UNIT OPERATING AGREEMENT

DELHI UNIT

Holt-Bryant Zone

BEING PARTS OF TOWNSHIPS

17N 10E, 17N 9E, 17N 8E

and

16N 8E

RICHLAND, FRANKLIN AND MADISON PARISHES, LOUISIANA

 
 

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TABLE OF CONTENTS
 
Article No.
 
 
Title
 
 
Page No.
 
1. 
 
 
Confirmation of Unit Agreement  
 
 
2
 
2. 
 
 
Exhibits 
 
 
2 
 
3. 
 
 
Supervision of Operations 
 
 
3 
 
4. 
 
 
Manner of Exercising Supervision 
 
 
4 
 
5. 
 
 
Individual Rights of Working Interest Owners/ Taking In Kind 
 
 
5 
 
6. 
 
 
Unit Operator
 
 
7 
 
7. 
 
 
Authority and Duties of Unit Operator 
 
 
7 
 
8. 
 
 
Taxes
 
 
8 
 
9. 
 
 
Insurance
 
 
8 
 
10. 
 
 
Adjustment of Investments
 
 
9 
 
11. 
 
 
Unit Expense
 
 
10 
 
12. 
 
 
Unit CO2 Requirements/ Additional Capital
 
 
12 
 
13. 
 
 
Nonunitized Formations
 
 
13 
 
14. 
 
 
Titles
 
 
13 
 
15. 
 
 
Liability, Claims and Suits
 
 
14 
 
16. 
 
 
Nondiscrimination
 
 
14 
 
17. 
 
 
Notices
 
 
14 
 
18. 
 
 
Withdrawal of Working Interest Owner
 
 
15 
 
19. 
 
 
Abandonment of Wells
 
 
15 
 
20. 
 
 
Effective Date and Term
 
 
15 
 
21. 
 
 
Abandonment of Operations
 
 
16 
 
22. 
 
 
Approval
 
 
16 
 
23. 
 
 
Successors and Assigns
 
 
16 
 
24. 
 
 
Miscellaneous
 
 
16 
 

 
 
 

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UNIT OPERATING AGREEMENT
 
DELHI UNIT
 
Holt-Bryant Zone

RICHLAND, FRANKLIN AND MADISON PARISHES, LOUISIANA

THIS AGREEMENT is entered into as of the 1st day of June, 2006 (the “Effective
Date”), by and between NGS Sub Corp. (hereinafter “NGS”), and Denbury Onshore,
LLC (herein referred to as “Denbury” or “Unit Operator”).

WHEREAS, an agreement entitled "Unitization Agreement, Unitized Zone, Delhi -
West Delhi Field, Richland, Franklin, and Madison Parishes, Louisiana,” dated as
of July 1, 1952, was entered into by Sun Oil Company and C.H. Murphy, Jr., which
was recorded with the Clerks of Court, State of Louisiana, in the Parish of
Richland, in COB 152, File No. 151269, in the Parish of Franklin in Notarial
Book 81, File No. 25742, and in Madison Parish in Oil and Gas Book C, File No.
7201, beginning at Page 543. This agreement as revised and ratified is referred
to as the "Unit Agreement.” 

WHEREAS, an agreement entitled “Unit Operating Agreement, Unitized Zone, Delhi -
West Delhi Field, Richland, Franklin, and Madison Parishes, Louisiana,” dated as
of July 1, 1952, was entered into by Sun Oil Company and C.H. Murphy, Jr., which
was recorded with the Clerks of Court, State of Louisiana, in the Parish of
Richland, in COB 152, File No. 151268, in the Parish of Franklin in Notarial
Book 81, File No. 25741, and in Madison Parish in Oil and Gas Book C, File No.
7202. This agreement as revised and ratified is referred to as the "Unit
Operating Agreement.” 

WHEREAS, the above Agreements have been revised and ratified by the following
(1) Revision of Exhibits dated February 10, 1953, recorded with the Clerks of
Court, State of Louisiana, in the Parish of Richland, in COB 155, File No.
156001, in the Parish of Franklin in Notarial Book 84, File No. 31875, and in
Madison Parish in Oil and Gas Book E, File No. 8575; (2) Ratification of
Agreements and Revision of Exhibits dated May 31, 1955, recorded with the Clerks
of Court, State of Louisiana, in the Parish of Richland, in COB 164, File No.
163791, in the Parish of Franklin in Notarial Book 93, File No. 55655, and in
Madison Parish in Oil and Gas Book G, File No. 12316; (3) Ratification of
Agreements and Revision of Exhibits dated December 15, 1974, recorded with the
Clerks of Court, State of Louisiana, in the Parish of Richland (recorded twice),
in COB 250, Page 686, Entry No. 216819, and in COB 250, Page 710, Entry No.
216820, in the Parish of Franklin in Notarial Book ____, File No. _______, and
in Madison Parish in Book 35, Page 527, Entry No. 47125.

WHEREAS, following execution of the Unit Agreement and the Unit Operating
Agreement, the following orders were issued by the State of Louisiana,
Department of Conservation, Delhi Field: (1) No. 96-F dated January 31, 1953
(which defined the Delhi Field), No. 96-F-1 dated August 5, 1955 (which added
unit acreage), No. 96-G-4 dated April 30, 1975 (which redefined the Holt-Bryant
Zone of Delhi Field). The Holt-Bryant Zone is as defined in the latter Order No.
96-G-4, and the Unit Area insofar as the Holt-Bryant Zone is hereinafter
referred to as the “Delhi Holt-Bryant Unit.”

WHEREAS, NGS represents that it owns an undivided 100% of the working interest
(including the unleased mineral interests) in the Delhi Holt-Bryant Unit as
defined in the above agreements (i.e., all of the Operator interest), and that
it is selling same to Denbury. In said sale, NGS is conveying the said undivided
one hundred percent (100%) working interest in the Delhi Holt-Bryant Unit to
Denbury, subject to a reversionary interest of twenty-five percent (25%) after
“Payout” (the “Reversionary Interest”). Payout is defined in those two certain
Acts of Purchase and Sale Agreement I and II (collectively referred to as the
“PSA”) between the parties dated as of May 8, 2006.

 
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WHEREAS, the parties hereto have decided to amend and restate the terms of the
Unit Operating Agreement to modernize the said agreement, to specifically
provide for Unit CO2 Requirements, to provide for the voting rights of the
Reversionary Interest, and for various and sundry other reasons.
 
NOW, THEREFORE, it is provided as follows:
 
ARTICLE 1

CONFIRMATION OF UNIT AGREEMENT
 
1.1.  Confirmation of Unit Agreement. The Unit Agreement is hereby confirmed and
by reference made a part of this Agreement. The definitions in the Unit
Agreement are adopted for all purposes of this Agreement. If there is any
conflict between the Unit Agreement and this Agreement, the Unit Agreement shall
govern.

