operating income decreased as a result of weaker results for the
Crude Gathering System and Products Marketing Business for the
year ended December 31, 1998 versus the Crude Gathering System
and Refinery for the year ended December 31, 1997. Depreciation
expense declined to $3.4 million for the year ended December 31,
1998 from $6.9 million for the year ended December 31, 1997 as a
result of the reduction in property, plant and equipment at
December 31, 1997 related to the noncash charge for impairment.
Operating income, excluding depreciation, for the year ended
December 31, 1998 was $3.3 million as compared to an operating
loss of $31.6 million for the year ended December 31, 1997.
Excluding the $41.4 million of costs associated with ceasing
Refinery operations, operating income, excluding depreciation,
was $9.8 million for the year ended December 31, 1997.

Products Marketing Business. Operating income for the
Products Marketing Business for the year ended December 31, 1998
was $552,000 which includes operating income of $1.0 million from
the Refinery and Products System for the first three months of
1998. Depreciation expense for the Products Marketing Business
was approximately $1.4 million for the year ended December 31,
1998 which includes depreciation expense of $368,000 from the
Refinery and Products System for the first three months of 1998.
Operating income, before depreciation, of the Products Marketing
Business was $2.0 million for the year ended December 31, 1998
which includes operating income, before depreciation, of $1.4
million from the Refinery and Products System for the first three
months of 1998. During the last nine months of 1998, the
Partnership marketed 13,267 BPD of refined products through the
Products Marketing Business. For the first three months of 1998,
the Partnership marketed 28,669 BPD through the Refinery and
Products System. The gross margin per barrel for the last nine
months of 1998 for the Products Marketing Business was $1.82.
The gross margin per barrel for the first three months of 1998
for the Refinery was $1.88.

Management believes that the initial operating results of
the Products Marketing Business were significantly impacted by
product outages and other start-up problems associated with the
supply agreement with Equilon. Further, management believes
increased competition in the Partnership's operating area would
have significantly hurt operating results had the Partnership
continued to operate the Refinery.

Refinery and Products System. Operating loss for the
Refinery and Products System was $40.9 million for the year ended
December 31, 1997. Excluding the $41.4 million of costs
associated with ceasing Refinery operations, operating income for
the Refinery and Products System was $537,000 for the year ended
December 31, 1997. Depreciation expense for the Refinery and
Products System was approximately $5.0 million for the year ended
December 31, 1997. Operating loss, before depreciation, for the
Refinery and Products System was $35.9 million for the year ended
December 31, 1997. Excluding the $41.4 million of costs
associated with ceasing Refinery operations, operating income,
excluding depreciation, for the Refinery and Products System was
$5.5 million for the year ended December 31, 1997.

Operating income, depreciation expense, and operating
income, before depreciation, for the Products System was
$655,000, $870,000 and $1.5 million, respectively, for the year
ended December 31, 1997. Total transportation volumes were
11,415 for the year ended December 31, 1997.

Operating loss for the Refinery was $41.5 million for the
year ended December 31, 1997. Excluding the $41.4 million of
costs associated with ceasing Refinery operations, operating loss
for the Refinery was $118,000 for the year ended December 31,
1997. Depreciation expense for the Refinery was $4.1 million for
the year ended December 31, 1997. Operating loss, excluding
depreciation, for the Refinery was $37.4 million for the year
ended December 31, 1997. Excluding the $41.4 million of costs
associated with ceasing Refinery operations, operating income,
excluding depreciation, for the Refinery was $4.0 million for the
year ended December 31, 1997.

Refinery gross margin per barrel was $1.76 for the year
ended December 31, 1997. Refinery throughput averaged 31,449 BPD
for the year ended December 31, 1997. Operating expenses per
barrel, before depreciation, were $4.61 for the year ended
December 31, 1997. Excluding the $41.4 million of costs
associated with ceasing Refinery operations, operating expenses
per barrel, excluding depreciation, were $1.00 for the year ended
December 31, 1997.

Crude Gathering System. Operating loss for the Crude
Gathering System was $644,000 for the year ended December 31,
1998 compared to operating income of $2.4 million for the year
ended December 31, 1997 due to a decline in crude gathering
margins. For the year ended December 31, 1998, the Premium for
crude oil sold to third parties was lower than the Intracompany
Premium and transportation revenue received from the Refinery for
the same period in 1997. In addition, operating income for the
year ended December 31, 1998 included a $1.2 million lower of
cost or market inventory adjustment due to the decline in
inventory values. Depreciation expense for the Crude Gathering
System increased to $2.0 million for the year ended December 31,
1998 from $1.9 million for the year ended December 31, 1997.
Operating income, excluding depreciation, for the Crude Gathering
System decreased to $1.4 million for the year ended December 31,
1998 from $4.3 million for the year ended December 31, 1997. Due
to the elimination of several marginal contracts, the volume of
crude oil gathered by the Crude Gathering System decreased to
43,508 BPD for the year ended December 31, 1998 from 51,305 BPD
for the year ended December 31, 1997. For the year ended
December 31, 1998, net margin was negative $0.04 per barrel
compared to positive $0.13 per barrel for the year ended
December 31, 1997. Excluding the $1.2 million inventory
adjustment due to the decline in inventory values, net margin was
positive $0.03 per barrel for the year ended December 31, 1998.

Year ended December 31, 1997 compared with year ended December
31, 1996

General. Net loss for the year ended December 31, 1997
increased to $45.0 million as compared to $6.4 million for the
year ended December 31, 1996. The results for the year ended
December 31, 1997 included $41.4 million in costs associated with
ceasing Refinery operations. Excluding the $41.4 million of
costs associated with ceasing Refinery operations, net loss was
$3.6 million for the year ended December 31, 1997. The closure
costs included a $40.0 million noncash charge for impairment of
certain Refinery fixed assets, $1.8 million related to the
closure of the Refinery and related severance costs and $367,000
related to the writeoff of certain Refinery assets offset by
$721,000 in accruals that were reversed when the Refinery was
mothballed. Non-operating expenses decreased $1.0 million for
the year ended December 31, 1997 as compared to the same period
in 1996 due primarily to decreased interest expense and credit
and loan fees and a gain on the sale of the Partnership's
products trucks. Interest expense decreased $492,000 which is
attributable to lower interest rates that became effective on
December 31, 1996 as a result of the approval by the unitholders
to certain amendments to the Partnership agreement. Credit and
loan fees for the year ended December 31, 1996 were reduced by a
one-time nonrecurring reversal of an accrual for facility fees of
$534,000 for periods prior to 1996. Such fees were eliminated by
the Partnership's prior principal creditors concurrent with the
amendments to their credit agreements in November 1996. For the
year ended December 31, 1997, the Partnership expensed $613,000
related to the restructuring compared to $1.1 million for the
same period in 1996. Depreciation expense was $6.9 million for
the year ended December 31, 1997 compared to $7.0 million for the
year ended December 31, 1996.

Operating loss for the year ended December 31, 1997 was
$38.5 million as compared to operating income of $1.3 million for
the year ended December 31, 1996. Excluding the $41.4 million of
costs associated with ceasing Refinery operations, operating
income was $2.9 million for the year ended December 31, 1997.
The results for the Refinery and Products System, excluding the
costs associated with ceasing Refinery operations, improved due
to strong refining margins. This was partially offset by weak
crude gathering margins. Operating loss, excluding depreciation,
for the year ended December 31, 1997 was $31.6 million as
compared to operating income, excluding depreciation, of $8.3
million for the year ended December 31, 1996. Excluding the
$41.4 million of costs associated with ceasing Refinery
operations, operating income, excluding depreciation, was $9.8
million for the year ended December 31, 1997.

Refinery and Products System. Operating loss for the
Refinery and Products System was $40.9 million for the year ended
December 31, 1997 compared to $7.7 million for the year ended
December 31, 1996. Excluding the $41.4 million of costs
associated with ceasing Refinery operations, operating income for
the Refinery and Products System was $537,000 for the year ended
December 31, 1997. The results for the Refinery and Products
System, excluding the costs associated with ceasing Refinery
operations, improved due to stronger refining margins.
Depreciation expense for the Refinery and Products System was
$5.0 million for both the years ended December 31, 1997 and 1996.
Operating loss, excluding depreciation, of the Refinery and
Products System was $35.9 million for the year ended December 31,
1997 compared to $2.7 million for the year ended December 31,
1996. Excluding the $41.4 million of costs associated with
ceasing Refinery operations, operating income, excluding
depreciation, for the Refinery and Products System was $5.5
million for the year ended December 31, 1997.

Operating income for the Products System decreased to
$655,000 for the year ended December 31, 1997 from $1.2 million
for the year ended December 31, 1996. Depreciation expense for
the Products System decreased to $870,000 for the year ended
December 31, 1997 from $880,000 for the year ended December 31,
1996. Operating income, excluding depreciation, for the Products
System decreased to $1.5 million for the year ended December 31,
1997 from $2.1 million for the year ended December 31, 1996 as a
result of decreased transportation volumes on the San Angelo
Pipeline. Transportation volumes decreased to 11,415 BPD for the
year ended December 31, 1997 from 13,509 BPD for the year ended
December 31, 1996.

Operating loss for the Refinery alone was $41.5 million for
the year ended December 31, 1997 compared to an operating loss of
$8.9 million for the same period in 1996. Excluding the $41.4
million of costs associated with ceasing Refinery operations,
operating loss for the Refinery was $118,000 for the year ended
December 31, 1997. Depreciation expense for the Refinery was
$4.1 million for both the years ended December 31, 1997 and 1996.
Operating loss, excluding depreciation, of the Refinery alone was
$37.4 million for the year ended December 31, 1997 compared to
operating loss, excluding depreciation, of $4.8 million for the
year ended December 31, 1996. Excluding the $41.4 million of
costs associated with ceasing Refinery operations, operating
income, excluding depreciation, for the Refinery was $4.0 million
for the year ended December 31, 1997.

Refinery gross margin per barrel was $1.76 for the year
ended December 31, 1997 compared to $1.09 for the year ended
December 31, 1996. The increase in the gross margin for the year
ended December 31, 1997 reflects the decline in the Intracompany
Premium for crude oil, the increased margin on the military
aviation fuel sold to the government under the contract that
began April 1, 1997, and the lower residuum yield experienced in
1997. The lower residuum yield positively affects the
Partnership since the value of residuum was substantially lower
than the other refined products that the Partnership sold. The
residuum increased in 1996 as a result of the Refinery running a
slightly heavier slate of crude. Towards the end of 1996, the
Partnership began running a lighter slate of crude which resulted
in a decreased residuum yield in 1997. Refinery throughput
averaged 31,449 BPD during the year ended December 31, 1997
compared to 32,555 BPD for the year ended December 31, 1996.
Operating expenses per barrel, excluding depreciation, increased
to $4.61 for the year ended December 31, 1997 from $1.09 for the
year ended December 31, 1996. Excluding the $41.4 million of
costs associated with ceasing Refinery operations, operating
expenses per barrel, excluding depreciation, were $1.00 for the
year ended December 31, 1997.

Crude Gathering System. Operating income for the Crude
Gathering System was $2.4 million for the year ended December 31,
1997 compared to $8.9 million for the year ended December 31,
1996 due to the lower Intracompany Premium for crude oil sold to
the Refinery for the year ended December 31, 1997 as compared to
the Intracompany Premium for the same period in 1996. The amount
paid by the Partnership above posting for such crude oil also
increased for the year ended December 31, 1997. Depreciation
expense for the Crude Gathering System decreased to $1.9 million
for the year ended December 31, 1997 from $2.0 million for the
year ended December 31, 1996. Operating income, excluding
depreciation, for the Crude Gathering System decreased to $4.3
million for the year ended December 31, 1997 from $10.9 million
for the year ended December 31, 1996. Due to the elimination of
several marginal contracts, the volume of crude oil gathered by
the Crude Gathering System decreased to 51,305 BPD for the year
ended December 31, 1997 from 58,775 BPD for the year ended
December 31, 1996. For the year ended December 31, 1997, net
margin decreased to $0.13 per barrel from $0.42 per barrel for
the year ended December 31, 1996 resulting from the lower
Intracompany Premium and the higher acquisition cost above
posting for crude oil during the year ended December 31, 1997.

Factors and Trends Affecting Operating Results

A number of factors have affected the Partnership's
operating results, both indirectly and directly, such as
environmental compliance, other regulatory requirements, industry
trends, price of crude oil, inventory prices, and, with respect
to certain products, seasonality and weather. The Managing
General Partner expects that such conditions will continue to
affect the Partnership's business to varying degrees in the
future. The order in which these factors are discussed is not
intended to represent their relative significance.

Environmental Compliance. Increasing public and
governmental concern about air quality is expected to result in
continued regulation of air emissions. Regulations relating to
carbon monoxide and regulations on oxygen content in gasoline and
sulfur content in both diesel fuel and gasoline are expected to
be increasingly important in urban areas. See "Business and
Properties -- Environmental Matters." In addition, the
Partnership plans to spend approximately $540,000 in 1999 and
2000 on several projects to maintain compliance with various
other environmental requirements including $315,000 related to an
investigative study by the Texas Natural Resource Conservation
Commission. The remaining $225,000 is for various normal
operating expenses to be incurred in the ordinary course of
business.

The Partnership is currently involved in Phase II of an
investigative study by the Texas Natural Resource Conservation
Commission. Management estimates the cost to comply with this
study approximates $315,000 and has accrued for this amount at
December 31, 1998. Management does not believe any significant
additional amounts will be required to maintain compliance with
this study or other environmental requirements other than
expenditures incurred in the ordinary course of business.

Effective January 1, 1995, the Clean Air Act Amendment of
1990 required that certain areas of the country use reformulated
gasoline ("RFG"). The Abilene and San Angelo market areas do not
require RFG. Collin, Dallas, Denton, and Tarrant Counties, which
comprise the Dallas-Fort Worth ("DFW") metroplex area, do require
RFG; however, the Partnership's Aledo Terminal lies outside this
area and is allowed to supply conventional gasoline that is not
destined for sale in these four counties. In addition to the
requirement for RFG in certain areas, new but much less
restrictive regulations took effect that impose new quality
standards for conventional gasoline in the rest of the country.
Management does not believe that these have had or will have a
material adverse effect on the Partnership's operations.

Other Regulatory Requirements. The Partnership is subject
to the rules and regulations of, among others, the Occupational
Safety and Health Administration, Texas Railroad Commission,
Texas Natural Resource Conservation Commission, and United States
Environmental Protection Agency.

Industry Trends and Price of Crude Oil. Industry trends and
the price of crude oil will continue to affect the Partnership's
business. In the last three years, the posting price for WTI
crude oil has varied from approximately $8.25 to $25.00 per
barrel. The general level of crude oil prices has a significant
effect on the margins in the crude gathering business. Margins
from the Crude Gathering System are influenced by the level of
competition and the price of crude oil. When prices are higher,
crude oil can generally be resold at higher margins.
Additionally, transportation charges trend upward when higher
crude oil prices result in increased exploration and development.
Conversely, when oil prices decrease, exploration and development
decline and margins on the resale of crude oil as well as
transportation charges tend to decrease. Also, margins from the
Crude Gathering System are influenced by the prompt NYMEX price
of crude oil versus the posted price of crude oil. The
Partnership is also impacted by fluctuations in the cost of
products purchased from Equilon versus fluctuations in the price
realized by the Partnership on the sale of such products and the
amount of competition in its markets.

Inventory Prices. The Partnership utilizes the last-
in/first-out (LIFO) method of determining inventory values.
LIFO minimizes the effect of fluctuations in inventory prices on
earnings by matching current costs with current revenue. At
December 31, 1998, prior to the $1.2 million lower of cost or
market adjustment, petroleum inventories valued using the LIFO
method were more than current cost determined using the FIFO
method by $2.5 million and at December 31, 1997 were less than
current costs using the FIFO method by $2.8 million. During
1998, the Partnership recorded a $1.2 million lower of cost or
market inventory adjustment since the value of the crude oil
owned by the Partnership was less than its LIFO value.

Seasonality and Weather. Gasoline consumption is typically
highest in the United States in the summer months and lowest in
the winter months. Diesel consumption in the southern United
States is generally higher just prior to and during the winter
months when commercial trucking is routed on southern highways to
avoid severe weather conditions further north.

Other Factors. The Partnership has entered into five
exchange agreements and three sales agreements with major oil
companies in the Abilene, San Angelo and Aledo markets. These
exchange agreements have allowed Pride to expand into Amarillo,
Texas, El Paso, Texas, Lubbock, Texas, Midland/Odessa, Texas, and
Wichita Falls, Texas without incurring transportation costs to
these cities.

The United States Government awarded the Partnership the
right to supply 25,250,000 gallons of military aviation fuel for
the contract period that begins April 1, 1999 and ends March 31,
2000. The award is for deliveries to Dyess, AASF in Dallas,
Texas, Joint Reserve - Fort Worth, Texas, and E-Systems in
Greenville, Texas. The contract is for approximately 48% of the
volumes under the prior contract. Margins under the new contract
will be 1.5 cents per gallon lower than the prior contract. See
"Business and Properties - Partnership Operations and Products."
PAGE
<PAGE>
Financial Condition

Inflation

Although the Partnership's operating costs are generally
impacted by inflation, the Managing General Partner does not
expect general inflationary trends to have a material adverse
impact on the Partnership's operations.

Financial Resources and Liquidity

The Partnership receives payments from the United States
Government, major oil companies, and other customers within
approximately 7 to 15 days from shipment in the case of product
sales and by the 20th of the following month in the case of
third-party crude oil sales and exchanges. The Partnership
maintains crude inventory of approximately 10 to 15 days of
sales. Effective on the close of business on September 30, 1998
and extending to December 31, 1999, Equilon maintains the refined
products inventory on hand at the Partnership's marketing
facilities. As a result, the Partnership purchases product
inventory daily from Equilon, thereby eliminating most of the
carrying costs, including interest costs. Further, this
arrangement substantially reduces the lag between the time the
Partnership must pay Equilon for the product, 10 days after the
sale, and the time the Partnership receives payment from its
customers. The Crude Gathering System generally pays for crude
oil on the 20th of the month following the month in which it is
received and also can experience a minor lag between the time it
pays for and receives payment for crude oil transactions.
Letters of credit are an integral part of the operations of the
Crude Gathering System since the Partnership takes title to both
first purchased barrels and custom gathered barrels.

On December 31, 1997, Varde purchased and assumed the then
existing lenders' rights and obligations under the Partnership's
outstanding bank debt. In conjunction with Varde's purchase and
assumption of the lenders' rights and obligations under such bank
debt, BankBoston, N.A. ("BankBoston") refinanced the
Partnership's letter of credit facility and provided a new
revolver facility (the "BankBoston Revolver") on December 31,
1997.

The BankBoston Revolver provides for the issuance of letters
of credit to third parties to support the Partnership's purchase
or exchange of crude oil and petroleum products and $10.0 million
for direct cash borrowings for general working capital purposes.
Amounts available under the BankBoston Revolver are subject to a
borrowing base calculated as the sum of the Partnership's cash
and cash equivalents, certain receivables, deposits, inventory
and other amounts, reduced by a portion of crude oil royalties
payable and certain other payables for crude oil and refined
products. The amount available under the borrowing base net of
outstanding letters of credit and advances under the BankBoston
Revolver was $1.2 million as of December 31, 1998.

As of April 15, 1999, BankBoston has agreed to amend the
facility which will expire January 2, 2001. The total credit
line available has been lowered from $65.0 million to $55.0
million. Though no advances had been drawn under the letter of
credit facility at December 31, 1998, the Partnership did have
approximately $33.4 million in outstanding letters of credit.
The Partnership had $45,000 outstanding under the BankBoston
Revolver for direct cash borrowings as of December 31, 1998 and
has classified it in the current portion of long-term debt. The
fee on outstanding letters of credit was 2.5% per annum as of
December 31, 1998. There is also an issuance fee of 0.125% per
annum on the face amount of each letter of credit. The fee for
the unused portion of the BankBoston Revolver is 0.5% per annum.
Under the terms agreed to by the parties, cash borrowings under
the BankBoston Revolver will bear interest at prime plus 1.75%.
The prime rate was 7.75% at December 31, 1998. The credit
agreement evidencing the BankBoston Revolver also requires the
Partnership to pay an agency fee of up to $70,000 per annum
depending on the number of participants in the credit facility
and restricts the payment of distributions to unitholders
throughout the term of the credit agreement. BankBoston charged
a $75,000 amendment fee related to an amendment that became
effective April 15, 1998 and will be paid $100,000 for the
revisions agreed to in April 1999.

As a result of Varde's assumption of the outstanding bank
debt, additional loans to the Partnership and subsequent interest
being paid in kind, Varde now holds a term loan of $20.0 million
("A Term Loan"), a term loan of $10.1 million ("B Term Loan"), a
term loan of $5.0 million ("C Term Loan") and an unsecured note
of $2.7 million ("Subordinate Note A") as of December 31, 1998.
Varde has also agreed to certain revisions to the credit
agreement effective April 15, 1999. In 1999, cash interest
payments on the Varde Revolver (see below), A Term Loan, B Term
Loan, C Term Loan, Subordinate Note A and Varde's preferred
securities are limited to $208,000 per month. Any excess will be
paid in kind or accumulate in arrears. The A Term Loan, B Term
Loan, and C Term Loan bear interest rates of 11%, 13%, 15%, 17%
and 18% for the first, second, third, fourth and fifth years,
respectively except for $3.6 million of the B Term Loan which is
subject to interest rates of 18% through maturity. In addition,
if the A Term Loan is repaid or refinanced, the B Term Loan and
C Term Loan bear interest at 11% the first three years, 13% in
the fourth year and 15% in the fifth year, except for $3.6
million of the B Term Loan which is subject to interest rates of
12% through maturity. The Subordinate Note A is convertible into
436,000 Common Units and bears interest at prime plus one
percent. As consideration for the terms agreed to April 15,
1999, the principal amount of the B Term Loan will be increased
by $100,000.

Since a portion of the debt is subject to increasing rates
of interest, the Partnership is accruing interest at the
effective rate over the term of the debt. Interest expense in
1998 reflects an accrual of $1,030,000 which is based on the
difference between the effective interest rates and the stated
rates.

In addition, the Partnership maintains a revolving credit
facility with Varde ("Varde Revolver"). The original commitment
was $2.0 million for the period April 15, 1998 through
November 19, 1998 and was increased to $3.5 million for the
period from November 20, 1998 through January 1, 1999. On
January 1, 1999, the line was reduced to the original $2.0
million commitment. On April 15, 1999, Varde agreed to increase
the commitment to $3.0 million. Advances under the Varde
Revolver bear interest at 11% per annum, payable monthly. In the
second quarter of 1998, the Partnership paid Varde in the form of
additional Series B Term Loans fees totaling $150,000. Cash
advances under the Varde Revolver mature January 2, 2001.

Under the terms agreed to on April 15, 1999, payments to
Varde are capped at $2.5 million per annum. To the extent the
interest and distributions on the various Varde securities exceed
the cap on cash payments, the excess will be paid in kind or
increase accumulated arrearages, respectively. As a result of
the cash cap, it is likely that all interest on the B Term Loan,
C Term Loan and Subordinate Note A will be paid in kind and all
preferred distributions will accumulate in arrears until such
time as the Partnership can restructure its capital structure.
The A Term Loan is due December 31, 2002. The B Term Loan, C
Term Loan and Subordinate Note A are also due December 31, 2002
unless the A Term Loan has been refinanced. If the A Term Loan
is refinanced, the B Term Loan, C Term Loan and Subordinate Note
A mature 180 days after the maturity of the new term loan, but no
later than June 30, 2003. The Partnership is required to make
quarterly principal payments on the A Term Loan as set forth in
the Varde credit agreement as well as make payments of excess
cash flow for the preceding year. However, Varde has agreed to
forego all principal payments in 1998 and 1999. The Partnership
will not have to make principal payments prior to the scheduled
maturity on the B Term Loan, C Term Loan and Subordinate Note A
except in the case the Partnership receives litigation proceeds
related to the DESC Claim and certain other transactions
including asset sales. See "Legal Proceedings."

During the year ended December 31, 1998, the Partnership had
drawn up to approximately $9.8 million and $3.5 million on the
BankBoston Revolver and Varde Revolver, respectively. The
weighted average amount outstanding under the BankBoston Revolver
and Varde Revolver was approximately $1.7 million and $739,000,
respectively. The weighted average interest rate during the 1998
period for the BankBoston Revolver was approximately 10.2%. The
Varde Revolver accrues interest at the rate of 11.0% per annum.
During the year ended December 31, 1997, the Partnership had
drawn up to approximately $8.5 million on the prior revolving
facilities (collectively, the "Prior Revolvers"). The weighted
average amount outstanding under the Prior Revolvers was
approximately $3.8 million. The weighted average interest rate
during the 1997 period for these facilities was approximately
10.0%.

The Partnership or management has a three-year call on
Varde's position for an amount equal to a 40% annual return to
Varde, subject to a minimum payment of $7.5 million over Varde's
cost. The securities held by Varde have certain antidilution
provisions and registration rights. Any litigation proceeds
received by the Partnership related to the DESC Claim will be
used to retire up to $6.0 million of the A Term Loan, if then
outstanding, and up to $5.0 million of the B Term Loan with any
excess divided one-third to Varde to be used to retire Varde's
most senior securities and two-thirds to the Partnership.

