AGREEMENT AND PLAN OF MERGER

among

PENN VIRGINIA CORPORATION
("Parent"),

VIRGINIA ACQUISITION CORP.
("Merger Sub")

and

SYNERGY Oil & GAS, INC.
(the "Company")

June 19, 2001

Table of Contents

Page

AGREEMENT AND PLAN OF MERGER

1

ARTICLE 1

DEFINITIONS

1

1.1

Defined Terms

1

1.2

References and Titles

8

ARTICLE 2

THE MERGER

8

2.1

The Merger

8

2.2

Effect of the Merger

8

2.3

Governing Instruments, Directors and Officers of the Surviving Corporation

9

2.4

Effect on Securities

9

2.5

Surrender and Exchange of Certificates

10

2.6

Closing

10

2.7

Effective Time of the Merger

10

2.8

Taking of Necessary Action; Further Action

10

2.9

Earnest Money

11

2.10

Payment to Parent

11

2.11

Excluded Assets

11

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

11

3.1

Organization

11

3.2

Authority and Enforceability

12

3.3

No Violations

12

3.4

Consents and Approvals

12

3.5

Financial Statements

12

3.6

Capital Structure

12

3.7

Material Agreements

13

3.8

Bank Credit Agreement

13

3.9

Outstanding Debt

13

3.10

Affiliate Transactions

13

3.11

Employment Matters

14

3.12

Employee Benefit Plans

14

3.13

Litigation

14

3.14

Taxes and Tax Returns

14

3.15

Ownership of Assets

16

3.16

Compliance with Laws and Permits

16

3.17

Proprietary Rights

16

3.18

Environmental Matters

16

3.19

Insurance

17

3.20

Governmental Regulation

17

3.21

Brokers

18

3.22

Oil and Gas Operations

18

3.23

Gas Imbalances

18

3.24

Royalties

19

3.25

Payout Balances

19

3.26

Prepayments

19

3.27

Capital Expenditures

19

3.28

Other Mineral Related Matters

19

3.29

Additional Drilling Obligations

19

3.30

Financial and Product Hedging Contracts

19

3.31

Books and Records

19

3.32

Disclosure and Investigation

19

3.33

Reserve Report

20

3.34

Leases

20

3.35

Condition of Equipment

20

3.36

Seismic Data

20

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

20

4.1

Organization

20

4.2

Authority and Enforceability

21

4.3

No Violations

21

4.4

Consents and Approvals

21

4.5

Litigation

21

4.6

Funding

21

4.7

Brokers

21

4.8

Disclosure and Investigation

21

ARTICLE 5

COVENANTS

22

5.1

Conduct of Business by the Company Pending Closing

22

5.2

Access to Assets, Personnel and Information

23

5.3

Additional Arrangements

24

5.4

Public Announcements; Confidentiality

24

5.5

Notification of Certain Matters

24

5.6

Payment of Expenses

24

5.7

Continuation of the Company's Existing Indemnification Obligations

25

5.8

Consents Under Bank Credit Agreement

25

5.9

Termination of Certain Agreements

25

5.10

Resignation of Directors, Officers

25

5.11

Adjustments to Base Merger Consideration

25

5.12

Additional Adjustments

30

5.13

Company Employees

31

5.14

Management after Effective Time

31

5.15

Tax Matters

31

5.16

Clean Up

32

ARTICLE 6

CONDITIONS

32

6.1

Conditions to Each Party's Obligation to Proceed with Closing

32

6.2

Conditions to Obligations of Parent and Merger Sub

33

6.3

Conditions to Obligations of the Company

34

ARTICLE 7

TERMINATION

34

7.1

Termination Rights

34

7.2

Effect of Termination

35

ARTICLE 8

PAYMENT FROM ESCROW FUNDS

35

8.1

Right To Payment From Escrow Funds

35

8.2

Limitation on Claims

35

8.3

Escrow Funds As Cap To All Claimant's Damages

35

ARTICLE 9

ARBITRATION

36

9.1

Jurisdiction

36

9.2

Injunctive Relief

36

9.3

Initiation

36

9.4

Selection of Arbitrator

36

9.5

Procedures

36

9.6

Discovery

36

9.7

Scope of Powers

37

9.8

Written Decision

37

9.9

Awards

37

ARTICLE 10

MISCELLANEOUS

37

10.1

Survival of Representations and Warranties

37

10.2

Shareholders' Representatives

37

10.3

Employees

37

10.4

Amendment

37

10.5

Notices

38

10.6

Counterparts

38

10.7

Severability

38

10.8

Entire Agreement; No Third-Party Beneficiaries

39

10.9

Applicable Law

39

10.10

No Remedy in Certain Circumstances

39

10.11

Assignment

39

10.12

Waivers

39

10.13

Confidentiality Agreement

39

10.14

Incorporation

39

10.15

Cooperation After Closing

40

AGREEMENT AND PLAN OF MERGER

This Agreement and Plan of Merger (this "Agreement") is made and entered into as
of June 19 , 2001, by and among Penn Virginia Corporation, a Virginia
corporation (the "Parent"); Virginia Acquisition Corp., a Texas corporation (the
"Merger Sub"); and Synergy Oil & Gas, Inc., a Texas corporation (the "Company").

R

e c i t a l s:

A. The board of directors of each of Parent and the Company has determined that
it is in the best interests of its respective shareholders to approve the
strategic alliance of Parent and the Company by means of the merger of Merger
Sub with and into the Company, upon the terms and subject to the conditions set
forth in this Agreement.

B. Parent, Merger Sub and the Company (the "Parties") desire to make certain
representations, warranties, covenants and agreements in connection with such
merger and also to prescribe various conditions to such merger.

In consideration of the recitals and the mutual covenants and agreements set
forth in this Agreement, the Parties hereby agree as follows:

DEFINITIONS

Defined Terms. As used in this Agreement, each of the following terms has the
meaning given in this Section 1.1 or in the Sections referred to below:

"Affiliate" means, with respect to any Person, each other Person that directly
or indirectly (through one or more intermediaries or otherwise) controls, is
controlled by, or is under common control with such Person.

"Agreement" means this Agreement and Plan of Merger, as amended, supplemented or
modified from time to time.

"Allocated Values" means the allocation of values for all of the assets of the
Company shown on Schedule 1.1.

"Assets" means the Oil and Gas Interests, together with the other real and
personal property reflected in the Company Financial Statements and all other
assets and properties owned by the Company.

"Bank Credit Agreement" means the Loan Agreement, dated as of April 5, 1995,
between the Company, as borrower, and Bank One, Texas, N.A., as lender (as
amended and supplemented as of the date hereof).

"Bank Debt" means, for any Person, without duplication: (a) all obligations of
such Person for borrowed money; (b) all obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments; (c) all indebtedness of
such Person on which interest charges are customarily paid or accrue; (d) the
unfunded or unreimbursed portion of all letters of credit issued for the account
of such Person; (e) any obligation of such Person representing the deferred
purchase price of property or services purchased by such Person other than trade
payables incurred in the ordinary course of business and which are not more than
90 days past invoice date [and the O'Brien Production Payment]; and (f) any
indebtedness, liability or obligation secured by a Lien on the assets of such
Person whether or not such indebtedness, liability or obligation is otherwise
non-recourse to such Person.

"Base Merger Consideration" means One Hundred Twelve Million Dollars
($112,000,000).

"CERCLIS" means the Comprehensive Environmental Response, Compensation and
Liability Information System List.

"Certificate of Merger" means the certificate of merger, prepared and executed
in accordance with the applicable provisions of the Texas Business Corporation
Act, filed with the Secretary of State of Texas to reflect the consummation of
the Merger.

"Closing" means the closing and consummation of the Merger and the other
transactions contemplated by this Agreement.

"Closing Date" means the date on which the Closing occurs, which shall be on or
before July 23, 2001 except as extended pursuant to Section 5.11(g).

"Closing Date Financial Statements"

means an estimated income statement for the period from July 1, 2001 to the
Closing Date and an estimated balance sheet as of the Closing Date prepared in
accordance with GAAP consistently applied.

"Closing Date Merger Consideration" shall mean the Base Merger Consideration as
adjusted pursuant to Section 5.11 and Section 5.12(a) less (1) the Escrow Fund;
(2) the Working Capital Holdback; and (3) the Estimated Cleanup Costs.

"Closing Date Statement" shall have the meaning set forth in Section 5.12(b).

"COBRA" means the Consolidated Omnibus Reconciliation Act of 1985, as amended,
as contained in Section 4980B of the Code.

"Code" means the Internal Revenue Code of 1986, as amended.

"Company" has the meaning set forth in the introductory paragraph of this
Agreement.

"Company Certificate" means a certificate representing shares of the Company
Common Stock.

"Company Common Stock" means the common stock, par value $.01 per share, of the
Company.

"Company Convertible Debentures" has the meaning specified in Section 3.6.

"Company Employee Benefit Plans" has the meaning specified in Section 3.12.

"Company Financial Statements" means the audited financial statements of the
Company (including the related notes), prepared in accordance with GAAP
consistently applied, as of each of December 31, 1999 and December 31, 2000, and
for the year then ended in each case, and the Quarterly Financial Statements.

"Company Permits" has the meaning specified in Section 3.16.

"Company Representative" means any director, officer, employee, agent, advisor
(including legal, accounting and financial advisors) or other representative of
the Company.

"Company Stock Option(s)" means an option (issued and outstanding on the date
hereof and immediately prior to the Closing) to acquire shares of the Company
Common Stock granted pursuant to the Company Stock Option Plans.

"Company Stock Option Plans" means collectively, the Company's 1997 Stock Option
Plan, 1998 Stock Option Plan, and the 2000 Stock Option Plan.

"Confidentiality Agreement" means the letter agreement dated April 3, 2001,
between the Company and Parent relating to the Company's furnishing of
information to Parent in connection with Parent's evaluation of the possibility
of acquiring the Company.

"Confidentiality and Non-Compete Agreements" means those certain Confidentiality
and Non-Compete Agreements entered into between the Company and certain of its
directors, officers and employees.

"Debt" means, for any Person, without duplication: (a) all obligations of such
Person for borrowed money; (b) all obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments; (c) all indebtedness of
such Person on which interest charges are customarily paid or accrue; (d) the
unfunded or unreimbursed portion of all letters of credit issued for the account
of such Person; (e) the present value of all obligations in respect of leases
that are capitalized on the books and records of such Person; (f) any obligation
of such Person representing the deferred purchase price of property or services
purchased by such Person other than trade payables incurred in the ordinary
course of business and which are not more than 90 days past invoice date;
(g) any indebtedness, liability or obligation secured by a Lien on the assets of
such Person whether or not such indebtedness, liability or obligation is
otherwise non-recourse to such Person; (h) liabilities with respect to payments
received in consideration of oil, gas or other minerals yet to be acquired or
produced at the time of payment (including obligations under "take-or-pay"
contracts to deliver gas in return for payments already received and the
undischarged balance of any production payment created by such Person or for the
creation of which such Person directly or indirectly received payment); and
(i) all liability of such Person as a general partner or joint venturer for
obligations of the nature described in clauses (a)through (h) preceding.

"Deemed Outstanding Convertible Share(s)" shall mean, as of the Closing Date,
the shares of Common Stock which would be issuable based upon an assumed
conversion of all Company Convertible Debentures which are deemed converted
under Section 2.4(b)(iv).

"Deemed Outstanding Option Share(s)" shall mean, as of the Closing Date, the
shares of Common Stock that would be issuable based upon an assumed exercise of
all vested Company Stock Options that are deemed converted under
Section 2.4(b)(iii).

