Convertible Promissory Note - Yorktown Energy Parnters Vii, L.P.

Exhibit 10.7 CONVERTIBLE PROMISSORY NOTE $10,000,000 June 25, 2007 FOR VALUE RECEIVED, Approach Oil & Gas Inc., a Delaware corporation (the " Company" ), hereby promises to pay to the order of YORKTOWN ENERGY PARTNERS VII, L.P., a Delaware limited partnership (the " Lender" ), the principal sum of Ten Million and no/100 Dollars ($10,000,000), together with interest thereon from the date of this Convertible Promissory Note (this " Note" ) on the unpaid principal balance. Interest shall accrue at a rate of seven percent (7%) per annum based on a three hundred sixty-five (365) day year and compounded annually. Principal and accrued interest shall be due and payable on the third anniversary of the date of this Note; provided, that the Company shall have the right to prepay the principal in whole or in part from time to time without premium or penalty provided that the Company gives the Lender at least fifteen (15) days prior notice of such prepayment. Lender shall have the right to exercise its conversion rights in whole or in part prior to such prepayment. All payments shall be made in lawful money of the United States of America at the principal office of the Lender, or at such other place as the holder hereof may from time to time designate in writing to the Company. All payments shall be credited first to the accrued interest then due and payable and the remainder applied to principal. At any time commencing December 31, 2007 or earlier in connection with the Company' s prepayment hereof or the occurrence of a " Sales Event" as defined below, the Lender shall have the right, in its sole and absolute discretion, to convert all or any portion of the unpaid principal of and interest on this Note into shares of the equity securities of the Company or any successor to the Company of any class or classes issued by the Company or its successor prior to the date of the Lender' s election. Except as provided below with respect to an automatic conversion upon the occurrence of an IPO (defined below), the number of shares of such equity securities to be issued upon such conversion shall be equal to the quotient obtained by dividing (a) by (b), where (a) is the outstanding principal and accrued interest of this Note (or such portion as will be converted), and (b) is (i) the lowest price per share that equity securities in any such class have been issued by the Company, or (ii) if no such shares have been issued, then at One Hundred and no/100 Dollars ($100) per share. The conversion price will be subject to adjustment to provide the Lender with full antidilution protection in the case of any stock splits, recapitalizations or changes in capital structure of the Company or the issuance of options, warrants, or other rights to acquire or convertible into equity securities of the Company excluding only options, warrants, rights or other equity-based awards issued as part of reasonable compensation plans approved by the Company' s Board of Directors. Shares issued for consideration other than cash shall be deemed to be issued at the fair market value of the consideration given for them. The first day on which both of the following transactions shall have been consummated shall be referred to herein as the " IPO Conversion Date" : (a) the initial sale by Approach Resources Inc., a Delaware corporation, of shares of its common stock, par value $0.01 per share


(the " Approach Common Stock" ), to the public pursuant to a registration statement under the Securities Act of 1933, as amended (" IPO" ), and (b) the exchange of all outstanding shares of Company Common Stock for shares of Approach Common Stock and the consummation of the other transactions contemplated by the terms of a contribution agreement by and among Approach, the Company and certain other parties thereto (the " Contribution Agreement" ). Notwithstanding anything to the contrary contained herein, this Note shall, on the IPO Conversion Date, automatically and without further action required by any person, convert into shares of Approach Common Stock. The number of shares of Approach Common Stock to be issued upon such automatic conversion shall be equal to the quotient obtained by dividing (a) by (b), where (a) is the outstanding principal and accrued interest of this Note, and (b) is the initial public offering price per share, less any underwriting discount per share for the shares of Approach Common Stock that are issued in the IPO. The shares of Approach Common Stock issued to Lender upon any automatic conversion of this Note shall be entitled to the same registration rights as those provided to holders of shares of Company Common Stock whose shares are exchanged into shares of Approach Common Stock pursuant to the Contribution Agreement. Approach shall execute an agreement with the Lender reflecting those rights on or prior to the ...