On December 31, 1997, certain members of management invested
an aggregate of $2.0 million in the form of a note payable to
Varde and received a one-third economic non-directive interest in
$6.0 million of the B Term Loan, C Term Loan, Subordinate Note A,
Series B Cumulative Convertible Preferred Units (" Series B
Preferred Units"), Series C Cumulative Convertible Preferred
Units (" Series C Preferred Units") and Series D Cumulative
Convertible Preferred Units ("Series D Preferred Units"). The
note payable to Varde is secured by management's interest in
such securities. Any cash yield on management's share of such
securities is paid to Varde as interest, net of applicable
federal income tax.

Other installment loans include a $6.0 million nonrecourse
note, due 2014, payable monthly with interest at 8% and a balance
of $5.5 million at December 31, 1998. The note is supported by a
minimum throughput agreement. The assets of Pride Borger, Inc.,
a wholly-owned subsidiary of the Partnership, are pledged as
collateral. Monthly principal payments are based on the number
of throughput barrels. The Partnership has classified $172,000
as current at December 31, 1998.

On December 31, 1997, Pride SGP converted (i) a $2.0
million note from the Partnership into Series E Cumulative
Convertible Preferred Units ("Series E Preferred Units") which is
convertible into 317,000 Common Units and (ii) a $450,000 note
from the Partnership into Series F Cumulative Preferred Units
("Series F Preferred Units") which are both redeemable on
December 31, 2002. The Series E Preferred Units and Series F
Preferred Units are subordinated to the Series B Preferred Units,
Series C Preferred Units and Series D Preferred Units. The
preferential quarterly payments on the Series E Preferred Units
and Series F Preferred Units are 6% per annum in the first three
years after issuance, 12% per annum in the fourth and fifth years
and 15% per annum thereafter or at the Partnership's option may
accumulate in arrears at 8% per annum in the first three years.
Distributions are payable on the 5th day of the second month in
each quarter; however, the Partnership may not make any cash
distributions on the Series E Preferred Units or Series F
Preferred Units if the Series B Preferred Units, Series C
Preferred Units or Series D Preferred Units have accumulated
arrearages outstanding. Accordingly, at December 31, 1998, the
Partnership accumulated arrearages of $195,000 on the Series E
Preferred Units and Series F Preferred Units. Management
believes the amount in arrears will continue to increase until
such time as the Partnership can restructure its capital
structure.

In conjunction with Varde's assumption of the outstanding
bank debt, Varde received preferred equity securities. As a
result of the assumption, Varde now holds preferred equity
securities including $9.3 million of Series B Preferred Units,
$5.0 million of Series C Preferred Units and $2.8 million of
Series D Preferred Units which are all redeemable on December 31,
2002. The Series B Preferred Units and Series C Preferred Units
are convertible into 1,480,000 and 794,000 Common Units,
respectively. The preferential quarterly payments on the Series
B Preferred Units and Series C Preferred Units are 6% per annum
in the first three years after issuance, 12% per annum in the
fourth and fifth years and 15% per annum thereafter or at the
Partnership's option may accumulate in arrears at 8% per annum in
the first three years. The preferential quarterly payments on
the Series D Preferred Units are 11% per annum in the first three
years after issuance, 13% per annum in the fourth and fifth years
and 15% per annum thereafter or at the Partnership's option may
accumulate in arrears at 13% per annum in the first three years.
Distributions are payable on the 5th day of the second month in
each quarter. Accordingly, the Partnership accumulated
arrearages of $1.6 million at December 31, 1998 on these
preferred equity securities. Management believes the amount in
arrears will continue to increase until such time as the
Partnership can restructure its capital structure.

As previously mentioned, the cash interest and distribution
payments on the debt and preferred equity held by Varde are
limited to $2.5 million annually. Any payments of principal on
the securities held by Varde shall be applied in the following
order: Varde Revolver, A Term Loan, B Term Loan, C Term Loan,
Subordinate Note A, Series B Preferred Units, Series C Preferred
Units, and Series D Preferred Units.

Cash flows have been and will continue to be significantly
affected by fluctuations in the cost and volume of crude oil and
refined products held in inventory and the timing of accounts
receivable collections. For the year ended December 31, 1998,
cash was provided by a decrease in accounts receivable (resulting
from lower crude oil prices and refined product prices and lower
sales due to mothballing the Refinery) and a decrease in
inventories (resulting from Equilon taking title to the refined
products). This was partially offset by a decrease in accounts
payable (resulting from the lower crude oil prices). For the
year ended December 31, 1997, cash was provided by a decrease in
accounts receivable (resulting from lower crude oil prices and
refined product prices) and a decrease in inventories (resulting
from lower inventory levels). This was partially offset by a
decrease in accounts payable (resulting from lower crude oil
prices).

The Partnership has not historically complied with its
financial and performance covenants included in its various
credit facilities with lenders. At December 31, 1998, the
Partnership was not in compliance with certain financial
covenants contained in the various credit agreements; however,
waivers have been obtained. Based on the revised terms, as of
April 15, 1999, agreed to by the principal creditors, management
now believes the Partnership can maintain compliance with the
covenants through December 31, 1999.

The Partnership's operating results have declined as a
result of increasing competition, depressed operating margins and
higher financing costs. Crude gathering volumes have declined in
each of the last five years. Gasoline, diesel and military
aviation fuel sales have also declined. Excluding the $41.4
million in costs associated with ceasing refining operations, the
loss for December 31, 1998 increased to $8.6 million from $3.6
million for the same period in 1997 as a result of increased
interest and credit and loan fees and weaker results in 1998 for
the Products Marketing Business and Crude Gathering System
compared to the Refinery and Crude Gathering System in 1997.

Under the new military aviation fuel contract with the U. S.
Government which begins April 1, 1999 and ends March 31, 2000,
the Partnership will supply approximately 48% of the volumes that
it supplied under the contract which began April 1, 1998 and ends
March 31, 1999. Margins under the new contract will be 1.5
cents per gallon lower than the prior contract.

Declines in crude oil and refined product prices have had a
negative impact on the borrowing base under the Partnership's
credit agreement as well as working capital. Further declines
could have a material adverse effect on the Partnership.

The losses and capital expenditures incurred in the third
and fourth quarter of 1998 were funded by additional borrowing
which became available under the Varde Revolver and the sale of
the diesel desulfurization unit for $3.1 million in December
1998.

Product sales for April 1998 through June 1998 were below
management's budgeted sales due to startup problems experienced
by Equilon with its new products pipeline. As a result, delivery
and corresponding sales of gasoline, diesel and military aviation
fuel were substantially below expectations. Throughout the
second quarter of 1998, the Partnership was unable to deliver
contractual volumes, particularly to the government. The
Partnership is currently delivering to the government contractual
volumes and gasoline and diesel sales have also increased from
the second quarter of 1998. Equilon performed an extensive
pipeline cleaning operation and the situation has improved.
However, there can be no assurance that further problems will not
be encountered.

As a result of the problems associated with the startup of
the pipeline, Equilon has agreed to certain contract concessions.
On October 1, 1998 the Partnership sold to Equilon the refined
products held by it at the Products Terminals and in the San
Angelo Pipeline. In addition, Equilon is leasing certain tankage
from the Partnership and will sell refined products to the
Partnership daily from such facilities through December 31, 1999,
thus eliminating the need for the Partnership to maintain its own
refined products inventory. On April 15, 1999, Equilon further
agreed to extend the lease and maintain the inventory after
December 31, 1999 provided the Partnership reimburses Equilon for
its carrying costs beginning January 1, 2000.

The Partnership's ability to generate profits is principally
dependent upon increased volumes and/or improved profit margins,
as well as continued cost control initiatives. Since 1993, the
Partnership has been able to achieve continuous reductions in
marketing, general and administrative expenses. The ability to
generate profits could be adversely affected if other Gulf Coast
refiners bring refined products into West Texas from the Gulf
Coast via pipeline or significant declines in crude oil and
petroleum prices occur. Though management has and will continue
to pursue options regarding increasing volumes and margins and
reducing costs, including limiting any significant capital
expenditures, these improvements, if achieved, will be gradual
and, in many cases, will take sustained periods of time to
implement in order to achieve profitability. As a result, the
Partnership has engaged an investment advisor to assist the
Partnership in considering and analyzing various potential
business opportunities involving the Crude Gathering System,
including possible strategic alliances and joint ventures and a
possible sale of the Crude Gathering System. Although the
Partnership has been and continues to be in discussions with
various third parties regarding possible transactions, the
Partnership (as of April 15, 1999) has not entered into any
binding agreement involving a business combination or sale
involving the Crude Gathering System and is unable to predict the
certainty of entering into or consummating any such transaction.
As previously mentioned, the Partnership sold the diesel
desulfurization unit for $3.1 million in December 1998. This
sale resulted in a tax loss which was allocated to unitholders.
Future sales could result in taxable income which likewise would
be allocated to the unitholders without a corresponding cash
distribution from the Partnership. If a unitholder's passive
loss carryforwards are less than the unitholders share of such
income, the unitholder will have to satisfy any resulting
liability with cash from other sources. The Partnership's credit
agreement restricts the payment of distributions through
maturity.

The Partnership was delisted from trading on the New York
Stock Exchange effective August 17, 1998 for failing to meet
certain listing requirements. The Partnership is now listed on
the NASDAQ OTC bulletin board under the symbol PRDE.

Capital Expenditures

Capital expenditures totaled $1.5 million for the year ended
December 31, 1998 compared to $2.1 million for the year ended
December 31, 1997. Included in capital expenditures for the year
ended December 31, 1998 was $675,000 and $222,000 for the
reactivation of a crude oil pipeline and for the conversion to
new accounting software, respectively.

Management anticipates spending $315,000 in 1999 for
environmental expenditures which are fully accrued for at
December 31, 1998 and capital expenditures for 1999 are budgeted
at $1.0 million.

Year 2000 Compliance

The year 2000 issue ("Year 2000 Issue") is the result of
computer programs being written using two digits rather than four
digits to define the applicable year. Any of the Partnership's
computer programs or hardware that have date-sensitive software
or embedded chips may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system
failure or miscalculation causing disruptions of operations,
including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business
activities.

Based on recent assessments, the Partnership determined that
it will be required to modify or replace significant portions of
its software and certain hardware so that those systems will
properly utilize dates beyond December 31, 1999. The Partnership
presently believes that with modifications or replacements of
existing software and certain hardware, the Year 2000 Issue can
be mitigated. However, if such modifications and replacements
are not made, or are not completed timely, the Year 2000 Issue
could have a material impact on the operations of the
Partnership.

The Partnership's plan to resolve the Year 2000 Issue
involves the following four phases: assessment, remediation,
testing and implementation. To date, the Partnership has fully
completed its assessment of all systems that could be
significantly affected by the Year 2000. The completed
assessment indicated that most of the Partnership's significant
information technology systems could be affected, particularly
the general ledger, billing, and inventory systems. That
assessment also indicated that software and hardware (embedded
chips) used in monitoring the Partnership's pipelines and
terminals are also at risk. The Partnership does not believe
that the Year 2000 presents a material exposure as it relates to
the Partnership's products, but there can be no assurances that
the Partnership will not have unexpected problems or incur
unexpected costs. In addition, the Partnership has gathered
information about the Year 2000 compliance status of its
significant suppliers and subcontractors and continues to monitor
their compliance.

For its information technology exposures, to date the
Partnership is 90% complete on the remediation phase and expects
to complete software reprogramming and replacement in the second
quarter of 1999. Once software is reprogrammed or replaced for a
system, the Partnership begins testing and implementation. These
phases run concurrently for different systems. To date, the
Partnership has completed 70% of its testing and has implemented
75% of its remediated systems. Completion of the testing phase
for all significant systems is expected by September 30, 1999.
There can be no assurances that the Partnership will complete
implementation of its Year 2000 plan prior to year-end and
contingency plans have not yet been developed.

The Partnership has queried its significant suppliers and
subcontractors that do not share information systems with the
Partnership ("External Agents"). To date, the Partnership is not
aware of any External Agent with a Year 2000 Issue that would
materially impact the Partnership's results of operations,
liquidity, or capital resources. However, the Partnership has no
means of ensuring that External Agents will be Year 2000 ready.
The inability of External Agents to complete their Year 2000
resolution process in a timely fashion could materially impact
the Partnership. The effect of non-compliance by External Agents
is not determinable.

The Partnership expects to spend $837,000 related to the
Year 2000 Issue. As of December 31, 1998, the Partnership had
spent $545,000 on the Year 2000 Issue with the remainder
scheduled to be incurred in 1999. Substantially all of the
$837,000 is for newly purchased software or hardware with new
features and enhancements in addition to being Year 2000
compliant. Accordingly, substantially all of the costs have been
or will be capitalized.

There is no guarantee that the Partnership will succeed in
implementing its Year 2000 Plan. If the Partnership's replaced
technology system fails the testing phase, delays in billing
and/or collection could occur. If the computer systems of third
party vendors that the Partnership exchanges data with fail,
significant problems could occur in billing and/or collection.
Although the Partnership doesn't yet have a formal contingency
plan in place, one will be developed based on the outcome of the
testing phase, which should be complete by the third quarter of
1999.

Item 7a. Quantitative and Qualitative Disclosures About Market
Risk

The Partnership had petroleum inventory valued in the
financial statements at December 31, 1998 of $6.9 million. The
fair market value of such inventories are subject to market risks
based on price changes in the commodities market. The
Partnership generally does not hedge these market risks.

The Partnership's debt is also subject to market risks based
on changes in the prime rate. The Partnership does not hedge
this market risk either. Approximate debt maturities for the
next five years and applicable interest rates are as follows:
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<TABLE>
<CAPTION>

1999 2000 2001
------------------ ----------------- -----------------
Amount Rate Amount Rate Amount Rate
----------- ---- ---------- ---- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
Revolver (LIBOR+3% or Prime+1.75%) $ 45,110 - $ - - $ - -
Varde Revolver - 11% - 11% 1,375,242 11%
A Term Loan - 13% 5,412,792 15% 3,418,604 17%
B Term Loan - 13% - 15% - 17%
C Term Loan - 13% - 15% - 17%
Subordinate Note A (Prime+1%) - - - - - -
Other Installment Loans (8% to 9%) 192,347 - 490,965 - 172,365 -
---------- ---------- ----------
$ 237,457 $5,903,757 $4,966,211
========== ========== ==========

2002 2003 Thereafter
------------------ ----------------- -----------------
Amount Rate Amount Rate Amount Rate Total
----------- ---- ---------- ---- ---------- ---- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revolver (LIBOR+3% or Prime+1.75%) $ - - $ - - $ - - $ 45,110
Varde Revolver - - - - - - 1,375,242
A Term Loan 11,168,604 18% - - - - 20,000,000
B Term Loan 10,111,337 18% - - - - 10,111,337
C Term Loan 4,978,874 18% - - - - 4,978,874
Subordinate Note A (Prime+1%) 2,744,851 - - - - - 2,744,851
Other Installment Loans (8% to 9%) 172,365 - 172,365 - 4,640,329 - 5,840,736
----------- ---------- ---------- -----------
$29,176,031 $ 172,365 $4,640,329 $45,096,150
=========== ========== ========== ===========
</TABLE>
<PAGE>
<PAGE>
Given the financial condition of the Partnership as discussed in
Note 1 of Notes to Financial Statements, and because quoted
prices are not readily obtainable, management believes it is not
practicable to estimate the fair value of its debt and credit
facilities.

Item 8. Financial Statements and Supplementary Data

The financial statements of the Partnership, together with
the report thereon of Ernst & Young LLP, appear on pages F-2
through F-18 of this report. See the Index to Financial
Statements on page F-1 of this report.

Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure

None.
PAGE
<PAGE>
PART III

Item 10. Directors and Executive Officers of the Partnership

Set forth below is certain information concerning the
executive officers and directors of the Managing General Partner
as of December 31, 1998 who are responsible for the operations of
the Partnership. All directors of the Managing General Partner
are elected by its shareholders. All officers of the Managing
General Partner serve at the discretion of the board of directors
of the Managing General Partner.

POSITION WITH THE
NAME AGE MANAGING GENERAL PARTNER
____ ___ ________________________

E. Peter Corcoran 70 Chairman of the Board

Brad Stephens 48 Chief Executive Officer, Treasurer,
and Director

D. Wayne Malone 55 President, Chief Operating Officer
and Director

Douglas Y. Bech 53 Director

Clark Johnson 53 Director

Robert Rice 76 Director

Craig Sincock 46 Director

Dave Caddell 49 Vice President and General Counsel

George Percival 39 Chief Financial Officer

Judy Sharrow 39 Secretary

E. Peter Corcoran. Mr. Corcoran served as a director of
Pride Pipeline Company, an affiliate of the Partnership, from
1985 to 1990 and became a director of the Managing General
Partner in 1990. In March 1994, he became Chairman. In 1991, Mr.
Corcoran retired from Lazard Freres & Co., having been a limited
partner thereof since 1983 and a general partner from 1968 until
1983. Mr. Corcoran serves as a member of the Audit and Conflicts
Committee of the Board of Directors of the Managing General
Partner.

Brad Stephens. Mr. Stephens served as Vice President of one
of the predecessor companies of the Partnership ("Predecessor
Companies") from 1988 until June 1989, when he became Executive
Vice President and Chief Financial Officer. In March 1994, he
became Chief Executive Officer. Prior to 1988, Mr. Stephens was
President of Independent Bankshares and First State Bank of
Abilene, where he had been employed since 1978. Mr. Stephens is
a Certified Public Accountant and prior to 1978, he was employed
by the accounting firm of Deloitte Haskins & Sells.

D. Wayne Malone. Mr. Malone has been associated with the
Predecessor Companies since 1979 and has been an officer,
director, and shareholder of the various companies since 1981.
Mr. Malone became President of Pride Pipeline Company in 1980,
President of Pride Marketing of Texas, Inc. in 1984 in charge of
retail, wholesale, and aviation fuel sales, and President of a
predecessor of Pride SGP in March 1988, adding the
responsibilities of refining and product trucking. Mr. Malone
also served as President of Carswell Pipeline Company. In March
1994, he became President and Chief Operating Officer.

Douglas Y. Bech. Mr. Bech became a director of the Managing
General Partner in 1993. He is Chairman and Chief Executive
Officer of Raintree Resorts International, Inc. and the founding
partner of Raintree Capital Company, L.L.C., a merchant banking
firm. From 1994 to 1997, Mr. Bech was a partner in the law firm
of Akin, Gump, Strauss, Hauer & Feld, L.L.P., and from 1993 to
1994 he was a partner in the law firm of Gardere & Wynne, L.L.P.
From 1970 to 1993, he was associated with and a senior partner of
the law firm of Andrews & Kurth, L.L.P. Mr. Bech is also a
director of Frontier Oil Corporation and efax.com, Inc. Mr. Bech
serves as a member of the Compensation Committee of the Board of
Directors of the Managing General Partner.

Clark Johnson. Mr. Johnson became a director of the
Managing General Partner in 1993. He is President and CEO of
Frontier Refining and Marketing, Inc., a refining and marketing
company which is a subsidiary of Frontier Oil Corporation. He
also serves as Senior Vice President of Frontier Oil. Prior to
those positions, he held the positions of Executive Vice
President and Chief Operations Officer of Kerr-McGee Refining
Corporation, and senior management positions with Coastal
Corporation and Tenneco Oil Company. Mr. Johnson serves as a
member of the Audit and Conflicts Committee and as Chairman of
the Compensation Committee of the Managing General Partner.

Robert Rice. Mr. Rice became a director of the Managing
General Partner in 1990. He is an independent investor and
corporate director. He is a director of First Olsen Tankers,
Ltd., ATCO Ltd., and Hvide Marine Incorporated. Mr. Rice serves
as Chairman of the Audit and Conflicts Committee and as a member
of the Compensation Committee of the Board of Directors of the
Managing General Partner.

Craig Sincock. Mr. Sincock became a director of the
Managing General Partner in February, 1994. He is President and
a director of Avfuel Corporation, a privately held corporation
and independent supplier of aviation fuel headquartered in Ann
Arbor, Michigan. He has been associated with Avfuel Corporation
since the early 1980's and is an active real estate investor.
Mr. Sincock serves as a member of the Audit and Conflicts
Committee of the Board of Directors of the Managing General
Partner.

Dave Caddell. Mr. Caddell is Vice President and General
Counsel. He practiced general corporate law as a sole practioner
from November 1992 to March 1994. Previously, he served as Vice
President and General Counsel of the Predecessor Companies and
the Partnership from 1985 to October 1992.

George Percival. Mr. Percival, a Certified Public
Accountant, came to the Partnership in June 1990, and has served
as Chief Financial Officer since August of 1994. Prior to
joining the Partnership, he was with Computer Language Research
(d.b.a. Fast-Tax), where he had been the Senior Tax Manager since
1987. Prior to that he was employed by the accounting firms of
Coopers & Lybrand (1984 to 1987), and Fox and Company (1981 to
1984).

Judy Sharrow. Ms. Sharrow has served as Secretary of the
Managing General Partner since October 1992. In addition, she is
Manager of Investor Relations for the Partnership. Ms. Sharrow
has been associated with the Predecessor Companies since 1983.

Item 11. Executive Compensation

(a) Compensation of the General Partners. In respect of
their general partner interests in the Partnership, the General
Partners are allocated an aggregate of 2% of the income, gains,
losses and deductions arising from the Partnership's operations
and receive an aggregate of 2% of any distributions. For the
year ended December 31, 1998, the General Partners did not
receive any distributions in respect of their 2% general partner
interest in the Partnership. The compensation set forth below
under Officers' Compensation is in addition to any 2%
distribution to the General Partners. The General Partners are
not required to make any contributions to the capital of the
Partnership, beyond those made upon formation of the Partnership,
to maintain such 2% interest in allocations and distributions of
the Partnership. The General Partners do not receive, as general
partners of the Partnership, any compensation other than amounts
attributable to their 2% general partner interest in the
Partnership. Additionally, the Special General Partner is
allocated a portion of the income, gains, losses and deductions
arising from the Partnership's operations in respect of its
Common Units.

Effective December 31, 1996, the special participation
interest of the Special General Partner and the incentive
interests of the Managing General Partner were eliminated as a
result of the adoption of the Second Amended and Restated
Agreement of Limited Partnership. For the year ended December
31, 1998, the Special General Partner did not receive any
distributions in respect of the Common Units. The Partnership
reimburses the General Partners for all their direct and indirect
costs (including general and administrative costs) allocable to
the Partnership. See "Certain Relationships and Related
Transactions."

(b) Summary Officers' Compensation Table. The following
table sets forth certain compensation paid during fiscal 1998,
1997 and 1996 by the Partnership to the executive officers of the
Managing General Partner:
PAGE
<PAGE>
(The following table should be printed on 11" x 8.5" paper)

<TABLE>

SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term
Compensation
------------
Securities
Underlying
Options/ All Other
Year Salary Bonus UARs <F1> Compensation<F2>
---- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Brad Stephens 1998 $225,000 $12,500 - $ 7,300
Chief Executive Officer 1997 225,000 - - 8,800
1996 225,000 - 56,000 8,500

D. Wayne Malone 1998 225,000 12,500 - 7,200
Chief Operating Officer 1997 225,000 - - 8,900
1996 225,000 - 56,000 8,500

Dave Caddell 1998 165,000 10,000 - 7,200
Vice President/General 1997 165,000 - - 7,300
Counsel 1996 165,000 - 32,000 7,300

George Percival 1998 115,000 20,000 - 4,900
Chief Financial Officer 1997 100,000 - - 4,000
1996 100,000 20,000 16,000 4,200
<FN>
<F1>
The Partnership implemented a Unit Appreciation Rights Plan under which certain key
employees of the Partnership received unit appreciation rights ("UARs"). This column
represents the number of UARs granted to each of the officers listed in the table.
See "-(c) Benefit Plans - Unit Appreciation Rights." Effective December 31, 1997, the
number of UARs previously granted to the officers was reduced retroactive to December 31,
1996.
<F2>
In this column is the Partnership's contribution to the Section 401(k) Plan for each
officer and reimbursement of income taxes on certain perquisites. See "- Benefit Plans -
Section 401(k) Plan" below.
</FN>
</TABLE>
PAGE
<PAGE>
(c) Benefit Plans. In order to attract, retain and motivate
officers and other employees who provide administrative and
managerial services, the Partnership provides incentives for key
executives and middle managers employed by the Partnership
through an Annual Incentive Plan. The Plan provides for certain
key executives to share in a bonus pool which varies in size with
the Partnership's operating income plus depreciation, calculated
after bonus accrual, after payments under the Partnership's unit
appreciation plan, and after proceeds of litigation, to the
extent not otherwise included in operating income ("Cash Flow").
Provided that Cash Flow exceeds $8 million, the key executive
bonus pool includes 8% of an amount equal to the Partnership's
first $2 million of Cash Flow in excess of $8 million, plus 12%
of the next $4 million of Cash Flow, plus 15% of any Cash Flow in
excess of $14 million. The bonus pool for middle managers
consists of up to 4% of Cash Flow, provided that Cash Flow
exceeds $8 million.

Unit Appreciation Rights. During 1996, the Partnership
implemented a Unit Appreciation Rights Plan for officers and key
employees. Under the plan, individual employees can be granted
UARs whereby the holder of the UARs entitled to receive in cash
or in Common Units the increase, if any, between the exercise
price, as determined by the board of directors of the Managing
General Partner at the date of grant, and the fair market value
on the exercise date. The employees awarded and the number of
UARs awarded to the employees are subject to the discretion of
the board of directors of the Managing General Partner. The term
of all awards is for ten years from the grant date. It is
anticipated that UARs aggregating approximately 10% of the total
units will be reserved for issuance to key employees. However,
no Common Units are expected to be issued under this plan.