"Defensible Title" means (a) with respect to Leases and Units such title that is
(i) evidenced by an instrument or instruments filed of record in accordance with
the conveyance and recording laws of the applicable jurisdiction or if not
evidenced by an instrument or instruments filed of record is described in and
subject to a farmout agreement containing terms and provisions reasonably
consistent with terms and provisions used in the domestic oil and gas business
and under which there exists no default by the Company; (ii) entitles the
Company to receive throughout the life of the applicable well or Unit shown on
Schedule 1.1 of the Disclosure Schedule, at least the NRI of Hydrocarbons
produced from such well or Unit shown on Schedule 1.1 of the Disclosure
Schedule, without reduction, suspension or termination, except for decreases
where the Company is obligated to allow others to make up past underproduction,
(iii) obligates the Company to bear, throughout the life of such well or Unit,
no greater WI than the WI shown on Schedule 1.1 of the Disclosure Schedule for
such well or Unit, except increases that result in at least a proportionate
increase in the Company's NRI in such well or Unit, and (iv) subject to
Permitted Encumbrances, is free and clear of all Liens, and (b) with respect to
all other Assets, such title that is good and defensible and, subject to the
Permitted Encumbrances, is free and clear of all Liens.

"Disclosure Schedule" means the Disclosure Schedules attached hereto.

"Earnest Money" has the meaning specified in Section 2.9.

"Earnest Money Escrow Agreement" has the meaning specified in Section 2.9.

"Effective Time" means 12:01 a.m., July 1, 2001.

"Environmental Law" means any Law relating to the environment, health and
safety, Hazardous Material (including the use, handling, transportation,
production, disposal, discharge or storage thereof), industrial hygiene, the
environmental conditions on, under, or about any real property owned, leased or
operated at any time by the Company or its Subsidiary, including soil,
groundwater, and indoor and ambient air conditions or the reporting or
remediation of environmental contamination. Environmental Laws include, without
limitation, the Clean Air Act, as amended (the "Clean Air Act"), the Federal
Water Pollution Control Act, as amended, the Rivers and Harbors Act of 1899, as
amended, the Safe Drinking Water Act, as amended, the Comprehensive
Environmental Response, Compensation and Liability Act, as amended ("CERCLA"),
the Superfund Amendments and Reauthorization Act of 1986, as amended ("SARA"),
the Resource Conservation and Recovery Act of 1976, as amended ("RCRA"), the
Hazardous and Solid Waste Amendments Act of 1984, as amended, the Toxic
Substances Control Act, as amended, the Occupational Safety and Health Act, as
amended ("OSHA"), the Hazardous Materials Transportation Act, as amended, and
any other Law whose purpose is to conserve or protect human health, the
environment, wildlife or natural resources.

"ERISA" means the Employee Retirement Income Security Act of 1974, as amended
from time to time and the regulations promulgated thereunder.

"Escrow Agreement" means the Escrow Agreement to be entered into pursuant to
Section 6.1(c).

"Escrow Funds" means the Ten Million Dollars ($10,000,000) of the Merger
Consideration to be deposited into an escrow pursuant to the Escrow Agreement.

"Estimated Cleanup Costs" has the meaning specified in Section 5.16.

"Exchange Act"

means the Securities Act of 1934, as amended.

"Excluded Assets" means (i) all rights of the Company in and to the name
"Synergy Oil & Gas, Inc.;" including without limitation all trademarks, logos,
and internet domain rights therein; and (ii) all Oil & Gas Interests which are
transferred out of the Company.

"GAAP" means generally accepted accounting principles, as recognized by the
U.S. Financial Accounting Standards Board (or any generally recognized
successor).

"Fannett Groundwater Condition" has the meaning specified in Schedule 3.18 of
the Disclosure Schedules.

"Governmental Authority" means any national, state, county or municipal
government, domestic or foreign, any agency, board, bureau, commission, court,
department or other instrumentality of any such government, or any arbitrator in
any case that has jurisdiction over any of the Parties or any of their
respective properties or assets.

"Groundwater Violation" has the meaning specified in Section 5.11(i).

"Guaranty" by any Person means any obligation, contingent or otherwise, of such
Person directly or indirectly guaranteeing any Debt or other obligation of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (a) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt or other obligation (whether arising by virtue of partnership arrangements,
by agreements to keep-well, to purchase assets, goods, securities or services,
to take-or-pay, or to maintain financial statement conditions, by "comfort
letter" or other similar undertaking of support of otherwise); or (b) entered
into for the purpose of assuring in any other manner the obligee of such Debt or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided, that the term "Guaranty"
shall not include endorsements for collection or deposit in the ordinary course
of business. For purposes of this Agreement, the amount of any Guaranty shall be
the probable amount that the guarantor would be legally required to pay under
such Guaranty.

"Hazardous Material" means (a) any "hazardous substance," as defined by CERCLA;
(b) any "hazardous waste" or "solid waste," in either case as defined by RCRA;
(c) any solid, hazardous, dangerous or toxic chemical, material, waste or
substance, within the meaning of and regulated by any Environmental Law; (d) any
asbestos-containing materials in any form or condition; (e) any polychlorinated
biphenyls in any form or condition; (f) petroleum, petroleum hydrocarbons, or
any fractions or byproducts thereof; or (g) any air pollutant which is so
designated by the U.S. Environmental Protection Agency as authorized by the
Clean Air Act.

"Hydrocarbons" means oil, condensate, gas, casinghead gas and other liquid or
gaseous hydrocarbons.

"Indemnified Persons" has the meaning specified in Section 5.7.

"Law" means any constitution, common law, statute, code, regulation, rule,
injunction, judgment, order, decree, ruling, change or other official act of any
Governmental Authority and "Laws" means all of the foregoing.

"Leases" means oil and gas leases, oil, gas and mineral leases, royalties,
overriding royalties, operating rights, production payments, net profits
interests, fee minerals, and other oil, gas, and mineral interests.

"Lien" means any lien, mortgage, security interest, pledge, deposit,
restriction, burden, encumbrance, rights of a vendor under any title retention
or conditional sale agreement, or lease or other arrangement substantially
equivalent thereto, but does not include any production payment obligation.

"Material Adverse Effect" means (a) when used with respect to the Company, a
result or consequence that would materially adversely affect the financial
condition, results of operations or business of the Company, taken as a whole,
or the aggregate value of the Company's assets, would materially impair the
ability of the Company to own, hold, develop and operate its assets, or would
impair the Company's ability to perform its obligations hereunder or consummate
the transactions contemplated hereby or prevent or materially delay the
performance of this Agreement, excluding, however, changes resulting from
commodity price movements, normal oilfield operating, drilling and producing
occurrences (excluding releases of Hazardous Materials and occurrences which
result in a significant loss of production in a producing well which cannot be
repaired or cannot be repaired for less than a substantial amount relative to
the Allocated Value of the affected well) or changes resulting from legislation,
regulatory action or general economic conditions that may impact the energy
industry; any such result or consequence that has an adverse economic effect in
excess of $500,000 shall be deemed to be a "Material Adverse Effect"; and
(b) when used with respect to Parent, a result or consequence that would
materially adversely affect its ability to perform its respective obligations
hereunder or consummate the transactions contemplated hereby or prevent or
materially delay the performance of this Agreement.

"Material Agreement" means, with respect to any Person, any written or oral
agreement, contract, commitment, or understanding to which such Person is a
Party, by which such Person is directly or indirectly bound, or to which any
assets of such Person may be subject (other than oil, gas and mineral leases and
oil and gas leases) involving total value or consideration in excess of $250,000
(a) which is not cancelable by such Person upon notice of 60 days or less
without liability for further payment other than nominal penalty; (b) pursuant
to which such Person acquires any material portion of the raw materials,
supplies or services used or consumed by such Person in the operation of its
business; or (c) pursuant to which such Person derives any material part of its
revenues or is otherwise material to its business or the ownership and/or
operation of its assets.

"Merger" has the meaning specified in Section 2.1.

"Merger Consideration" means the Base Merger Consideration as adjusted pursuant
to Sections 5.11 and 5.12(a) less (1) any portion of the Working Capital
Holdback to which Parent is entitled pursuant to Section 12(c); (2) any portion
of the Escrow Funds paid to a Parent or to a Claimant pursuant to this Agreement
and the Escrow Agreement; and (3) any portion of the Estimated Cleanup Costs
incurred in accordance with Section 5.16 of this Agreement.

"Merger Effective Time"

means the time when the Certificate of Merger is accepted for filing by the
Texas Secretary of State or such later time as specified in the Certificate of
Merger.

"Merger Sub" means Virginia Acquisition Corp., a Texas corporation and a
wholly-owned subsidiary of Parent.

"Merger Sub Common Stock" means the common stock, par value $0.01 per share, of
Merger Sub.

"NRI" means the fractional interest in Hydrocarbons produced from or allocated
to a well or Unit that the Company is entitled to receive after deduction of all
royalties, overriding royalties and other burdens and payments out of production
that burden the Company's interest.

"O'Brien Production Payment" means the production sharing agreement between the
Company and George H. O'Brien Oil & Gas Company described in Schedule 3.28 of
the Disclosure Schedule.

"Oil and Gas Interest(s)" means (a) direct and indirect interests in and rights
with respect to oil, gas, mineral and related properties and assets of any kind
and nature, direct or indirect, including Leases and Units; (b) interests in and
rights with respect to Hydrocarbons and other minerals or revenues therefrom and
contracts in connection therewith and claims and rights thereto (including oil
and gas leases, operating agreements, unitization and pooling agreements and
orders, division orders, transfer orders, mineral deeds, royalty deeds, oil and
gas sales, exchange and processing contracts and agreements, and in each case
interests thereunder), surface interests, fee interests, reversionary interests,
reservations and concessions; (c) easements, rights of way, licenses, permits,
Leases, and other interests associated with, appurtenant to, or necessary for
the operation of any of the foregoing; and (d) interests in equipment and
machinery (including well equipment and machinery), oil and gas production,
gathering, transmission, compression, treating, processing and storage
facilities (including tanks, tank batteries, pipelines and gathering systems),
pumps, water plants, electric plants, gasoline and gas processing plants,
refineries and other tangible personal property and fixtures associated with,
appurtenant to, or necessary for the operation of any of the foregoing.
References in this Agreement to the "Oil and Gas Interests of the Company" or
"the Company's Oil and Gas Interests" mean the collective Oil and Gas Interests
of the Company.

"Ownership Interests" means the WIs and NRIs of the Company in the wells
included in its Oil and & Gas Interests, as set forth on Schedule 1.1 of the
Disclosure Schedule.

"Parent" has the meaning set forth in the introductory paragraph of this
Agreement.

"Parent Confidential Information" means any information concerning the
businesses and affairs of Parent and its Subsidiaries that is not already
generally available to the public.

"Parent Representative" means any director, officer, employee, agent, advisor
(including legal, accounting and financial advisors), Affiliate or other
representative of Parent or its Subsidiaries.

"Parties" has the meaning set forth on the first page of this Agreement.

"Payout Balances" has the meaning specified in Section 3.25.

"Per Share Amount of the Escrow Funds" means the amount of the Escrow Funds
allocable to each share of Common Stock, each Deemed Outstanding Option Share,
and each Deemed Outstanding Convertible Share to be determined by the Company
prior to the Closing Date upon the Closing Date Statement.

"Per Share Amount of Merger Consideration" means the amount of the Merger
Consideration to be paid for each share of Common Stock, each Deemed Outstanding
Option Share, and each Deemed Outstanding Convertible Share.

"Per Share Amount of the Closing Date Merger Consideration" means the amount of
the Closing Date Merger Consideration allocable to each share of Common Stock,
each Deemed Outstanding Option Share, and each Deemed Outstanding Convertible
Share.

"Per Share Amount of the Working Capital Holdback" means the amount of the
Working Capital Holdback allocable to each share of Common Stock, each Deemed
Outstanding Option Share, and each Deemed Outstanding Convertible Share.