ARTICLE 2

EXHIBITS
 
2.1.  Exhibits. The following exhibits are incorporated herein by reference or
attachment:

2.1.1.  Exhibits "A" (Description of Tracts), "B" (Description of Unit Area) and
“C” (Schedule of Participation) of the Unit Agreement.

2.1.2.  Exhibit "D" attached hereto is a schedule showing the Working Interest
Owners and the Unit Participation of each Working Interest Owner. Exhibit "D" or
a revision thereof shall not be conclusive as to the information therein, except
it may be used as showing the Unit Participations of Working Interest Owners for
purposes of this Agreement until shown to be in error and revised as herein
authorized.

2.1.3.  Exhibit "E" attached hereto is the Accounting Procedure applicable to
Unit Operations. If there is any conflict between this Agreement and Exhibit "E"
this Agreement shall govern.

2.1.4.  Exhibit "F" attached hereto is Unit Operator's Federal Equal Employment
agreement and certification.

2.1.5.  Exhibit “G” attached hereto is the Gas Storage and Balancing Agreement.

2.2.  Revision of Exhibits. Whenever Exhibits "A", ”B" and “C” are revised,
Exhibit "D" shall be revised accordingly and be effective as of the same date.

2.3.  Reference to Exhibits. When reference is made herein to an exhibit, it is
to be the original exhibit or, if revised, to the last revision.

 
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ARTICLE 3

SUPERVISION OF OPERATIONS

3.1.  Overall Supervision. Unit Operator shall exercise overall supervision and
control of all matters pertaining to Unit Operations. In the exercise of such
authority, Unit Operator shall act solely in its own behalf in the capacity of
an individual owner and is not acting on behalf of the Working Interest Owners
as an entirety. Individual Working Interest Owners participate in unit
activities at their own risk and expense and may have input as to the overall
unit objectives and approach.

3.2.  Specific Authority and Duties.

(a) Prior to Payout. Prior to Payout, Unit Operator shall have full supervision
and control of all matters pertaining to Unit Operations. It shall have full
authority to decide and take such action it deems appropriate in achieving the
overall unit objectives and approach. Accordingly, the voting provisions of
Article 4 (Manner of Supervising Control) shall not be applicable (except to
change or amend this Agreement) until Payout has been achieved. The only
limitations upon same shall be the following, to-wit:

(i) NGS shall have the right to make reasonable site visits to the Delhi
Holt-Bryant Unit with its employees, agents, or investors, after reasonable
notice to Unit Operator, and at NGS’ sole cost, risk and expense, and this right
shall not be unreasonably withheld;

(ii) Unit Operator shall provide to NGS (1) on a monthly basis operating reports
covering revenues, operating expenses, capital expenditures, production and
injection volumes and product prices received; and (2) a quarterly statement
(with all supporting documentation) identifying the status of Total Net Cash
Flow amounts (as defined in the PSA) and Payout Statement for the Delhi Holt
Bryant Unit; and (3) a quarterly report including historical and prospective
technical information relating to the Delhi Holt Bryant Unit including, but not
limited to injection and production data on a field and well basis, well logs,
cores, tests and any other data necessary for NGS to perform its own technical
analysis; and (4) the right to request an annual technical presentation, in
addition to one “kick-off” presentation within 180 days after the Effective
Date, to be presented to NGS by the appropriate technical staff of Unit
Operator. NGS shall have the right to conduct an annual audit of the accounts
and records of Unit Operator (at a mutually convenient time during Unit
Operator’s normal business hours and in accordance with the Council of Petroleum
Accountants Society guidelines and practices for audits by working interest
owners) to verify the accounting for the Total Net Cash Flow amount and Payout.
Such audits may be performed by NGS directly or through an independent
accounting firm of its choice, but in each case at NGS’ sole cost and expense.
Notwithstanding the above, all Payout accounting by Unit Operator during any
calendar year shall conclusively be presumed true and correct after twenty four
months following the end of any such calendar year, unless within the said
twenty four month period, NGS takes written exception thereto and makes claim on
Unit Operator for adjustments.

(iii) NGS may vote its Reversionary Interest with respect to any changes or
amendments to the Unit Operating Agreement.

(b) After Payout. After Payout, the matters requiring approval of the Working
Interest Owners shall include the following:

3.2.1.    Method of Operation. The method of operation, including the type of
recovery program to be employed.

3.2.2.    Drilling of Wells. The drilling of any well whether for production of
Unitized Substances, for use as an injection well, or for other purposes.

3.2.3.    Well Recompletions and Change of Status. The recompletion,
abandonment, or change of status of any well, or the use of any well for
injection or other purposes.

3.2.4.    Expenditures. The making of any single expenditure in excess of Fifty
Thousand Dollars ($50,000); provided that, approval by the Working Interest
Owners, of the drilling, recompletion, deepening, or plugging back of any
wellshall include the approval of all necessary expenditures required therefore,
and for completing, testing, and equipping the same, including necessary flow
lines, separators, and lease tankage.

 
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3.2.5.  Appearance Before a Court or Regulatory Agency. The designation of a
representative to appear before any court or regulatory agency in matters
pertaining to Unit Operations; however, such designation shall not prevent any
Working Interest Owner from appearing in person or from designating another
representative in its own behalf.

3.2.6.  Audit Exceptions. The settlement of unresolved audit exceptions.

3.2.7.  Inventories. The taking of periodic inventories as provided by Exhibit
"E".

3.2.8.  Technical Services. The authorizing of charges to the joint account for
services by consultants or Unit Operator's technical personnel not covered by
the charges provided by Exhibit "E".

3.2.9.  Assignments to Committees. The appointment of committees to study any
problems in connection with Unit Operations.

3.2.10.    Selection of Successor Unit Operator. The selection of a successor
Unit Operator.

3.2.11.    Enlargements and Amendments. Enlargements of the Unit Area, or the
amending of this Agreement or the Unit Agreement.

3.2.12.    Investment Adjustment. The adjustment and readjustment of
investments.

3.2.13.    Termination of Unit Agreement. The termination of the Unit Agreement
as provided therein.
 
ARTICLE 4

MANNER OF EXERCISING SUPERVISION
 
4.1.    Designation of Representative. Each Working Interest Owner shall inform
Unit Operator in writing of the name and address of the representative who is
authorized to represent and bind such Working Interest Owner with respect to
Unit Operations. Should any Working Interest Owner fail to inform the Unit
Operator in writing of the name and address of its representative and fails to
receive a notice sent pursuant to the terms of the Unit Agreement or Unit
Operating Agreement, such Working Interest Owner shall forfeit any right to
contest whether the notice was properly sent by the Unit Operator. The
representative may be changed from time to time by written notice to Unit
Operator.

4.2.    Meetings. All meetings of Working Interest Owners shall be called by
Unit Operator upon its own motion or at the request of one or more Working
Interest Owners having a total Unit Participation of not less than twenty
percent (20%). No meeting shall be called on less than fourteen (14) days'
advance written notice, with agenda for the meeting attached. Working Interest
Owners who attend the meeting may amend items included in the agenda and may act
upon an amended item or other items presented at the meeting. The representative
of Unit Operator shall be chairman of each meeting.