On December 9, 1996, four officers and twelve employees were
awarded a total of 292,760 UARs at an exercise price of $3.75 per
unit. Since the fair market value of the UARs did not exceed the
exercise price at December 9, 1996, no compensation expense was
accrued. Effective December 31, 1997, the number of UARs was
increased to 299,996, reallocated among four officers and eleven
employees, and the exercise price was reduced to $1.94 per unit.
The UARs were fully vested on December 31, 1998; however, none
were exercised.

A one-time award of 70,000 UARs was made in 1996 to five
non-employee directors at an exercise price of $3.75 which were
fully vested on December 31, 1997. Effective December 31, 1997,
the exercise price was amended and reduced to $1.94 per unit.

Section 401(k) Plan. The Pride Employees' 401(k) Retirement
Plan and Trust ("Plan") is a defined contribution plan covering
substantially all full-time employees. Under the Plan, the
Partnership must make a mandatory contribution each year equal to
3% of a participant's compensation and may make discretionary
matching contributions of up to an additional 3% of a
participant's compensation depending on the Partnership's cash
flow for such year. The participant's contribution to the plan
may not exceed the limitation as outlined under Internal Revenue
Code section 402(g). The Partnership's contributions vest over a
seven-year period, subject to immediate vesting upon retirement.
The Summary Compensation Table above includes amounts contributed
to the plan by the Partnership on behalf of the four most highly
compensated executive officers in the column titled "All Other
Compensation."

The Partnership also has in effect, for the benefit of its
employees, a Long-term Disability Plan, a Safety Incentive Plan,
Accidental Death and Dismemberment Insurance, Life Insurance,
Group Hospitalization Insurance, Dental Plan, Cancer Plan,
Medical Reimbursement Plan and Dependent Care Plan.

(d) Compensation of Directors. The Chairman of the Managing
General Partner receives an annual retainer of $42,000, $2,000
for each board meeting attended and is reimbursed for travel and
lodging expenses incurred to attend board meetings. Members of
the board of directors of the Managing General Partner receive an
annual retainer of $12,000, $2,000 for each board meeting
attended and are reimbursed for travel and lodging expenses
incurred to attend board meetings. Dave Caddell, an advisor to
the Board of Directors of the Managing General Partner, receives
an annual retainer of $12,000, $2,000 for each board meeting
attended and is reimbursed for travel and lodging expenses to
attend board meetings. Directors have also received UARs as
discussed under Benefit Plans.

Item 12. Security Ownership of Certain Beneficial Owners and
Management

a) Security Ownership of Certain Beneficial Owners as of
February 28, 1999.

The following table sets forth certain information with
respect to each person known by the Partnership to own
beneficially 5% or more of the Common Units as of February 28,
1999.

Percent
of
Title of Class Name and Address Amount Class
______________ ________________ ______ _______

Common Units Estate of James B. Stovell 930,000 18.8%
Mountain Lake
Lake Wales, FL 33859

Common Units Pride SGP, Inc. 250,000 5.1%
1209 North Fourth Street
Abilene, TX 79601

Common Units Pride SGP, Inc. 317,000 <F1>
1209 North Fourth Street
Abilene, TX 79601

Common Units Varde Partners, Inc. 2,710,000 <F2>
3600 West 80th Street
Suite 425
Minneapolis, MN 55431

[FN]
<F1>
On December 31, 1997, Pride SGP converted certain indebtedness
into Series E Preferred Units which are convertible into 317,000
Common Units. If converted as of December 31, 1998, such 317,000
Common Units would represent 4.0% of the 7,977,000 potentially
outstanding Common Units as a result of the conversion of all
convertible securities. See "Financial Condition -Financial
Resources and Liquidity."
<F2>
In conjunction with Varde's assumption of the outstanding bank
debt on December 31, 1997, Varde holds preferred equity
securities including $10.0 million of Series B Preferred Units
and $5.3 million of Series C Preferred Units which are
convertible into 1,480,000 and 794,000 Common Units,
respectively. Additionally, Varde purchased and assumed a note
from the previous lenders which was converted to the Subordinate
Note A and is further convertible into 436,000 Common Units. If
all such securities were converted as of December 31, 1998, such
2,710,000 Common Units would represent 34.0% of the 7,977,000
potentially outstanding Common Units as a result of the
conversion of all convertible securities. See "Financial
Condition - Financial Resources and Liquidity."
</FN>

b) Security Ownership of Management

The following table sets forth certain information, as of
February 28, 1999, concerning the beneficial ownership of Common
Units by each director of the Managing General Partner and by all
directors and officers of the Managing General Partner as a
group.

Percentage of
Name Number of Common Units<F1> Class
____ ______________________ _____________

E. Peter Corcoran - -
Brad Stephens 1,100 <F2>
D. Wayne Malone 4,135 <F2>
Douglas Y. Bech 300 <F2>
Clark Johnson - -
Robert Rice 3,000 <F2>
Craig Sincock - -
Dave Caddell 1,000 <F2>
George Percival - -
Judy Sharrow - -
------ -----
All directors and officers
as a group 9,535 0.2%
(10 persons)

[FN]
<F1>
Unless otherwise indicated, the persons named above have sole
voting and investment power over the Common Units reported.
<F2>
Each of these directors and officers of the Managing General
Partners owned beneficially, as of February 28, 1999, less than
1% of the Common Units outstanding on such date.
</FN>

The foregoing does not include any Common Units which would
be obtained by those members of management as a consequence of
their purchase of an interest from Varde in the B Term Note, C
Term Loan, Subordinate Note A, Series B Preferred Units, Series C
Preferred Units and Series D Preferred Units. See "Financial
Condition - Financial Resources and Liquidity.

Item 13. Certain Relationships and Related Transactions

The Partnership is managed by the Managing General Partner
pursuant to the Third Amended and Restated Agreement of Limited
Partnership of the Partnership. See "Business and Properties -
General" and "Executive Compensation - Compensation of the
General Partners" for certain information related to compensation
and reimbursement of the General Partners. The Special General
Partner is beneficially owned approximately 18% by Mr.
Schumacher (a past officer and director of the Managing General
Partner), 10% by Mr. W.E. Rector (a business partner of
Mr. Schumacher), 9% by Mr. Malone, 7% by Mr. Stephens, 5% by Mr.
T. M. Broyles (a past officer of the Managing General Partner),
4% by Mr. Corcoran, 2% by Mr. Caddell, 34% by trusts established
for the relatives of certain deceased members of management, and
11% by relatives of certain deceased members of management. The
Managing General Partner is beneficially owned approximately 39%
by Mr. Malone, 39% by Mr. Stephens, 16% by Mr. Caddell, and 6% by
Mr. Corcoran.

For certain periods between August 1995 and December 1997,
payments to Pride SGP were suspended pursuant to the terms of an
amendment to the then existing credit agreement. Beginning
January 1, 1999, rental payments to Pride SGP were suspended
again and are not expected to resume in the foreseeable future.
Approximately $1,846,000 is included in other long-term
liabilities at both December 31, 1998 and December 31, 1997
related to unpaid rentals.

The lease agreement with Pride SGP was not entered into on an
arm's-length basis. The original rent under the lease was
determined based on the revenue generated from an expected
throughput of 20,000 BPD. While management is not able to
determine whether the terms of the agreement are comparable to
those which could have been obtained by unaffiliated parties,
management believes such terms are fair and reasonable given the
importance to the Partnership of the Hearne to Comyn pipeline
segment which, as discussed under "Business and Properties --
Partnership Operations and Products -- Crude Oil Gathering
Operations," currently enables the Partnership to gather and
transport a greater supply of high quality crude oil for sale to
other refiners. In addition, management believes the value of
the leased segment of the Comyn System has increased with the
development of the Austin Chalk formation in South Central Texas
and the increasing need for crude oil transportation in that
area.

For the year ended December 31, 1998, the Partnership
transported 9,729 BPD of high quality crude oil from the eastern
portion of the Austin Chalk formation through this pipeline. The
Partnership has the option to purchase these pipeline segments
for $10 million.

During the period from January 1, 1996 through July 19, 1996,
the Partnership sold $3.8 million of refined product to Dunigan
Fuels. Mike Dunigan was a minority shareholder of Dunigan Fuels
and is also a beneficiary of two trusts that own stock in Pride
SGP. On July 19, 1996, Dunigan Fuels was sold to a third party;
therefore, Dunigan Fuels is no longer considered to be a related
party to the Partnership.

The Partnership utilizes a plane from time to time, as needed,
on a per hour market rate basis from an entity controlled by
Messrs. Malone and Stephens, officers of the Managing General
Partner. Payments to this entity totaled $70,000, $83,000 and
$62,000 during 1998, 1997 and 1996, respectively.

The Partnership leases property from a relative of Mr.
Stephens. Lease payments related to this property were
approximately $40,000, $38,000 and $36,000 in 1998, 1997 and
1996, respectively.

Firms associated with Mr. Bech, a current director of the
Managing General Partner, were paid $55,000 and $208,000 for
legal services during 1997 and 1996, respectively.

Pride SGP made two unsecured loans to the Partnership on March
26, 1993 and September 7, 1995 in the aggregate principal amount
of $2.5 million and required the Partnership to pay interest only
during the term of such loans. The loans were used to fund
working capital. Beginning in the latter part of 1995, the
Partnership ceased making interest payments on the loans to Pride
SGP in accordance with an amendment to the then existing credit
agreement. Accrued interest payable at both December 31, 1998
and 1997 was $548,000. On December 31, 1997, the two unsecured
loans were converted into the Series E Preferred Units of $2.0
million and the Series F Preferred Units of $450,000. For the
year ended December 31, 1998, the Partnership had accumulated
arrearages of $195,000 on the Series E Preferred Units and Series
F Preferred Units. The Series E Preferred Units are convertible
into 317,000 Common Units. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -
Financial Condition - Financial Resources and Liquidity."

On December 31, 1997, certain members of management invested
an aggregate of $2.0 million in the form of a note payable to
Varde and received a one-third economic non-directive interest in
$6.0 million of the B Term Loan, C Term Loan, Subordinate Note A,
Series B Preferred Units, Series C Preferred Units and Series D
Preferred Units. The note payable to Varde is secured by
management's interest in such securities. Any cash yield on
management's share of such securities is paid to Varde as
interest, net of applicable federal income tax.

Varde and management of the Managing General Partner have the
right to receive a total of up to 34.0% of the Partnership's
Common Units, through the conversion of redeemable preferred
equity and convertible debt as described in the Partnership's
1996 consent solicitation. See "Management's Discussion and
Analysis of Operations and Financial Condition - Financial
Resources and Liquidity."
PAGE
<PAGE>
PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K

(a) The following documents are filed as a part of this Report:

(1) Financial Statements and (2) Financial Statement
Schedules: See Index to Financial Statements on page F-1 for
financial statements and financial statement schedules filed as a
part of this Report.

(3) Exhibits: See Index to Exhibits on page E-1 for a
description of the exhibits filed as a part of this Report.

(b) Reports on Form 8-K filed during the quarter ended
December 31, 1998:

None.
<PAGE>
<PAGE>
SIGNATURES

Pride Companies, L.P., pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, has
duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.

PRIDE COMPANIES, L.P.
(Registrant)
By: Pride Refining, Inc.
as Managing General Partner

By: /s/Brad Stephens
Chief Executive Officer, Treasurer, and Director

DATED: March 31, 1999

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Brad Stephens
and D. Wayne Malone and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any
and all capacities, to sign any or all amendments in connection
herewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full
power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or either of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.

Pursuant to the requirements of the Securities Exchange Act
of 1934, this report and power of attorney has been signed below
by the following persons on behalf of the Partnership and in the
capacities and on the date indicated.
<PAGE>
<PAGE>
PRIDE REFINING, INC.

Signature Title Date
_________ _____ ____

/s/E. Peter Corcoran Chairman and Director March 31, 1999

/s/Brad Stephens Chief Executive Officer, March 31, 1999
Treasurer, and Director

/s/D. Wayne Malone President, Chief Operating March 31, 1999
Officer, and Director

/s/Douglas Y. Bech Director March 31, 1999

/s/Clark Johnson Director March 31, 1999

/s/Robert Rice Director March 31, 1999

/s/Craig Sincock Director March 31, 1999

/s/Dave Caddell Vice President and March 31, 1999
General Counsel

/s/George Percival Chief Financial Officer March 31, 1999
(Principal Financial Officer)

/s/Judy Sharrow Secretary March 31, 1999

/s/Bob Lee Controller (Principal March 31, 1999
Accounting Officer)
PAGE
<PAGE>
INDEX TO FINANCIAL STATEMENTS

Report of Ernst and Young LLP, Independent Auditors

Balance Sheets at December 31, 1998 and 1997

Statements of Operations for the years ended
December 31, 1998, 1997 and 1996

Statements of Changes in Partners' Capital(Deficiency)
for the years ended December 31, 1998, 1997 and 1996

Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996

Notes to Financial Statements

All schedules are omitted because they are not applicable or
the required information is shown elsewhere in this report.
PAGE
<PAGE>

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors of the
Managing General Partner

We have audited the accompanying balance sheets of Pride
Companies, L.P. as of December 31, 1998 and 1997, and the related
statements of operations, changes in partners' capital
(deficiency), and cash flows for each of the three years in the
period ended December 31, 1998. These financial statements are
the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Pride Companies, L.P. at December 31, 1998 and 1997, and the
results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.

ERNST & YOUNG LLP

Fort Worth, Texas
February 12, 1999, except for
Notes 1, 4 and 8, as to which
the date is April 15, 1999
<PAGE>
<TABLE>
BALANCE SHEETS

PRIDE COMPANIES, L.P.
At December 31, 1998 and 1997
(In thousands, except unit amounts)
<CAPTION>

1998 1997
____ ____
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents--Note 1 $ 2,592 $ 5,008
Accounts receivable, less allowance
for doubtful accounts of $99 and
$59, respectively--Note 6 10,052 14,543
Inventories--Notes 1 and 2 7,582 13,036
Prepaid expenses 704 780
-------- -------
TOTAL CURRENT ASSETS 20,930 33,367

PROPERTY, PLANT AND EQUIPMENT, net--Note 3 45,534 47,588

ASSETS NO LONGER USED IN THE
BUSINESS--Note 3 4,301 7,353

DEFERRED FINANCING COSTS--Note 1 5,307 6,570

OTHER ASSETS 390 403
-------- -------
$ 76,462 $95,281
======== =======
LIABILITIES AND PARTNERS' CAPITAL (DEFICIENCY)
CURRENT LIABILITIES
Accounts payable $ 16,573 $26,670
Accrued payroll and related
benefits--Note 1 903 1,870
Accrued taxes 2,972 3,323
Other accrued liabilities--Note 1 924 2,811
Current portion long-term debt--Note 4 237 2,084
-------- -------
TOTAL CURRENT LIABILITIES 21,609 36,758

LONG-TERM DEBT--Note 4 44,859 41,087

DEFERRED INCOME TAXES--Note 1 2,295 2,405

OTHER LONG-TERM LIABILITIES--Note 1 12,160 10,935

COMMITMENTS AND CONTINGENCIES--Note 5

REDEEMABLE PREFERRED EQUITY, including
$2,450 at December 31, 1998 and
1997 to the special general partner
--Notes 7 and 8 19,529 19,529

PARTNERS' CAPITAL (DEFICIENCY)
Common Units (5,275,000 units
authorized and 4,950,000 units
outstanding)--Notes 4 and 9 (23,042) (14,656)

General partners' interest (948) (777)
-------- --------
$ 76,462 $ 95,281
======== ========

See accompanying notes.
/TABLE
<PAGE>
<TABLE>
STATEMENTS OF OPERATIONS

PRIDE COMPANIES, L.P.
Years ended December 31, 1998, 1997 and 1996
(In thousands, except per unit amounts)
<CAPTION>
1998 1997 1996
____ ____ ____
<S> <C> <C> <C>
Revenues--Note 6:
Refinery and Products Marketing
Business $ 121,189 $ 277,179 $294,328
Crude Gathering System 300,566 494,155 597,425
Intrasystem and other (41,128) (236,437) (276,550)

-------- -------- --------
380,627 534,897 615,203
Cost of sales and operating expenses,
excluding depreciation--Note 7 369,280 516,145 596,841
Refinery closure costs--Note 1 - 41,396 -

Marketing, general and administrative
expenses--Note 7 8,001 8,955 10,111
Depreciation 3,438 6,872 6,976
-------- -------- --------
OPERATING INCOME (LOSS) (92) (38,471) 1,275

Other income (expense):
Interest expense (including interest
paid in kind of $1,344 and
increasing rate accrued interest
of $1,030 in 1998) (6,144) (5,316) (5,808)
Credit and loan fees (including
amortization of $1,323 and credit
and loan fees paid in kind of
$150 in 1998) (2,753) (1,952) (2,109)
Other - net 346 564 179
-------- -------- --------
(8,551) (6,704) (7,738)
-------- -------- --------
LOSS BEFORE INCOME TAXES (8,643) (45,175) (6,463)

Income tax benefit 86 144 48
-------- -------- --------
NET LOSS $ (8,557) $ (45,031) $ (6,415)
======== ======== ========
Before Conversion--Note 9:
Basic and diluted net loss per Unit:
Preferred Unit - - $ (0.63)
Old Common Unit - - (0.63)

After Conversion--Note 9:
Basic and diluted net loss per
Common Unit $ (2.04) $ (8.92) $ (1.27)

Numerator:
Net loss $ (8,557) $ (45,031) $ (6,415)
Preferred distributions in arrears (1,763) - -
-------- -------- --------
Net loss less preferred distributions (10,320) (45,031) (6,415)
Less net loss allocable to
2% general partner interest 206 901 128
-------- -------- --------
Numerator for basic and diluted
earnings per unit $ (10,114) $ (44,130) $ (6,287)
======== ======== ========

Denominator:
Denominator for basic and diluted
earnings per unit before conversion:
Preferred Units - - 4,700
Old Common Units - - 5,250
Denominator for basic and diluted
earnings per unit after conversion:
Common Units 4,950 4,950 4,950

See accompanying notes.
/TABLE
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIENCY)

PRIDE COMPANIES, L.P.
Years ended December 31, 1998, 1997 and 1996
(In thousands)
<CAPTION>
General
Preferred Common Partners'
Units Units Interest Total
--------- --------- --------- -------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $ 17,739 $ 18,022 $ 252 $36,013

Net loss (2,970) (3,317) (128) (6,415)
Conversion of Preferred Units
into Common Units (14,769) 14,769 - -
--------- --------- -------- -------
Balance at December 31, 1996 $ - 29,474 124 29,598
=========

Net loss (44,130) (901) (45,031)
--------- -------- -------
Balance at December 31, 1997 (14,656) (777) (15,433)

Net loss (8,386) (171) (8,557)
--------- -------- --------
Balance at December 31, 1998 $ (23,042) $ (948) $ (23,990)
========= ======== ========

See accompanying notes.
/TABLE
<PAGE>
<TABLE>
STATEMENTS OF CASH FLOWS

PRIDE COMPANIES, L.P.
Years ended December 31, 1998, 1997 and 1996
(In thousands)
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (8,557) $(45,031) $ (6,415)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation 3,438 6,872 6,976
Amortization of loan costs 1,323 - -
Retirement of property,
plant and equipment - 220 -
Deferred tax benefit (110) (185) (128)
(Gain)loss on sale of property,
plant and equipment (223) (319) (40)
Asset impairment - 40,000 -
Paid in kind interest and
credit and loan fees 1,494 - -
Increasing rate accrued interest 1,030 - -
Lower of cost or market adj. 1,197 - -
Net effect of changes in:
Accounts receivable 4,491 3,620 (1,958)
Inventories 4,257 6,135 (4,923)
Prepaid expenses 76 506 320
Accounts payable and other
long-term liabilities (9,902) (5,667) 7,566
Accrued liabilities (3,205) (73) 226
------- ------- -------
Total adjustments 3,866 51,109 8,039
------- ------- -------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (4,691) 6,078 1,624

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and
equipment (1,541) (2,087) (1,944)
Proceeds from asset disposals 3,453 450 61
Other (8) 144 13
------- ------- -------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 1,904 (1,493) (1,870)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt and credit
facilities 87,247 134,919 47,799
Payments on debt and credit
facilities (86,816) (132,452) (47,366)
Deferred financing costs (60) (2,516) -
Other - - (3)
------- ------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 371 (49) 430
------- ------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (2,416) 4,536 184

Cash and cash equivalents at beginning
of the period 5,008 472 288
-------- -------- --------
CASH AND CASH EQUIVALENTS AT
END OF THE PERIOD $ 2,592 $ 5,008 $ 472
======== ======== ========

See accompanying notes.
</TABLE>
PAGE
<PAGE>
NOTES TO FINANCIAL STATEMENTS

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations: Pride Companies, L.P. (the
"Partnership") was formed as a limited partnership under the laws of the
State of Delaware in January 1990. The Partnership owns and operates (i) a
crude oil gathering business that gathers, transports, resells and
redelivers crude oil in the Texas market (the "Crude Gathering System") and
(ii) one common carrier products pipeline system and three products
terminals in Abilene, Texas (the "Abilene Terminal"); San Angelo, Texas
(the "San Angelo Terminal"); and Aledo, Texas (the "Aledo Terminal")
(collectively the "Products Terminals") that are used to market
conventional gasoline, low sulfur diesel fuel, and military aviation fuel
(the "Products Marketing Business"). The Partnership also owns a modern
simplex petroleum refinery facility (the "Refinery") which was mothballed
on March 22, 1998. In April 1998, the Partnership began purchasing refined
products from Equilon, a refining and marketing joint venture between Royal
Dutch/Shell Group and Texaco, Inc. (formerly, Texaco Trading and
Transportation, Inc.) (the "Equilon Agreement") to market through its
products pipeline and Products Terminals.
Prior to mothballing the Refinery, the Partnership's operations were
considered a single industry segment, the refining of crude oil and the
sale of the resulting petroleum products. The primary purpose of the Crude
Gathering System was to purchase and sell crude oil in order to provide a
supply of the appropriate grade of crude oil at strategic locations to be
used as feedstock for the Refinery.
As a result of the Equilon Agreement and the mothballing of the
Refinery, the Crude Gathering System now markets crude oil to other
refineries and the Partnership now operates two separate and distinct
industry segments, the Crude Gathering System segment and the Products
Marketing Business segment. The Crude Gathering System consists of
pipeline gathering systems and a fleet of trucks which transport crude oil
into third party pipelines and into the system's primary asset, a common
carrier pipeline. The Products Marketing Business operates one products
pipeline, that originates at the Abilene Terminal and terminates at the San
Angelo Terminal (the "San Angelo Pipeline"), and the Products Terminals.
In connection with the mothballing of the Refinery, another products
pipeline owned by the Partnership that extends from the Abilene Terminal to
the Aledo Terminal was idled, since Equilon's pipeline is connected to the
Aledo Terminal. The Partnership's operations are conducted primarily in
the State of Texas.
Pride Refining, Inc., a Texas corporation, (the "Managing General
Partner") owns a 1.9% general partner interest in and serves as the
managing general partner of the Partnership. Pride SGP, Inc. ("Pride SGP")
owns a 0.1% general partner interest in and serves as the special general
partner of the Partnership. The Managing General Partner and Special
General Partner (collectively the "General Partners") collectively own a 2%
general partner interest. In addition to its general partner interest,
Pride SGP owns a 4.9% interest in the Partnership through ownership of
common limited partner units ("Common Units"). Public ownership
represented by the remaining Common Units is 93.1%. In accordance with the
Amended and Restated Agreement of Limited Partnership of Pride Companies,
L.P. (the "Partnership Agreement"), the Managing General Partner conducts,
directs and exercises control over substantially all of the activities of
the Partnership. The Partnership has no directors or officers; however,
directors and officers of the Managing General Partner perform services for
the Partnership in this capacity.
The financial statements of the Partnership include all of its wholly
owned subsidiaries including partnership interests. All significant
intercompany transactions have been eliminated.

Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

Operating Environment and Adverse Financial Condition: The Partnership has
not historically complied with its financial and performance covenants
included in its various credit facilities with lenders. At December 31,
1998, the Partnership was not in compliance with certain financial
covenants contained in the various credit agreements; however, waivers have
been obtained. Based on the revised terms, as of April 15, 1999, agreed to
by the principal creditors, management now believes the Partnership can
maintain compliance with the covenants through December 31, 1999.
The Partnership's operating results have declined as a result of
increasing competition, depressed operating margins and higher financing
costs. Crude gathering volumes have decreased in each of the last five
years. Gasoline, diesel and military aviation fuel sales have also
declined. Excluding the $41,396,000 in "refinery closure costs" (see
Statement of Operations), the loss in 1998 increased to $8,557,000 from
$3,635,000 in 1997 as a result of increased interest and credit and loan
fees and weaker results in 1998 for the Products Marketing Business and
Crude Gathering System compared to the Refinery and Crude Gathering System
in 1997. The $41,396,000 in refinery closure costs included a $40,000,000
noncash charge for impairment of certain refinery fixed assets, $1,750,000
related to the closure of the refinery and related severance costs, and
$367,000 related to the writeoff of certain refinery assets offset by
$721,000 in accruals that were reversed since the refinery was mothballed.
Of the $1,750,000, $1,200,000 and $550,000 was included in the balance
sheet under the captions other accrued liabilities and accrued payroll and
related benefits, respectively, as of December 31, 1997. The remaining
amount accrued at December 31, 1998 is $60,000 and management expects to
incur the remainder in 1999.
Under the new military aviation fuel contract with the U. S.
Government which begins April 1, 1999 and ends March 31, 2000, the
Partnership will supply approximately 48% of the volumes that it supplied
under the contract which began April 1, 1998 and ends March 31, 1999.
Margins under the new contract will be 1.5 cents per gallon lower than the
prior contract.
Declines in crude oil and refined product prices have had a negative
impact on the borrowing base under the Partnership's credit agreement as
well as working capital. Further declines could have a material adverse
effect on the Partnership.
Product sales for April 1998 through June 1998 were below management's
budgeted sales due to startup problems experienced by Equilon with its new
products pipeline. As a result, delivery and corresponding sales of
gasoline, diesel and military aviation fuel were substantially below
expectations. Throughout the second quarter of 1998, the Partnership was
unable to deliver contractual volumes, particularly to the government.
The Partnership is currently delivering to the government contractual
volumes and gasoline and diesel sales have also increased from the second
quarter of 1998. Equilon performed an extensive pipeline cleaning
operation and the situation has improved. However, there can be no
assurance that further problems will not be encountered.
As a result of the problems associated with the startup of the
pipeline, Equilon has agreed to certain contract concessions.On October 1,
1998 the Partnership sold to Equilon the refined products held by it at the
Products Terminals and in the San Angelo Pipeline. In addition, Equilon is
leasing certain tankage from the Partnership and will sell refined products
to the Partnership daily from such facilities through December 31, 1999,
thus eliminating the need for the Partnership to maintain its own
inventory. On April 15, 1999, Equilon further agreed to extend the lease
and maintain the inventory after December 31, 1999 provided the Partnership
reimburses Equilon for its carrying costs beginning January 1, 2000.
The Partnership's ability to generate profits is principally dependent
upon increased volumes and/or improved profit margins, as well as continued
cost control initiatives. Since 1993, the Partnership has been able to
achieve continuous reductions in marketing, general and administrative
expenses. The ability to generate profits could be adversely affected if
other Gulf Coast refiners bring refined products into West Texas from the
Gulf Coast via pipeline or significant declines in crude oil and petroleum
prices occur. Though management has and will continue to pursue options
regarding increasing volumes and margins and reducing costs, including
limiting any significant capital expenditures, these improvements, if
achieved, will be gradual, in many cases, will take sustained periods of
time to implement in order to achieve profitability and cannot be assured.
As a result, the Partnership has engaged an investment advisor to assist
the Partnership in considering and analyzing various potential business
opportunities involving the Crude Gathering System, including possible
strategic alliances and joint ventures and a possible sale of the Crude
Gathering System. Although the Partnership has been and continues to be in
discussions with various third parties regarding possible transactions, the
Partnership (as of April 15, 1999) has not entered into any binding
agreement involving a business combination or sale involving the Crude
Gathering System and is unable to predict the certainty of entering into or
consummating any such transaction. In December 1998, the Partnership sold
the diesel desulfurization unit for $3,100,000. This sale resulted in a
tax loss which was allocated to the unitholders. Future sales could result
in taxable income which likewise would be allocated to unitholders without
a corresponding cash distribution from the Partnership. If a unitholder's
passive loss carryforwards are less than the unitholder's share of such
income, the unitholder will have to satisfy any resulting liability with
cash from other sources. The Partnership's credit agreement restricts the
payment of distributions through maturity.

1997 Restructuring and Recapitalization: On December 31, 1997, the
Partnership completed a multiphase restructuring and recapitalization of
the Partnership's debt and equity as described in the Partnership's 1996
consent solicitation dated October 7, 1996. The initial phase called for
the execution of documents with the Partnership's previous bank lenders and
was completed on August 13, 1996. Effective December 31, 1996, the
Unitholders adopted amendments to the Partnership Agreement which included
conversion of the outstanding preferred units into common units and the
cancellation of all previous preferred and common unit arrearages. As part
of the 1996 restructuring plan, the previous lenders converted a portion of
their term loan into notes, lowered certain interest rates and credit and
loan fees and extended the maturity. Effective December 31, 1997, Varde
Partners, Inc. ("Varde") purchased and assumed the then existing lenders'
rights and obligations under the Partnership's outstanding bank debt ("Old
Bank Debt"). In conjunction with Varde's purchase and assumption of the
lenders' rights and obligations under such bank debt, BankBoston, N.A.
("BankBoston") refinanced the Partnership's letter of credit facility and
provided a new revolver facility on December 31, 1997. Pride SGP converted
two notes into redeemable preferred equity securities (see Note 8). The
Partnership incurred cost of $60,000 in 1998 and $6,570,000 in 1997
(including $3,257,000 in noncash fees) related to the restructuring and
recapitalization which are included in deferred financing costs. During
1998, 1997 and 1996, the Partnership expensed $1,325,000 ($1,323,000
related to the amortization of the deferred financing costs), $613,000 and
$1,064,000, respectively, related to the restructuring and
recapitalization.

Varde Transaction: In addition to the assumption by Varde of the Old Bank
Debt, Varde loaned the Partnership an additional $4,693,000 for working
capital purposes (the "New Loan"), including fees and costs associated with
the restructuring and recapitalization. After completion of the
restructuring and recapitalization, Varde held the following securities, in
order of seniority:
(i) Series A Term Loan ("A Term Loan") maturing December 31, 2002,
representing the first $20,000,000 of Varde's investment.
(ii) Series B Term Loan ("B Term Loan") maturing December 31, 2002 in
the amount of $9,500,000, which represents certain of the amounts
paid to the banks to purchase the Old Bank Debt plus the amount
of the New Loan and a transaction fee of $500,000 for bridging
the A Term Loan,
(iii) Series C Term Loan ("C Term Loan") maturing December 31, 2002 in
the amount of $4,689,000 which represents Old Bank Debt,
(iv) Series A Unsecured Loan ("Subordinate Note A") in the amount of
$2,500,000 maturing December 31, 2002, representing the
conversion of the Old Series A Note (see Note 4),
(v) Series B Cumulative Convertible Preferred Units ("Series B
Preferred Units") in the amount of $9,322,000, representing the
conversion of the Old Series B Note (see Note 4), which Series B
Preferred Units are subject to mandatory redemption at December
31, 2002,
(vi) Series C Cumulative Convertible Preferred Units ("Series C
Preferred Units") in the amount of $5,000,000, representing the
conversion of the Old Series C Note (see Note 4), which Series C
Preferred Units are subject to mandatory redemption at December
31, 2002, and
(vii) Series D Cumulative Preferred Units ("Series D Preferred Units")
in the amount of $2,757,000 issued as a result of the increase in
the purchase price of the Old Bank Debt, which Series D Preferred
Units are subject to mandatory redemption at December 31, 2002.
On December 31, 1997, certain members of management invested an
aggregate of $2,000,000 in the form of a note payable to Varde and received
a one-third economic non-directive interest in $6,000,000 of the B Term
Loan, C Term Loan, Subordinate Note A, Series B Preferred Units, Series C
Preferred Units and Series D Preferred Units. The note payable to Varde is
secured by Management's interest in such securities. Any cash yield on
Management's share of such securities is paid to Varde as interest, net of
applicable federal income tax.
The Partnership or management has a three-year call on Varde's
position for an amount equal to a 40% annual return to Varde, subject to a
minimum payment of $7,500,000 over Varde's cost. The securities held by
Varde have certain antidilution provisions and registration rights. Any
litigation proceeds received by the Partnership related to the claim
against the Defense Energy Support Center will be used to retire up to
$6,000,000 of the A Term Loan, if then outstanding, and up to $5,000,000 of
B Term Loan with any excess divided one-third to Varde to be used to retire
Varde's most senior securities and two-thirds to the Partnership (see Note
5).

Revenue Recognition: Revenue is recognized from the sale of crude oil and
refined products at the time of delivery to the customer. Transportation
fees are recognized when the crude oil or products are delivered to the
contracted destination.

Net Loss Per Unit: Basic net loss per common unit is computed using the
weighted average number of common units outstanding. Diluted net loss per
unit is computed by adjusting the units outstanding and net loss for the
potential dilutive effect of the convertible securities and unit
appreciation rights (see Note 10). However, the effect of these securities
was antidilutive in 1998, 1997 and 1996.

Inventories: Inventories are stated at the lower of cost or market value.
Crude oil and refined product exchanges are accounted for on the inventory
method. Cost is determined using the last-in, first-out (LIFO) method.
Management believes that the LIFO method better matches current costs with
current revenues and minimizes the effects of price changes on inventories.
In 1998, the cost of sales and operating expenses, excluding depreciation,
included a $1,197,000 lower of cost or market inventory adjustment due to
the decline in inventory values.

Property, Plant and Equipment and Assets No Longer Used In The Business:
Property, plant and equipment is stated at cost. Depreciation is computed
by the straight-line method for financial reporting purposes based upon the
estimated useful lives of the various assets (see Note 3).
Maintenance, repairs, minor renewals and replacements are charged to
expense when incurred. Betterments, major renewals and replacements are
capitalized. Repairs and maintenance expense for the years ended December
31, 1998, 1997 and 1996 was $3,423,000, $4,058,000 and $4,115,000,
respectively.
Assets no longer used in the business are stated at fair market value.
On March 22, 1998, the Partnership mothballed the refinery; however, some
refinery assets are still used in connection with the Equilon Supply
Agreement. Accordingly, the Partnership evaluated the ongoing value of the
refinery assets that would no longer be used in the business in accordance
with Statement of Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" ("FAS 121"). Based on this evaluation, the Partnership determined that
assets with a carrying amount of $47,353,000 were impaired and wrote them
down by $40,000,000 to their fair value. Fair value was based on
independent appraisals discounted at a market rate of interest. As a
result of the sale of the diesel desulfurization unit for $3,052,000 in
December 1998, assets no longer used in the business has been reduced by
the sales proceeds.

Other Long-Term Liabilities: In connection with its crude gathering system
operations, as first purchaser of crude oil the Partnership makes
distributions of payments to the various revenue and royalty interest
owners. Often, the legal rights of the interest owners are unclear or the
owners cannot be located for long periods of time. When such is the case,
the Partnership retains the liability for the payments until the ownership
interest is clarified or the owners located, at which time payment is made.
When an owner cannot be located, state statutes generally require that the
unpaid amounts be escheated to the state after the passage of a specified
number of years. Because such liabilities take years to be resolved and
paid, an estimate has been made of the amounts expected to be paid during
the next year and classified as current accounts payable, with the
remainder classified as other long-term liabilities. At December 31, 1998
and 1997, other long-term liabilities included $8,736,000 and $8,541,000,
respectively, related to these interest owners.
Also included in other long-term liabilities are payables to Pride SGP
of $2,394,000 at December 31, 1998 and 1997 for accrued interest and
accrued pipeline rentals and payables to Varde of $1,030,000 for
increasing rate accrued interest at December 31, 1998 (see Note 4).

Income Taxes and Deferred Income Taxes: As a limited partnership, the
Partnership is not a taxable entity for federal income tax purposes and any
federal income taxes are the direct responsibility of the individual
partners. Accordingly, no federal income tax provision is made in the
accompanying statement of operations related to the operations of the
Partnership itself. The Partnership's tax bases in assets and liabilities
(other than Pride Borger, Inc. ("Pride Borger")) are greater than the bases
for financial reporting purposes by approximately $6,963,000 at December
31, 1998. The taxable loss reported by the Partnership for the year ended
December 31, 1998 is $19,348,000. The major reconciling items between
financial income and taxable income reported are the difference in cost of
goods sold due to inventory methods of $4,155,000, the difference in
depreciation of $3,848,000 and the difference on loss from the sale of the
diesel desulfurization unit of $3,936,000.
The Partnership has two corporate subsidiaries, Pride Borger and Pride
Marketing of Texas, Inc., which are separate taxable entities. As separate
taxable entities, Pride Borger's and Pride Marketing of Texas' operating
results are subject to federal income taxes. The carryover tax bases of
certain pipeline assets acquired by Pride Borger in 1994 were significantly
less than the purchase price. As a result, a deferred tax liability was
established in the accounting records of Pride Borger as part of the
purchase price allocation. At December 31, 1998 and 1997, deferred income
taxes were $2,295,000 and $2,405,000, respectively.

Retirement Plan: The Pride Employees' 401(k) Retirement Plan and Trust
("Plan") is a defined contribution plan covering substantially all
full-time employees. Under the Plan, the Partnership must make a
mandatory contribution equal to 3% of a participant's compensation and may
make discretionary matching contributions of up to an additional 3% of a
participant's compensation depending on the Partnership's cash flow for
such year. The Partnership's contributions vest over a seven year period,
subject to immediate vesting upon retirement. Retirement plan expense for
the years ended December 31, 1998, 1997 and 1996 was $253,000, $209,000 and
$217,000, respectively.

Incentive Compensation Plan: The Partnership has elected to follow
Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees" (APB 25) and related Interpretations in accounting for its Unit
Appreciation Rights ("Rights"). Under APB 25, if the exercise price of the
Rights equals or exceeds the market of the underlying units on the date of
grant, no compensation expense is recognized at the date of grant. To the
extent the price of the Partnership's units increase above that at the
grant date, such excess value to be paid upon exercise is charged to
operations over the respective vesting period.

Fair Value of Financial Instruments: The carrying amount of cash and cash
equivalents, receivables, and accounts payable approximates fair value.
Given the financial condition of the Partnership as discussed in Note 1,
and because quoted prices are not readily obtainable, management believes
it is not practicable to estimate the fair value of its debt and credit
facilities.

Statements of Cash Flows: For purposes of the statements of cash flows,
management considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.

Restrictions on Certain Cash Balances: The Partnership is required to
maintain a restricted money market account with Alexander Insurance Group
with a balance of $583,000 at December 31, 1998, and $70,000 in escrow with
American International Recovery at December 31, 1998 as a condition of its
insurance policies.

Changes in Presentation: Certain prior year amounts have been reclassified
to conform to the 1998 presentation.

NOTE 2--INVENTORIES

At December 31, inventories consist of (in thousands):

1998 1997
------- -------
Crude oil $ 5,433 $ 8,388
Refined products and blending materials 133 6,473
------- -------
5,566 14,861
Market valuation (1,197) -
LIFO reserve 2,515 (2,837)
------- -------
Petroleum inventories 6,884 12,024
Spare parts and supplies 698 1,012
------- -------
$ 7,582 $ 13,036
======= =======

At December 31, 1998, petroleum inventories valued using the LIFO
method were more than current cost determined using the FIFO method by
$1,318,000 and less than current cost determined using the FIFO method by
$2,837,000 at December 31, 1997.

During 1998, the Partnership amended its agreement with Equilon
whereby Equilon has assumed title to all of the refined products inventory
on hand at the Abilene, San Angelo and Aledo Terminals as of the close of
business on September 30, 1998. While this agreement is in place, the
Partnership will purchase refined products from Equilon.

NOTE 3--PROPERTY, PLANT AND EQUIPMENT AND ASSETS NO LONGER USED IN
THE BUSINESS

A summary of property, plant and equipment at December 31 follows (in
thousands):

Estimated
Useful
1998 1997 Lives
-------- ------- ----------
Terminal and storage facilities $ 6,712 $ 6,602 4-30 years
Pipelines and related facilities 48,211 46,668 5-30 years
Transportation and terminal equipment 9,878 9,913 3-5 years
Marketing facilities and equipment 1,019 1,202 3-5 years
Administrative facilities and equipment 2,314 1,908 2-5 years
Construction-in-progress 169 960
------- -------
68,303 67,253
Less accumulated depreciation 22,769 19,665
_______ _______
$ 45,534 $ 47,588
======= =======

In connection with the mothballing of the refinery on March 22, 1998,
certain assets, net of accumulated depreciation, were written down to fair
value (see Note 1) and reclassified in the balance sheet from property,
plant and equipment to assets no longer used in the business at December
31, 1997. These assets are no longer being depreciated since they have
been idled and are included in the Products Marketing Business segment. As
a result of the sale of the diesel desulfurization unit in December 1998,
assets no longer used in the business has been reduced by $3,052,000.

NOTE 4--DEBT AND CREDIT FACILITIES

As previously mentioned (see Note 1), Varde purchased and assumed the
then existing lenders' rights and obligations under the Partnership's Old
Bank Debt. In conjunction with Varde's purchase and assumption of the
lenders' rights and obligations under the Old Bank Debt, BankBoston
refinanced the Partnership's letter of credit facility and provided a new
revolver facility (the "BankBoston Revolver") on December 31, 1997.
The BankBoston Revolver provides for the issuance of letters of credit
to third parties to support the Partnership's purchase or exchange of crude
oil and petroleum products and $10,000,000 for direct cash borrowings for
general working capital purposes. Amounts available under the BankBoston
Revolver are subject to a borrowing base calculated as the sum of the
Partnership's cash and cash equivalents, certain receivables, deposits,
inventory and other amounts, reduced by a portion of crude oil royalties
payable and certain other payables for crude oil and refined products. The
amount available under the borrowing base net of outstanding letters of
credit and advances under the BankBoston Revolver was $1,216,000 as of
December 31, 1998.
As of April 15, 1999, BankBoston has agreed to amend the facility
which will expire January 2, 2001. The total credit line available has
been lowered from $65,000,000 to $55,000,000. Though no advances had been
drawn under the letter of credit facility at December 31, 1998, the
Partnership did have approximately $33,377,000 in outstanding letters of
credit. The Partnership had $45,000 in advances under the BankBoston
Revolver for direct cash borrowings as of December 31, 1998 and has
classified it in the current portion of long-term debt. The fee on
outstanding letters of credit was 2.5% per annum as of December 31, 1998.
There is also an issuance fee of 0.125% per annum on the face amount of
each letter of credit. The fee for the unused portion of the BankBoston
Revolver is 0.5% per annum. Under the terms agreed to by the parties, cash
borrowings under the BankBoston Revolver will bear interest at prime plus
1.75%. The prime rate was 7.75% at December 31, 1998. The credit
agreement evidencing the BankBoston Revolver also requires the Partnership
to pay an agency fee of up to $70,000 per annum depending on the number of
participants in the credit facility and restricts the payment of
distributions to unitholders throughout the term of the credit agreement.
BankBoston also charged a $75,000 amendment fee related to an amendment
that became effective April 15, 1998 and will be paid $100,000 for the
revisions agreed to in April 1999.
As a result of Varde's assumption of the outstanding bank debt,
additional loans to the Partnership and subsequent interest being paid in
kind, Varde now holds the A Term Loan of $20,000,000, B Term Loan of
$10,111,000, C Term Loan of $4,979,000 and Subordinate Note A of $2,745,000
as of December 31, 1998. Varde has also agreed to certain revisions to the
credit agreement effective April 15, 1999. In 1999, cash interest payments
on the Varde Revolver (see below), A Term Loan, B Term Loan,C Term
Loan,Subordinate Note A and Varde's preferred securities are limited to
$208,000 per month. Any excess will be paid in kind or accumulate in
arrears. The A Term Loan, B Term Loan, and C Term Loan bear interest
rates of 11%, 13%, 15%, 17% and 18% for the first, second, third, fourth
and fifth years, respectively except for $3.6 million of the B Term Loan
which is subject to interest rates of 18% through maturity. In addition,
if the A Term Loan is repaid or refinanced, the B Term Loan and C Term
Loan bear interest at 11% the first three years, 13% in the fourth year and
15% in the fifth year, except for $3.6 million of the B Term Loan which is
subject to interest rates of 12% through maturity. The Subordinate Note A
is convertible into 436,000 Common Units and bears interest at prime plus
one percent. As consideration for the terms agreed to April 15, 1999, the
principal amount of the B Term Loan will be increased by $100,000.
Since a portion of the debt is subject to increasing rates of
interest, the Partnership is accruing interest at the effective rate over
the term of the debt. Interest expense in 1998 reflects an accrual of
$1,030,000 which is based on the difference between the effective interest
rates and the stated rates.
In addition, the Partnership maintains a revolving credit facility
with Varde ("Varde Revolver"). The original commitment was $2,000,000 for
the period April 15, 1998 through November 19, 1998 and was increased to
$3,500,000 for the period from November 20, 1998 through January 1, 1999.
On January 1, 1999, the line was reduced to the original $2,000,000
commitment. On April 15, 1999, Varde agreed to increase the commitment to
$3,000,000. Advances under the Varde Revolver bear interest at 11% per
annum, payable monthly. In the second quarter of 1998, the Partnership
paid Varde in the form of additional Series B Term Loans fees totaling
$150,000. Cash advances under the Varde Revolver mature January 2, 2001.
Under the terms agreed to on April 15, 1999, payments to Varde are
capped at $2,500,000 per annum. To the extent the interest and
distributions on the various Varde securities exceed the cap on cash
payments, the excess will be paid in kind or increase accumulated
arrearages, respectively. As a result of the cash cap, it is likely that
all interest on the B Term Loan, C Term Loan, and Subordinate Note A will
be paid in kind and all preferred distributions will accumulate in arrears
until such time as the Partnership can restructure its capital structure.
The A Term Loan is due December 31, 2002. The B Term Loan, C Term Loan and
Subordinate Note A are also due December 31, 2002 if the A Term Loan has
not been refinanced. If the A Term Loan is refinanced, the B Term Loan, C
Term Loan and Subordinate Note A mature 180 days after the maturity of the
new term loan, but no later than June 30, 2003. The Partnership is
required to make quarterly principal payments on the A Term Loan as set
forth in the Varde Agreement as well as make payments of excess cash flow
for the preceding year. However, Varde has agreed to forego all principal
payments in 1998 and 1999. The Partnership will not have to make principal
payments prior to the scheduled maturity on the B Term Loan, C Term Loan
and Subordinate Note A except in the case the Partnership receives
litigation proceeds related to the DESC Claim (see Note 5) and certain
other transactions including asset sales.
The Partnership must maintain compliance with certain financial and
other covenants, as defined in the credit agreements with the lenders. In
addition, the agreements contain restrictive covenants including, among
other things, provisions concerning additional indebtedness and
commitments, restriction on payments, sale of assets, and certain affiliate
transactions. At December 31, 1998, the Partnership was in violation of
certain financial covenants of the credit agreements; however, waivers have
been obtained. Based on the terms agreed to by the principal lenders on
April 15, 1999 which include revised covenants, management now believes the
Partnership can maintain compliance with the covenants through December 31,
1999. Substantially, all of the Partnership's assets are pledged as
collateral to Varde and BankBoston in connection with the credit
agreements. Additionally, Pride SGP has pledged its assets as additional
collateral at no cost to the Partnership.
Other installment loans include a $6,000,000 nonrecourse note, due
2014, payable monthly with interest at 8% and a balance of $5,502,000 at
December 31, 1998 ($5,707,000 at December 31, 1997). The note is supported
by a minimum throughput agreement. The assets of Pride Borger are pledged
as collateral. Monthly principal payments are based on the number of
throughput barrels. The Partnership has classified $172,000 as current at
December 31, 1998.
Amounts outstanding under these credit facilities at December 31 (in
thousands):

1998 1997
------ -------
Revolver $ 45 $ -
Varde Revolver 1,375 -
A Term Loan 20,000 20,000
B Term Loan 10,111 9,500
C Term Loan 4,979 4,689
Subordinate Note A 2,745 2,500
Other Installment Loans 5,841 6,482
------ -------
45,096 43,171
Less current portion 237 2,084
------ ------
$44,859 $41,087
====== ======

Approximate debt maturities for the next five years are expected
as follows: 1999-$237,000; 2000-$5,904,000; 2001-$4,966,000; 2002-
$29,176,000; 2003-$172,000.
Interest paid for the years ended December 31, 1998, 1997 and 1996 was
$3,770,000, $5,142,000 and $5,944,000, respectively.

NOTE 5--COMMITMENTS AND CONTINGENCIES

At December 31, 1998, the Partnership is committed to operating leases
which require fixed monthly rentals for administrative office space,
transportation equipment, computers and related equipment and other
miscellaneous equipment, some of which contain residual value guarantees.
Excluding rentals paid to Pride SGP (see Note 7) for certain pipeline
segments, rental expense for the years ended December 31, 1998, 1997 and
1996 was $1,918,000, $2,658,000 and $3,187,000, respectively. The minimum
future rentals under noncancelable operating leases at December 31, 1998,
excluding Pride SGP, are as follows (in thousands):

1999 $ 1,404
2000 557
2001 284
2002 200
2003 169
Thereafter 2
------
$ 2,616
======

The Partnership is involved in various claims and routine litigation
incidental to its business for which damages are sought. Management
believes that the outcome of all claims and litigation is either adequately
insured or will not have a material adverse effect on the Partnership's
financial position or results of operations.
The Partnership is currently involved in Phase II of an investigative
study by the Texas Natural Resource Conservation Commission. Management
estimates the cost to comply with this study approximates $315,000 and has
accrued for this amount at December 31, 1998. Management does not believe
any significant additional amounts will be required to maintain compliance
with this study or other environmental requirements other than routine
expenditures in the ordinary course of business.
On October 1, 1998 the Partnership sold to Equilon the refined
products held by it at the Products Terminals and in the San Angelo
Pipeline. In addition, Equilon is leasing certain tankage from the
Partnership and will sell refined products to the Partnership daily from
such facilities through December 31, 1999, thus eliminating the need for
the Partnership to maintain its own inventory. On April 15, 1999, Equilon
further agreed to extend the lease and maintain the inventory after
December 31, 1999 provided the Partnership reimburses Equilon for its
carrying costs beginning January 1, 2000.
The Partnership has filed a substantial claim against the U. S.
Government Defense Energy Support Center (DESC) relating to erroneous
pricing of fuel purchased over a period of several years from the
Partnership. The ultimate outcome of this matter cannot presently be
determined.