"Permitted Encumbrances" means (a) Liens for Taxes, assessments or other
governmental charges or levies if the same shall not at the particular time in
question be due and delinquent or (if foreclosure, distrait sale or other
similar proceedings shall not have been commenced or, if commenced, shall have
been stayed) are being contested in good faith by appropriate proceedings;
(b) Liens of carriers, warehousemen, mechanics, laborers, materialmen,
landlords, vendors, workmen and operators arising by operation of law in the
ordinary course of business or by a written agreement existing as of the date
hereof and necessary or incident to the exploration, development, operation and
maintenance of Hydrocarbon properties and related facilities and assets for sums
not yet due or being contested in good faith by appropriate proceedings;
(c) Liens incurred in the ordinary course of business in connection with
worker's compensation, unemployment insurance and other social security
legislation (other than ERISA) which would not, individually or in the
aggregate, result in a Material Adverse Effect on the Company; (d) Liens
incurred in the ordinary course of business to secure the performance of bids,
tenders, trade contracts, Leases, statutory obligations, surety and appeal
bonds, performance and repayment bonds and other obligations of a like nature;
provided that no default exists with respect to any performance of such
obligations; (e) Liens, easements, rights-of-way, restrictions, servitudes,
permits, conditions, covenants, exceptions, reservations and other similar
encumbrances incurred in the ordinary course of business or existing on property
not materially impairing the value of the Assets of the Company or interfering
with the ordinary conduct of the business of the Company or rights to any of its
Assets; provided that the effect thereof does not operate to reduce the NRI of
the Company for any well or Unit below the NRI set forth in Schedule 1.1 of the
Disclosure Schedule for such well or Unit or increase the WI of the Company for
any well or Unit above the WI set forth in Schedule 1.1 of the Disclosure
Schedule for such well or Unit (unless there is a corresponding increase in the
NRI for such well or Unit); (f) Liens created or arising by operation of law to
secure a Party's obligations as a purchaser of oil and gas; (g) all rights to
consent by, required notices to, filings with, or other actions by Governmental
Authorities to the extent customarily obtained subsequent to closing;
(h) farmout, carried working interest, joint operating, unitization, royalty,
overriding royalty, sales and similar agreements relating to the exploration or
development of, or production from, Hydrocarbon properties entered into in the
ordinary course of business and not in violation of Section 5.1, provided the
effect thereof does not operate to reduce the NRI of the Company for any well or
Unit below the NRI set forth in Schedule 1.1 of the Disclosure Schedule for such
well or Unit or increase the WI of the Company for any well or Unit above the WI
set forth in Schedule 1.1 of the Disclosure Schedule for such well or Unit
(unless there is a corresponding increase in the NRI for such well or Unit);
(i) any defects, irregularities or deficiencies in title to the Oil and Gas
Interests of the Company which (A) do not operate to reduce the NRI of the
Company for any well or Unit below the NRI set forth in Schedule 1.1 of the
Disclosure Schedule for such well or Unit or increase the WI of the Company for
any well or Unit above the WI set forth in Schedule 1.1 of the Disclosure
Schedule for such well or Unit (unless there is a corresponding increase in the
NRI for such well or Unit) and (B) do not materially impair the value of the
Assets or interfere with the ordinary conduct of the business of the Company or
rights to any of its Assets; (j) preferential rights to purchase and Third-Party
Consents (A) which are not applicable to the transaction contemplated hereby or
(B) with respect to which waivers or consents have been obtained from the
appropriate parties or the appropriate time period for asserting the right has
expired without an exercise of the rights, in each case prior to the Closing;
(k) Liens arising under or created pursuant to the Bank Credit Agreement; and
(l) valid, subsisting and applicable Laws, provided the effect thereof does not
operate to reduce the NRI of the Company for any well or Unit below the NRI set
forth in Schedule 1.1 of the Disclosure Schedule for such well or Unit or
increase the WI of the Company for any well or Unit above the WI set forth in
Schedule 1.1 of the Disclosure Schedule for such well or Unit (unless there is a
corresponding increase in the NRI for such well or Unit).

"Person" (whether or not capitalized) means any natural person, corporation,
company, limited or general partnership, joint stock company, joint venture,
association, limited liability company, trust, bank, trust company, land trust,
business trust or other entity or organization, whether or not a Governmental
Authority.

"Product Hedging Contract" means any agreement providing for options, swaps,
floors, caps, collars, forward sales or forward purchases involving commodities
or commodity prices, or indices based on any of the foregoing.

"Quarterly Financial Statements"

means the financial statements of the Company, prepared by the Company, for the
quarters ending March 31, 2000, June 30, 2000, March 31, 2001 and June 30, 2001
prepared in accordance with GAAP consistently applied.

"Reserve Report" means the Reserve Report specified in Section 3.33.

"Responsible Officer" means, with respect to any entity, the Chief Executive
Officer, President, Chief Operating Officer, Chief Financial Officer or any Vice
President of such entity.

"Restricted Employees" has the meaning specified in Section 6.2(d).

"Securities Act" means the Securities Act of 1933, as amended.

"Shareholders' Representatives"

has the meaning specified in Section 10.2.

"Subsidiary(ies)" means, as to a particular Person, an entity more than
50 percent owned, directly or indirectly, by such Person.

"Surviving Corporation" has the meaning specified in Section 2.2.

"Tax Returns" has the meaning specified in Section 3.14.

"Taxes" means taxes of any kind, levies or other like assessments, customs,
duties, imposts, charges or fees, including income, gross receipts, ad valorem,
value-added, excise, real or personal property, asset, sales, use, federal
royalty, license, payroll, transaction, capital, net worth and franchise taxes,
estimated taxes, withholding, employment, social security, workers compensation,
utility, severance, production, unemployment compensation, occupation, premium,
windfall profits, transfer and gains taxes or other governmental charges,
including any interest, penalties or additions thereto, whether disputed or not,
including penalties for the failure to file any Tax Return or report.

"Third-Party Consent" means the consent or approval of any Person other than the
Company, Parent, Merger Sub or any Governmental Authority.

"Units" means all unitization, communitization and pooling agreements and orders
covering the lands subject to the Lease, or any portion thereof, and the united
and communitized or pooled areas created thereby.

"WI" means the fractional interest of the costs and expenses associated with the
exploration, development and operation of a well or Unit that the Company is
obligated to bear.

"Working Capital Balance" has the meaning specified in Section 5.12.

"Working Capital Holdback" has the meaning specified in Section 5.12(b).

References and Titles. All references in this Agreement to Exhibits, Schedules,
Articles, Sections, subsections and other subdivisions refer to the
corresponding Exhibits, Schedules, Articles, Sections, subsections and other
subdivisions of or to this Agreement unless expressly provided otherwise. Titles
appearing at the beginning of any Articles, Sections, subsections or other
subdivisions of this Agreement are for convenience only, do not constitute any
part of this Agreement, and shall be disregarded in construing the language
hereof. The words "this Agreement," "herein," "hereby," "hereunder" and
"hereof," and words of similar import, refer to this Agreement as a whole and
not to any particular subdivision unless expressly so limited. The words "this
Article," "this Section" and "this subsection," and words of similar import,
refer only to the Article, Section or subsection hereof in which such words
occur. The word "or" is not exclusive, and the word "including" (in its various
forms) means including without limitation. Pronouns in masculine, feminine or
neuter genders shall be construed to state and include any other gender, and
words, terms and titles (including terms defined herein) in the singular form
shall be construed to include the plural and vice versa, unless the context
otherwise requires.

As used in the representations and warranties contained in this Agreement, the
phrase "to the knowledge" of the representing Party shall mean that Responsible
Officers of such representing Party, individually or collectively, either
(a) know that the matter being represented and warranted is true and accurate or
(b) have no reason to believe after reasonable due diligence and investigation
that the matter being represented and warranted is not true and accurate.

THE MERGER

The Merger. Subject to the terms and conditions set forth in this Agreement, at
the Merger Effective Time, Merger Sub shall be merged with and into the Company
in accordance with the provisions of this Agreement. Such merger is referred to
herein as the "Merger."

Effect of the Merger. Upon the effectiveness of the Merger, the separate
existence of Merger Sub shall cease and the Company, as the surviving
corporation in the Merger (the "Surviving Corporation"), shall continue its
corporate existence under the Laws of the State of Texas. The Merger shall have
the effects specified in this Agreement and the Texas Business Corporation Act.

Governing Instruments, Directors and Officers of the Surviving Corporation.

The Certificate Of Incorporation of the Company, as in effect immediately prior
to the Merger Effective Time, shall be the certificate of incorporation of the
Surviving Corporation until duly amended in accordance with its terms and
applicable Law.

The Bylaws of the Company, as in effect immediately prior to the Merger
Effective Time, shall be the by-laws of the Surviving Corporation until duly
amended in accordance with their terms and applicable Law.

The directors and officers of the Company at the Merger Effective Time shall be
the directors and officers, respectively, of the Surviving Corporation from the
Merger Effective Time until their respective successors have been duly elected
or appointed in accordance with the certificate of incorporation and by-laws of
the Surviving Corporation and applicable Law.

Effect on Securities.

Merger Sub Stock

. At the Closing, by virtue of the Merger and without any action on the part of
any holder thereof, each share of Merger Sub Common Stock outstanding
immediately prior to the Closing shall remain outstanding and continue as one
share of capital stock of the Surviving Corporation, and each certificate
evidencing ownership of any such shares shall continue to evidence ownership of
the same number of shares of the capital stock of the Surviving Corporation.

Company Securities

.

Company Common Stock

. At the Closing, by virtue of the Merger and the payment in immediately
available funds of the Per Share Amount of the Closing Date Merger Consideration
and without any action on the part of any holder thereof, each share of Company
Common Stock that is issued and outstanding immediately prior to the Merger
Effective Time shall be converted into the right to receive the Per Share Amount
of the Merger Consideration. Each share of Company Common Stock, when so
converted, shall automatically be canceled and retired, shall cease to exist and
shall no longer be outstanding, and the holder of any certificate representing
any such shares shall cease to have any rights with respect thereto, except the
right to receive the Per Share Amount of the Merger Consideration.

Company Treasury Stock

. At the Closing, by virtue of the Merger, all shares of Company Common Stock
that are issued and held as treasury stock shall be canceled and retired and
shall cease to exist, and no Merger Consideration or other consideration shall
be paid or payable in exchange therefor.

Company Stock Options

. At the Closing, by virtue of the Merger and without any action on the part of
the holder thereof, each Company Stock Option shall be canceled and each
non-vested Company Stock Option shall become null and void and each vested
Company Stock Option shall be converted into the right to receive, for each
share of Company Common Stock with respect to which such vested Company Stock
Option is exercisable, cash in an amount equal to the Per Share Amount of the
Merger Consideration, less the per share exercise price of such Company Stock
Option. At the Closing, Parent shall pay or cause to be paid pursuant to
directions from the Shareholders' Representatives to each holder of a vested
Company Stock Option, for each share of Company Common Stock with respect to
which such Company Stock Option is exercisable, cash in an amount equal to
(i) the amount by which (A) the Per Share Amount of the Closing Date Merger
Consideration exceeds (B) the per share exercise price of such Company Stock
Option, less (ii) amounts required to be withheld, if any, in respect of federal
taxes that are payable by such holder as a consequence of the cancellation of
such Company Stock Option in accordance herewith. Final payments to the holders
of Company Stock Options of any remaining portion of the Per Share Amount of the
Merger Consideration which is due hereunder, if any, shall be made in accordance
with Section 5.12 and the Escrow Agreement, respectively less amounts required
to be withheld, if any, in respect of federal taxes that are payable by such
holder as a consequence of the cancellation of such Company Stock Option in
accordance herewith.

Company Convertible Debentures

. At the Closing, by virtue of the Merger and without any action on the part of
the holder thereof, each Company Convertible Debenture shall be canceled and
each Company Convertible Debenture shall be converted into the right to receive,
for each share of Company Common Stock with respect to which such Company
Convertible Debenture is convertible, cash in an amount equal to the Per Share
Amount of the Merger Consideration. At the Closing, Parent shall pay or cause to
be paid pursuant to directions from the Shareholders' Representatives, to each
holder of a Company Convertible Debenture, for each share of Company Common
Stock with respect to which such Company Convertible Debenture is convertible,
cash in an amount equal to the Per Share Amount of the Closing Date Merger
Consideration.

Other Plans

. Except as provided in this Section 2.4(b) or as otherwise agreed to by the
Parties: the provisions of any other plan, program or arrangement providing for
the issuance or grant of any other interest in respect of the capital stock of
the Company shall become null and void at the Merger Effective Time.

Surrender and Exchange of Certificates.