4.3.    Voting Procedure. Working Interest Owners shall determine all matters
coming before them as follows:

4.3.1.    Voting Interest. Each Working Interest Owner shall have a voting
interest equal to its Unit Participation.

4.3.2.    Vote Required. Unless otherwise provided herein or in the Unit
Agreement, Working Interest Owners shall determine all matters by the
affirmative vote of one or more Working Interest Owners having a combined voting
interest of at least seventy-seven percent (77%).

4.3.3.    Vote at Meeting by Nonattending Working Interest Owner. Any Working
Interest Owner who is not represented at a meeting may vote on any agenda item
by letter or telegram addressed to the representative of Unit Operator if its
vote is received prior to the vote at the meeting.

 
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4.3.4.    Poll Votes. Working Interest Owners may vote by letter or telegram on
any matter submitted in writing to all Working Interest Owners. If a meeting is
not requested, within fifteen (15) days after a written proposal is sent to
Working Interest Owners, the vote taken by letter or telegram shall control.
Failure to respond within fifteen (15) days of the sending of the written
proposal shall be deemed a concurrence with such proposal. Unit Operator shall
give prompt notice of the results of such voting to each Working Interest Owner.
 
ARTICLE 5

INDIVIDUAL RIGHTS OF WORKING INTEREST OWNERS/ TAKING IN KIND
 
5.1.  Reservation of Rights. Working Interest Owners retain all their rights,
except as otherwise provided in this Agreement or the Unit Agreement.

5.2.  Reports. Upon written request, Working Interest Owners have the right to
receive from Unit Operator, copies of all reports to any governmental agency,
reports of liquid hydrocarbon runs and stocks, inventory reports, and all other
information pertaining to Unit Operations. The cost of gathering and furnishing
information not ordinarily furnished by Unit Operator to all Working Interest
Owners shall be charged to the Working Interest Owner that requests the
information.

5.3.  Audits. Each Working Interest Owner shall have the right to audit the
accounts of Unit Operator pertaining to Unit Operations according to the
provisions of Exhibit "E".

5.4.  Taking Production in Kind. Each party shall take in kind or separately
dispose of its proportionate share of all oil and gas produced from the Unit
Area, exclusive of production which may be used in development and producing
operations and in preparing and treating oil and gas for marketing purposes and
production unavoidably lost. Any extra expenditure incurred in the taking in
kind or separate disposition by any party of its proportionate share of the
production shall be borne by such party. Any party taking its share of
production in kind shall be required to pay for only its proportionate share of
such part of Unit Operator’s surface facilities which it uses. Each party shall
execute such division orders and contracts as may be necessary for the sale of
its interest in production from the Unit Area, and, shall be entitled to receive
payment directly from the purchaser thereof for its share of all production. The
right of NGS to take in kind is subject to Unit Operator reserving a competitive
call on NGS’ share of production (but not its overriding royalty interest share
of production), as follows. In the event, NGS receives a bona fide offer from a
third party to purchase all or a part of its working interest share of
production, NGS shall disclose such principal terms and conditions (the “Offer”)
in detail to Unit Operator in a written notice. Unit Operator shall have the
right to purchase NGS’ share of production on the same terms and conditions of
the Offer, if within fifteen (15) days after receipt of the Offer, Unit Operator
delivers to NGS a written acceptance of same.

In the event any party shall fail to make the arrangements necessary to take in
kind or separately dispose of its proportionate share of the oil and gas
produced from the Unit Area, Unit Operator shall, subject to the revocation at
will by the party owning it, purchase such oil and/or gas, or sell it to others
at any time and from time to time, for the account of the non-taking party at
the same price obtained by the Unit Operator for such production. Any such
purchase or sale by Unit Operator shall be subject always to the right of the
owner of the production to exercise at any time its right to take in kind, or
separately dispose of, its share of all oil and/or gas not previously delivered
to a purchaser. Any purchase or sale by Unit Operator of any other party’s share
of oil and/or gas shall be only for such reasonable periods of time as are
consistent with the minimum needs of the industry under the particular
circumstances, but in no event for a period in excess of one (1) year.

In the event one or more parties’ separate disposition of its share of the gas
causes split-stream deliveries to separate pipelines and/or deliveries which on
a day-to-day basis for any reason are not exactly equal to a party’s respective
proportionate share of total gas sales to be allocated to it, the balancing or
accounting between the respective accounts of the parties shall be in accordance
with the gas balancing agreement attached hereto as Exhibit “G”.

 
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ARTICLE 6

UNIT OPERATOR

6.1.  Unit Operator. Denbury Onshore, LLC, is designated as Unit Operator.

6.2.  Resignation or Removal. Unit Operator may resign at any time. Such
resignation shall not become effective for a period of three (3) months after
the resignation, unless a successor Unit Operator has taken over Unit Operations
prior to the expiration of such period. Unit Operator may be removed if it fails
or refuses to carry out its duties hereunder, or becomes insolvent, bankrupt or
is placed in receivership. A change of a corporate name or structure of Unit
Operator or transfer of Unit Operator’s interest to any single subsidiary,
parent or successor corporation shall not
be the basis for removal of Operator.

6.3.  Selection of Successor. Upon the resignation or removal of Unit Operator,
a successor Unit Operator shall be selected by Working Interest Owners. The
successor Unit Operator shall be selected by the affirmative vote of Working
Interest Owners having sixty percent (60%) or more of the voting interest.
Provided, however, that if a Unit Operator which has been removed fails to vote
or votes only to succeed itself, the successor Unit Operator shall be selected
by the affirmative vote of one (1) or more parties owning a majority interest
remaining after excluding the voting interest of the Unit Operator that was
removed.

ARTICLE 7

AUTHORITY AND DUTIES OF UNIT OPERATOR
 
7.1.  Exclusive Right to Operate Unit. Subject to the provisions of this
Agreement, Unit Operator shall have the exclusive right and be obligated to
conduct Unit Operations.

7.2.  Workmanlike Conduct. Unit Operator shall conduct Unit Operations in a good
and workmanlike manner as would a prudent operator under the same or similar
circumstances. Unit Operator shall freely consult with Working Interest Owners
keeping them informed of all matters which Unit Operator, in the exercise of its
best judgment, considers important. Unit Operator shall not be liable to Working
Interest Owners for damages, unless such damages result from gross negligence or
willful misconduct.

7.3.  Liens and Encumbrances. Unit Operator shall endeavor to keep the lands and
leases in the Unit Area and Unit Equipment free from all liens and encumbrances
occasioned by Unit Operations, except those provided for in Article 11.

7.4.  Employees. The number of employees used by Unit Operator in conducting
Unit Operations, their selection, hours of labor, and compensation shall be
determined by Unit Operator; provided the above are appropriate for operations
conducted in the area and are consistent with industry practices. Such employees
shall be the employees of Unit Operator.