NOTE 6--MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK

One of the Partnership's major customers is the DESC. Revenues from
the DESC comprised 8% of total revenues in 1998, and 11% in 1997 and 1996.
Substantially all other customers are engaged in various aspects of the
petroleum industry, one of which accounted for 23% of total revenues in
1998, 21% in 1997, and 19% in 1996.
At December 31, 1998, the Partnership had no receivables from the DESC
and the one petroleum industry customer referred to above owed $4,254,000.
In some cases, the Partnership requires letters of credit from customers.
Historically, the Partnership's credit losses have been insignificant.

NOTE 7--RELATED PARTY TRANSACTIONS

The Partnership has an agreement with Pride SGP to lease defined
segments of the Crude Gathering System pipeline until 2000, with an option
to extend the lease through March 2013, as long as certain minimum
throughput levels are maintained. If such throughput levels are not
maintained during the extended term, the lease is cancelable by Pride SGP
with ninety days' notice. As consideration for this lease, the Partnership
has agreed to perform all routine and emergency maintenance and repair
operations to the pipelines. The value of such services is currently
estimated to be approximately $300,000 annually. In addition, the
Partnership pays the taxes, insurance, and other costs. In conjunction
with the refinancing that occurred on December 31, 1997, the lease was
amended to reduce the rentals to a maximum of $400,000 annually provided
certain debt is outstanding. Prior to December 31, 1997, the Partnership
accrued rentals to Pride SGP of $0.20 per barrel for all crude oil
transported by the Partnership or third parties with contractual
relationships with it, through the 143-mile section from Hearne to Comyn.
Rentals accruing to Pride SGP from the Partnership for the years ended
December 31, 1998, 1997 and 1996 totaled approximately $400,000, $788,000
and $919,000, respectively, for the lease of the pipeline. For certain
periods between August 1995 and December 1997, payments to Pride SGP were
suspended pursuant to the terms of an amendment to the then existing credit
agreement. Beginning January 1, 1999, rental payments to Pride SGP were
suspended again and are not expected to resume in the foreseeable future.
Approximately $1,846,000 is included in other long-term liabilities at both
December 31, 1998 and 1997 related to unpaid rentals. The lease agreement
with Pride SGP was not entered into on an arm's-length basis. The original
rent under the lease was determined based on the revenue generated from an
expected throughput of 20,000 BPD. While management is not able to
determine whether the terms of the lease are comparable to those which
could have been obtained by unaffiliated parties, management believes such
terms are fair and reasonable given the importance to the Partnership of
the Hearne to Comyn pipeline segment which currently enables the
Partnership to gather and transport a greater supply of high quality crude
oil for sale to other refiners. In addition, management believes the value
of the leased segment of the Comyn pipeline system has increased with the
development of the Austin Chalk formation in South Central Texas and the
increasing need for crude oil transportation in that area. For the year
ended December 31, 1998, the Partnership transported 9,729 BPD of high
quality crude oil from the eastern portion of the Austin Chalk formation
through this pipeline. The Partnership has the option to purchase these
pipeline segments for $10,000,000.
During the period from January 1, 1996 through July 19, 1996, the
Partnership sold $3,800,000 of refined product to a company in which a
stockholder of Pride SGP had a minority interest. On July 19, 1996, the
company was sold to a third party; therefore, the company is no longer
considered to be a related party to the Partnership.
The Partnership utilizes an airplane from time to time, as needed, on
a per hour market rate basis from an entity controlled by two officers of
the Managing General Partner. Payments to this entity totaled $70,000,
$83,000 and $62,000, during 1998, 1997 and 1996, respectively.
The Partnership leases property from a relative of one of the officers
of the Managing General Partner. Lease payments were approximately
$40,000, $38,000 and $36,000 in 1998, 1997 and 1996, respectively.
Firms associated with a director of the Managing General Partner were
paid $55,000 and $208,000 for legal services during 1997 and 1996,
respectively.
Pride SGP made two unsecured loans to the Partnership on March 26,
1993 and September 7, 1995 in the aggregate principal amount of $2,450,000
and required the Partnership to pay interest only during the term of such
loans. The loans were used to fund working capital. Beginning the latter
part of 1995, the Partnership ceased interest payments on the loans to
Pride SGP in accordance with an amendment to the then existing credit
agreement. Accrued interest payable at both December 31, 1998 and 1997 was
$548,000 and has been included in other long-term liabilities. On December
31, 1997, the two unsecured loans were converted into the Series E
Preferred Units of $2,000,000 and the Series F Preferred Units of $450,000.
In 1998, the Partnership accumulated arrearages of $195,000 on the Series E
Preferred Units and Series F Preferred Units. The Series E Preferred Units
are convertible into 317,000 common units (see Note 8).
The Managing General Partner has a 1.9% interest in the income and
cash distributions of the Partnership, subject to certain adjustments.
Certain members of the management of the Managing General Partner are also
members of the management of Pride SGP, which has a 0.1% general partner
interest and 4.9% limited partner interest in the Partnership as discussed
in Note 9. Compensation of directors and officers of the Managing General
Partner and any other expenses incurred on behalf of the Partnership by the
Managing General Partner and Pride SGP are paid by the Partnership.
Varde and management of the Managing General Partner ("Management")
have the right to receive a total of up to approximately 34.0% of the
Partnership's Common Units, through the conversion of redeemable preferred
equity and convertible debt as described in the Partnership's 1996 consent
solicitation.
Certain conflicts of interest, including potential non-arm's-length
transactions, could arise as a result of the relationships described above.
The Board of Directors and management of the Managing General Partner have
a duty to manage the Partnership in the best interests of the Unitholders
and, consequently, must exercise good faith and integrity in handling the
assets and affairs of the Partnership.

NOTE 8--REDEEMABLE PREFERRED EQUITY

As of April 15, 1999, the Partnership amended the terms of its
Partnership Agreement and preferred equity securities retroactively to
January 1, 1998. As a result of this amendment, the amounts previously
reported in the 1998 interim quarterly balance sheets as distributions paid
in kind are now treated as accumulated arrearages. This reduced the amount
of preferred equity on the balance sheet at December 31, 1998 and also
affects the tax treatment of the distributions to the partners and holders
of the preferred securities.
In conjunction with Varde's assumption of the Old Bank Debt, Varde
received preferred equity securities. As a result of the assumption,
Varde now holds preferred equity securities including $9,322,000 of Series
B Preferred Units, $5,000,000 of Series C Preferred Units and $2,757,000 of
Series D Preferred Units which are all redeemable on December 31, 2002.
The Series B Preferred Units and Series C Preferred Units are convertible
into 1,480,000 and 794,000 Common Units, respectively. The preferential
quarterly payments on the Series B Preferred Units and Series C Preferred
Units are 6% per annum in the first three years after issuance, 12% per
annum in the fourth and fifth years and 15% per annum thereafter or at the
Partnership's option may accumulate in arrears at 8% per annum in the first
three years. The preferential quarterly payments on the Series D Preferred
Units are 11% per annum in the first three years after issuance, 13% per
annum in the fourth and fifth years and 15% per annum thereafter or at the
Partnership's option may accumulate in arrears at 13% per annum in the
first three years. Distributions are payable on the 5th day of the second
month in each quarter. Accordingly, the Partnership accumulated arrearages
of $1,568,000 at December 31, 1998 on these preferred equity securities.
As previously mentioned, in 1999, cash interest payments on the Varde
Revolver, A Term Loan, B Term Loan, C Term Loan, Subordinate Note A and
Varde's preferred equity securities are limited to $208,000 per month. As
a result, it is likely that all preferred distributions will accumulate in
arrears until such time as the Partnership can restructure its capital
structure. Any payments of principal on the securities held by Varde shall
be applied in the following order: Varde Revolver, A Term Loan, B Term
Loan, C Term Loan, Subordinate Note A, Series B Preferred Units, Series C
Preferred Units, and Series D Preferred Units.
On December 31, 1997, Pride SGP converted (i) a $2,000,000 note from
the Partnership into Series E Cumulative Convertible Preferred Units
("Series E Preferred Units") which is convertible into 317,000 Common Units
and (ii) a $450,000 note from the Partnership into Series F Cumulative
Preferred Units ("Series F Preferred Units") which are both redeemable on
December 31, 2002. The Series E Preferred Units and Series F Preferred
Units are subordinated to the Series B Preferred Units, Series C Preferred
Units and Series D Preferred Units. The preferential quarterly payments on
the Series E Preferred Units and Series F Preferred Units are 6% per annum
in the first three years after issuance, 12% per annum in the fourth and
fifth years and 15% per annum thereafter or at the Partnership's option may
accumulate in arrears at 8% per annum in the first three years.
Distributions are payable on the 5th day of the second month in each
quarter; however, the Partnership may not make any cash distributions on
the Series E Preferred Units or Series F Preferred Units if the Series B
Preferred Units, Series C Preferred Units or Series D Preferred Units have
accumulated arrearages outstanding. Accordingly, at December 31, 1998, the
Partnership accumulated arrearages of $195,000 on the Series E Preferred
Units and Series F Preferred Units.
Redeemable preferred equity outstanding at December 31 (in thousands):

1998 1997
------- ------
Series B Preferred Units $ 9,322 $ 9,322
Series C Preferred Units 5,000 5,000
Series D Preferred Units 2,757 2,757
Series E Preferred Units 2,000 2,000
Series F Preferred Units 450 450
------- -------
$ 19,529 $ 19,529
======= =======

NOTE 9--PARTNERS' CAPITAL (DEFICIENCY)

Effective December 31, 1996, the previously outstanding Preferred
Units were converted into newly issued common units ("Common Units") on a
one-to-one basis pursuant to the Amendments to the limited partnership
agreement. The 4,700,000 of Common Units held by the previously existing
preferred unitholders represent an approximate 93.1% limited partner
interest in the Partnership. The previously outstanding common units were
converted to 250,000 Common Units in a reverse 21-for-1 stock split.
Prior to the Amendments to the limited partnership agreement, the
units were cumulative and entitled to a minimum quarterly distribution of
$0.65 per unit. However, all arrearages were canceled under the Amendments
as of December 31, 1996. The general partners are entitled to 2% of all
distributions.
Both Varde and Pride SGP hold debt and equity securities which are
convertible into 3,027,000 Common Units. Varde holds the Series B
Preferred Units, Series C Preferred Units and Subordinate Note A which are
convertible into 2,710,000 Common Units. Pride SGP holds Series E
Preferred Units which are convertible into 317,000 Common Units. If both
Varde and Pride SGP converted all their securities into Common Units, the
number of Common Units outstanding would increase from 4,950,000 Common
Units to 7,977,000 Common Units.

NOTE 10--UNIT APPRECIATION RIGHTS

During 1996, the Partnership implemented an incentive compensation
plan for officers and key employees. Under the plan, individual employees
can be granted unit appreciation rights ("Rights") whereby the holder of
the Rights is entitled to receive in cash or in Common Units the increase,
if any, between the exercise price, as determined by the board of
directors of the Managing General Partner at the date of grant, and the
fair market value on the exercise date. The employees awarded and the
number of Rights awarded to the employees are subject to the discretion of
the board of directors of the Managing General Partner. The term of all
awards is for ten years from the grant date.
Rights transactions from December 6, 1996 are as follows:

<TABLE>
<CAPTION>
Officers/
Employees Directors Total
--------- --------- -----
<S> <C> <C> <C>
Granted December 6, 1996 and
outstanding at December 31, 1996 292,760 70,000 362,760
Granted 7,236 - 7,236
Exercised - - -
Terminated - - -
------- ------ -------
Outstanding at December 31, 1997
and 1998 299,996 70,000 369,996
======= ====== =======

</TABLE>

On December 9, 1996, four officers and twelve employees were awarded a
total of 292,760 Rights at an exercise price of $3.75 per unit. Since the
fair market value of the Rights did not exceed the exercise price at
December 9, 1996, no compensation was accrued. Effective December 31,
1997, the number of Rights was increased to 299,996, reallocated among four
officers and eleven employees and the exercise price was reduced to $1.94
per unit. The Rights were fully vested on December 31, 1998; however, none
were exercised. Rights exercisable under the plan were 369,996 and 195,000
at December 31, 1998 and 1997. Since the fair market value of the Rights
did not exceed the exercise price at the grant date nor at the repricing
date, no compensation expense has been accrued in accordance with APB 25.
A one-time award of 70,000 Rights was made in 1996 to five
non-employee directors at an exercise price of $3.75 which were fully
vested on December 31, 1997. Effective December 31, 1997, the exercise
price was amended and reduced to $1.94 per unit.
<PAGE>
Pro forma information regarding net income and earnings per unit
required by Statement 123 was determined as if the Partnership had
accounted for its Rights under the fair value method of the Statement. The
fair value for these Rights was estimated at the date of grant using a
Black-Scholes option pricing model. The effect of applying the fair value
method to the Rights results in net income and earnings per unit that are
not materially different from amounts reported.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected unit price volatility. Because the Partnership's Rights have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employees' Rights.
For purposes of pro forma disclosures, the estimated fair value of the
Rights is amortized to expense over the Rights' vesting period. The
proforma effect of the Rights granted is not material to the operations of
the Partnership for 1997 and 1998.
The weighted average fair value of the Rights granted is approximately
$1.40 per Right.

NOTE 11--BUSINESS SEGMENTS

The Partnership adopted SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information," during the fourth quarter of 1998.
SFAS No. 131 established standards for reporting information about
operating segments in annual financial statements and requires selected
information about operating segments in interim financial reports issued to
stockholders. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, or decision
making group, in deciding how to allocate resources and in assessing
performance.
The Partnership has two segments: (i) the Products Marketing Business,
and (ii) the Crude Gathering System. The Products Marketing Business has
one products pipeline, that originates at the Abilene Terminal and
terminates at the San Angelo Terminal, and the Products Terminals that are
used to market conventional gasoline, low sulfur diesel fuel and military
aviation fuel. Assets no longer used in the business and corporate assets
are considered part of the Products Marketing Business. The Crude
Gathering System consists of pipeline gathering systems and a fleet of
trucks which transport crude oil into third party pipelines and into the
system's primary asset, a common carrier pipeline. As discussed in Note 1,
prior to March 22, 1998, the Partnership operated as a single segment.
The segments follow the same accounting policies as described in the
Summary of Significant Accounting Policies (see Note 1).
Information on the Partnership's operations by business segment
(stated in thousands) is summarized as follows:

Revenues
Products Marketing Business $121,189
Crude Gathering System 300,566
Intrasystem and other (41,128)
-------
Total Revenues $380,627
=======

Operating Income (Loss)
Products Marketing Business $ 552
Crude Gathering System (644)
-------
Total Operating Income(Loss) $ (92)
=======
Depreciation
Products Marketing Business $ 1,422
Crude Gathering System 2,016
-------
Total Depreciation $ 3,438
=======
Assets
Products Marketing Business $ 46,512
Crude Gathering System 29,950
-------
Total Assets $ 76,462
=======

Capital Expenditures
Products Marketing Business $ 440
Crude Gathering System 1,101
-------
Total Capital Expenditures $ 1,541
=======
PAGE
<PAGE>
(This page should be printed on 11" x 8.5" paper)

NOTE 12--QUARTERLY FINANCIAL DATA
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>

Net income Basic Diluted
Operating Net (loss) after Income Income
Net Income Income preferred (Loss) (Loss)
Quarter Ended Revenues (Loss) (Loss) distributions per Unit per Unit
- ------------- -------- --------- -------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
March 31, 1997 $142,455 $(1,025) $(2,913) $ (2,913) $(0.58) $(0.58)
June 30, 1997 127,624 557 (602) (602) (0.12) (0.12)
September 30, 1997 134,734 2,604 771 771 0.15 0.14
December 31, 1997 130,085 (364) (42,287) (42,287) (8.37) (8.37)
March 31, 1998 106,219 1,284 (780) (1,208) (0.24) (0.24)
June 30, 1998 102,986 (1,069) (3,473) (3,911) (0.77) (0.77)
September 30, 1998 92,167 816 (1,127) (1,572) (0.31) (0.31)
December 31, 1998 79,255 (1,123) (3,177) (3,629) (0.72) (0.72)

</TABLE>

The first three quarters of 1997 earnings per share amounts have been restated
to comply with Statement of Financial Accounting Standards No. 128, Earnings
per Share.

The net income (loss) and net income (loss) after preferred distributions for
the quarters ended March 31, 1998, June 30, 1998 and September 30, 1998 have
been restated to reflect the quarterly impact for the year-end adjustment to
record increasing rate accrued interest expense using the effective interest
rate method by $247, $256, and $257, respectively (see Note 4). Additionally,
the per unit amounts have been restated for the increasing rate accrued
interest expense.
PAGE
<PAGE>
INDEX TO EXHIBITS TO REPORT ON FORM 10-K

Exhibit Number
(Reference to
Item 601 of
Regulation S-K) Description
_______________ ___________

3.1 Certificate of Limited Partnership of the Partnership
(incorporated by reference to Exhibit 3.1 of the Partnership's
Annual Report on Form 10-K for the fiscal year ended December 31,
1990 (Commission File No. 1-10473)).

3.2 Second Amended and Restated Agreement of Limited Partnership of
the Partnership (incorporated by reference to Exhibit 3.2 of the
Partnership's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 (Commission File No. 1-10473)).

4.1 Deposit Agreement among the Partnership and the Depository
(incorporated by reference to Exhibit 4.1 of the Partnership's
Annual Report on Form 10-K for the fiscal year ended December 31,
1990 (Commission File No. 1-10473)).

4.2 Transfer Application (included as Exhibit A to the Deposit
Agreement, which is incorporated by reference to Exhibit 4.2
of the Partnership's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990 (Commission File No. 1-10473)).

4.4 Form of Depositary Receipt for Old Common Units of Pride
Companies, L.P. (included as Exhibit B to the Deposit Agreement,
which is incorporated by reference to Exhibit 4.1 of the
Partnership's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990 (Commission File No. 1-10473)).

4.5 Form of Depositary Receipt for Common Units of Pride Companies,
L.P. (incorporated by reference to Exhibit 4.5 of the
Partnership's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 (Commission File No. 1-10473)).

10.1 Pipeline Lease Agreement by and between the Partnership and Pride
SGP, Inc. (incorporated by reference to Exhibit 10.2 of the
Partnership's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990 (Commission File No. 1-10473)).

10.2 Amendment 1 to Pipeline Lease Agreement by and between the
Partnership and Pride SGP, Inc. (incorporated by reference to
Exhibit 10.3 of the Partnership's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992 (Commission File No.
1-10473)).

10.3 Registration Rights Agreement dated March 30, 1990, by and
between the Partnership and Pride SGP, Inc. (incorporated by
reference to Exhibit 10.5 of the Partnership's Registration
Statement on Form S-1 (Commission File No. 33-42115), as
amended).

10.5 Promissory Note between Pride SGP, Inc. ("Lender") and the
Partnership ("Borrower") dated March 26, 1993 (incorporated by
reference to Exhibit 10.14 of the Partnership's Annual Report on
Form 10K for the fiscal year ended December 31, 1992 (Commission
File No. 1-10473)).

10.6 Amendment 2 to Pipeline Lease Agreement by and between the
Partnership and Pride SGP, Inc. (incorporated by reference to
Exhibit 10.16 of the Partnership's Annual Report on Form 10K for
the fiscal year ended December 31, 1992 (Commission File No. 1-
10473)).

10.7 Partnership Agreement for Desulfur Partnership, dated as of
August 10, 1993, which is 99% owned by the Partnership and 1%
owned by Pride Marketing of Texas, a wholly-owned subsidiary of
the Partnership (incorporated by reference to Exhibit 28.1 of the
Partnership's Quarterly Report on Form 10Q for the quarter ended
September 30, 1993 (Commission File No. 1-10473)).

10.8 Bill of Sale, dated as of August 10, 1993, for the sale of the
desulfurization unit by the Partnership to the Desulfur
Partnership, a subsidiary of the Partnership (incorporated by
reference to Exhibit 28.2 of the Partnership's Quarterly Report
on Form 10Q for the quarter ended September 30, 1993 (Commission
File No. 1-10473)).

10.9 Promissory Note, dated as of August 10, 1993, related to the sale
of the desulfurization unit by the Partnership ("Payee") to the
Desulfur Partnership ("Maker") (incorporated by reference to
Exhibit 28.3 of the Partnership's Quarterly Report on Form 10Q
for the quarter ended September 30, 1993 (Commission File No. 1-
10473)).

10.10 Master Lease Agreement, dated as of August 10, 1993, between the
Partnership (Lessee) and the Desulfur Partnership (a subsidiary
partnership) (Lessor), for the lease of the desulfurization unit
(incorporated by reference to Exhibit 28.4 of the Partnership's
Quarterly Report on Form 10Q for the quarter ended September 30,
1993 (Commission File No. 1-10473)).

10.11 Letter, dated November 10, 1993, from Ernst & Young (the
Partnership's independent auditors) to the Partnership concerning
the change to the LIFO method of accounting for inventories
(incorporated by reference to Exhibit 28.7 of the Partnership's
Quarterly Report on Form 10Q for the quarter ended September 30,
1993 (Commission File No. 1-10473)).

10.12 Stock Purchase Agreement, dated as of September 1, 1994, between
Pride Refining, Inc. (Purchaser), Diamond Shamrock Refining and
Marketing Company (Seller), and D-S Pipeline Corporation
(Acquired Company) (incorporated by reference to Exhibit 10.15 of
the Partnership's Annual Report on Form 10K for the fiscal year
ended December 31, 1994 (Commission File No. 1-10473)).

10.13 First Amendment to Stock Purchase Agreement between Pride
Refining, Inc. (Purchaser), Diamond Shamrock Refining and
Marketing Company (Seller), and D-S Pipeline Corporation
(Acquired Company) (incorporated by reference to Exhibit 10.16 of
the Partnership's Annual Report on Form 10K for the fiscal year
ended December 31, 1994 (Commission File No. 1-10473)).

10.14 Promissory Note dated as of January 9, 1995, between United Bank
& Trust ("Lender") and the Partnership ("Borrower") related to
the renovation and refinancing of the Partnership's
administrative offices (incorporated by reference to Exhibit 28.1
of the Partnership's Quarterly Report on Form 10Q for the quarter
ended June 30, 1995 (Commission File No. 1-10473)).

10.15 Promissory Note between Pride SGP, Inc. ("Lender") and the
Partnership ("Borrower") dated September 7, 1995 (incorporated by
reference to Exhibit 28.2 of the Partnership's Quarterly Report
on Form 10Q for the quarter ended September 30, 1995 (Commission
File No. 1-10473)).

10.16 Note Agreement dated August 13, 1996, among the Partnership
("Borrower"), Pride Refining, Inc., Pride SGP, Inc., Desulfur
Partnership, Pride Marketing of Texas (Cedar Wind), Inc., and
Pride Borger, Inc. (collectively Guarantors), and NationsBank of
Texas, N.A. as Agent, and NationsBank of Texas, N.A. and Bank One
Texas, N.A. as Lenders (incorporated by reference to Exhibit 28.2
of the Partnership's Quarterly Report on Form 10Q for the quarter
ended June 30, 1996 (Commission File No. 1-10473)).

10.17 Unit Appreciation Rights Plan (incorporated by reference to
Exhibit 10.26 of the Partnership's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 (Commission File No. 1-
10473)).

10.18 Sixth Restated and Amended Credit Agreement, dated as of December
30, 1997, by and among Pride Companies, L.P. ("Borrower"), Pride
Refining, Inc., Pride SGP, Inc., Desulfur Partnership, Pride
Marketing of Texas (Cedar Wind), Inc., and Pride Borger, Inc., as
Guarantors, and Varde Partners, Inc. as Lender (incorporated by
reference to Exhibit 10.29 of the Partnership's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997 (Commission
File No. 1-10473)).

10.19 Seventh Amendment to the Fifth Restated and Amended Credit
Agreement, dated as of December 30, 1997, by and among Pride
Companies, L.P. ("Borrower"), Pride Refining, Inc., Pride SGP,
Inc., Desulfur Partnership, Pride Marketing of Texas (Cedar
Wind), Inc., and Pride Borger, Inc., as Guarantors, and Varde
Partners, Inc. as Lender (incorporated by reference to Exhibit
10.30 of the Partnership's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 (Commission File No. 1-
10473)).

10.20 Restructuring and Override Agreement, dated as of December 30,
1997, by and among Varde Partners, Inc., Pride Companies, L.P.,
Pride Refining, Inc., and Pride SGP, Inc. (Commission File No. 1-
10473).

10.21 Certificates of Designation - Series B and Series C Cumulative
Convertible Preferred Units of Pride Companies, L.P., pursuant to
the Second Amended and Restated Agreement of Limited Partners,
effective as of December 30, 1997 (Commission File No. 1-10473).

10.22 Revolving Credit and Term Loan Agreement, dated as of December
30, 1997, among Pride Companies, L.P., Pride SGP, Inc., Pride
Refining, Inc., Desulfur Partnership, Pride Borger, Inc. and
Pride Marketing of Texas (Cedar Wind), Inc., BankBoston, N.A., as
an Agent and as a Lender, Lehman Commercial Paper Inc., as a
Lender and as Documentation Agent (Commission File No. 1-10473).

10.23 Guarantee and Security Agreement, dated as of December 30, 1997,
among Pride Companies, L.P., Pride SGP, Inc., Pride Refining,
Inc., Desulfur Partnership, Pride Marketing of Texas (Cedar
Wind), Inc., Pride Borger, Inc. and BankBoston, N.A., as Agent.
(Commission File No. 1-10473).

10.24 Intercreditor and Agency Agreement, dated as of December 30,
1997, among BankBoston, N.A., as Agent and Collateral Agent,
Varde Partners, Inc., as Term Lender, and acknowledged and
consented to by Pride Companies, L.P., as Company, and Pride SGP,
Inc., Pride Refining, Inc., Pride Borger, Inc., Desulfur
Partnership, and Pride Marketing of Texas (Cedar Wind), Inc., as
Guarantors (Commission File No. 1-10473).