Exchange Procedures

. At the Closing: (i) the shareholders of the Company shall surrender to Parent
all Company Certificates which, immediately prior to the Merger Effective Time,
represented any shares of Company Common Stock; and (ii) Parent shall pay or
cause to be paid, pursuant to directions from the Shareholders' Representatives,
to each Person in whose name a Company Certificate shall have been registered,
in exchange therefor, cash in an amount equal to the product of (A) the Per
Share Amount of the Closing Date Merger Consideration times (B) the number of
shares of Company Common Stock represented by such Company Certificate. Each
Company Certificate so surrendered shall forthwith be canceled. Final payments
to the shareholders of the Company shall be in accordance with Section 5.12 and
the Escrow Agreement.

No Further Ownership Rights in Company Common Stock

. The Merger Consideration paid upon the surrender and exchange of shares of
Company Common Stock in accordance with the terms hereof shall be deemed to have
been paid in full satisfaction of all rights pertaining to such shares of
Company Common Stock. After the Merger Effective Time, there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Company Common Stock that were outstanding
immediately prior to the Merger Effective Time. If, after the Merger Effective
Time, a Company Certificate is presented to the Surviving Corporation for any
reason, it shall be canceled and exchanged as provided in this Section 2.5.

Lost, Stolen, or Destroyed Company Certificates

. If any Company Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the Person claiming such Company
Certificate to be lost, stolen or destroyed and, if required by Parent, the
agreement by such Person to indemnify Parent and the Surviving Corporation
against any claim that may be made against it with respect to such Company
Certificate, Parent shall pay to such holder, in exchange for such lost, stolen
or destroyed Company Certificate the Merger Consideration deliverable with
respect thereto pursuant to this Agreement.

Closing. The Closing shall take place on the Closing Date at such time and place
as is agreed upon by Parent and the Company.

Effective Time of the Merger. The Certificate of Merger shall be filed on the
Closing Date and the Merger shall be effective at the Merger Effective Time.

Taking of Necessary Action; Further Action. Each of Parent, Merger Sub, and the
Company shall use all reasonable efforts to take all such actions as may be
necessary or appropriate in order to effectuate the Merger under the Texas
Business Corporation Act as promptly as commercially practicable. If, at any
time after the Closing Date, any further action is necessary or desirable to
carry out the purposes of this Agreement and to vest the Surviving Corporation
with full right, title and possession to all assets, property, rights,
privileges, powers and franchises of Merger Sub and the Company, the officers
and directors of the Surviving Corporation are fully authorized, in the name of
the Surviving Corporation or otherwise, to take, and shall take, all such lawful
and necessary action.

Earnest Money.

Deposit Into Escrow

. Contemporaneous with the execution of this Agreement, Parent or Merger Sub
shall deposit into an escrow account established by the parties, pursuant to the
terms and conditions of the Earnest Money Escrow Agreement attached hereto as
Exhibit A (the "
Earnest Money Escrow Agreement
"), an amount equal to Five Million Six Hundred Thousand Dollars ($5,600,000)
(the "
Earnest Money
").

Payment to Company

. In the event the Closing occurs, the Earnest Money, including interest, shall
be paid to the Company stockholders in accordance with the terms and provisions
of the Earnest Money Escrow Agreement and credited against the Merger
Consideration. In the event Parent or Merger Sub breaches this Agreement by
failing or refusing to close the transaction contemplated hereby on the Closing
Date and each of the conditions contained in Article 6 has been either fulfilled
or waived, the Earnest Money, including interest, shall be paid to the Company
in accordance with the terms and provisions of the Earnest Money Escrow
Agreement. The Parties hereby acknowledge that the extent of damages to the
Company and the Company's shareholders occasioned by such failure or refusal by
Parent or Merger Sub would be impossible or extremely impractical to ascertain
and that the amount of the Earnest Money is a fair and reasonable estimate of
the damages under the circumstances and the payment of the Earnest Money shall
be Company's and Company's shareholders sole and exclusive remedy in such event.

Payment to Parent. In the event the Closing does not occur and the Earnest Money
is not paid to the Company pursuant to the foregoing provisions of this
Section 2.9 or this Agreement is terminated pursuant to Subsection 5.11(h) or
(i), the Earnest Money, including interest, shall be returned to Parent in
accordance with the terms and provisions of the Earnest Money Escrow Agreement.

Excluded Assets. Prior to the Closing, the Excluded Assets will be distributed
by the Company to its shareholders or otherwise transferred to one or more of
the shareholders of the Company or their nominee(s). None of the representations
or warranties set forth in this Agreement nor any of the other provisions of
this Agreement shall be applicable to the Excluded Assets.

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Company hereby represents and warrants to Parent and Merger Sub as follows:

Organization. The Company (a) is a corporation duly organized, validly existing
and in good standing under the Laws of the State of Texas, (b) has the requisite
power and authority to own, lease and operate its properties and to conduct its
business as it is presently being conducted, and (c) is duly qualified to do
business as a foreign corporation and is in good standing, in each jurisdiction
where the character of the properties owned or leased by it or the nature of its
activities makes such qualification necessary (except where any failure to be so
qualified or to be in good standing would not, individually or in the aggregate,
have a Material Adverse Effect on the Company). Copies of the certificate of
incorporation and by-laws of the Company have heretofore been delivered to
Parent, and such copies are accurate and complete as of the date hereof. The
Company has no Subsidiaries. The Company does not own any equity interest in any
corporation or limited liability company or any general or limited partnership
interest in any general or limited partnership (other than joint ventures, joint
operating or ownership arrangements or tax partnerships which have been entered
into in the ordinary course of business).

Authority and Enforceability. The Company has the requisite corporate power and
authority to enter into and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of the Company,
including approval by the board of directors and shareholders of the Company,
and no other corporate proceedings on the part of the Company are necessary to
authorize the execution or delivery of this Agreement or the consummation of the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Company and (assuming that this Agreement
constitutes a valid and binding obligation of Parent and Merger Sub) constitutes
a valid and binding obligation of the Company enforceable against it in
accordance with its terms.

No Violations. The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby and compliance by the
Company with the provisions hereof will not, conflict with, result in any
violation of or default (with or without notice or lapse of time or both) under,
give rise to a right of termination, cancellation or acceleration of any
obligation or to the loss of a benefit under, or result in the creation of any
Lien on any of the properties or assets of the Company under, any provision of:
(a) its certificate of incorporation or by-laws; (b) any loan or credit
agreement, note, bond, mortgage, indenture, lease (including Leases), permit,
concession, franchise, license or other agreement or instrument applicable to
the Company; or (c) assuming the consents, approvals, authorizations, permits,
filings and notifications referred to in Section 3.4 are duly and timely
obtained or made, any Law applicable to the Company or its properties or assets
other than in the case of clause (b) or (c) above, any such conflict, violation,
default, right, loss or Lien that, individually or in the aggregate, would not
have a Material Adverse Effect on the Company.

Consents and Approvals. No consent, approval, order or authorization of,
registration, declaration or filing with, or permit from, any Governmental
Authority is required by or with respect to the Company in connection with the
execution and delivery of this Agreement by the Company or the consummation by
the Company of the transactions contemplated hereby, except for the following:
(a) any such consent, approval, order, authorization, registration, declaration,
filing or permit which the failure to obtain or make would not, individually or
in the aggregate, have a Material Adverse Effect on the Company; and (b) such
filings and approvals as may be required by any securities Law. Except as set
forth in Schedule 3.4 of the Disclosure Schedule, no Third-Party Consent is
required by or with respect to the Company in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, except for any consent, approval or waiver required by the terms of the
Bank Credit Agreement.

Financial Statements.

The Company Financial Statements and the Quarterly Financial Statements were
prepared in accordance with GAAP applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto and the
unaudited interim financial statements are not accompanied by notes or other
textual disclosure required by GAAP) and fairly present, in accordance with
applicable requirements of GAAP (in the case of the unaudited statements,
subject to normal, recurring adjustments), the financial position of the Company
as of their respective dates and the results of operations and the cash flows of
the Company for the periods presented therein. The Company Financial Statements
and the Quarterly Financial Statements are consistent with the books and records
of the Company. The Closing Date Financial Statements are consistent with the
Company's books and records in all material respects. Since January 1, 2001,
except as disclosed in the Company's financial statements as of and for the
three month period ended March 31, 2001, no event has occurred or condition
existed which has had or could be expected to have a Material Adverse Effect on
the Company.

Capital Structure.

The authorized capital stock of the Company consists of 5,000,000 shares of the
Company Common Stock, par value $.01 per share.

There are, as of the execution date of this Agreement, issued and outstanding
(i) 3,210,712 shares of the Company Common Stock; (ii) convertible debentures as
described in Schedule 3.6 of the Disclosure Schedule (the "Company Convertible
Debentures") convertible into 40,096 shares of the Company Common Stock that
would be converted into Merger Consideration pursuant to Section 2.4(b) hereof;
and (iii) Company Stock Options relating to 710,048 shares of the Company Common
Stock that would be converted into Merger Consideration pursuant to
Section 2.4(b) hereof. No shares of the Company Common Stock are held by the
Company as treasury stock.

Except as set forth in or pursuant to Section 3.6(b), there are issued and
outstanding (i) no shares of capital stock or other voting securities of the
Company, (ii) no securities of the Company or any other Person convertible into
or exchangeable or exercisable for shares of capital stock or other voting
securities of the Company, and (iii) no subscriptions, options, warrants, calls,
rights (including preemptive rights), commitments, understandings or agreements
to which the Company is a party or by which it is bound obligating the Company
to issue, deliver, sell, purchase, redeem or acquire shares of capital stock or
other voting securities of the Company (or securities convertible into or
exchangeable or exercisable for shares of capital stock or other voting
securities of the Company) or obligating the Company to grant, extend or enter
into any such subscription, option, warrant, call, right, commitment,
understanding or agreement.

All outstanding shares of Company Common Stock are validly issued, fully paid
and non-assessable and not subject to any preemptive right.

Except as set forth in Schedule 3.6 of the Disclosure Schedule, at the Closing
there will be no shareholder agreement, voting trust or other agreement or
understanding to which the Company is a party or by which it is bound relating
to the voting of any shares of the capital stock of the Company.

There are no outstanding stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Company.

Material Agreements. Schedule 3.7 of the Disclosure Schedule contains a complete
list of the Material Agreements to which the Company is a party (other than this
Agreement and related agreements) or by which the Company or the Assets are
bound (including all amendments and modifications thereto). The Company has made
available to Parent or provided Parent with a true and correct copy of all such
Material Agreements, including all amendments and modifications thereof. No
right or obligation of any party to any of such Material Agreements has been
waived, and no party to any of such Material Agreements is in material default
of its obligations thereunder. No event has occurred and no condition exists
which, with the giving of notice or the lapse of time or both, would constitute
any such material breach or material default. Each of such Material Agreements
is a valid, binding and enforceable obligation of the parties thereto in
accordance with its terms and is in full force and effect.

Bank Credit Agreement. The Company has provided to or made available to Parent a
true and correct copy of the Bank Credit Agreement, including all amendments and
modifications thereto. Except as set forth in Schedule 3.8 of the Disclosure
Schedule, no rights or obligations of any party to the Bank Credit Agreement
have been waived, and no party to the Bank Credit Agreement is in default of its
obligations thereunder. The Bank Credit Agreement is a valid, binding and
enforceable obligation of the parties thereto in accordance with its terms and
is in full force and affect.

Outstanding Debt. The Company Financial Statements and Schedule 3.9 of the
Disclosure Schedule, together provide a complete and accurate description of all
Debt and Guaranties and other liabilities and obligations, whether accrued,
contingent, absolute, determined, determinable or otherwise of the Company
outstanding as of the date thereof and except as provided in Schedule 3.9 of the
Disclosure Schedule, since March 31, 2001, no event or condition has occurred or
exists which has had, or could be expected to have, a Material Adverse Effect on
the Company. The Company is not in default in payment of any Debt with respect
to which it is an obligor or in default of any covenant, agreement,
representation, warranty or other term of any document, instrument or agreement
evidencing, securing or otherwise pertaining to any such Debt.

Affiliate Transactions. Schedule 3.10 of the Disclosure Schedule contains a
complete and accurate description of all contracts, agreements and other
arrangements (whether written, oral, express or implied) between the Company and
any Affiliate of the Company that will be in existence on the Closing Date or
under which the Company will have rights or obligations after the Closing Date.