7.5.  Records. Unit Operator shall keeps correct books, accounts, and records of
Unit Operations.

7.6.  Reports to Working Interest Owners. Unit Operator shall timely furnish
Working Interest Owners periodic reports of Unit Operations.

7.7.  Reports to Governmental Authorities. Unit Operator shall timely make all
reports to governmental authorities that it has the duty to make as Unit
Operator.

7.8.  Engineering and Geological Information. Unit Operator shall furnish to
each Working Interest Owner, upon written request, a copy of all logs and other
engineering and geological data pertaining to wells drilled for Unit Operations.

 
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7.9.  Expenditures. Prior to Payout of the NGS interest, Unit Operator is
authorized to make single expenditures not in excess of Two Hundred Fifty
Thousand Dollars ($250,000.00) without prior approval of Working Interest
Owners. After Payout of the NGS interest, Unit Operator is authorized to make
single expenditures not in excess of Fifty Thousand Dollars ($50,000.00). In the
event of an emergency, Unit Operator may immediately make or incur such
expenditures as, in its opinion, are required to deal with the emergency.

7.10.  Wells Drilled by Unit Operator. All wells drilled by Unit Operator shall
be at the rates prevailing in the area in accordance with Exhibit "E"
(Accounting Procedure, Article II.8). Unit Operator may employ its own tools and
equipment, but the charge therefore shall be governed by Exhibit “E”.

ARTICLE 8

TAXES
 
8.1.  Property Taxes. Beginning with the first calendar year after the Effective
Date hereof, Unit Operator shall make and file all necessary property tax
renditions and returns with the proper taxing authorities with respect to all
property of each Working Interest Owner used or held by Unit Operator for Unit
Operations. Unit Operator shall settle assessments arising therefrom. All such
property taxes shall be paid by Unit Operator and charged to the joint account.

8.2.  Other Taxes. Each Working Interest Owner shall pay or cause to be paid all
production, severance, gathering, and other taxes imposed upon or with respect
to the production or handling of its share of Unitized Substances.

8.3.   Income Tax Election. Notwithstanding any provisions herein that the
rights and liabilities hereunder are several and not joint or collective, or
that this Agreement and operations hereunder shall not constitute a partnership,
if for federal income tax purposes this Agreement and the operations hereunder
are regarded as a partnership, then each Person hereby affected elects to be
excluded from the application of all of the provisions of Subchapter K, Chapter
l, Subtitle A of the Internal Revenue Code of 1986, as amended, as permitted and
authorized by Section 761 of the Code and the regulations promulgated
thereunder. Unit Operator is authorized and directed to execute on behalf of
each Person hereby affected such evidence of this election as may be required by
the Secretary of the Treasury of the United States or the federal Internal
Revenue Service, including specifically, but not by way of limitation, all of
the returns, statements, and the data required by Federal Regulations 1.761-l
(a) and 2. Should there be any requirement that each Person hereby affected give
further evidence of this election, each such Person shall execute such documents
and furnish such other evidence as may be required by the federal Internal
Revenue Service or as may be necessary to evidence this election. No such Person
shall give any notices or take any other action inconsistent with the election
made hereby. If any present or future income tax laws of the state or states in
which the Unit Area is located or any future income tax law of the United States
contain provisions similar to those in Subchapter K, Chapter 1, Subtitle A, of
the Internal Revenue Code of l986, as amended, under which an election similar
to that provided by Section 761 of the Code is permitted, each Person affected
hereby makes such election as may be permitted or required by such laws. In
making the foregoing election, each such Person states that the income derived
by such Person from Unit Operations can be adequately determined without the
computation of partnership taxable income.

ARTICLE 9

INSURANCE
 
9.1.  Insurance. Unit Operator, with respect to Unit Operations, shall:

(a)
carry Workers' Compensation Insurance with statutory benefits for the applicable
state,

 
(b)
carry employer's liability in amounts not less than One Million Dollars
($1,000,000.00) and comply with such other insurance requirements of the laws of
the state,

 
(c)
carry auto liability (covering all owned and non-owned vehicles) in amounts not
less than One Million Dollars ($1,000,000.00)

 
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(d)
carry general liability insurance in amounts not less than One Million Dollars
($1,000,000.00) per occurrence,

 
(e)
carry control of well/operator’s extra expense (blowout) insurance in amounts
not less than Ten Million Dollars ($10,000,000.00), and

 
(f)
carry excess umbrella liability insurance in amounts not less than Ten Million
Dollars ($10,000,000.00).

Premiums for such insurance coverage will be charged to the joint account.

No other insurance will be carried by Unit Operator for the benefit of the joint
account. Each Working Interest Owner individually may acquire such other
insurance as it deems proper to protect itself against claims growing out of
personal injury to or death of third parties or injury to or destruction of
property of third parties resulting from Unit Operations, and on equipment used
for the benefit of the Unit.

ARTICLE 10

ADJUSTMENT OF INVESTMENTS
 
10.1.  Investment Adjustment Due to Subsequent Enlargement of Unit Area. If the
Unit Area is subsequently enlarged to include additional Tracts, the Working
Interest Owners of such additional Tracts shall, upon the effective date of the
enlargement, deliver to Unit Operator all wells on such additional Tracts
completed in the Unitized Formation, casing and tubing in each well, the
wellhead connections thereon, all other lease and operating equipment that is
used in the operation of such wells which Working Interest Owners in the Unit
Area as enlarged determine is necessary or desirable for Unit Operations, and a
copy of all production and well records of such wells. Working Interest Owners
shall, at Unit Expense, inventory and evaluate, as determined by Working
Interest Owners, the personal property taken over. Such inventory shall include
and be limited to those items of equipment considered controllable under Exhibit
"E" except, upon determination of Working Interest Owners, specific terms
considered non-controllable may be included in the inventory in order to insure
a more equitable adjustment of investment. All non-controllable items, though
excluded from the inventory, shall nevertheless be taken over by the Unit
Operator. Casing shall be inventoried, but assigned no value.

10.2.  Ownership of Property and Facilities. Each Working Interest Owner,
individually, shall, by virtue hereof, own an undivided interest, equal to its
Unit Participation in all wells, equipment, and facilities acquired by Unit
Operator pursuant to this Agreement; provided that the Unit Operator shall be
the sole owner of the CO2 pipelines as per Paragraph 12.2, below.

ARTICLE 11

Unit Expense

11.1.  Basis of Charge to Working Interest Owners. Subject to the provisions of
Article 11.2 hereof, Unit Operator initially shall pay all Unit Expenses. All
charges, credits and accounting for Unit Expenses shall be in accordance with
Exhibit "E" attached hereto. Each Working Interest Owner shall reimburse Unit
Operator for its share of Unit Expenses in accordance with the following:

11.1.1.  Pre-Unitization Expense. Intentionally deleted.

11.1.2.  Production Operating Expenses. All operating costs associated with
producing wells or production facilities and the monthly operating overhead
costs for producing wells prescribed in Exhibit "E" attached hereto shall be
allocated to the Working Interest Owners based upon Unit Participation.