10.25 Pride SGP Subordination Agreement, dated December 30, 1997, among
Pride Companies, L.P., Pride Refining, Inc., Pride Borger, Inc.,
Desulfur Partnership, Pride Marketing of Texas (Cedar Wind),
Inc., as the Obligors, Pride SGP, Inc., and BankBoston, N.A., as
Agent (Commission File No. 1-10473).

10.26 Varde Subordination Agreement, dated as of December 30, 1997,
among Pride Companies, L.P., Pride SGP, Inc., Pride Refining,
Inc., Pride Borger, Inc., Desulfur Partnership, Pride Marketing
of Texas (Cedar Wind), Inc., as Obligors, Varde Partners, Inc.,
and BankBoston, N.A., as Agent (Commission File No. 1-10473).

10.27 Equity Conversion Agreement, dated December 31, 1997, between
Pride SGP, Inc., Pride Companies, L.P., and Varde Partners, Inc.
(Commission File No. 1-10473).

10.28 Amendment No. 3 to Pipeline Lease Agreement, effective as of
December 31, 1997, between Pride SGP, Inc. and Pride Companies,
L.P.(Commission File No. 1-10473).

10.29 First Amendment to Sixth Restated and Amended Credit Agreement
dated as of April 15, 1998, by and among Pride Companies, L.P.
("Borrower"), Pride Refining, Inc., Pride SGP, Inc., Desulfur
Partnership, Pride Marketing of Texas (Cedar Wind), Inc., and
Pride Borger, Inc. (collectively Guarantors) and Varde Partners,
Inc. as Lender (incorporated by reference to Exhibit 28.1 of the
Partnership's Quarterly Report on Form 10Q for the quarter ended
June 30, 1998 (Commission File No. 1-10473)).

10.30 Amendment No. 1 to the Revolving Credit and Term Loan Agreement,
dated as of April 15, 1998, among Pride Companies, L.P., Pride
SGP, Inc., Pride Refining, Inc., Desulfur Partnership, Pride
Borger, Inc., Pride Marketing of Texas (Cedar Wind), Inc., and
BankBoston, N.A., as an Agent and as a Lender, Lehman Brothers
Commercial Paper, Inc. as a Lender and as a Documentation Agent
(incorporated by reference to Exhibit 28.2 on Form 10Q for the
quarter ended June 30, 1998 (Commission File No. 1-10473)).

10.31 Waiver dated as of October 29, 1998 to the First Amendment to
Sixth Restated and Amended Credit Agreement among Pride
Companies, L.P. as borrower, Pride Refining, Inc., Pride SGP,
Inc., Desulfur Partnership, Pride Marketing of Texas (Cedar
Wind), Inc. and Pride Borger, Inc., as guarantors, and Varde
Partners, Inc., as lender (incorporated by reference to Exhibit
28.1 of the Partnership's Quarterly Report on Form 10Q for the
quarter ended September 30, 1998 (Commission File No. 1-10473)).

10.32 Waiver dated as of August 1, 1998 to the Revolving Credit and
Term Loan Agreement dated December 30, 1997, as amended, among
Pride Companies, L.P., as borrower, Pride SGP, Inc., Pride
Refining, Inc., Desulfur Partnership, Pride Borger, Inc. and
Pride Marketing of Texas (Cedar Wind), Inc., BankBoston, N.A., as
Agent, Lehman Commercial Paper, Inc., as Documentation Agent, and
BankBoston, N.A., Lehman Commercial Paper Inc. and Union Bank of
California, N.A. (incorporated by reference to Exhibit 28.2 of
the Partnership's Quarterly Report on Form 10Q for the quarter
ended September 30, 1998 (Commission File No. 1-10473)).

10.33 Second Amendment to the Sixth Restated and Amended Credit
Agreement dated as of November 20, 1998 by and among Pride
Companies, L.P. ("Borrower"), Pride Refining, Inc., Pride SGP,
Inc., Desulfur Partnership, Pride Marketing of Texas (Cedar
Wind), Inc., and Pride Borger, Inc. (collectively Guarantors) and
Varde Partners, Inc. as Lender.

10.34 Third Amendment to the Sixth Restated and Amended Credit
Agreement dated as of December 1, 1998 by and among Pride
Companies, L.P. ("Borrower"), Pride Refining, Inc., Pride SGP,
Inc., Desulfur Partnership, Pride Marketing of Texas (Cedar
Wind), Inc., and Pride Borger, Inc. (collectively Guarantors) and
Varde Partners, Inc. as Lender.

10.35 Fourth Amendment to the Sixth Restated and Amended Credit
Agreement dated as of December 31, 1998 by and among Pride
Companies, L.P. ("Borrower"), Pride Refining, Inc., Pride SGP,
Inc., Desulfur Partnership, Pride Marketing of Texas (Cedar
Wind), Inc., and Pride Borger, Inc. (collectively Guarantors) and
Varde Partners, Inc. as Lender.

10.36 Fifth Amendment to the Sixth Restated and Amended Credit
Agreement dated as of March 1999 by and among Pride Companies,
L.P. ("Borrower"), Pride Refining, Inc., Pride SGP, Inc.,
Desulfur Partnership, Pride Marketing of Texas (Cedar Wind),
Inc., and Pride Borger, Inc. (collectively Guarantors) and Varde
Partners, Inc. as Lender.

10.37 Amendment No. 2 to the Revolving Credit and Term Loan Agreement,
dated as of November 20, 1998, among Pride Companies, L.P., Pride
SGP, Inc., Pride Refining, Inc., Desulfur Partnership, Pride
Borger, Inc., Pride Marketing of Texas (Cedar Wind), Inc., and
BankBoston, N.A., as an Agent and as a Lender, Lehman Brothers
Commercial Paper, Inc. as a Lender and as a Documentation Agent.

10.38 Amendment No. 3 to the Revolving Credit and Term Loan Agreement,
dated as of December 31, 1998, among Pride Companies, L.P., Pride
SGP, Inc., Pride Refining, Inc., Desulfur Partnership, Pride
Borger, Inc., Pride Marketing of Texas (Cedar Wind), Inc., and
BankBoston, N.A., as an Agent and as a Lender, Lehman Brothers
Commercial Paper, Inc. as a Lender and as a Documentation Agent.

10.39 Amendment No. 4 to the Revolving Credit and Term Loan Agreement,
dated as of March 1999, among Pride Companies, L.P., Pride SGP,
Inc., Pride Refining, Inc., Desulfur Partnership, Pride Borger,
Inc., Pride Marketing of Texas (Cedar Wind), Inc., and
BankBoston, N.A., as an Agent and as a Lender, Lehman Brothers
Commercial Paper, Inc. as a Lender and as a Documentation Agent.

11.1 Statement regarding computation of per unit earnings (included on
page F-9 of this Report).

25.1 Power of Attorney (included on the signature page of this
Report).

27.1 Financial Data Schedule.

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,592
<SECURITIES> 0
<RECEIVABLES> 10,052
<ALLOWANCES> 0
<INVENTORY> 7,582
<CURRENT-ASSETS> 20,930
<PP&E> 68,303
<DEPRECIATION> 22,769
<TOTAL-ASSETS> 76,462
<CURRENT-LIABILITIES> 21,609
<BONDS> 44,859
19,529
0
<COMMON> (23,042)
<OTHER-SE> (948)
<TOTAL-LIABILITY-AND-EQUITY> 76,462
<SALES> 380,627
<TOTAL-REVENUES> 380,627
<CGS> 369,280
<TOTAL-COSTS> 369,280
<OTHER-EXPENSES> 3,438
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,144
<INCOME-PRETAX> (8,643)
<INCOME-TAX> 86
<INCOME-CONTINUING> (8,557)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,557)
<EPS-PRIMARY> (2.04)
<EPS-DILUTED> (2.04)

</TABLE>

PRIDE COMPANIES, L.P.

REVOLVING CREDIT AND TERM LOAN AGREEMENT

Amendment No. 2

This Agreement, dated as of November 20, 1998, is among Pride
Companies, L.P., a Delaware limited partnership (the "Company"), Pride SGP,
Inc., a Texas corporation, Pride Refining, Inc., a Texas corporation,
Desulfur Partnership, a Texas general partnership, Pride Borger, Inc., a
Delaware corporation, and Pride Marketing of Texas (Cedar Wind), Inc., a
Texas corporation (collectively, the "Pride Entities"), BankBoston, N.A.,
Lehman Commercial Paper Inc. and Union Bank of California (collectively,
the "Lenders"), BankBoston, N.A., as agent (the "Agent") for itself and the
other Lenders, and Lehman Brothers Commercial Paper Inc., as Documentation
Agent (the "Documentation Agent") for itself and the other Lenders. The
parties agree as follows:

1. Reference to Credit Agreement; Background.

1.1. Reference to Credit Agreement; Definitions. Reference is
made to the Revolving Credit and Term Loan Agreement dated as of December
30, 1997, as amended by Amendment No. 1 thereto dated as of April 15, 1998
(the "Credit Agreement"), among the Pride Entities, the Lenders, the Agent
and the Documentation Agent. The Credit Agreement, as amended by the
amendments set forth in Section 2 hereof (the "Amendment"), is referred to
as the "Amended Credit Agreement." Terms defined in the Amended Credit
Agreement and not otherwise defined herein are used herein with the
meanings so defined.

1.2. Background. The Company has requested that the Credit
Agreement be amended to cure certain existing and prospective Defaults and
for other purposes. The Lenders have agreed to such amendments on the
conditions that BankBoston be released from any obligation to provide the
Term Loan and on the other conditions set forth herein.

2. Amendments to Credit Agreement. Subject to all of the terms and
conditions hereof and in reliance upon the representations and warranties
set forth or incorporated by reference in Section 3 hereof, the Credit
Agreement is amended as follows, effective as of the date hereof (the
"Amendment Closing Date").

2.1. The definition of "Varde Credit Agreement" set forth in
Section 1.1 of the Credit Agreement is amended to read in its entirety as
follows:

2.2. Section 6.6.15 of the Credit Agreement is amended to read
in its entirety as follows:

6.6.15. Indebtedness of the Obligors to Varde in respect of
the Varde Revolving Loan, so long as the principal amount thereof
at any time outstanding does not exceed $2,000,000, the per annum
rate of interest thereon does not exceed 11% per annum and the
stated maturity thereof is not earlier than January 1, 1999;
provided, however, that with respect to the period commencing
November 20, 1998 through and including December 1, 1998, the
maximum principal amount of such Indebtedness permitted under
this Section 6.6.15 shall be increased from $2,000,000 to
$3,500,000.

3. Representations and Warranties. In order to induce the Lenders to
enter into this Agreement, each of the Pride Entities jointly and severally
represents and warrants to each of the Lenders that:

3.1. No Legal Obstacle to Agreements. Neither the execution and
delivery of this Agreement or any other Credit Document, nor the making of
any borrowing under the Amended Credit Agreement, nor the guaranteeing of
the Credit Obligations, nor the securing of the Credit Obligations with the
Credit Security, nor the consummation of any transaction referred to in or
contemplated by this Agreement, the Amended Credit Agreement or any other
Credit Document, nor the fulfillment of the terms hereof or thereof or of
any other agreement, instrument, deed or lease contemplated by this
Agreement, the Amended Credit Agreement or any other Credit Document, has
constituted or resulted in or will constitute or result in:

(a) any breach or termination of the provisions of any
agreement, instrument, deed or lease to which any of the Pride
Entities is a party or by which it is bound, or of the Charter
or By-laws of any of the Pride Entities;

(b) the violation of any law, statute, judgment, decree or
governmental order, rule or regulation applicable to any of the
Pride Entities;

(c) the creation under any agreement, instrument, deed or
lease of any Lien (other than Liens on the Credit Security which
secure the Credit Obligations and Liens permitted by Section 6.8
of the Amended Credit Agreement) upon any of the assets of any of
the Pride Entities; or

(d) any redemption, retirement or other repurchase
obligation of any of the Pride Entities under any Charter,
By-law, agreement, instrument, deed or lease.

No approval, authorization or other action by, or declaration to or filing
with, any governmental or administrative authority or any other Person is
required to be obtained or made by any of the Pride Entities in connection
with the execution and delivery of this Agreement, the performance of this
Agreement, the Amended Credit Agreement or any other Credit Document, the
transactions contemplated hereby or thereby, the making of any borrowing
under the Amended Credit Agreement, the guaranteeing of the Credit
Obligations or the securing of the Credit Obligations with the Credit
Security.

3.2. Defaults. Immediately after giving effect to the
Amendment, no Default shall exist.

3.3. Incorporation of Representations and Warranties of Company.
Immediately after giving effect to the Amendment, the representations and
warranties set forth in Section 7 of the Amended Credit Agreement will be
true and correct as if originally made on and as of the Amendment Closing
Date (except to the extent of any representation or warranty which refers
to a specific earlier date).

4. Conditions. The effectiveness of each of the amendments set forth in
Section 2 hereof shall be subject to the satisfaction of the following
conditions:

4.1. Officer's Certificate. The representations and warranties
contained in Section 3 hereof shall be true and correct on and as of the
Amendment Closing Date with the same force and effect as though originally
made on and as of the Amendment Closing Date; immediately after giving
effect to such amendments, no Default shall exist; no Material Adverse
Change shall have occurred since December 30, 1997 except as previously
disclosed by the Company in writing to the Lenders; and the Company shall
have furnished to the Lenders on or before the Amendment Closing Date a
certificate to these effects signed by a Financial Officer of the Company.

4.2. Proper Proceedings. All proper proceedings shall have been
taken by each of the Pride Entities to authorize this Agreement, the
Amended Credit Agreement and the transactions contemplated hereby and
thereby. On or before the Amendment Closing Date, the Agent shall have
received copies of all documents, including legal opinions of counsel and
records of corporate proceedings which the Agent may have requested in
connection therewith, such documents, where appropriate, to be certified by
proper corporate or governmental authorities.

4.3. Varde. Varde shall have consented to the terms and
conditions of this Agreement and the Amended Credit Agreement, and the
Varde Credit Agreement shall have been amended in a manner satisfactory in
form and substance to the Required Revolving Lenders which provides, in
documentation satisfactory in form and substance to the Required Revolving
Lenders, for the temporary increase of the Varde Revolving Loan.

4.4. Execution and Delivery. Each of the Pride Entities, the
Lenders, the Agent and the Documentation Agent shall have executed and
delivered this Agreement.

4.5. Expenses. The Company shall have paid to the Agent all
reasonable expenses, fees and charges payable to the Agent's counsel, Ropes
& Gray.

5. Further Assurances. The Company will, promptly upon the request of the
Agent from time to time, execute, acknowledge and deliver, and file and
record, all such instruments and notices, and take all such action, as the
Agent deems necessary or advisable to carry out the intent and purposes of
this Agreement. In addition, the parties confirm their agreement to enter
into a restatement of the Credit Agreement incorporating the amendments set
forth in Section 2 hereof and containing such additional provisions as
shall be appropriate to reflect fully the termination of the commitment of
the Term Lender to make the Term Loan. Such restatement shall be effected
as soon as reasonably possible.

6. General. The Amended Credit Agreement and all of the other Credit
Documents are each confirmed as being in full force and effect. This
Agreement, the Amended Credit Agreement and the other Credit Documents
referred to herein or therein constitute the entire understanding of the
parties with respect to the subject matter hereof and thereof and supersede
all prior and current understandings and agreements, whether written or
oral, with respect to such subject matter. The invalidity or
unenforceability of any provision hereof shall not affect the validity and
enforceability of any other term or provision hereof. The headings in this
Agreement are for convenience of reference only and shall not alter, limit
or otherwise affect the meaning hereof. Each of this Agreement and the
Amended Credit Agreement is a Credit Document and may be executed in any
number of counterparts, which together shall constitute one instrument, and
shall bind and inure to the benefit of the parties and their respective
successors and assigns, including as such successors and assigns all
holders of any Note. This Agreement shall be governed by and construed in
accordance with the laws (other than the conflict of law rules) of The
Commonwealth of Massachusetts.

<PAGE>
Each of the undersigned has caused this Agreement to be executed
and delivered by its duly authorized officer as an agreement under seal as
of the date first above written.

. . . . . . . . . . PRIDE COMPANIES, L.P.
by Pride Refining, Inc., its
Managing General Partner

By_________________________________
Title:

PRIDE REFINING, INC.

By_________________________________
Title:

PRIDE SGP, INC.

By_________________________________
Title:

PRIDE BORGER, INC.

By_________________________________
Title:

PRIDE MARKETING OF TEXAS (CEDAR
WIND), INC.

By_________________________________
Title:

<PAGE>
DESULFUR PARTNERSHIP
by Pride Companies, L.P., its
General Partner,
by Pride Refining, Inc., its
Managing General Partner

By_________________________________
Title:

and by Pride Marketing of Texas
(Cedar Wind),
Inc., its General Partner

By_________________________________
Title:

BANKBOSTON, N.A., for Itself and as
Agent

By_________________________________
Authorized Officer

LEHMAN COMMERCIAL PAPER INC., for
Itself and as Documentation Agent

By_________________________________
Authorized Officer

UNION BANK OF CALIFORNIA, N.A.

By_________________________________
Authorized Officer

<PAGE>
Consented to:

VARDE PARTNERS, INC.

By _________________________________
Authorized Officer<PAGE>

PRIDE COMPANIES, L.P.

REVOLVING CREDIT AND TERM LOAN AGREEMENT

Amendment No. 3

This Agreement, dated as of December 31, 1998, is among Pride
Companies, L.P., a Delaware limited partnership (the "Company"), Pride SGP,
Inc., a Texas corporation, Pride Refining, Inc., a Texas corporation,
Desulfur Partnership, a Texas general partnership, Pride Borger, Inc., a
Delaware corporation, and Pride Marketing of Texas (Cedar Wind), Inc., a
Texas corporation (collectively, the "Pride Entities"), BankBoston, N.A.,
Lehman Commercial Paper Inc. and Union Bank of California (collectively,
the "Lenders"), BankBoston, N.A., as agent (the "Agent") for itself and the
other Lenders, and Lehman Commercial Paper Inc., as Documentation Agent
(the "Documentation Agent") for itself and the other Lenders. The parties
agree as follows:

7. Reference to Credit Agreement; Background.

7.1. Reference to Credit Agreement; Definitions. Reference is made
to the Revolving Credit and Term Loan Agreement dated as of December 30,
1997, as amended by Amendment No. 1 thereto dated as of April 15, 1998 and
Amendment No. 2 thereto dated as of November 20, 1998 (the "Credit
Agreement"), among the Pride Entities, the Lenders, the Agent and the
Documentation Agent. The Credit Agreement, as amended by the amendments
set forth in Section 2 hereof (the "Amendment"), is referred to as the
"Amended Credit Agreement." Terms defined in the Amended Credit Agreement
and not otherwise defined herein are used herein with the meanings so
defined.

7.2. Background. The Company has requested that the Credit Agreement
be amended to cure certain existing and prospective Defaults and for other
purposes. The Lenders have agreed to such amendments on the conditions
that BankBoston be released from any obligation to provide the Term Loan
and on the other conditions set forth herein.

8. Amendments to Credit Agreement. Subject to all of the terms and
conditions hereof and in reliance upon the representations and warranties
set forth or incorporated by reference in Section 3 hereof, the Credit
Agreement is amended as follows, effective as of the date hereof (the
"Amendment Closing Date").

8.1. The definition of "Varde Credit Agreement" set forth in Section
1.1 of the Credit Agreement is amended to read in its entirety as follows:

"Varde Credit Agreement" means that certain Sixth Restated and
Amended Credit Agreement dated as of December 30, 1997, among the
Company, the General Partners, Pride Borger, Inc., Desulfur
Partnership, Pride Marketing of Texas (Cedar Wind), Inc. and Varde, as
amended by the First Amendment thereto dated as of April 15, 1998, the
Second Amendment thereto dated as of November 20, 1998, and the Third
Amendment thereto dated as of December 1, 1998 and the Fourth
Amendment thereto dated as of December 31, 1998.

8.2. Section 6.6.15 of the Credit Agreement is amended to read in its
entirety as follows:

6.6.15. Indebtedness of the Obligors to Varde in respect of the
Varde Revolving Loan, so long as the principal amount thereof at any
time outstanding does not exceed $2,000,000, the per annum rate of
interest thereon does not exceed 11% per annum and the stated maturity
thereof is not earlier than January 31, 1999 with the possibility of
an extension up to July 31, 1999; provided, however, that with respect
to the period commencing November 20, 1998 through and including
January 1, 1999, the maximum principal amount of such Indebtedness
permitted under this Section 6.6.15 shall be increased from $2,000,000
to $3,500,000.

9. Representations and Warranties. In order to induce the Lenders to
enter into this Agreement, each of the Pride Entities jointly and severally
represents and warrants to each of the Lenders that:

9.1. No Legal Obstacle to Agreements. Neither the execution and
delivery of this Agreement or any other Credit Document, nor the making of
any borrowing under the Amended Credit Agreement, nor the guaranteeing of
the Credit Obligations, nor the securing of the Credit Obligations with the
Credit Security, nor the consummation of any transaction referred to in or
contemplated by this Agreement, the Amended Credit Agreement or any other
Credit Document, nor the fulfillment of the terms hereof or thereof or of
any other agreement, instrument, deed or lease contemplated by this
Agreement, the Amended Credit Agreement or any other Credit Document, has
constituted or resulted in or will constitute or result in:

(b) the violation of any law, statute, judgment, decree or
governmental order, rule or regulation applicable to any of the Pride
Entities;

(c) the creation under any agreement, instrument, deed or lease
of any Lien (other than Liens on the Credit Security which secure the
Credit Obligations and Liens permitted by Section 6.8 of the Amended
Credit Agreement) upon any of the assets of any of the Pride Entities;
or

(d) any redemption, retirement or other repurchase obligation of
any of the Pride Entities under any Charter, By-law, agreement,
instrument, deed or lease.

9.2. Defaults. Immediately after giving effect to the Amendment, no
Default shall exist.

9.3. Incorporation of Representations and Warranties of Company.
Immediately after giving effect to the Amendment, the representations and
warranties set forth in Section 7 of the Amended Credit Agreement will be
true and correct as if originally made on and as of the Amendment Closing
Date (except to the extent of any representation or warranty which refers
to a specific earlier date).

10. Conditions. The effectiveness of each of the amendments set forth in
Section 2 hereof shall be subject to the satisfaction of the following
conditions:

10.1. Officer's Certificate. The representations and warranties
contained in Section 3 hereof shall be true and correct on and as of the
Amendment Closing Date with the same force and effect as though originally
made on and as of the Amendment Closing Date; immediately after giving
effect to such amendments, no Default shall exist; no Material Adverse
Change shall have occurred since December 30, 1997 except as previously
disclosed by the Company in writing to the Lenders; and the Company shall
have furnished to the Lenders on or before the Amendment Closing Date a
certificate to these effects signed by a Financial Officer of the Company.

10.2. Proper Proceedings. All proper proceedings shall have been
taken by each of the Pride Entities to authorize this Agreement, the
Amended Credit Agreement and the transactions contemplated hereby and
thereby. On or before the Amendment Closing Date, the Agent shall have
received copies of all documents, including legal opinions of counsel and
records of corporate proceedings which the Agent may have requested in
connection therewith, such documents, where appropriate, to be certified by
proper corporate or governmental authorities.

10.3. Varde. Varde shall have consented to the terms and conditions
of this Agreement and the Amended Credit Agreement, and the Varde Credit
Agreement shall have been amended in a manner satisfactory in form and
substance to the Required Revolving Lenders which provides, in
documentation satisfactory in form and substance to the Required Revolving
Lenders, for the temporary increase of the Varde Revolving Loan.

10.4. Execution and Delivery. Each of the Pride Entities, the
Lenders, the Agent and the Documentation Agent shall have executed and
delivered this Agreement.

10.5. Expenses. The Company shall have paid to the Agent all
reasonable expenses, fees and charges payable to the Agent's counsel, Ropes
& Gray.

11. Further Assurances. The Company will, promptly upon the request of
the Agent from time to time, execute, acknowledge and deliver, and file and
record, all such instruments and notices, and take all such action, as the
Agent deems necessary or advisable to carry out the intent and purposes of
this Agreement. In addition, the parties confirm their agreement to enter
into a restatement of the Credit Agreement incorporating the amendments set
forth in Section 2 hereof and containing such additional provisions as
shall be appropriate to reflect fully the termination of the commitment of
the Term Lender to make the Term Loan. Such restatement shall be effected
as soon as reasonably possible.

12. General. The Amended Credit Agreement and all of the other Credit
Documents are each confirmed as being in full force and effect. This
Agreement, the Amended Credit Agreement and the other Credit Documents
referred to herein or therein constitute the entire understanding of the
parties with respect to the subject matter hereof and thereof and supersede
all prior and current understandings and agreements, whether written or
oral, with respect to such subject matter. The invalidity or
unenforceability of any provision hereof shall not affect the validity and
enforceability of any other term or provision hereof. The headings in this
Agreement are for convenience of reference only and shall not alter, limit
or otherwise affect the meaning hereof. Each of this Agreement and the
Amended Credit Agreement is a Credit Document and may be executed in any
number of counterparts, which together shall constitute one instrument, and
shall bind and inure to the benefit of the parties and their respective
successors and assigns, including as such successors and assigns all
holders of any Note. This Agreement shall be governed by and construed in
accordance with the laws (other than the conflict of law rules) of The
Commonwealth of Massachusetts.