Employment Matters. Schedule 3.11 of the Disclosure Schedule contains a complete
and accurate list of all officers of the Company. Except as set forth in
Schedule 3.11 of the Disclosure Schedule, the Company is not a party to or
obligated under any consulting, employment, severance, termination or similar
arrangement with respect to any of its employees, or any bonus, profit sharing,
pension, stock option, stock purchase or similar plan or other arrangement or
other fringe benefit plan entered into or maintained for the benefit of its
employees, which plan or arrangement will extend beyond or obligate the Company
after the Closing. The Company is in material compliance with all laws, rules,
regulations and orders relating to the employment of labor, including all such
laws, rules, regulations and orders relating to wages, hours, collective
bargaining, discrimination, civil rights, safety and health, workers'
compensation and the collection and payment of withholding or Social Security
Taxes and similar Taxes.

Employee Benefit Plans.

Schedule 3.12 of the Disclosure Schedule sets forth a complete and accurate list
of all "employee benefit plans," as defined in Section 3(3) of ERISA, including
severance pay, sick leave, vacation pay, salary continuation for disability,
retirement, deferred compensation, bonus, long-term incentive, stock option,
stock purchase, hospitalization, medical insurance, life insurance and
scholarship programs, maintained by the Company or to which the Company
contributed or is obligated to contribute (the "Company Employee Benefit
Plans"). Except for the Company Employee Benefit Plans, the Company does not
maintain, or have any fixed or contingent liability with respect to, any
employee benefit, pension or other compensation plan.

There is no material violation of ERISA or other applicable law with respect to
any Company Employee Benefit Plan. With respect to the Company Employee Benefit
Plans, there exists no condition or set of circumstances that could reasonably
be expected to result in liability which is reasonably likely to have a Material
Adverse Effect on the Company under ERISA, the Code or any applicable law.

Neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will result in any payment becoming due to any
employee or group of employees of the Company, which payment will not be made at
or prior to the Closing.

The Company does not maintain nor has it established any welfare benefit plan
which provides for retiree medical liabilities or continuing benefits or
coverage for any participant or any beneficiary of any participant after such
participant termination of employment, except as may be required by COBRA.

The Company has not maintained, established or participated in any multiple
employer pension or welfare benefit arrangement within the meaning of
Section 3(40)(A) of ERISA.

The Company may terminate any of the Company Employee Benefit Plans at any time
without liability.

Litigation. Except as set forth in Schedule 3.13 of the Disclosure
Schedule:  (a) no litigation, arbitration, investigation or other proceeding is
pending or, to the knowledge of the Company, threatened against the Company or
any of its assets before any court, arbitrator or Governmental Agency; and
(b) the Company is not subject to any outstanding injunction, judgment, order,
decree or ruling (other than routine oil and gas field regulatory orders). There
is no litigation, proceeding or investigation pending or, to the knowledge of
the Company, threatened against or affecting the Company that questions the
validity or enforceability of this Agreement or any other document, instrument
or agreement to be executed and delivered by the Company in connection with the
transactions contemplated hereby.

Taxes and Tax Returns.

Except as set forth in Schedule 3.14 of the Disclosure Schedule, (i) all
federal, state, local and foreign returns, declarations, reports, estimates,
information returns and statements ("Tax Returns") required to be filed by or
with respect to the Company have been duly and timely filed; (ii) all items of
income, gain, loss, deduction and credit or other items ("Tax Items") required
to be included in each such Tax Return have been so included and all such Tax
Items and other information provided in each such Tax Return are true, correct
and complete; (iii) all Taxes owed by or with respect to the Company that are or
have become due have been timely paid in full; (iv) no penalty, interest or
other charge is or will become due with respect to the late filing of any such
Tax Return or late payment of any such Tax; (v) all Tax withholding and deposit
requirements imposed on or with respect to the Company have been satisfied in
full in all respects; (vi) there are no mortgages, pledges, liens, encumbrances,
charges or other security interests on any of the assets of the Company that
arose in connection with any failure (or alleged failure) to pay any Tax;
(vii) there is no claim against the Company for any Taxes, and no assessment,
deficiency or adjustment has been asserted, proposed, or threatened with respect
to any Tax Return of or with respect to the Company; (viii) there is not in
force any extension of time with respect to the due date for the filing of any
Tax Return of or with respect to the Company or any waiver or agreement for any
extension of time for the assessment or payment of any Tax of or with respect to
the Company; (ix) no Tax Returns are currently under audit and there are no
audits pending or threatened with respect to the Company; and (x) no claim has
ever been made by a taxing authority in a jurisdiction where the Company does
not file Tax Returns that it is or may be subject to taxation in that
jurisdiction.

The Company has not been a member of an affiliated group filing a consolidated
federal income Tax Return and has no liability for the Taxes of any other Person
under Treasury Regulation Section 1.1502-6 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by contract, or otherwise.
No payments are due or will become due by the Company pursuant to any Tax
sharing or similar agreement or arrangement or any Tax indemnification
agreement.

The total amounts accrued as current liabilities for Taxes in the Company
Financial Statements and the total amounts accrued as current liabilities for
Taxes as of the Effective Time are and will be sufficient to cover the payment
of all Taxes, whether or not assessed or disputed, which are, or are hereafter
found to be, or to have been, due by or with respect to the Company for those
periods. For purposes of determining the current liabilities for Taxes of the
Company as of the Effective Time, (i) the amount of any compensation, which may
be deducted from gross income by the Company, that is attributable to the
exercise (or cancellation) or deemed exercise of Company Stock Options upon
conversion pursuant to Section 2.4(b) at the Closing, shall be treated as paid
to such employees prior to the Effective Time, and (ii) any Taxes payable by the
Company with respect to compensation described in subparagraph (i), including,
without limitation, FICA and Medicare Taxes, shall be treated as attributable to
the period prior to the Effective Time.

The Company has not consented to have the provisions of Section 341(f)(2) of the
Code apply with respect to a sale of its stock.

The Company has not made any payments, and as of the Closing Date will not have
made any payments and will not be obligated to make any payments, and will not
be a party to any agreement that under certain circumstances could obligate it
to make any payments, that would not be deductible under Section 280G of the
Code.

The Company has not been a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Code.

The Company (and any predecessor of the Company) was a validly electing S
corporation within the meaning of Sections 1361 and 1362 of the Code at all
times from the date of incorporation of the Company until the S election was
terminated on July 21, 1998.

The Company is not a party to any joint venture, partnership or other
arrangement which could be treated as a partnership for federal income tax
purposes.

Schedule 3.14(i) of the Disclosure Schedule sets forth the following information
with respect to the Company: (i) the basis of the Company in its assets as of
December 31, 1999; and (ii) the amount of any net operating loss, net capital
loss, unused investment or other credit as of December 31, 1999.

The Company has properly prepared and timely filed all certifications and other
documentation required to establish its entitlement to enhanced oil recovery
credits, as described in Section 43 of the Code.

The Company (i) will not be required to include any amount in income for any
taxable period beginning after December 31, 2000 as a result of a change in
accounting method; and (ii) will not be required to include in any period after
December 31, 2000 (including as a result of the transactions contemplated by
this Agreement) any income that accrued on or prior to the Effective Time but
was not recognized at the time it accrued as a result of the installment method
of accounting, the completed contract method of accounting, the long-term
contract method of accounting or the cash or any modified cash method of
accounting.

Ownership of Assets. Except as set forth in Schedule 3.15 of the Disclosure
Schedule, the Company has Defensible Title to all of the Assets. In determining
whether Defensible Title to an Oil and Gas Interest has failed due to an absence
of production records prior to 1960 that may raise a potential claim lapse in
production due consideration will be given to (a) the length of time that such
Oil and Gas Interest has been producing Hydrocarbon substances which have been
credited to and accounted for by the Company and its predecessors in title, if
any and (b) other associated facts, such as repair work, that may support the
continuation of Defensible Title.

Compliance with Laws and Permits. The Company is not in violation of, or in
default in any respect under, and no event has occurred that (with notice or the
lapse of time or both) would constitute a violation of or default under: (a) its
certificate of incorporation or by-laws; (b) any Law; or (c) any Material
Agreement to which the Company is a party or by which its properties are bound,
except (in the case of clause (b) or (c) above) for any violation or default
that would not, individually or in the aggregate, have a Material Adverse Effect
on the Company. The Company has obtained and holds all permits, licenses,
variances, exemptions, orders, franchises, approvals and authorizations of all
Governmental Authorities necessary for the lawful conduct of its business or the
lawful ownership, use and operation of its assets (the "Company Permits"),
except for Company Permits which the failure to obtain or hold would not,
individually or in the aggregate, have a Material Adverse Effect on the Company.
The Company is in compliance with the terms of the Company Permits, except where
the failure to comply would not, individually or in the aggregate, have a
Material Adverse Effect on the Company. No investigation or review by any
Governmental Authority with respect to the Company is pending or, to the
knowledge of the Company, threatened, except as set forth in Schedule 3.16 of
the Disclosure Schedule.

Proprietary Rights. To the knowledge of the Company, the operation of the
business of the Company does not infringe any patent, copyright, trademark or
other proprietary rights of others, and, the Company has not received any notice
from any third-party of any such alleged infringement by the Company.

Environmental Matters. Except as set forth in Schedule 3.18 of the Disclosure
Schedule:

The Company has conducted its business and operated its assets, and is
conducting its business and operating its assets, and the condition of all
facilities and properties (including off-site storage or disposal of any
Hazardous Materials from such facilities or properties) currently or formerly
owned, leased or operated by the Company is, in material compliance with all
Environmental Laws;

The Company has not been notified by any Governmental Authority or other third
party that any of the operations or assets of the Company is the subject of any
investigation or inquiry by any Governmental Authority or other third party
evaluating whether any material remedial action is needed to respond to a
release or threatened release of any Hazardous Material or to the improper
storage or disposal (including storage or disposal at offsite locations) of any
Hazardous Material;

Neither the Company nor to the knowledge of the Company, any other Person has
filed any notice under any Law indicating that (i) the Company is responsible
for the improper release into the environment, or the improper storage or
disposal, of any Hazardous Material, or (ii) any Hazardous Material is
improperly stored or disposed of upon any property of the Company;

The Company does not have any contingent liability, that would have a Material
Adverse Effect, in connection with (i) the release or, to the knowledge of the
Company, threatened release into the environment at, beneath or on any property
now or previously owned or leased by the Company; or (ii) the storage or
disposal of any Hazardous Material;

The Company has not received any claim, complaint, notice, inquiry or request
for information involving any matter which remains unresolved as of the date
hereof with respect to any alleged violation of any Environmental Law or
regarding potential liability under any Environmental Law relating to operations
or conditions of any facilities or property (including off-site storage or
disposal of any Hazardous Material from such facilities or property) currently
or formerly owned, leased or operated by the Company;

No property now or previously owned, leased or operated by the Company is listed
on the National Priorities List pursuant to CERCLA or on the CERCLIS or on any
other federal or state list as sites requiring investigation or cleanup;

The Company is not directly transporting, has not directly transported, is not
directly arranging for the transportation of, and has not directly transported,
any Hazardous Material to any location which is listed on the National
Priorities List pursuant to CERCLA, on the CERCLIS, or on any similar federal or
state list or which is the subject of federal, state or local enforcement
actions or other investigations that may lead to material claims against the
Company for remedial work, damage to natural resources or personal injury,
including claims under CERCLA;

There are no sites, locations or operations at which the Company is currently
undertaking, or has completed, any remedial or response action relating to any
such disposal or release, as required by Environmental Laws;

All underground storage tanks and solid waste disposal facilities owned or
operated by the Company are used and operated in material compliance with
Environmental Laws; and

There are no physical or environmental conditions, that would have a Material
Adverse Effect, existing on any property owned or leased by the Company
resulting from the Company's operations or activities, past or present, at any
location, that would give rise to any on-site or off-site remedial obligations
under any applicable Environmental Laws, other than normal and ordinary remedial
work associated with plugging and abandoning of oil and gas facilities.