11.1.3.  Enhanced Recovery Operating Expenses. All operating costs associated
with injection wells, injection lines, injection facilities, monthly operating
overhead costs for injection wells prescribed in Exhibit "E" attached hereto and
the cost of injection fluids or gases shall be allocated to the Working Interest
Owners based upon Unit Participation.

11.1.4.  Investment Costs. All costs for equipment, drilling and completion of
wells, conversion of wells for injection and/or disposal purposes, construction
of production or enhanced recovery facilities and drilling overhead costs and
major construction and catastrophe overhead costs prescribed in Exhibit "E"
attached hereto shall be allocated to the Working Interest Owners based upon
Unit Participation.

 
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11.1.5.    Site Specific Trust Account/Plugging and Reclamation Fund.  A Site
Specific Trust Account (“SSTA”) with the Office of Conservation, Department of
Natural Resources, State of Louisiana (the “State”), has been established under
the terms of La. R.S. 30: 80, et seq. The security provided to the State in
connection with the SSTA is specifically for the proper plugging and abandonment
of the well or wells, associated site restoration and response to emergencies.”
The SSTA specifically relates to all existing wells in the Delhi Holt-Bryant
Unit, except the Delhi Unit 70-4, 87-3, 92-2, 139-2 and 225-2 Wells.

(a) Unit Operator may establish a Plugging, Abandonment and Reclamation Fund
(the “PAR Fund”) to fund the costs associated with the plugging, abandonment and
reclamation of all Unit wells not covered by the existing SSTA (the “PAR
Costs”). In the event that Unit Operator establishes a PAR Fund, Unit Operator
shall establish an escrow fund and shall deposit all amounts received from
Working Interest owners attributable to the PAR Fund into a third party escrow
fund (the “Escrow Funds”). Upon receipt of the Escrow Funds and thereafter,
subject to written instruction and/or confirmation from Buyer and Seller, Unit
Operator may invest the Escrow Funds in (i) time deposits in US banks, only to
the extent that such deposits are fully insured by the FDIC; or (ii) short-term
debt instruments issued or guaranteed by the United States, its agencies or
instrumentalities; or (iii) repurchase agreements backed by securities issued or
guaranteed by the United States, it agencies or instrumentalities; or (iv) money
market funds investing in any of the above-listed securities.  The maximum
allowable maturity for any investment shall be five years, unless invested in
Treasury Inflation Protected Securities, in which event, the maximum allowable
maturity shall not exceed the expected remaining life of the field. Interest
accruing on said fund shall become a part of the corpus of said fund.

(b) Upon the establishment of a PAR Fund by the Unit Operator, the Unit Operator
shall make a good faith determination of PAR Costs of all existing Unit wells
not covered by the SSTA. The Unit Operator shall charge the Joint Account in
proportion to each Working Interest Owner’s interest, an amount sufficient, per
month until the PAR Fund has been fully funded to cover the PAR Costs, said
monthly amount shall not exceed fifteen thousand dollars ($15,000.00). The
amount maintained in the PAR Fund, shall be adjusted annually on the anniversary
date of the establishment of the PAR Fund to determine the amount of money
necessary to fully fund the PAR Costs. Based on the Unit Operators annual good
faith estimate, in the event the PAR Costs exceed the PAR Fund, the Unit
Operator may charge the Joint Account with an amount sufficient to fully fund
the Par Fund to cover all estimated PAR Costs.

(c) Any costs incurred by the Unit Operator for the plugging, abandonment or
reclamation of any Unit well or wells shall be paid from the SSTA or the Par
Fund, and shall not be charged to the Joint Account, unless the amount in the
SSTA or the Par Fund, as the case may be, is not sufficient to cover all of
these costs, in such event such costs will be charged to the Joint Account in
proportion to each Working Interest Owner’s interest.

(d) Should, after the termination of this Agreement and the plugging,
abandonment and associated site restoration within the Unit Area, there be funds
remaining in the SSTA or the PAR Fund, said funds shall be distributed to the
Working Interest Owner in accordance with their Working Interest Unit
Participation as of the date of termination of this Agreement. In the event the
SSTA and the PAR Fund do not cover the full costs of plugging and abandonment
and associated site restoration as to all Unit Wells in the Unit Area, the
Working Interest Owners shall pay to the Joint Account their proportionate share
of the costs of plugging and abandoning, and associated site restoration as to
all Unit Wells in accordance with their Working Interest Unit Participation as
of the date of termination of this Agreement.
 
11.2.  Advance Billings. Unit Operator shall have the right, at its option, to
require other Working Interest Owners to advance their respective proportion of
estimated developmental costs and expenses pursuant to Exhibit "E" Section I,
Paragraph Number 3.

11.3.  Commingling of Funds. Funds received by Unit Operator under this
Agreement need not be segregated by Unit Operator or maintained by it as a
separate fund, but may be commingled with its own funds, except for any funds
received for the PAR Fund which must be segregated in accordance with the terms
of this Agreement.

11.4  Security Rights. In addition to any other security rights and remedies
provided for by the laws of this State with respect to services rendered or
materials and equipment furnished under this Agreement, each Working Interest
Owner grants Unit Operator a first and a prior lien upon its Working Interest,
including the Unitized Substances and Unit Equipment credited thereto, in order
to secure payment of the Unit Expense charged against such Working Interest,
together with interest of one percent (1.00%) per month or the maximum rate
allowed by law, whichever is less. The filing of suit and the obtaining of a
judgment by Unit Operator for the secured indebtedness shall not be deemed an
election of remedies or prejudice its security rights for the payment thereof.
If any Working Interest Owner does not pay its share of Unit Expense when
due and is in Default as provided for hereinbelow, Unit Operator shall have the
right, without prejudice to other rights and remedies, to collect from the
purchaser the proceeds from the sale of such Working Interest Owner's share of
Unitized Substances until the amount owed, plus interest at the rate herein
provided, has been paid. The Unit Operator shall have the continuing right to
recoup unit expenses from a Unit Owner who is in Default as long as production
continues no matter how much time passes between the expense being incurred and
the production against which it is offset. Each purchaser shall be entitled to
rely on Unit Operator's written statement concerning the amount owed and the
interest payable thereon. Unit Operator grants a like lien and security interest
to the Working Interest Owners.

 
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Any surplus received by Unit Operator from any sale of production pursuant to
this Section or Section 11.6 below shall be credited to the Person or Persons
from whom it was deducted in the proportion of their respective interest.

In addition to the foregoing, each Working Interest Owner's interest in the Unit
Area shall be responsible for its proportionate share of the cost and expense of
Unit Operations, and the Unit Operator shall have a lien thereon to secure
payment of such share. When any Working Interest Owner fails to pay its part
thereof when due and interest thereon at the rate above provided and is in
Default as provided for hereinbelow, then all of such Working Interest Owner's
interest in the Unitized Substances and Unit Equipment may be foreclosed in the
same manner and under the same procedure provided for regarding the foreclosure
of mortgages. A transfer or conversion of any Working Interest Owner's interest
or any portion thereof, however accomplished shall not relieve the transferred
interest of the Unit Operator’s lien on said interest for the cost and expense
of Unit Operations past or prospective. In the event any Working Interest Owner
fails to pay its joint interest billing when due herein, and foreclosure
proceedings are commenced by the Unit Operator, the Unit Operator shall be
entitled to recover all of its reasonable costs expended for such proceedings,
including, but not limited to, court costs and reasonable attorney fees even if
the delinquent working interest owner thereafter pays its unpaid unit expenses.