<PAGE>
Each of the undersigned has caused this Agreement to be executed and
delivered by its duly authorized officer as an agreement under seal as of
the date first above written.

PRIDE COMPANIES, L.P.
by Pride Refining, Inc., its
Managing General Partner

By_________________________________
Title:

PRIDE REFINING, INC.

By_________________________________
Title:

PRIDE SGP, INC.

By ________________________________
Title:

PRIDE BORGER, INC.

By ________________________________
Title:

PRIDE MARKETING OF TEXAS (CEDAR
WIND), INC.

By ________________________________
Title:

<PAGE>
DESULFUR PARTNERSHIP
by Pride Companies, L.P., its
General Partner,
by Pride Refining, Inc., its
Managing General Partner

By ________________________________
Title:

and by Pride Marketing of Texas
(Cedar Wind),Inc., its
General Partner

By _______________________________
Title:

BANKBOSTON, N.A., for Itself and as
Agent

By ________________________________
Authorized Officer

LEHMAN COMMERCIAL PAPER INC., for
Itself and as Documentation Agent

By ________________________________
Authorized Officer

UNION BANK OF CALIFORNIA, N.A.

By_________________________________
Authorized Officer

<PAGE>
Consented to:

VARDE PARTNERS, INC.

By _________________________________
Authorized Officer<PAGE>

PRIDE COMPANIES, L.P.

REVOLVING CREDIT AND TERM LOAN AGREEMENT

Amendment No. 4

This Agreement, dated as of March __, 1999, is among Pride Companies,
L.P., a Delaware limited partnership (the "Company"), Pride SGP, Inc., a
Texas corporation, Pride Refining, Inc., a Texas corporation, Pride Borger,
Inc., a Delaware corporation, and Pride Marketing of Texas (Cedar Wind),
Inc., a Texas corporation (collectively, the "Pride Entities"), BankBoston,
N.A., Lehman Commercial Paper Inc. and Union Bank of California
(collectively, the "Lenders"), BankBoston, N.A., as agent (the "Agent") for
itself and the other Lenders, and Lehman Commercial Paper Inc., as
Documentation Agent (the "Documentation Agent") for itself and the other
Lenders. The parties agree as follows:

13. Reference to Credit Agreement; Background.

13.1. Reference to Credit Agreement; Definitions. Reference is made
to the Revolving Credit and Term Loan Agreement dated as of December 30,
1997, as amended by Amendment No. 1 thereto dated as of April 15, 1998,
Amendment No. 2 thereto dated as of November 20, 1998 and Amendment No. 3
thereto dated as of December 31, 1998 (the "Credit Agreement"), among the
Pride Entities, the Lenders, the Agent and the Documentation Agent. The
Credit Agreement, as amended by the amendments set forth in Section 2
hereof (the "Amendment"), is referred to as the "Amended Credit Agreement."
Terms defined in the Amended Credit Agreement and not otherwise defined
herein are used herein with the meanings so defined.

13.2. Background. The Company has requested that the Credit
Agreement be amended to cure certain existing and prospective Defaults and
for other purposes. The Lenders have agreed to such amendments on the
conditions that BankBoston be released from any obligation to provide the
Term Loan and on the other conditions set forth herein.

14. Amendments to Credit Agreement. Subject to all of the terms and
conditions hereof and in reliance upon the representations and warranties
set forth or incorporated by reference in Section 3 hereof, the Credit
Agreement is amended as follows, effective as of the date hereof (the
"Amendment Closing Date").

14.1. The definition of "Varde Credit Agreement" set forth in Section
1.1 of the Credit Agreement is amended to read in its entirety as follows:

"Varde Credit Agreement" means that certain Sixth Restated and
Amended Credit Agreement dated as of December 30, 1997, among the
Company, the General Partners, Pride Borger, Inc., Desulfur
Partnership, Pride Marketing of Texas (Cedar Wind), Inc. and Varde, as
amended by the First Amendment thereto dated as of April 15, 1998, the
Second Amendment thereto dated as of November 20, 1998, and the Third
Amendment thereto dated as of December 1, 1998, the Fourth Amendment
thereto dated as of December 31, 1998 and the Fifth Amendment thereto
dated as of March __, 1999.

14.2. Section 6.6.15 of the Credit Agreement is amended to read in
its entirety as follows:

6.6.15. Indebtedness of the Obligors to Varde in respect of the
Varde Revolving Loan, so long as the principal amount thereof at any
time outstanding does not exceed $2,000,000, the per annum rate of
interest thereon does not exceed 11% per annum and the stated maturity
thereof is not earlier than January 31, 1999 with the possibility of
an extension up to July 31, 1999; provided, however, that with respect
to the period commencing March __, 1999 through and including March
31, 1999, the maximum principal amount of such Indebtedness permitted
under this Section 6.6.15 shall be increased from $2,000,000 to
$2,500,000.

15. Representations and Warranties. In order to induce the Lenders to
enter into this Agreement, each of the Pride Entities jointly and severally
represents and warrants to each of the Lenders that:

15.1. No Legal Obstacle to Agreements. Neither the execution and
delivery of this Agreement or any other Credit Document, nor the making of
any borrowing under the Amended Credit Agreement, nor the guaranteeing of
the Credit Obligations, nor the securing of the Credit Obligations with the
Credit Security, nor the consummation of any transaction referred to in or
contemplated by this Agreement, the Amended Credit Agreement or any other
Credit Document, nor the fulfillment of the terms hereof or thereof or of
any other agreement, instrument, deed or lease contemplated by this
Agreement, the Amended Credit Agreement or any other Credit Document, has
constituted or resulted in or will constitute or result in:

(b) the violation of any law, statute, judgment, decree or
governmental order, rule or regulation applicable to any of the Pride
Entities;

(c) the creation under any agreement, instrument, deed or lease
of any Lien (other than Liens on the Credit Security which secure the
Credit Obligations and Liens permitted by Section 6.8 of the Amended
Credit Agreement) upon any of the assets of any of the Pride Entities;
or

(d) any redemption, retirement or other repurchase obligation of
any of the Pride Entities under any Charter, By-law, agreement,
instrument, deed or lease.

15.2. Defaults. Immediately after giving effect to the Amendment, no
Default shall exist.

15.3. Incorporation of Representations and Warranties of Company.
Immediately after giving effect to the Amendment, the representations and
warranties set forth in Section 7 of the Amended Credit Agreement will be
true and correct as if originally made on and as of the Amendment Closing
Date (except to the extent of any representation or warranty which refers
to a specific earlier date).

16. Conditions. The effectiveness of each of the amendments set forth in
Section 2 hereof shall be subject to the satisfaction of the following
conditions:

16.1. Officer's Certificate. The representations and warranties
contained in Section 3 hereof shall be true and correct on and as of the
Amendment Closing Date with the same force and effect as though originally
made on and as of the Amendment Closing Date; immediately after giving
effect to such amendments, no Default shall exist; no Material Adverse
Change shall have occurred since December 30, 1997 except as previously
disclosed by the Company in writing to the Lenders; and the Company shall
have furnished to the Lenders on or before the Amendment Closing Date a
certificate to these effects signed by a Financial Officer of the Company.

16.2. Proper Proceedings. All proper proceedings shall have been
taken by each of the Pride Entities to authorize this Agreement, the
Amended Credit Agreement and the transactions contemplated hereby and
thereby. On or before the Amendment Closing Date, the Agent shall have
received copies of all documents, including legal opinions of counsel and
records of corporate proceedings which the Agent may have requested in
connection therewith, such documents, where appropriate, to be certified by
proper corporate or governmental authorities.

16.3. Varde Varde shall have consented to the terms and conditions
of this Agreement and the Amended Credit Agreement, and the Varde Credit
Agreement shall have been amended in a manner satisfactory in form and
substance to the Required Revolving Lenders which provides, in
documentation satisfactory in form and substance to the Required Revolving
Lenders, for the temporary increase of the Varde Revolving Loan.

16.4. Execution and Delivery. Each of the Pride Entities, the
Lenders, the Agent and the Documentation Agent shall have executed and
delivered this Agreement.

16.5. Expenses. The Company shall have paid to the Agent all
reasonable expenses, fees and charges payable to the Agent's counsel, Ropes
& Gray.

17. Further Assurances. The Company will, promptly upon the request of
the Agent from time to time, execute, acknowledge and deliver, and file and
record, all such instruments and notices, and take all such action, as the
Agent deems necessary or advisable to carry out the intent and purposes of
this Agreement. In addition, the parties confirm their agreement to enter
into a restatement of the Credit Agreement incorporating the amendments set
forth in Section 2 hereof and containing such additional provisions as
shall be appropriate to reflect fully the termination of the commitment of
the Term Lender to make the Term Loan. Such restatement shall be effected
as soon as reasonably possible.

18. General. The Amended Credit Agreement and all of the other Credit
Documents are each confirmed as being in full force and effect. This
Agreement, the Amended Credit Agreement and the other Credit Documents
referred to herein or therein constitute the entire understanding of the
parties with respect to the subject matter hereof and thereof and supersede
all prior and current understandings and agreements, whether written or
oral, with respect to such subject matter. The invalidity or
unenforceability of any provision hereof shall not affect the validity and
enforceability of any other term or provision hereof. The headings in this
Agreement are for convenience of reference only and shall not alter, limit
or otherwise affect the meaning hereof. Each of this Agreement and the
Amended Credit Agreement is a Credit Document and may be executed in any
number of counterparts, which together shall constitute one instrument, and
shall bind and inure to the benefit of the parties and their respective
successors and assigns, including as such successors and assigns all
holders of any Note. This Agreement shall be governed by and construed in
accordance with the laws (other than the conflict of law rules) of The
Commonwealth of Massachusetts.

<PAGE>
Each of the undersigned has caused this Agreement to be executed and
delivered by its duly authorized officer as an agreement under seal as of
the date first above written.

PRIDE COMPANIES, L.P.
by Pride Refining, Inc., its
Managing General Partner

By______________________________
Title:

PRIDE REFINING, INC.

By______________________________
Title:

PRIDE SGP, INC.

By_______________________________
Title:

PRIDE BORGER, INC.

By_______________________________
Title:

PRIDE MARKETING OF TEXAS (CEDAR
WIND), INC.

By_______________________________
Title:

<PAGE>
BANKBOSTON, N.A., for Itself and as
Agent

By _______________________________
Authorized Officer

LEHMAN COMMERCIAL PAPER INC., for
Itself and as Documentation Agent

By________________________________
Authorized Officer

UNION BANK OF CALIFORNIA, N.A.

By________________________________
Authorized Officer

Consented to:

VARDE PARTNERS, INC.

By _________________________________
Authorized Officer<PAGE>

SECOND AMENDMENT TO SIXTH
RESTATED AND AMENDED CREDIT AGREEMENT

THIS SECOND AMENDMENT TO SIXTH RESTATED AND
AMENDED CREDIT AGREEMENT, dated as of November 20, 1998 (this
"Second Amendment"), amends the Sixth Restated and Amended
Credit Agreement dated as of December 30, 1997 (the "Credit
Agreement") by and among PRIDE COMPANIES, L.P. (the
"Borrower"), PRIDE REFINING, INC., PRIDE SGP, INC., DESULFUR
PARTNERSHIP, PRIDE MARKETING OF TEXAS (CEDAR WIND), INC. and
PRIDE BORGER, INC. (collectively, the "Guarantors") and VARDE
PARTNERS, INC., as Lender (the "Lender"). Capitalized terms
used herein but not otherwise defined herein shall have the
meanings assigned thereto in the Credit Agreement.

WHEREAS, the Borrower, the Guarantors and the
Lender have entered into the Credit Agreement; and

WHEREAS, the parties desire to amend the Credit
Agreement as hereinafter set forth;

NOW, THEREFORE, the parties hereto agree as
follows:

SECTION 1 Amendments. Effective on (and subject
to the occurrence of) the Second Amendment Effective Date (as
defined in Section 3 below), the Credit Agreement shall be
amended as set forth below:

1.1 Section 1.1 of the Credit Agreement is hereby
amended by amending and restating the definition of
"Revolving Credit Commitment" in its entirety as follows:

"Revolving Credit Commitment" shall mean the obligation
of the Lender to make Revolving Credit Loans to the Borrower
hereunder in an aggregate principal amount at any one time
outstanding not to exceed Two Million Dollars ($2,000,000)as such
amount may be reduced from time to time in accordance with the
terms of this Agreement; provided, however, that with respect to
the period from the Second Amendment Effective Date through and
including December 1, 1998, the Revolving Credit Commitment shall
mean the obligation of the Lender to make Revolving Credit Loans
to the Borrower hereunder in an aggregate principal amount at any
one time outstanding not to exceed Three Million Five Hundred
Thousand Dollars ($3,500,000) as such amount may be reduced from
time to time in accordance with the terms of this Agreement.

1.2 Section 1.1 of the Credit Agreement is hereby
further amended by adding the following new definition in the
appropriate alphabetical position:

"Second Amendment Effective Date" shall mean
November 20, 1998.

1.3 Section 2.3 of the Credit Agreement is hereby
amended and restated in its entirety to read as follows:

2.3 Revolving Credit Notes. The Revolving Credit Loans
made by the Lender shall be evidenced by a promissory note of the
Borrower, substantially in the form of Exhibit A-6, with
appropriate insertions as to payee, date and principal amount (a
"Revolving Credit Note"), payable to the order of the Lender and
in a principal amount equal to the lesser of (a) the amount of the
Revolving Credit Commitment and (b) the aggregate unpaid principal
amount of all Revolving Credit Loans made by the Lender. The
Revolving Credit Note shall (x) be dated the Second Amendment
Effective Date, (y) be stated to mature on the Revolving Credit
Termination Date and (z) provide for the payment of interest in
accordance with Section 2.6.

1.4 Exhibit A to the Credit Agreement is hereby amended
by deleting Exhibit A-6 thereto and inserting a new Exhibit A-6 in
the form of Exhibit A hereto.

SECTION 2 Representations and Warranties. The
Borrower and each of the Guarantors represents and warrants
to the Lender that (a) each representation and warranty set
forth in Article V of the Credit Agreement is true and
correct in all material respects (except for any such
representations and warranties which are qualified by their
terms by a reference to materiality, which representations
and warranties as so qualified shall be true and correct in
all respects) as of the date of the execution and delivery of
this Second Amendment by the Borrower and the Guarantors (and
assuming the effectiveness hereof), with the same effect as
if made on such date (except for any such representations and
warranties which are made with respect to a specified date,
which representations and warranties shall only be required
to be true and correct as of such date); and (b) the
execution and delivery by the Borrower and the Guarantors of
this Second Amendment and the performance by the Borrower and
the Guarantors of their respective obligations under the
Credit Agreement, as amended hereby (as so amended, the
"Amended Credit Agreement"), (i) are within the corporate
powers of the Borrower and Guarantors, (ii) have been duly
authorized by all necessary corporate action on the part of
the Borrower and the Guarantors, (iii) have received all
necessary approvals and consents from any governmental
authority and (iv) do not and will not contravene or conflict
with, or result in or require the creation or imposition of
any Lien under, any provision or requirements of law or of
the certificate of incorporation or by-laws (or equivalent
organizational or governing document) of the Borrower or any
Guarantor or of any agreement, instrument, order or decree
which is binding upon the Borrower of any Guarantor.

SECTION 3 Effectiveness. The amendments set forth
in Section 1 hereof shall become effective on such date (the
"Second Amendment Effective Date") when the Lender shall have
received all of the following:

(i) Counterparts of this Second
Amendment executed by a duly authorized officer of the Borrower
and each of the Guarantors.

(ii) An executed Revolving Credit Note
in the form of Exhibit A hereto.

(iii) An opinion of Andrews & Kurth,
LLP, counsel to the Borrower and the Guarantors, substantially in
the form of Attachment I hereto.

(iv) Confirmation that the Borrower has
paid to the Lender all reasonable expenses, fees and charges
payable to the Lender's counsel, Paul, Weiss, Rifkind, Wharton &
Garrison.

(v) All documents the Lender may
reasonably request relating to the existence of the Borrower and
the Guarantors, the corporate authority for and the validity of
this Second Amendment, and any other matters relevant hereto,
all in form and substance satisfactory to the Lender.

(vi) Counterparts of the Consent and
Agreement, substantially in the form of Attachment II hereto,
executed by a duly authorized officer of each of the Guarantors.

(vii) A duly executed copy of Amendment
No. 2 to the BankBoston Credit Agreement in form and substance
satisfactory to the Lender.

SECTION 4 Miscellaneous.

4.1 Continuing Effectiveness, etc. The Credit
Agreement as hereby amended and all other Loan Documents are
hereby ratified and confirmed in all respects. After the
Second Amendment Effective Date, all references in the Credit
Agreement and the other Loan Documents to "Credit Agreement",
"Agreement" or similar terms shall refer to the Amended
Credit Agreement. The execution, delivery and effectiveness
of this Second Amendment shall not, except as expressly
provided herein, operate as a waiver of any right, power or
remedy of the Lender under the Credit Agreement or any other
Loan Document nor constitute a waiver of any provision of the
Credit Agreement, the Notes, or any other Loan Document nor
constitute a waiver of any Default or Event of Default.

4.2 Counterparts. This Second Amendment may be
executed in any number of counterparts and by the different
parties on separate counterparts, and each such counterpart
shall be deemed to be an original but all such counterparts
shall together constitute one and the same Second Amendment.

4.3 Governing Law. This Second Amendment shall
be governed by and construed in accordance with the internal
laws of the State of New York (without reference to the
conflicts of laws provisions thereof).

4.4 Successors and Assigns. This Second
Amendment shall be binding upon the Borrower, the Guarantors,
the Lender and their respective permitted successors and
assigns, and shall inure to the benefit of the Borrower, the
Guarantors, the Lender and their respective permitted
successors and assigns.

4.5 Further Assurances. Each of the Borrower and
the Guarantors will, promptly upon the request of the Lender,
from time to time execute, acknowledge and deliver, and file
and record, all such agreements, documents, instruments and
notices, and take all such action, as the Lender deems
necessary or advisable to carry out the intent and purposes
of this Second Amendment and the Credit Agreement.

<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused
this Second Amendment to be duly executed by their respective
authorized officers as of the day and year first above
written.

PRIDE COMPANIES, L.P.
By Pride Refining, Inc., its
Managing General Partner

By:____________________________
Name:
Title:

PRIDE REFINING, INC.

By:____________________________
Name:
Title:

PRIDE SGP, INC.

By:____________________________
Name:
Title:

PRIDE BORGER, INC.

By:____________________________
Name:
Title:

PRIDE MARKETING OF TEXAS CEDAR WIND

By:____________________________
Name:
Title:

DESULFUR PARTNERSHIP
by Pride Companies, L.P., its
General Partner, by Pride

Refining, Inc., its Managing
General Partner

By:____________________________
Name:
Title:

and by Pride Marketing of Texas
(Cedar Wind), Inc., its General
Partner

By:____________________________
Name:
Title:

VARDE PARTNERS, INC., as lender

By:____________________________
Name:
Title:

<PAGE>

Attachment I

Form of Opinion<PAGE>

Attachment II

CONSENT AND AGREEMENT

Each of Pride Refining, Inc., Pride SGP, Inc.,
Desulfur Partnership, Pride Marketing of Texas (Cedar Wind),
Inc. and Pride Borger, Inc. hereby consents to the provisions
of this Second Amendment and the transactions contemplated
herein, and hereby ratifies and confirms the respective Third
Restated Guaranty Agreements, each dated as of December 30,
1997, made by it for the benefit of Lender, and agrees that
its obligations and covenants thereunder are unimpaired
hereby and shall remain in full force and effect.

Dated: November 20, 1998

PRIDE REFINING, INC.

By:______________________________
Name:
Title:

PRIDE SGP, INC.

By:______________________________
Name:
Title:

DESULFER PARTNERSHIP

By:______________________________
Name:
Title:

PRIDE MARKETING OF TEXAS (CEDAR
WIND), INC.

By:______________________________
Name:
Title:

PRIDE BORGER, INC.

By:______________________________
Name:
Title:<PAGE>

EXHIBIT A

REVOLVING CREDIT NOTE

$3,500,000 New York, New York
November 20, 1998

FOR VALUE RECEIVED, the undersigned, PRIDE COMPANIES,
L.P., a Delaware limited partnership (the "Borrower"),
unconditionally promises to pay on the Revolving Credit
Termination Date (as defined in the Credit Agreement defined
below) to the order of VARDE PARTNERS, INC. (the "Lender"), on the
dates and in the manner set forth in sections 2.6 and 2.8 of the
Credit Agreement, the lesser of (a) the principal amount of
THREE MILLION FIVE HUNDRED THOUSAND DOLLARS ($3,500,000) and (b)
the aggregate unpaid principal amount of all Revolving Credit
Loans made by the Lender to the Borrower pursuant to section 2.2
of the Credit Agreement. The Borrower further agrees to pay
interest on the unpaid principal amount hereof on the dates and at
the applicable rates per annum as provided in section 2.6(b) of
the Credit Agreement until any such amount shall be due and
payable (whether at the stated maturity, by acceleration or
otherwise).

The holder of this Note is authorized to endorse on the
schedule annexed hereto and made a part hereof or on a
continuation thereof which shall be attached hereto and made a
part hereof the date and amount of each Revolving Credit Loan made
pursuant to the Credit Agreement and the date and amount of each
payment or prepayment of principal thereof. Each such endorsement
shall constitute prima facie evidence of the accuracy of the
information endorsed; provided, however, that the failure of the
lender to make any such endorsement shall not affect the
obligations of the Borrower in respect of such Revolving Credit
Loans.

This Note (a) is the Revolving Credit Note referred to
in the Sixth Restated and Amended Credit Agreement, dated as of
December 30, 1997 (as the same may from time to time be amended,
modified or supplemented, the "Credit Agreement"), among the
Borrower, Pride Refining, Inc., Pride SGP, Inc., Desulfur
Partnership, Pride Marketing of Texas (Cedar Wind), Inc., Pride
Borger, Inc. and the Lender, (b) is subject to the provisions of
the Credit Agreement and (c) is subject to optional and mandatory
prepayment in whole or in part as provided in the Credit
Agreement. This Note is secured and guaranteed as provided in
the Collateral Documents. Reference is hereby made to the
Collateral Documents for a description of the properties and
assets in which a security interest has been granted, the nature
and extent of the security and the guarantees, the terms and
conditions upon which the security interests and each guarantee
were granted and the rights of the holder of this Note in respect
thereof.

Upon the occurrence of any one or more of the Events of
Default specified in the Credit Agreement, all amounts then
remaining unpaid on this Note may become, or be declared to be,
immediately due and payable as provided in the Credit Agreement.

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

The Borrower hereby waives presentment, demand, protest
and all other notices of any kind.

THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK (WITHOUT REFERENCE TO THE CONFLICTS OF LAWS PROVISIONS
THEREOF).

PRIDE COMPANIES, L.P., a Delaware limited
partnership

By: PRIDE REFINING, INC., a Texas
corporation, Managing General
Partner

By: ___________________________________
Dave Caddell
Vice President
<PAGE>

SCHEDULE A to
Revolving Credit Note

LOAN REPAYMENTS OF REVOLVING CREDIT LOAN<PAGE>

THIRD AMENDMENT TO SIXTH
RESTATED AND AMENDED CREDIT AGREEMENT

THIS THIRD AMENDMENT TO SIXTH RESTATED AND AMENDED
CREDIT AGREEMENT, dated as of December 1, 1998 (this "Third
Amendment"), amends the Sixth Restated and Amended Credit
Agreement dated as of December 30, 1997 (as amended, supplemented
or modified from time to time, the "Credit Agreement") by and
among PRIDE COMPANIES, L.P. (the "Borrower"), PRIDE REFINING,
INC., PRIDE SGP, INC., DESULFUR PARTNERSHIP, PRIDE MARKETING OF
TEXAS (CEDAR WIND), INC. and PRIDE BORGER, INC. (collectively, the
"Guarantors") and VARDE PARTNERS, INC., as Lender (the "Lender").
Capitalized terms used herein but not otherwise defined herein
shall have the meanings assigned thereto in the Credit Agreement.

WHEREAS, the Borrower, the Guarantors and the Lender
have entered into the Credit Agreement; and

WHEREAS, the parties desire to amend the Credit
Agreement as hereinafter set forth;

NOW, THEREFORE, the parties hereto agree as follows:

SECTION 1 Amendments. Effective on (and subject to the
occurrence of) the Third Amendment Effective Date (as defined in
Section 3 below), the Credit Agreement shall be amended as set
forth below:

1.1 Section 1.1 of the Credit Agreement is hereby
amended by amending and restating the definition of "Revolving
Credit Commitment" in its entirety as follows:

"Revolving Credit Commitment" shall mean the obligation
of the Lender to make Revolving Credit Loans to the Borrower
hereunder in an aggregate principal amount at any one time
outstanding not to exceed Two Million Dollars ($2,000,000) as such
amount may be reduced from time to time in accordance with the
terms of this Agreement; provided, however, that with respect to
the period from the Second Amendment Effective Date through and
including January 1, 1999, the Revolving Credit Commitment shall
mean the obligation of the Lender to make Revolving Credit Loans
to the Borrower hereunder in an aggregate principal amount at any
one time outstanding not to exceed Three Million Five Hundred
Thousand Dollars ($3,500,000) as such amount may be reduced from
time to time in accordance with the terms of this Agreement.