Notwithstanding anything in this Section 3.18 to the contrary, the
representations in this Section 3.18 are made to the actual knowledge of the
Company with respect to wells and other Assets not operated by the Company and
the Company has undertaken no independent due diligence or investigation with
respect thereto.

Insurance. The Company maintains, and through the Closing Date will maintain,
insurance with reputable insurers (or pursuant to prudent self-insurance
programs) in such amounts and covering such risks as are in accordance with
normal industry practice for companies engaged in businesses similar to those of
the Company and owning properties in the same general area in which the Company
conducts its business. None of such policies or binders was obtained through the
use of false or misleading information or the failure to provide the insurer
with all information requested in order to evaluate the liabilities and risks
insured. There are no billed but unpaid premiums past due under any such policy
or binder. Except as set forth in Schedule 3.19 of the Disclosure Schedule:
(a) there are no outstanding claims under any such policies or binders and
(b) no notice of cancellation or non-renewal of any such policy or binder has
been received.

Governmental Regulation. The Company is not subject to regulation under the
Public Utility Holding Company Act of 1935, the Investment Company Act of 1940
or any state public utilities Laws.

Brokers. Except as set forth in Schedule 3.21 of the Disclosure Schedule, no
broker, finder, investment banker or other Person is or will be, in connection
with the transactions contemplated by this Agreement, entitled to any brokerage,
finder's or other fee or compensation based on any arrangement or agreement made
by or on behalf of the Company and for which Parent, Merger Sub or the Company
will have any obligation or liability.

Oil and Gas Operations.

Schedule 3.22(a) of the Disclosure Schedule includes a list of all the wells
included in the Company's Oil and Gas Interests including all wells that are off
production. Except as set forth in Schedule 3.22(a) of the Disclosure Schedule,
all wells included in the Oil and Gas Interests of the Company have been drilled
and (if completed) completed, operated and produced in accordance with generally
accepted oil and gas field practices and in compliance in all material respects
with applicable oil and gas leases, pooling and unit agreements, and Laws.
Except as set forth in Schedule 3.22 of the Disclosure Schedule:

there are no wells that the Company is currently obligated by Law or contract to
plug and abandon;

there are no wells that are subject to exceptions to a requirement to plug and
abandon issued by a Governmental Authority having jurisdiction over the
applicable Lease;

there are no wells that have been plugged and abandoned but have not been
plugged in accordance, in all material respects, with all applicable
requirements of each Governmental Authority having jurisdiction over the
Company's Oil and Gas Interests; and

all such wells have been produced in compliance with allowables allocated
thereto by the applicable Governmental Authority, except such violations that
reasonably could not be expected to have a Material Adverse Effect on the
Company.

With respect to the Leases, unit agreements, pooling agreements, communitization
agreements and other documents creating interests comprising the Company's Oil
and Gas Interests: (i) the Company has fulfilled all requirements in all
material respects for filings, certificates, disclosures of parties in interest,
and other similar matters contained in such leases or other documents (or
otherwise applicable thereto by Law) and is fully qualified to own and hold all
such Leases and other interests; (ii) there are no provisions applicable to such
Leases and other documents which increase the royalty share of the lessor
thereunder; and (iii) upon the establishment and maintenance of production in
commercial quantities, such Leases and other interests are to be in full force
and effect over the economic life of the property involved and do not have terms
fixed by a certain number of years;

Proceeds from the sale of Hydrocarbons produced from the Company's Oil and Gas
Interests are being received by the Company in a timely manner and are not being
held in suspense for any reason (except for amounts, individually or in the
aggregate, not in excess of $100,000 and held in suspense in the ordinary course
of business); and

Except as set forth in Schedule 3.22(d) of the Disclosure Schedule, no Person
has any call upon, option to purchase, preferential right to purchase or similar
rights with respect to the Company's Oil and Gas Interests or to the production
therefrom.

Notwithstanding anything in this Section 3.22 to the contrary, the
representations contained in Section 3.22(a) are made to the actual knowledge of
the Company with respect those wells and other Assets not operated by the
Company and the Company has undertaken no independent due diligence or
investigation with respect thereto.

Gas Imbalances. Except as is reflected in Schedule 3.23 of the Disclosure
Schedule: (a) there are no aggregate production, transportation or processing
imbalances existing with respect to the Company or the Company's Oil and Gas
Interests; and (b) the Company has received no deficiency payments under gas
contracts for which any party has a right to take deficiency gas from the
Company, nor has the Company received any payments for production which are
subject to refund or recoupment out of future production.

Royalties. Except as set forth in Schedule 3.24 of the Disclosure Schedule, all
royalties, overriding royalties, compensatory royalties and other payments due
from or in respect of production with respect to the Company's Oil and Gas
Interests, have been or will be, prior to each of the Effective Time and the
Closing, properly and correctly paid or provided for in all material respects.

Payout Balances. The Payout Balance for each well owned and operated by the
Company is properly reflected in Schedule 3.25 of the Disclosure Schedule as of
the respective date(s) shown thereon. To the knowledge of the Company, based on
information given to the Company by third-party operators for all wells not
operated by the Company, the Payout Balance for any such third-party operated
well in which the Company owns an interest is properly reflected in
Schedule 3.25 of the Disclosure Schedule as of the respective date(s) shown
thereon. "Payout Balance(s)" means the status, as of the dates of the Company's
calculations, of the recovery by the Company or a third party of a cost amount
specified in the contract relating to a well out of the revenue from such well
where the NRI of the Company therein will be reduced when such amount has been
recovered.

Prepayments. No prepayment for Hydrocarbon sales has been received by the
Company for Hydrocarbons which have not been delivered as of the date hereof.

Capital Expenditures. As of the execution date of this Agreement, the presently
approved face amount of any currently outstanding and effective authorities for
expenditure with respect to the Company's Oil and Gas Interests would not
require the Company to make or incur after the Closing capital expenditures in
excess of $250,000, except as set forth in Schedule 3.27 of the Disclosure
Schedule.

Other Mineral Related Matters. Except as set forth in Schedule 3.28 of the
Disclosure Schedule, the Company is not obligated by virtue of any prepayment
arrangement, "take or pay" arrangement, production payment arrangement, gas
balancing agreement or otherwise, to deliver or to suffer the delivery of
Hydrocarbons produced in connection with any of the Company's Oil and Gas
Interests at some future time (or make a cash payment in lieu thereof) without
then or thereafter receiving full payment therefor without deduction or credit
on account of such arrangement from the price that would otherwise be received.

Additional Drilling Obligations. Except as set forth in Schedule 3.29 of the
Disclosure Schedule: (a) the Company has no explicit contractual obligation,
including obligations under the terms of any Lease, to drill additional wells or
conduct other development operations in order to earn or continue to hold, any
portion of the Company's Oil and Gas Interests; and (b) the Company has not been
advised by a lessor under any Lease affecting any of the Company's Oil and Gas
Interests of any requirements or demands to drill additional wells or conduct
additional development operations.

Financial and Product Hedging Contracts. Schedule 3.30 of the Disclosure
Schedule accurately summarizes the outstanding hedging positions under all
outstanding Product Hedging Contracts and financial hedging positions of the
Company (including fixed price controls, collars, swaps, caps, hedges and puts)
as of the date reflected in Schedule 3.30 of the Disclosure Schedule.

Books and Records. All books, records and files of the Company (including those
pertaining to the Company's Oil and Gas Interests, wells and other Assets, those
pertaining to the production, gathering, transportation and sale of
Hydrocarbons, and those pertaining to corporate, accounting, financial and
employee records): (a) have been prepared, assembled and maintained in
accordance with usual and customary policies and procedures and (b) fairly and
accurately reflect the ownership, use, enjoyment and operation by the Company of
its Assets.

Disclosure and Investigation. No representation or warranty of the Company set
forth in this Agreement contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained herein not misleading.

Reserve Report. The Company has delivered to Parent a copy of the Reserve Report
with total reserves as of March 1, 2001 prepared by Netherland, Sewell &
Associates (the "Reserve Report"). Except as set forth in Schedule 3.33 of the
Disclosure Schedule, the factual information underlying the estimates of
reserves in the Reserve Report (including production, volumes, sales prices for
production, contractual pricing provisions under oil or gas sales or marketing
contracts or under hedging arrangements, costs of operations and development,
and working interest and net revenue information relating to the Company's
Ownership Interests) has been made available to Parent, and was true and correct
in all material respects on the date of the Reserve Report; provided, however:
(i) the reserves included in such report are estimates only and should not be
construed as exact quantities; (ii) such reserves may or may not be recovered
and, if recovered, the revenues therefrom and the costs related thereto could be
more or less than the estimated amounts; (iii) the sales rates, prices received
for the reserves, and costs incurred in recovering such reserves may vary from
assumptions included in the Reserve Report due to governmental policies and
uncertainties of supply and demand; and (iv) estimates of such reserves may
increase or decrease as a result of future operations.

Leases. Except as set forth in Schedule 3.34 of the Disclosure Schedule, with
respect to the Oil and Gas Interests that are oil and/or gas leases (but only to
the Company's actual knowledge with respect to such oil and/or gas leases not
operated by the Company):

such oil and/or gas leases have been maintained according to their terms, in
compliance with all material agreements to which such leases are subject;

such oil and/or gas leases are presently in full force and effect; and

there has not occurred any event, fact or circumstance which with the lapse of
time or the giving of notice, or both, would constitute such a breach or default
under such oil and/or gas lease by the Company or, to the knowledge of the
Company, with respect to any other parties.

Condition of Equipment. To the knowledge of the Company, all equipment and
machinery currently in use, or material to the operation of, the Oil and Gas
Interests is in reasonable repair, ordinary wear and tear excepted.

Seismic Data. Except as set forth on Schedule 3.36 of the Disclosure Schedule,
(i) the Company owns or has the right to use without any limitations or
restrictions (including without limitation restrictions related to transfers to,
or use by, third parties), seismic records, field notes, if any, interpretations
and programs, all seismic, geological and geophysical information and libraries,
and other proprietary information relating to the business and the Assets of the
Company, if any, (the "Seismic Data"); (ii) the consummation of the transactions
contemplated by this Agreement will not alter or impair any such rights or
breach any agreements with third-party vendors or require payments of any
additional sums to such Persons; and (iii) the manner in which the Company has
actually used or copied such Seismic Data does not and has not infringed on the
rights of any Person.

REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

Parent and Merger Sub hereby jointly and severally represent and warrant to the
Company as follows:

Organization. Parent (a) is a corporation duly organized, validly existing and
in good standing under the laws of its state of incorporation; (b) has the
requisite power and authority to own, lease and operate its properties and to
conduct its business as it is presently being conducted; and (c) is duly
qualified to do business as a foreign corporation, and is in good standing, in
each jurisdiction where the character of the properties owned or leased by it or
the nature of its activities makes such qualification necessary (except where
any failure to be so qualified as a foreign corporation or to be in good
standing would not, individually or in the aggregate, have a Material Adverse
Effect on Parent). Merger Sub is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Texas.

Authority and Enforceability. Each of Parent and Merger Sub has the requisite
corporate power and authority to enter into and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action on the part
of Parent and Merger Sub, including approval by the boards of directors of
Parent and Merger Sub and the shareholders of Merger Sub, and no other corporate
proceedings on the part of Parent or Merger Sub are necessary to authorize the
execution or delivery of this Agreement or the consummation of the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Parent and Merger Sub and (assuming that this Agreement constitutes
a valid and binding obligation of the Company) constitutes a valid and binding
obligation of Parent and Merger Sub enforceable against Parent and Merger Sub in
accordance with its terms.

No Violations. The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby and compliance by Parent
and Merger Sub with the provisions hereof will not, conflict with, result in any
violation of or default (with or without notice or lapse of time or both) under,
give rise to a right of termination, cancellation or acceleration of any
obligation or to the loss of a material benefit under, or result in the creation
of any Lien on any of the properties or assets of Parent or Merger Sub under,
any provision of: (a) the certificate or articles of incorporation or by-laws or
other governing documents of Parent or Merger Sub; (b) any loan or credit
agreement, note, bond, mortgage, indenture, Lease, permit, concession,
franchise, license or other agreement or instrument applicable to Parent or
Merger Sub; or (c) assuming the consents, approvals, authorizations or permits
and filings or notifications referred to in Section 4.4 are duly and timely
obtained or made, any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Parent or Merger Sub or any of their respective
properties or assets, other than, in the case of clause (b) or (c) above, any
such conflict, violation, default, right, loss or Lien that, individually or in
the aggregate, would not have a Material Adverse Effect on Parent.