11.5.  Notice of Default/Opportunity to Cure/Unpaid Unit Expense.

(a) If any Working Interest Owner fails to pay its share of Unit Expense within
thirty (30) days after rendition of a statement (the “Statement”) therefore by
Unit Operator, Unit Operator may send a written Notice of Default to the said
defaulting Working Interest Owner, which Notice shall specify that failure to
take such action will result in the exercise of one or more of the remedies
provided in this Article 11.  Failure by the Unit Operator to send a written
Notice of Default shall preclude the Unit Operator from exercising any statutory
or common law remedies or any other remedy set forth in this Agreement. If the
default in payment is not cured within thirty (30) days (the “30 Day Notice
Period”) after the delivery of such Notice of Default, then the Working Interest
Owner is conclusively presumed to be in default (hereinafter referred to as
“Default”) and the Unit Operator shall have the right to exercise any of the
remedies provided in this Agreement. If a Working Interest Owner fails to pay
all or any part of its share of Unit Expenses due under the terms of this
Agreement as a result of a legitimate disagreement as to the appropriateness of
all or any part of such Unit Expense, the defaults and remedies provisions of
this Agreement shall not be applicable if the Working Interest Owner does the
following: (i) makes such disagreement and the grounds therefore known to the
Unit Operator, in writing, certified by an officer of the Working Interest
Owner, by the later of the due date of the Statement or the end of the 30 Day
Notice Period, an (ii) tenders payment of all un-disputed amounts to the Unit
Operator. Thereafter, the Parties shall attempt to resolve the matter within
sixty (60) days after the end of the 30 Day Notice Period.

(b) If a Working Interest Owner is in Default, each non-defaulting Working
Interest Owner, including Unit Operator as a Working Interest Owner, shall, upon
request by Unit Operator, pay the unpaid amount as if it were Unit Expense in
the proportion that the Unit Participation of each such Working Interest Owner
bears to the Unit Participation of all non-defaulting Working Interest Owners.
Working Interest Owners who pay the share of Unit Expense of a defaulting
Working Interest Owner shall be reimbursed by Unit Operator of the amount so
paid, plus any interest collected thereon upon receipt by Unit Operator of any
past due amount collected from the defaulting Working Interest Owner. A Working
Interest Owner who is in Default shall lose its voting interest during its
period of Default as to operational matters, but shall not lose its voting
interest as to amending this Agreement. Its voting rights shall be shared
proportionally and exercised by each of the non-defaulting Working Interest
Owners. Each Working Interest Owner paying its share of the unpaid amount shall,
to obtain reimbursement thereof, be subrogated to the security rights described
in Article 11.4 of this Agreement. 

 
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11.6.  Carved-Out Interest. If any Working Interest Owner shall, create an
overriding royalty, production payment, net proceeds interest, carried interest,
or any other interest out of its Working Interest ownership after the time of
Closing of the PSA, such carved-out interest shall be subject to the terms and
provisions of this Agreement, specifically including, but without limitation,
Article 11.4 hereof entitled "Lien and Security Interest of Unit Operator and
Working Interest Owners." If the Working Interest Owner creating such carved-out
interest (1) fails to pay any Unit Expense chargeable to such Working Interest
Owner under this Agreement, and the production of Unitized Substances accruing
to the credit of such Working Interest Owner is insufficient for that purpose,
or (b) withdraws from this Agreement under the terms and provisions of Article
18 hereof, the carved-out interest shall be chargeable with a pro rata portion
of all Unit Expense incurred hereunder, the same as though carved-out interest
were a Working Interest, and Unit Operator shall have the right to enforce
against such carved-out interest the lien and all other rights granted in
Article 11.4 for the purpose of collecting the Unit Expense chargeable to the
carved-out interest.

11.7.  Rentals. The Working Interest owners in each Tract shall pay all rentals,
minimum royalty, advance rentals or delay rentals due under the lease thereon
and shall concurrently submit to the Unit Operator, upon written request,
evidence of payment.
 
ARTICLE 12

UNIT CO2 REQUIREMENTS/ADDITIONAL CAPITAL EXPENDITURE COMMITMENT TO NGS

12.1.    CO2 Supply. If CO2 is used by Unit Operator for enhanced oil production
from the Delhi Holt-Bryant Unit, Unit Operator shall act as a reasonable prudent
operator in delivering CO2 to the Delhi Holt-Bryant Unit in a timely manner and
in sufficient quantities to efficiently conduct operations to enhance oil
production. Unit Operator will deliver CO2 to the Delhi Holt-Bryant Unit at a
pipeline pressure of 1100 psi for a fixed transportation cost per standard mcf
of twenty cents ($.20), for a period of time not to exceed ten (10) years from
the date of first pipeline deliveries of CO2 to the Delhi Holt-Bryant Unit. The
agreed cost for the CO2 delivered to the Delhi Holt-Bryant Unit will be equal to
one percent (1%) of the price per barrel of crude oil sold from the Delhi
Holt-Bryant Unit per standard mcf of CO2 as determined each month. The agreed
cost of the CO2 delivered by the Unit Operator to the Delhi Holt-Bryant Unit
shall not increase for the entire life of the CO2 operations conducted on the
Delhi Holt-Bryant Unit. The above transportation costs and costs for CO2 are
stipulated by Unit Operator and NGS to be the deemed costs for purposes of the
Delhi Holt-Bryant Unit, regardless of actual costs or other factors or
circumstances. All CO2 injected into the Delhi Holt-Bryant Unit shall be owned
by the Working Interest Owners proportionate to their interests. Any CO2
delivered to the Delhi Holt-Bryant Unit and used by Unit Operator for any
purpose other than in the Delhi Holt-Bryant Unit shall be credited to the Total
Net Cash Flow calculation (as per the PSA) as revenue at the same cost that the
CO2 is charged as provided above.

12.2.    CO2 Pipeline Cost. Costs associated with building, owning, operating,
and maintaining CO2 pipelines used by Unit Operator to deliver CO2 to the Delhi
Holt-Bryant Unit and within the Delhi Holt-Bryant Unit, including pipelines from
the source field for the CO2, shall not be included in the computation of the
costs used to determine “Total Net Cash Flow” or “Payout” (under the PSA), but
shall only be used in computing the capital expenditure commitment set forth in
Paragraph 12.3, below. All such CO2 pipelines shall be owned solely by Unit
Operator, and NGS shall not bear any costs or have or be entitled to any
interest in such pipelines, reversionary or otherwise.
 