SECTION 2 Representations and Warranties. The Borrower
and each of the Guarantors represents and warrants to the Lender
that (a) each representation and warranty set forth in Article V
of the Credit Agreement is true and correct in all material
respects (except for any such representations and warranties which
are qualified by their terms by a reference to materiality, which
representations and warranties as so qualified shall be true and
correct in all respects) as of the date of the execution and
delivery of this Third Amendment by the Borrower and the
Guarantors (and assuming the effectiveness hereof), with the same
effect as if made on such date (except for any such
representations and warranties which are made with respect to a
specified date, which representations and warranties shall only be
required to be true and correct as of such date); and (b) the
execution and delivery by the Borrower and the Guarantors of this
Third Amendment and the performance by the Borrower and the
Guarantors of their respective obligations under the Credit
Agreement, as amended hereby (as so amended, the "Amended Credit
Agreement"), (i) are within the corporate powers of the Borrower
and Guarantors, (ii) have been duly authorized by all necessary
corporate action on the part of the Borrower and the Guarantors,
(iii) have received all necessary approvals and consents from any
governmental authority and (iv) do not and will not contravene or
conflict with, or result in or require the creation or imposition
of any Lien under, any provision or requirements of law or of the
certificate of incorporation or by-laws (or equivalent
organizational or governing document) of the Borrower or any
Guarantor or of any agreement, instrument, order or decree which
is binding upon the Borrower of any Guarantor.

SECTION 3 Effectiveness. The amendments set forth in
Section 1 hereof shall become effective on such date (the "Third
Amendment Effective Date") when the Lender shall have received all
of the following:

(i) Counterparts of this Third
Amendment executed by a duly authorized officer of the Borrower
and each of the Guarantors.

(ii) Confirmation that the Borrower has
paid to the Lender all reasonable expenses, fees and charges
payable to the Lender's counsel, Paul, Weiss, Rifkind, Wharton &
Garrison.

(iii) All documents the Lender may
reasonably request relating to the existence of the Borrower and
the Guarantors, the corporate authority for and the validity of
this Third Amendment, and any other matters relevant hereto, all
in form and substance satisfactory to the Lender.

(iv) Counterparts of the Consent and
Agreement, substantially in the form of Attachment I hereto,
executed by a duly authorized officer of each of the Guarantors.

(v) A duly executed copy of Amendment
No. 3 to the BankBoston Credit Agreement in form and substance
satisfactory to the Lender.

SECTION 4 Miscellaneous.

4.1 Continuing Effectiveness, etc. The Credit
Agreement as hereby amended and all other Loan Documents are
hereby ratified and confirmed in all respects. After the Third
Amendment Effective Date, all references in the Credit Agreement
and the other Loan Documents to "Credit Agreement", "Agreement" or
similar terms shall refer to the Amended Credit Agreement. The
execution, delivery and effectiveness of this Third Amendment
shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of the Lender under the
Credit Agreement or any other Loan Document nor constitute a
waiver of any provision of the Credit Agreement, the Notes, or any
other Loan Document nor constitute a waiver of any Default or
Event of Default.

4.2 Counterparts. This Third Amendment may be
executed in any number of counterparts and by the different
parties on separate counterparts, and each such counterpart shall
be deemed to be an original but all such counterparts shall
together constitute one and the same Third Amendment.

4.3 Governing Law. This Third Amendment shall be
governed by and construed in accordance with the internal laws of
the State of New York (without reference to the conflicts of laws
provisions thereof).

4.4 Successors and Assigns. This Third Amendment
shall be binding upon the Borrower, the Guarantors, the Lender and
their respective permitted successors and assigns, and shall inure
to the benefit of the Borrower, the Guarantors, the Lender and
their respective permitted successors and assigns.

4.5 Further Assurances. Each of the Borrower and the
Guarantors will, promptly upon the request of the Lender, from
time to time execute, acknowledge and deliver, and file and
record, all such agreements, documents, instruments and notices,
and take all such action, as the Lender deems necessary or
advisable to carry out the intent and purposes of this Third
Amendment and the Credit Agreement.

<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Third Amendment to be duly executed by their respective authorized
officers as of the day and year first above written.

PRIDE COMPANIES, L.P.
By Pride Refining, Inc., its
Managing General Partner

By:____________________________
Name:
Title:

PRIDE REFINING, INC.

By:____________________________
Name:
Title:

PRIDE SGP, INC.

By:____________________________
Name:
Title:

PRIDE BORGER, INC.

By:____________________________
Name:
Title:

PRIDE MARKETING OF TEXAS
(CEDAR WIND), INC.

By:____________________________
Name:
Title:

DESULFUR PARTNERSHIP
by Pride Companies, L.P., its
General Partner, by Pride
Refining, Inc.,
its Manager General Partner

By:____________________________
Name:
Title:

and by Pride Marketing of Texas
(Cedar Wind), Inc., its General
Partner

By:____________________________
Name:
Title:

VARDE PARTNERS, INC., as Lender

By:____________________________
Name:
Title:
<PAGE>

Attachment I

CONSENT AND AGREEMENT

Each of Pride Refining, Inc., Pride SGP, Inc., Desulfur
Partnership, Pride Marketing of Texas (Cedar Wind), Inc. and Pride
Borger, Inc. hereby consents to the provisions of this Third
Amendment and the transactions contemplated herein, and hereby
ratifies and confirms the respective Third Restated Guaranty
Agreements, each dated as of December 30, 1997, made by it for the
benefit of Lender, and agrees that its obligations and covenants
thereunder are unimpaired hereby and shall remain in full force
and effect.

Dated: December 1, 1998

PRIDE REFINING, INC.

By:______________________________
Name:
Title:

PRIDE SGP, INC.

By:______________________________
Name:
Title:

DESULFER PARTNERSHIP

By:______________________________
Name:
Title:

PRIDE MARKETING OF TEXAS (CEDAR
WIND), INC.

By:______________________________
Name:
Title:

PRIDE BORGER, INC.

By:______________________________
Name:
Title:<PAGE>

FOURTH AMENDMENT TO SIXTH
RESTATED AND AMENDED CREDIT AGREEMENT

THIS FOURTH AMENDMENT TO SIXTH RESTATED AND
AMENDED CREDIT AGREEMENT, dated as of December 31, 1998 (this
"Third Amendment"), amends the Sixth Restated and Amended
Credit Agreement dated as of December 30, 1997 (as amended,
supplemented or modified from time to time, the "Credit
Agreement") by and among PRIDE COMPANIES, L.P. (the
"Borrower"), PRIDE REFINING, INC., PRIDE SGP, INC., DESULFUR
PARTNERSHIP, PRIDE MARKETING OF TEXAS (CEDAR WIND), INC. and
PRIDE BORGER, INC. (collectively, the "Guarantors") and VARDE
PARTNERS, INC., as Lender (the "Lender"). Capitalized terms
used herein but not otherwise defined herein shall have the
meanings assigned thereto in the Credit Agreement.

WHEREAS, the Borrower, the Guarantors and the
Lender have entered into the Credit Agreement; and

WHEREAS, the parties desire to amend the Credit
Agreement as hereinafter set forth;

NOW, THEREFORE, the parties hereto agree as
follows:

SECTION 1 Amendments. Effective on (and subject
to the occurrence of) the Fourth Amendment Effective Date (as
defined in Section 3 below), the Credit Agreement shall be
amended as set forth below:

1.1 Section 1.1 of the Credit Agreement is hereby
amended by amending and restating the definitions of
"Available Commitment" and "Revolving Credit Commitment
Termination Date" in their entirety as follows:

"Available Commitment" shall mean, at any time, an
amount equal to the excess, if any, of (a) the amount
of the Revolving Credit Commitment over (b) the
aggregate principal amount of all Revolving Credit
Loans then outstanding.

"Revolving Credit Commitment Termination Date"
shall mean "January 31, 1999," provided, however, that
(i) upon at least five (5) Business Days written notice
to the Lender the Borrower may request that such date
be extended for an additional six month period
commencing on February 1, 1999, and (ii) the "Revolving
Credit Commitment Termination Date" shall be the date
so requested if the Lender shall have agreed (in its
sole and absolute discretion) in writing to such date
on or prior to January 31, 1999.

SECTION 2 Representations and Warranties. The
Borrower and each of the Guarantors represents and warrants
to the Lender that (a) each representation and warranty set
forth in Article V of the Credit Agreement is true and
correct in all material respects (except for any such
representations and warranties which are qualified by their
terms by a reference to materiality, which representations
and warranties as so qualified shall be true and correct in
all respects) as of the date of the execution and delivery of
this Fourth Amendment by the Borrower and the Guarantors (and
assuming the effectiveness hereof), with the same effect as
if made on such date (except for any such representations and
warranties which are made with respect to a specified date,
which representations and warranties shall only be required
to be true and correct as of such date); and (b) the
execution and delivery by the Borrower and the Guarantors of
this Fourth Amendment and the performance by the Borrower and
the Guarantors of their respective obligations under the
Credit Agreement, as amended hereby (as so amended, the
"Amended Credit Agreement"), (i) are within the corporate
powers of the Borrower and Guarantors, (ii) have been duly
authorized by all necessary corporate action on the part of
the Borrower and the Guarantors, (iii) have received all
necessary approvals and consents from any governmental
authority and (iv) do not and will not contravene or conflict
with, or result in or require the creation or imposition of
any Lien under, any provision or requirements of law or of
the certificate of incorporation or by-laws (or equivalent
organizational or governing document) of the Borrower or any
Guarantor or of any agreement, instrument, order or decree
which is binding upon the Borrower of any Guarantor.

SECTION 3 Effectiveness. The amendments set forth
in Section 1 hereof shall become effective on such date (the
"Fourth Amendment Effective Date") when the Lender shall have
received all of the following:

(i) Counterparts of this Fourth
Amendment executed by a duly authorized officer of the Borrower
and each of the Guarantors.

(ii) All documents the Lender may
reasonably request relating to the existence of the Borrower
and the Guarantors, the corporate authority for and the
validity of this Fourth Amendment, and any other matters
relevant hereto, all in form and substance satisfactory to
the Lender.

(iii) Counterparts of the Consent and
Agreement, substantially in the form of Attachment I hereto,
executed by a duly authorized officer of each of the
Guarantors.

SECTION 4 Miscellaneous.

4.1 Continuing Effectiveness, etc. The Credit
Agreement as hereby amended and all other Loan Documents are
hereby ratified and confirmed in all respects. After the
Fourth Amendment Effective Date, all references in the Credit
Agreement and the other Loan Documents to "Credit Agreement",
"Agreement" or similar terms shall refer to the Amended
Credit Agreement. The execution, delivery and effectiveness
of this Fourth Amendment shall not, except as expressly
provided herein, operate as a waiver of any right, power or
remedy of the Lender under the Credit Agreement or any other
Loan Document nor constitute a waiver of any provision of the
Credit Agreement, the Notes, or any other Loan Document nor
constitute a waiver of any Default or Event of Default.

4.2 Counterparts. This Fourth Amendment may be
executed in any number of counterparts and by the different
parties on separate counterparts, and each such counterpart
shall be deemed to be an original but all such counterparts
shall together constitute one and the same Fourth Amendment.

4.3 Governing Law. This Fourth Amendment shall
be governed by and construed in accordance with the internal
laws of the State of New York (without reference to the
conflicts of laws provisions thereof).

4.4 Successors and Assigns. This Fourth
Amendment shall be binding upon the Borrower, the Guarantors,
the Lender and their respective permitted successors and
assigns, and shall inure to the benefit of the Borrower, the
Guarantors, the Lender and their respective permitted
successors and assigns.

IN WITNESS WHEREOF, the parties hereto have caused
this Fourth Amendment to be duly executed by their
respective authorized officers as of the day and year first
above written.

PRIDE COMPANIES, L.P.
By Pride Refining, Inc., its
Managing General Partner

By:___________________________
Name:
Title:

PRIDE REFINING, INC.

By:___________________________
Name:
Title:

PRIDE SGP, INC.

By:___________________________
Name:
Title:

PRIDE BORGER, INC.

By:___________________________
Name:
Title:

PRIDE MARKETING OF TEXAS
(CEDAR WIND), INC.

By:___________________________
Name:
Title:

DESULFUR PARTNERSHIP
by Pride Companies, L.P.,
its General Partner, by
Pride Refining, Inc.,
its Manager General
Partner

By:___________________________
Name:
Title:

and by Pride Marketing of
Texas (Cedar Wind), Inc., its
General Partner

By:___________________________
Name:
Title:

VARDE PARTNERS, INC., as Lender

By:____________________________
Name:
Title:
<PAGE>

Attachment I

CONSENT AND AGREEMENT

Each of Pride Refining, Inc., Pride SGP, Inc., Desulfur
Partnership, Pride Marketing of Texas (Cedar Wind), Inc. and Pride
Borger, Inc. hereby consents to the provisions of this Fourth
Amendment and the transactions contemplated herein, and hereby
ratifies and confirms the respective Third Restated Guaranty
Agreements, each dated as of December 30, 1997, made by it for the
benefit of Lender, and agrees that its obligations and covenants
thereunder are unimpaired hereby and shall remain in full force
and effect.

Dated: December 31, 1998

PRIDE REFINING, INC.

By:______________________________
Name:
Title:

PRIDE SGP, INC.

By:______________________________
Name:
Title:

DESULFER PARTNERSHIP

By:______________________________
Name:
Title:

PRIDE MARKETING OF TEXAS (CEDAR
WIND), INC.

By:______________________________
Name:
Title:

PRIDE BORGER, INC.

By:______________________________
Name:
Title:<PAGE>

FIFTH AMENDMENT TO SIXTH
RESTATED AND AMENDED CREDIT AGREEMENT

THIS FIFTH AMENDMENT TO SIXTH RESTATED AND AMENDED
CREDIT AGREEMENT, dated as of March __, 1999 (this "Fifth
Amendment"), amends the Sixth Restated and Amended Credit
Agreement dated as of December 30, 1997 (as amended, modified
or supplemented from time to time, the "Credit Agreement") by
and among PRIDE COMPANIES, L.P. (the "Borrower"), PRIDE
REFINING, INC., PRIDE SGP, INC., DESULFUR PARTNERSHIP, PRIDE
MARKETING OF TEXAS (CEDAR WIND), INC. and PRIDE BORGER, INC.
(collectively, the "Guarantors") and VARDE PARTNERS, INC., as
Lender (the "Lender"). Capitalized terms used herein but not
otherwise defined herein shall have the meanings assigned
thereto in the Credit Agreement.

WHEREAS, the Borrower, the Guarantors and the
Lender have entered into the Credit Agreement; and

WHEREAS, the parties desire to amend the Credit
Agreement as hereinafter set forth;

NOW, THEREFORE, the parties hereto agree as
follows:

SECTION 1 Amendments. Effective on (and subject
to the occurrence of) the Fifth Amendment Effective Date (as
defined in Section 3 below), the Credit Agreement shall be
amended as set forth below:

1.1 Section 1.1 of the Credit Agreement is hereby
amended by amending and restating the definition of
"Revolving Credit Commitment" in its entirety as follows:

"Revolving Credit Commitment" shall mean the
obligation of the Lender to make Revolving Credit Loans
to the Borrower hereunder in an aggregate principal
amount at any one time outstanding not to exceed Two
Million Dollars ($2,000,000) as such amount may be
reduced from time to time in accordance with the terms
of this Agreement; provided, however, that with respect
to the period from the Fifth Amendment Effective Date
through and including March 31, 1999, the Revolving
Credit Commitment shall mean the obligation of the
Lender to make Revolving Credit Loans to the Borrower
hereunder in an aggregate principal amount at any one
time outstanding not to exceed Two Million Five Hundred
Thousand Dollars ($2,500,000) as such amount may be
reduced from time to time in accordance with the terms
of this Agreement.

1.2 Section 1.1 of the Credit Agreement is hereby
further amended by adding the following new definition in the
appropriate alphabetical position:

"Fifth Amendment Effective Date" shall mean
March __, 1999.

1.3 Section 2.3 of the Credit Agreement is hereby
amended and restated in its entirety to read as follows:

2.3 Revolving Credit Notes. The Revolving Credit
Loans made by the Lender shall be evidenced by a
promissory note of the Borrower, substantially in the
form of Exhibit A-6, with appropriate insertions as to
payee, date and principal amount (a "Revolving Credit
Note"), payable to the order of the Lender and in a
principal amount equal to the lesser of (a) the amount
of the Revolving Credit Commitment and (b) the
aggregate unpaid principal amount of all Revolving
Credit Loans made by the Lender. The Revolving Credit
Note shall (x) be dated the Fifth Amendment Effective
Date, (y) be stated to mature on the Revolving Credit
Termination Date and (z) provide for the payment of
interest in accordance with Section 2.6.

1.4 Exhibit A to the Credit Agreement is hereby
amended by deleting Exhibit A-6 thereto and inserting a new
Exhibit A-6 in the form of Exhibit A hereto.

SECTION 2 Representations and Warranties. The
Borrower and each of the Guarantors represents and warrants
to the Lender that (a) each representation and warranty set
forth in Article V of the Credit Agreement is true and
correct in all material respects (except for any such
representations and warranties which are qualified by their
terms by a reference to materiality, which representations
and warranties as so qualified shall be true and correct in
all respects) as of the date of the execution and delivery of
this Fifth Amendment by the Borrower and the Guarantors (and
assuming the effectiveness hereof), with the same effect as
if made on such date (except for any such representations and
warranties which are made with respect to a specified date,
which representations and warranties shall only be required
to be true and correct as of such date); and (b) the
execution and delivery by the Borrower and the Guarantors of
this Fifth Amendment and the performance by the Borrower and
the Guarantors of their respective obligations under the
Credit Agreement, as amended hereby (as so amended, the
"Amended Credit Agreement"), (i) are within the corporate
powers of the Borrower and Guarantors, (ii) have been duly
authorized by all necessary corporate action on the part of
the Borrower and the Guarantors, (iii) have received all
necessary approvals and consents from any governmental
authority and (iv) do not and will not contravene or conflict
with, or result in or require the creation or imposition of
any Lien under, any provision or requirements of law or of
the certificate of incorporation or by-laws (or equivalent
organizational or governing document) of the Borrower or any
Guarantor or of any agreement, instrument, order or decree
which is binding upon the Borrower of any Guarantor.

SECTION 3 Effectiveness. The amendments set forth
in Section 1 hereof shall become effective on such date (the
"Fifth Amendment Effective Date") when the Lender shall have
received all of the following:

(i) Counterparts of this Fifth
Amendment executed by a duly authorized officer of the Borrower
and each of the Guarantors.

(ii) An executed Revolving Credit Note
in the form of Exhibit A hereto.

(iii) An opinion of Andrews & Kurth,
LLP, counsel to the Borrower and the Guarantors, substantially
in the form of Attachment I hereto.

(iv) Confirmation that the Borrower has
paid to the Lender all reasonable expenses, fees and charges
payable to the Lender's counsel, Paul, Weiss, Rifkind,
Wharton & Garrison.

(v) All documents the Lender may
reasonably request relating to the existence of the Borrower
and the Guarantors, the corporate authority for and the
validity of this Fifth Amendment, and any other matters
relevant hereto, all in form and substance satisfactory to
the Lender.

(vi) Counterparts of the Consent and
Agreement, substantially in the form of Attachment II hereto,
executed by a duly authorized officer of each of the
Guarantors.

(vii) A duly executed copy of Amendment
No. 5 to the BankBoston Credit Agreement in form and
substance satisfactory to the Lender.

SECTION 4 Miscellaneous.

4.1 Continuing Effectiveness, etc. The Credit
Agreement as hereby amended and all other Loan Documents are
hereby ratified and confirmed in all respects. After the
Fifth Amendment Effective Date, all references in the Credit
Agreement and the other Loan Documents to "Credit Agreement",
"Agreement" or similar terms shall refer to the Amended
Credit Agreement. The execution, delivery and effectiveness
of this Fifth Amendment shall not, except as expressly
provided herein, operate as a waiver of any right, power or
remedy of the Lender under the Credit Agreement or any other
Loan Document nor constitute a waiver of any provision of the
Credit Agreement, the Notes, or any other Loan Document nor
constitute a waiver of any Default or Event of Default.

4.2 Counterparts. This Fifth Amendment may be
executed in any number of counterparts and by the different
parties on separate counterparts, and each such counterpart
shall be deemed to be an original but all such counterparts
shall together constitute one and the same Fifth Amendment.

4.3 Governing Law. This Fifth Amendment shall be
governed by and construed in accordance with the internal
laws of the State of New York (without reference to the
conflicts of laws provisions thereof).

4.4 Successors and Assigns. This Fifth Amendment
shall be binding upon the Borrower, the Guarantors, the
Lender and their respective permitted successors and assigns,
and shall inure to the benefit of the Borrower, the
Guarantors, the Lender and their respective permitted
successors and assigns.

IN WITNESS WHEREOF, the parties hereto have caused
this Fifth Amendment to be duly executed by their respective
authorized officers as of the day and year first above
written.

PRIDE COMPANIES, L.P.
By Pride Refining, Inc., its
Managing General Partner

By:___________________________
Name:
Title:

PRIDE REFINING, INC.

By:___________________________
Name:
Title:

PRIDE SGP, INC.

By:___________________________
Name:
Title:

PRIDE BORGER, INC.

By:___________________________
Name:
Title:

PRIDE MARKETING OF TEXAS
(CEDAR WIND), INC.

By:___________________________
Name:
Title:

DESULFUR PARTNERSHIP
by Pride Companies, L.P.,
its General Partner, by
Pride Refining, Inc.,
its Manager General
Partner

By:___________________________
Name:
Title:

and by Pride Marketing of
Texas (Cedar Wind), Inc., its
General Partner

By:___________________________
Name:
Title:

VARDE PARTNERS, INC., as
Lender

By:___________________________
Name:
Title:

<PAGE>

Attachment I

Form of Opinion<PAGE>

Attachment II

CONSENT AND AGREEMENT

Each of Pride Refining, Inc., Pride SGP, Inc.,
Desulfur Partnership, Pride Marketing of Texas (Cedar Wind),
Inc. and Pride Borger, Inc. hereby consents to the provisions
of this Fifth Amendment and the transactions contemplated
herein, and hereby ratifies and confirms the respective Third
Restated Guaranty Agreements, each dated as of December 30,
1997, made by it for the benefit of Lender, and agrees that
its obligations and covenants thereunder are unimpaired
hereby and shall remain in full force and effect.

Dated: March __, 1999

PRIDE REFINING, INC.

By:______________________________
Name:
Title:

PRIDE SGP, INC.

By:______________________________
Name:
Title:

DESULFER PARTNERSHIP

By:______________________________
Name:
Title:

PRIDE MARKETING OF TEXAS (CEDAR
WIND), INC.

By:______________________________
Name:
Title:

PRIDE BORGER, INC.

By:______________________________
Name:
Title:<PAGE>

EXHIBIT A

REVOLVING CREDIT NOTE

$2,500,000 New York, New York
March __, 1999

FOR VALUE RECEIVED, the undersigned, PRIDE
COMPANIES, L.P., a Delaware limited partnership (the
"Borrower"), unconditionally promises to pay on the Revolving
Credit Termination Date (as defined in the Credit Agreement
defined below) to the order of VARDE PARTNERS, INC. (the
"Lender"), on the dates and in the manner set forth in
sections 2.6 and 2.8 of the Credit Agreement, the lesser of
(a) the principal amount of TWO MILLION FIVE HUNDRED THOUSAND
DOLLARS ($2,500,000) and (b) the aggregate unpaid principal
amount of all Revolving Credit Loans made by the Lender to
the Borrower pursuant to section 2.2 of the Credit Agreement.
The Borrower further agrees to pay interest on the unpaid
principal amount hereof on the dates and at the applicable
rates per annum as provided in section 2.6(b) of the Credit
Agreement until any such amount shall be due and payable
(whether at the stated maturity, by acceleration or
otherwise).

The holder of this Note is authorized to endorse
on the schedule annexed hereto and made a part hereof or on a
continuation thereof which shall be attached hereto and made
a part hereof the date and amount of each Revolving Credit
Loan made pursuant to the Credit Agreement and the date and
amount of each payment or prepayment of principal thereof.
Each such endorsement shall constitute prima facie evidence
of the accuracy of the information endorsed; provided,
however, that the failure of the Lender to make any such
endorsement shall not affect the obligations of the Borrower
in respect of such Revolving Credit Loans.

This Note (a) is the Revolving Credit Note
referred to in the Sixth Restated and Amended Credit
Agreement, dated as of December 30, 1997 (as the same may
from time to time be amended, modified or supplemented, the
"Credit Agreement"), among the Borrower, Pride Refining,
Inc., Pride SGP, Inc., Desulfur Partnership, Pride Marketing
of Texas (Cedar Wind), Inc., Pride Borger, Inc. and the
Lender, (b) is subject to the provisions of the Credit
Agreement and (c) is subject to optional and mandatory
prepayment in whole or in part as provided in the Credit
Agreement. This Note is secured and guaranteed as provided
in the Collateral Documents. Reference is hereby made to the
Collateral Documents for a description of the properties and
assets in which a security interest has been granted, the
nature and extent of the security and the guarantees, the
terms and conditions upon which the security interests and
each guarantee were granted and the rights of the holder of
this Note in respect thereof.

Upon the occurrence of any one or more of the
Events of Default specified in the Credit Agreement, all
amounts then remaining unpaid on this Note may become, or be
declared to be, immediately due and payable as provided in
the Credit Agreement.

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

The Borrower hereby waives presentment, demand,
protest and all other notices of any kind.

THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK (WITHOUT REFERENCE TO THE CONFLICTS OF LAWS PROVISIONS
THEREOF).

PRIDE COMPANIES, L.P., a Delaware
limited partnership

By: PRIDE REFINING, INC., a Texas
corporation, Managing General
Partner

By:____________________________________
Dave Caddell
Vice President