Consents and Approvals. No consent, approval, order or authorization of,
registration, declaration or filing with, or permit from, any Governmental
Authority is required by or with respect to Parent or Merger Sub in connection
with the execution and delivery of this Agreement by Parent and Merger Sub or
the consummation by Parent and Merger Sub of the transactions contemplated
hereby, except for the following: (a) any such consent, approval, order,
authorization, registration, declaration, filing or permit which the failure to
obtain or make would not, individually or in the aggregate, have a Material
Adverse Effect on Parent; and (b) such filings and approvals as may be required
by any securities, corporate or other law, rule or regulation. No Third-Party
Consent is required by or with respect to Parent or Merger Sub in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for any Third-Party Consent which the
failure to obtain would not, individually or in the aggregate, have a Material
Adverse Effect on Parent.

Litigation. There is no litigation, proceeding or investigation pending or, to
the knowledge of Parent, threatened against or affecting Parent or Merger Sub
that questions the validity or enforceability of this Agreement or any other
document, instrument or agreement to be executed and delivered by Parent or
Merger Sub in connection with the transactions contemplated hereby.

Funding. Parent has available adequate funds or the means to obtain adequate
funds in an aggregate amount sufficient to pay (a) all amounts required to be
paid by Parent and Merger Sub under this Agreement; and (b) all expenses which
have been or will be incurred by Parent or Merger Sub in connection with this
Agreement and the transactions contemplated hereby.

Brokers. No broker, finder, investment banker or other Person is or will be, in
connection with the transactions contemplated by this Agreement, entitled to any
brokerage, finder's or other fee or compensation based on any arrangement or
agreement made by or on behalf of Parent or Merger Sub and for which the Company
will have any obligation or liability. Parent shall indemnify and hold the
Company harmless from any and all claims, liabilities, damages, costs and
expenses asserted against the Company by any Person claiming to have acted on
behalf of Parent or Merger Sub, or to have been retained by Parent or Merger
Sub, as a broker in connection with the transaction contemplated by this
Agreement.

Disclosure and Investigation. No representation or warranty of Parent or Merger
Sub set forth in this Agreement contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
contained herein not misleading.

COVENANTS

Conduct of Business by the Company Pending Closing. Except as contemplated by
this Agreement or to the extent that Parent shall otherwise consent in writing,
during the period from the date of this Agreement to the Closing, the Company
will not take any action except in the ordinary course of business and the
Company will use all reasonable efforts to preserve intact in all material
respects its business organization, assets, prospects and advantageous business
relationships and to maintain satisfactory relationships with its licensors,
licensees, suppliers, contractors, distributors, customers and others having
advantageous business relationships with it. Without limiting the generality of
the foregoing, the Company will not take any of the following actions, except as
set forth in the Disclosure Schedule, without the written consent of Parent:

Authorize or effect any change in its certificate of incorporation or bylaws,
except that the Company may amend its certificate of incorporation prior to
Closing to change its name to a name selected by Parent and not containing the
name "Synergy Oil & Gas, Inc.";

Grant any options, warrants, or other rights to purchase or obtain any of its
capital stock or issue, sell or otherwise dispose of any of its capital stock;

Declare, set aside or pay any dividend or distribution with respect to its
capital stock (whether in cash or in kind), or redeem, repurchase, or otherwise
acquire any of its capital stock, except that, prior to Closing, the Company may
declare and distribute to its shareholders a dividend consisting of the Excluded
Assets; make any payment of any type, other than salaries (at the level as of
the date hereof), to any officer, director, shareholder or employee;

Issue any note, bond, or other Debt security or create, incur, assume, or
guarantee any indebtedness for borrowed money or capitalized lease obligation;
provided that prior to the Effective Time, the Company may do so in the ordinary
course of business or for Debt incurred under the Bank Credit Agreement and Debt
incurred under the Product Hedging Contracts;

Impose any security interest upon any of its assets; provided that prior to the
Effective Time, the Company may do so in the ordinary course of business and
pursuant to the Bank Credit Agreement and the Product Hedging Contracts;

Make any capital investment in, make any loan to, or acquire the securities or
assets of any other Person; provided that prior to the Effective Time, the
Company may do so in the ordinary course of business

Make any change in employment terms for any of its officers or employees, except
for such actions as are otherwise provided for or permitted in this Agreement;

Enter into, adopt or amend any employment agreement or pension plan, or grant,
or become obligated to grant, any increase in the compensation payable or to
become payable to any of its officers or employees or any general increase in
the compensation payable or to become payable to its employees, except for such
actions as are otherwise provided for herein;

Pay, discharge or satisfy any claims, liabilities or obligations (absolute,
accrued, contingent or otherwise; provided that prior to the Effective Time, the
Company may make the following payments: (A) the payment, discharge or
satisfaction in the ordinary course of business of liabilities reflected or
reserved against on the Company Financial Statements, subsequently incurred in
the ordinary course of business or disclosed pursuant to this Agreement;
(B) payments under the Bank Credit Agreement and the Product Hedging Contracts;
(C) payments of current liabilities; and (D) other payments that are considered
in the adjustment set forth in Section 5.11;

Acquire (including by lease) any material assets or properties or dispose of,
mortgage or encumber any assets or properties; provided that prior to the
Effective Time, the Company may do so in the ordinary course of business;

Enter into any Material Agreement or waive, release, grant or transfer any
material rights or modify or change in any respect any existing license, Lease,
contract or other document; provided that prior to the Effective Time, the
Company may do so in the ordinary course of business and as otherwise
contemplated by this Agreement;

Make any single capital expenditure of $25,000 or more net to the Company's
interest, except for capital expenditures pursuant to commitments disclosed
under or not covered by Section 3.27; provided that after the Effective Time the
Company may not make any capital expenditures;

Modify the terms of or close out any of its positions on its Product Hedging
Contracts or enter into any new hedging positions; or

Commit to any of the foregoing.

Access to Assets, Personnel and Information.

From the date hereof until the Closing, the Company will afford to Parent and
the Parent Representatives, at Parent's sole risk and expense, reasonable access
to any of the assets, books and records, contracts, facilities, audit work
papers and payroll records of the Company and any of the officers of the
Company. During such period, the Company will make available to a reasonable
number of Parent Representatives adequate office space and facilities at the
office facilities of the Company in Houston, Texas. Notwithstanding the
foregoing, no investigation pursuant to this Section 5.2(a) will affect or be
deemed to modify any of the representations or warranties made by the Company in
this Agreement.

Parent and the Parent Representatives shall have the right and opportunity to
make an environmental and physical assessment of the assets of the Company and,
in connection therewith, shall have the right to enter and inspect such assets
and all buildings and improvements thereon. Parent may not, without the written
or verbal consent of the Company, conduct any soil or water tests or borings or
other invasive tests or examinations with respect to the assets of the Company.
The Company shall be provided 24-hours prior notice of any such inspection, and
the Company Representatives shall have the right to witness all such
inspections. Parent shall (and shall cause the Parent Representatives to) keep
any data or information acquired by any such examinations and the results of any
analyses of such data and information strictly confidential and will not (and
will cause the Parent Representatives not to) disclose any of such data,
information or results to any Person unless otherwise required by law or
regulation and then only after written notice to the Company of the
determination of the need for disclosure. Parent shall indemnify, defend and
hold the Company and the Company Representatives harmless from and against any
and all claims to the extent arising out of or as a result of the activities of
Parent and the Parent Representatives on the assets of the Company in connection
with conducting such environmental and physical assessment, except to the extent
of and limited by the negligence or willful misconduct of the Company or any
Company Representative.

From the date hereof until the Closing, the Company shall fully and accurately
disclose to Parent and the Parent Representatives all information that is
(i) reasonably requested by Parent or any of the Parent Representatives,
(ii) known to the Company, and (iii) relevant to an assessment of the value,
ownership, use, operation, development or transferability of the assets of the
Company.

The Company will not (and will cause the Company Representatives not to), and
Parent will not (and will cause the Parent Representatives not to), use any
information obtained pursuant to this Section 5.2 for any purpose unrelated to
the consummation of the transactions contemplated by this Agreement.

Schedule 5.2 of the Disclosure Schedule sets forth all of the confidentiality
agreements to which the Company is a party. Notwithstanding anything in this
Section 5.2 to the contrary:  (i) the Company shall not be obligated under the
terms of this Section 5.2 to disclose to Parent or the Parent Representatives,
or grant Parent or the Parent Representatives access to, information that is
within the Company's possession or control but subject to a valid and binding
confidentiality agreement with a third party that prohibits such disclosure
without first obtaining the consent of such third party, and the Company, to the
extent reasonably requested by Parent, will use reasonable efforts to obtain any
such consent; and (ii) Parent shall not be obligated under the terms of this
Section 5.2 to disclose to the Company or the Company Representatives, or grant
the Company or the Company Representatives access to, information that is within
Parent's possession or control but subject to a valid and binding
confidentiality agreement with a third party that prohibits such disclosure
without first obtaining the consent of such third party, and Company, to the
extent reasonably requested by the Parent, will use reasonable efforts to obtain
any such consent.

Additional Arrangements. Subject to the terms and conditions herein provided,
each of the Parties shall take, or cause to be taken, all action and shall do,
or cause to be done, all things necessary, appropriate or desirable under any
applicable laws and regulations or under applicable governing agreements to
consummate and make effective the transactions contemplated by this Agreement,
including using reasonable efforts to obtain all necessary waivers, consents and
approvals and effecting all necessary registrations and filings. Each of the
Parties shall take, or cause to be taken, all action or shall do, or cause to be
done, all things necessary, appropriate or desirable to cause the covenants and
conditions applicable to the transactions contemplated hereby to be performed or
satisfied as soon as practicable. In addition, if any Governmental Authority
shall have issued any order, decree, ruling or injunction, or taken any other
action that would have the effect of restraining, enjoining or otherwise
prohibiting or preventing the consummation of the transactions contemplated
hereby, each of the Parties shall use reasonable efforts to have such order,
decree, ruling or injunction or other action declared ineffective as soon as
practicable.

Public Announcements; Confidentiality. Prior to the Closing, the Company, and
Parent shall consult with each other before any of them issues any press release
or otherwise makes any public statement with respect to the transactions
contemplated by this Agreement, and no Party shall issue any press release or
make any such public statement prior to obtaining the approval of the other
Parties; provided, however, that such approval shall not be required where such
release or announcement is required by applicable law; and provided further,
that any Party may respond to inquiries by the press or others regarding the
transactions contemplated by this Agreement, so long as such responses are
consistent with such party's previously issued press releases. The Company will
not use or disclose to any third party any Parent Confidential Information. The
Parties each acknowledge and agree that non-public information concerning the
progress of the transaction contemplated by this Agreement is confidential
information.

Notification of Certain Matters. The Company shall give prompt notice to Parent
of: (a) any representation or warranty contained in Article 3 being untrue or
inaccurate when made; (b) the occurrence of any event or development that would
cause (or could reasonably be expected to cause) any representation or warranty
contained in Article 3 to be untrue or inaccurate on the Closing Date; or
(c) any failure of the Company to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder. Parent shall give
prompt notice to the Company of: (x) any representation or warranty contained in
Article 4 being untrue or inaccurate when made; (y) the occurrence of any event
or development that would cause (or could reasonably be expected to cause) any
representation or warranty contained in Article 4 to be untrue or inaccurate on
the Closing Date; or (z) any failure of Parent to comply with or satisfy any
covenant, condition, or agreement to be complied with or satisfied by it
hereunder. No disclosure by any party pursuant to this Section 5.5, however,
shall be deemed to amend or supplement the Disclosure Schedule or to prevent or
cure any misrepresentation, breach of warranty, or breach of covenant.