12.3.    Additional Capital Expenditure. 

(a)  Unit Operator has agreed to spend one hundred million dollars
($100,000,000.00) of cumulative capital expenditures (the “Required Cumulative
Capital Expenditure Amounts”) for the development of enhanced production
operation for the Delhi Holt-Bryant Unit, which will include but is not limited
to the cost of field development, facilities and CO2 delivery pipelines. Unit
Operator shall make the Required Cumulative Capital Expenditures Amounts on or
before the Commitment Dates set forth below:

 
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Commitment Date
 
Required Cumulative Capital Expenditure Amount
December 31, 2007
 
$17,500,000
December 31, 2008
 
$35,000,000
December 31, 2009
 
$52,500,000
December 31, 2010
 
$70,000,000
December 31, 2011
 
$87,500,000
December 31, 2012
 
$100,000,000

If the Unit Operator spends in excess of one hundred million dollars
($100,000,000.00) prior to the end of December 31, 2012, the development
obligation has been fulfilled.

(b)  In the event Unit Operator fails to expend the Required Cumulative Capital
Expenditure Amounts by the Commitment Dates set forth in (a) above, NGS shall be
entitled to a cash payment equal to ten percent, (10.0%) of the difference
between the Required Cumulative Capital Expenditure Amounts for the applicable
Commitment Date and the cumulative capital expenditures actually expended by
Unit Operator from the Effective Date through such applicable Commitment Date
(hereinafter referred to as the “Shortage Payment”). Said Shortage Payment shall
be paid by Unit Operator to NGS within thirty (30) days after each Commitment
Date.
 
ARTICLE 13

NONUNITIZED FORMATIONS
 
13.1.  Right to Operate. Any Working Interest Owner that now has or hereafter
acquires the right to drill for and produce oil, gas, or other minerals, from
strata above or below the Unit Area other than the Unitized Formation, shall
have the right to do so notwithstanding this Agreement or the Unit Agreement. In
exercising the right, however, such Working Interest Owner shall exercise care
to prevent unreasonable interference with Unit Operations. No Working Interest
Owner other than Unit Operator shall produce Unitized Substances. If any Working
Interest Owner drills any well into or through the Unitized Formation, the
Unitized Formation shall be protected in a manner satisfactory to Unit Operator
so that the production of Unitized Substances will not be affected adversely.
 
ARTICLE 14

TITLES
 
14.1.  Warranty and Indemnity. Each Working Interest Owner represents and
warrants that it is the owner of the respective Working Interests set forth
opposite its name in Exhibit "D" and agrees to indemnify and hold harmless the
other Working Interest Owners from any loss due to failure, in whole or in part,
of its title to any such interest, except failure of title arising because of
Unit Operations; however, such indemnity and any liability for breach of
warranty, shall be limited to an amount equal to the net value that has been
received from the sale or receipt of Unitized Substances attributed to the
interest as to which title failed. Each failure of title will be deemed to be
effective, insofar as this Agreement is concerned, as of 7:00 o’clock a.m. on
the first day of the calendar month in which such failure is finally determined,
and there shall be no retroactive adjustment of unit expense, or retroactive
allocation of Unitized Substances or the proceeds therefrom, as a result of a
title failure.

14.2.  Failure Because of Unit Operations. The failure of title to any Working
Interest in any Tract because of Unit operations, including nonproduction from
such Tract, shall not change the Unit Participation of the Working Interest
Owner whose title failed in relation to the Unit Participations of the other
Working Interest Owners at the time of the title failure.

14.3.  Title Examination. Unit Operator is hereby authorized to conduct such
title examination and title curative work on any Tract or Tracts (whether owned
by Unit Operator or any other Working Interest Owner) as it deems necessary or
advisable for time to time; and each Working Interest Owner who owns any
interest in any such Tract agrees to cooperate in such title examination and
agrees to furnish to Unit Operator all records affecting title, including but
not limited to title opinions and abstracts of title, that may be in such
Working Interest Owner’s possession or control. All costs and expenses incurred
in such title examination and curative work conducted for said purposes shall be
treated as a direct charge under Unit Expense. Upon request, Unit Operator shall
make available to Working Interest Owner, at Unit Operator’s convenience, all
such records affecting title to Tracts contributed by such Working Interest
Owner, including, but not limited to, title opinions and abstracts of title that
may be in Unit Operator’s possession and control, and Working Interest Owner may
have copies of such records made at Working Interest Owner’s sole expense.

 
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ARTICLE 15

LIABILITY CLAIMS AND SUITS
 
15.1.  Individual Liability. The duties, obligations and liabilities of Working
Interest Owners shall be several and not joint or collective; and nothing herein
shall ever be construed as creating a partnership of any kind, joint venture,
association or trust among Working Interest Owners.

15.2.  Settlements. Unit Operator may settle any single damage claim or suit
involving Unit Operations if the expenditure does not exceed Fifty Thousand
Dollars ($50,000) and if the payment is in complete settlement of such claim or
suit. If the amount required for settlement exceeds the above amount, Unit
Operator, working in conjunction with the other Working Interest Owners shall
determine the further handling of the claim or suit. All costs and expenses of
handling, settling, or otherwise discharging such claim or suit shall be an item
of Unit Expense, subject to such limitation as is set forth in Exhibit "E". If a
claim is made against any Working Interest Owner, of if any Working interest
Owner is sued on account of any matter arising from Unit Operations over which
such Working Interest Owner individually has no control because of the rights
given Working Interest Owners and Unit Operator by this Agreement and the Unit
Agreement, the Working Interest Owner shall immediately notify Unit Operator,
and the claim or suit shall be treated as any other claim or suit involving Unit
Operations.

15.3.  Notice of Loss. Unit Operator shall report to Working Interest Owners as
soon as practicable after each occurrence, damage or loss to Unit Equipment, and
each accident, occurrence, claim or suit involving third party bodily injury or
property damage which in Unit Operators opinion could result in a claim or loss
exceeding Fifty Thousand Dollars ($50,000.00) and which is not covered by
insurance carried for the benefit of Working Interest Owners.

ARTICLE 16

NONDISCRIMINATION

16.1.  Nondiscrimination. During the performance of work under this Agreement,
Unit Operator agrees and certifies to all of the Federal Equal Employment
Provisions contained in Exhibit "F".
 
ARTICLE 17

NOTICES
 
17.1.  Notices. All notices required hereunder shall be in writing and shall be
deemed to have been properly served when sent by mail or telegram to the address
of the representative of each Working Interest Owner as furnished to Unit
Operator in accordance with Article 4.

ARTICLE 18

WITHDRAWAL OF WORKING INTEREST OWNER
 
18.1.  Withdrawal. A Working Interest Owner may withdraw from this Agreement by
transferring, without warranty of title, either expressed or implied, to the
Unit Operator all of its Working Interest, together with its interest in all
Unit Equipment and in all wells used in Unit Operations, provided that such
transfer shall not relieve such Working Interest Owner from any obligation or
liability incurred prior to the first day of the month following receipt by Unit
Operator of such transfer. The transferred interest shall be owned by the Unit
Operator. Unit Operator shall pay the transferor for its interest in Unit
Equipment, the salvage value thereof less its share of the estimated cost of
salvaging same and of plugging and abandoning all wells then being used or held
for Unit Operations. In the event such withdrawing owner's interest in the
aforesaid salvage value is less than such owner's share of such estimated costs,
the withdrawing owner, as a condition precedent to withdrawal, shall pay the
Unit Operator, a sum equal to the deficiency. Within sixty (60) days after
receiving delivery of the transfer, Unit Operator shall render a final statement
to the withdrawing owner for its share of Unit Expense, including any deficiency
in salvage value incurred as of the first day of the month following the date of
receipt of the transfer. Provided all Unit Expense, including any deficiency
hereunder, due from the withdrawing owner has been paid in full within thirty
(30) days after the rendering of such final statement by the Unit Operator, the
transfer shall be effective the first day of the month following its receipt by
Unit Operator and, as of such effective date, withdrawing owner shall be
relieved from all further obligations
and liabilities hereunder and under the Unit Agreement, and the rights of the
withdrawing Working Interest Owner hereunder and under the Unit Agreement shall
cease insofar as they existed by virtue of the interest transferred.

 
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18.2.  Limitation on Withdrawal. Notwithstanding anything set forth in section
18.1, Unit Operator may refuse to permit the withdrawal of a Working Interest
Owner if its Working Interest is burdened by any royalties, overriding
royalties, production payments, net proceeds interest, carried interest, or any
other interest created out of the Working Interest in excess of one-eighth
(l/8th) lessor's royalty.

ARTICLE 19

ABANDONMENT OF WELLS

19.1.  Rights of Working Interest Owners Prior to Plugging. If Unit Operator
determines to permanently abandon any well within the Unit Area prior to
termination of the Unit Agreement, Unit Operator shall give written notice
thereof to the Working Interest Owners of the Tract on which the well is
located, and they shall have the option for a period of thirty (30) days after
the sending of such notice to notify Unit Operator in writing of their election
to take over and own the well for operations in formations other than the Unit
Formation in accordance with the provisions of Article 12. Within ten (10) days
after Working Interest Owners of the Tract have notified Unit Operator of their
election to take over the well, they shall pay Unit Operator, for credit to the
joint account, the net salvage value (including plugging and abandonment) of the
equipment, through the wellhead, in and on the well. If no Working Interest
Owner elects to take over the well or if Working Interest Owner(s) after
electing to take over said well fail to pay the net salvage value within said
ten (10) days, (thereby constituting a forfeiture of Working Interest Owners
right to take over said well) Unit Operator shall proceed to plug and abandon
said well in compliance with applicable laws and regulations. The Working
Interest Owners of the Tract, by taking over the well, agree to seal off the
Unitized Formation and upon abandonment to plug the well in compliance with
applicable laws and regulations.

ARTICLE 20

EFFECTIVE DATE AND TERM
 
20.l.  Effective Date. The Unit Operating Agreement, as amended and restated
herein, shall become effective as of 7:00 a.m., local time, on June 1, 2006.

20.2.  Term. This Unit Operating Agreement, as amended and restated herein,
shall continue in effect so long as the Unit Agreement remains in effect, and
thereafter until (a) all Unit Wells have been plugged and abandoned or turned
over to Working Interest Owners in accordance with Article 19.1.; and (b) all
Unit Equipment and real property acquired for the joint account has been
disposed of by Unit Operator in accordance with instructions of Working Interest
Owners; and (c) there has been a final accounting.
 
ARTICLE 21

ABANDONMENT OF OPERATIONS
 
21.1.         Termination. Upon termination of the Unit Agreement, the following
will occur:

 
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21.1.1.  Oil and Gas Rights. Oil and Gas rights in and to each separate Tract
shall no longer be affected by this Agreement, and thereafter the parties shall
be governed by the terms and provisions of the leases, contracts, and other
instruments affecting the separate Tracts.

21.1.2.  Right to Operate. Working Interest Owners of any Tract that desire to
take over and continue to operate wells located thereon may do so by paying Unit
Operator, for credit to the joint account, the net salvage value, of the casing
and equipment, through the wellhead, in and on the wells taken over and by
agreeing upon abandonment to plug each well in compliance with applicable laws
and regulations. 

21.1.3.  Salvaging Wells. Unit Operator shall salvage as much of the casing and
equipment in or on wells not taken over by Working Interest Owners of separate
Tracts as can economically and reasonably be salvaged, and shall cause the wells
to be plugged and abandoned in compliance with applicable laws and regulations.

21.1.4.  Cost of Abandonment. The cost of abandonment of Unit Operations shall
be Unit Expense.

21.1.5.  Distribution of Assets. Working Interest Owners shall share in the
distribution of Unit Equipment, or the proceeds thereof, in proportion to their
Unit Participation.
 
ARTICLE 22

APPROVAL

22.1.  Original, Counterpart, or Other Instrument. An owner of a working
Interest may approve this Agreement by signing the original, a counterpart
thereof, or other instrument approving this Agreement. The signing of any such
instrument shall have the same effect as if all Persons had signed the same
instrument.

ARTICLE 23

SUCCESSORS AND ASSIGNS
 
23.1.  Successors and Assigns. This Agreement shall extend to, be binding upon,
and inure to the benefit of the Persons hereto and their respective heirs,
devisees, legal representatives,
successors and assigns, and shall constitute a covenant running with the lands,
leases and interests covered hereby.

ARTICLE 24

MISCELLANEOUS

24.1.  Choice of Law. This Agreement and all matters pertaining hereto,
including, but not limited to, matters of performance, non-performance, breach,
remedies, procedures, rights, duties, and interpretation or construction, shall
be governed and determined by the laws of the state of Texas.

[The Remainder of this page intentionally left blank]

 
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IN WITNESS WHEREOF, the Persons hereto have approved this Agreement on the dates
opposite their respective signatures.

        DENBURY ONSHORE, LLC  
   
   
    By:      

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H. Raymond Dubuisson   Vice President - Land

 

        NGS SUB CORP.  
   
   
    By:      

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

Robert S. Herlin   President and Chief Executive Officer

 

STATE OF TEXAS
COUNTY OF ____________

This instrument was acknowledged before me on this _____ day of _______________,
2006, by H. Raymond Dubuisson, Vice President-Land of Denbury Onshore, LLC, a
Delaware Limited Liability Company, on behalf of said limited liability company.

My Commission Expires:

______________________    _________________________________
NOTARY PUBLIC in and for State of Texas
 
STATE OF TEXAS
COUNTY OF HARRIS

This instrument was acknowledged before me on this _____ day of _______________,
2006, by Robert S. Herlin, President and Chief Executive Officer of NGS Sub
Corp., a Delaware corporation, on behalf of said corporation.

My Commission Expires:

______________________    _________________________________
NOTARY PUBLIC in and for State of Texas

 
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