Payment of Expenses. Each Party shall pay its own expenses incident to preparing
for, entering into and carrying out this Agreement and the consummation of the
transactions contemplated hereby, whether or not Closing occurs.

Continuation of the Company's Existing Indemnification Obligations. From and
after the Closing, the Company or its successor shall indemnify and hold
harmless each Person who has been at any time prior to the Closing, an officer,
director or shareholder of the Company (collectively, the "Indemnified Persons")
but only to the extent that such Indemnified Person was entitled to
indemnification from the Company immediately prior to the date hereof under
applicable law, the certificate of incorporation and bylaws of the Company or
under contracts between such Indemnified Person and the Company, regardless of
whether such contracts are terminated on or after the Closing. The procedures
associated with such indemnification shall be the same as those associated with
the Indemnified Persons' indemnification from the Company immediately prior to
the date hereof (provided, however, that Parent shall be under no obligation to
deposit trust funds pursuant to any "change-in-control" or similar provisions).
The provisions of this Section 5.7 shall survive the Closing and the Closing
Date and are intended to be for the benefit of, and shall be enforceable by, the
Parties and each Indemnified Person and their respective heirs and
representatives.

Consents Under Bank Credit Agreement. The Company and Parent shall work together
in order to obtain any and all consents, approvals or waivers required by the
terms of the Bank Credit Agreement as may be required to avoid a breach or
default or any right of acceleration or cancellation thereunder as a result of
the execution, delivery or performance of this Agreement.

Termination of Certain Agreements. Effective upon the Closing, that certain
Advisory Services and Indemnification Agreement dated July 21, 1998, between the
Company and Natural Gas Partners V, L.P. and that certain Second Amended and
Restated Shareholders' Agreement dated July 21, 1998, among the Company and its
shareholders shall be terminated and no Person shall have further rights or
obligations thereunder, except for the continuation of indemnity rights as
provided in Section 5.7.

Resignation of Directors, Officers. Each director and officer of the Company
shall resign his/her position with the Company effective at Closing.

Adjustments to Base Merger Consideration.

Adjustments to Base Merger Consideration For Title and Environmental Defects

. Subject to the provisions of Section 5.2, Parent may conduct, at its sole
cost, such title and environmental examinations or investigations, and other
examinations and investigations, as it may in its sole discretion choose to
conduct with respect to the Company's Oil and Gas Interests in order to
determine whether any Title Defects or Environmental Defects (as hereinafter
defined) exist. Parent may deliver to the Company in writing on or before
July 6, 2001, a written notice including: (i) a specific description of each
defect associated with the Oil and Gas Interests of the Company that it asserts
constitutes a violation of the representations set forth in Section 3.4
(determined without considering the effect of Section 3.4(a)) or 3.15 (in either
case a "
Title
Defect
") or 3.18 (determined without considering any qualification of such
representations based upon the Knowledge of the Company or whether there is a "
Material Adverse Effect
") (an "
Environmental Defect
"); (ii) a description of each such Title Defect or Environmental Defect;
(iii) the amount of the adjustment to the Base Merger Consideration that it
asserts based on such defects; and (iv) its method of calculating such
adjustment in the manner provided in subsections 5.11(c), (d) and (e).

On or before July 9, 2001 Company shall notify Parent whether Company agrees
with such adjustment. If Company does not agree with such adjustment, then the
parties shall enter into good faith negotiations and shall attempt to agree on
such matters.

If the parties cannot reach agreement concerning the amount of such adjustment,
upon either party's written request made by no later than July 11, 2001, the
parties shall immediately submit the matter to T.S. Dudley Land Company (in the
case of a Title Defect) or to Carter-Burgess, Inc. (in the case of an
Environmental Defect) to determine the cost of curing the Title Defect or
remediating the Environmental Defect. The cost of any such consultants shall be
borne 50% by Parent and 50% by Company.

Each party shall present a written statement of its position on the defect in
question to the consultant by July 13, 2001. By July 18, 2001, the consultant
shall make a determination of all points of disagreement, including consultant's
best estimate of the cost to remediate or cure, in accordance with the terms and
conditions of this Agreement. The determination by the consultants shall be
conclusive and binding on the parties, and shall be enforceable against any
party in any court of competent jurisdiction.

Limits on Adjustments

. The adjustments to the Base Merger Consideration pursuant to this Section 5.11
are subject to the following general limitations:

No single Title Defect shall be taken into account as an adjustment to the Base
Merger Consideration unless the value of such defect is determined to be more
than $100,000 (the "Individual Title Defect Threshold"); No single Environmental
Defect shall be taken into account as an adjustment to Base Merger Consideration
unless the cost of remediating such defect is determined to be more than
Ten Thousand Dollars ($10,000) (the "Individual Environmental Defect
Threshold"); and

No adjustment will be made to the Base Merger Consideration under this
Section 5.11 except to the extent that the total of (x) all individual
adjustments for Title Defects that exceed the Individual Title Defect Threshold
plus (y) all individual adjustments for Environmental Defects that exceed the
Individual Environmental Defect Threshold exceeds $1,000,000 in the aggregate
(the "Aggregate Defect Threshold"); by way of example, if the total of all
individual adjustments for Title Defects that exceed the Individual Title Defect
Threshold equals $900,000 and the total of all adjustments for Environmental
Defects that exceed the Individual Environmental Defect Threshold is less than
$100,000, then no adjustment would be made to the Base Merger Consideration;
and, if the total of all individual adjustments that exceed the Individual Title
Defect Threshold equals $1,100,000, and the total of all adjustments that exceed
the Individual Environmental Defects Threshold is $500,000, then an adjustment
of $1,600,000 shall be made to the Base Merger Consideration.

Title Defects

.

Adjustments

. Upon timely delivery of a notice of a Title Defect under Section 5.11(a),
Parent and Company will in good faith negotiate the validity of the claim and
the amount of any adjustment to the Base Merger Consideration using the
following criteria:

If the requested adjustment is based on the Company owning an NRI for a well,
units rights or leasehold rights less than that shown in Schedule 1.1 of the
Disclosure Schedule, and the Aggregate Defect Threshold has been met (after
including the requested adjustment), then a downward adjustment shall be
calculated by multiplying the Allocated Value set forth for such well, unit
rights or leasehold rights on Schedule 1.1 of the Disclosure Schedule by a
fraction (1) the numerator of which is an amount equal to the NRI shown on
Schedule 1.1 of the Disclosure Schedule for such well, unit rights or leasehold
rights less the decimal share to which the Company would be entitled as a result
of its ownership interest in such well, unit rights or leasehold rights which is
unaffected by such Title Defect; and (2) the denominator of which is the NRI
shown for such well, unit rights or leasehold rights on Schedule 1.1 of the
Disclosure Schedule. Any downward adjustments requested by Parent may be offset
by upward adjustments if it is determined that the Company's NRI for any other
well, unit rights or leasehold rights shown on Schedule 1.1 of the Disclosure
Schedule is greater than that shown on Schedule 1.1; of the Disclosure Schedule
provided, however, such upward adjustments will only be made if the value of the
upward adjustment from any single well, unit rights or leasehold rights exceeds
$100,000. The value of an upward adjustment will be determined based on the
Allocated Value for such well, unit rights or leasehold rights;

If the requested adjustment is based on the Company owning a WI that is larger
than the WI shown on Schedule 1.1 of the Disclosure Schedule, but without a
proportionate increase in the Company's NRI and the Aggregate Defect Threshold
has been met (after including the requested adjustment), then the adjustment is
calculated by determining the effective NRI that results from such larger WI,
determining what the NRI would be using such effective NRI and the WI shown on
Schedule 1.1 of the Disclosure Schedule and then calculating the adjustment in
the manner set forth in clause (A) preceding;

If the requested adjustment is based on a Lien or other monetary charge upon an
Oil and Gas Interest or a liability to otherwise cure a Title Defect related to
an Oil and Gas Interest that the parties agree is liquidated in amount and the
Aggregate Defect Threshold has been met (after including the requested
adjustment), then the adjustment is the lesser of (A) the amount necessary to
remove such Lien or other monetary charge from, or otherwise cure a Title Defect
relating to, the affected Oil and Gas Interest; or (B) the Allocated Value of
the affected Oil and Gas Interest;

If the Title Defect potentially eliminates all or substantially all of the
Company's title to the Oil and Gas Interest, the cost of curing or remediating
will be deemed to be the Allocated Value of such Oil and Gas Interest;

If the requested adjustment is based on an obligation, burden or other liability
upon the affected Oil and Gas Interest not addressed by (A) through (D) above,
and the parties cannot agree on the amount of such adjustment, then the
adjustment, if any, shall be determined in accordance with subsection 5.11(a).

Actions to Address Title Defects

. If the Base Merger Consideration would be decreased by adjustments made
pursuant to this Section 5.11(c), then, subject to the provisions of
Sections 5.11(e), (f) and (g), the Company may, at its sole option and upon
written notice from the Company to Parent, do any of the following or a
combination thereof:

Transfer to a third-party entity (the "Transfer Entity") any or all of the Oil
and Gas Interests affected by such defects (in which case such Oil and Gas
Interests shall become Excluded Assets) in which case the provisions of
Section 5.11(e)(i)-(ii) shall apply except that the Base Merger Consideration
shall also be reduced by any Tax payable by the Company as a result of such
transfer;

Cure some or all of the Title Defects, in which case this transaction will close
as provided in this Agreement. No Base Merger Consideration adjustment will be
made for the Title Defects cured prior to Closing; however, if a cure of any
Title Defect cannot be completed prior to Closing, the provisions of
Section 5(g) shall apply; and

Elect not to transfer any affected Oil and Gas Interest or cure any Title Defect
and reduce the Base Merger Consideration in accordance with the criteria in this
Section 5.11(c), and the Company will include such adjustment in the Closing
Date Merger Consideration calculation delivered pursuant to Section 5.12.

Environmental Defects

.

Adjustments

. Upon timely delivery of a notice of an Environmental Defect under this
Section 5.11, Parent and the Company will in good faith negotiate the validity
of the claim and the amount of any adjustment to the Base Merger Consideration
using the following criteria:

If the requested adjustment is based on an Environmental Defect related to an
Oil and Gas Interest and the parties agree on the cost to remediate the
Environmental Defect and the Aggregate Defect Threshold has been met (after
including the requested adjustment), then the adjustment is the lesser of
(A) the amount necessary to remediate the Environmental Defect relating to the
affected Oil and Gas Interest, or (B) the Allocated Value of the affected Oil
and Gas Interest;

If the requested adjustment is based on an Environmental Defect and the parties
cannot agree on the amount of such adjustment, then the adjustment, if any,
shall be determined in accordance with subsection 5.11(a).

Actions to Address Environmental Defects

. If the Base Merger Consideration would be decreased by adjustments made
pursuant to this Section 5.11(d), then, subject to the provisions of
Sections 5.11(e), (f) and (g), Company may, at its sole option and upon written
notice from Company to Parent, do any of the following or a combination thereof:

Transfer to the Transfer Entity any or all of the Oil and Gas Interests affected
by such defects (in which case such Oil and Gas Interests shall become Excluded
Assets) in which case the provisions of Section 5(e)(i)-(ii) shall apply except
that the Base Merger Consideration shall also be reduced by any Tax payable by
the Company as a result of such transfer;

Elect to cure some or all of the Environmental Defects, in which case this
transaction will close as provided in this Agreement. No Base Merger
Consideration adjustment will be made for Environmental Defects cured prior to
Closing; however, if a cure of any Environmental Defect cannot be completed
prior to Closing, the provisions of Section 5(g) shall apply; and

Elect not to transfer any affected Oil and Gas Interest or cure any
Environmental Defect and reduce the Base Merger Consideration in accordance with
the criteria in this Section 5.11(d), and the Company will include such
adjustment in the Closing Date Merger Consideration calculation delivered
pursuant to Section 5.12.

Title or Environmental Defects Equal to or Exceeding Allocated Value

. Notwithstanding anything set forth to the contrary in Sections 5.11(c) or (d)
hereof, if the cost to cure or remediate a Title Defect or Environmental Defect
equals or exceeds the Allocated Value of the affected Oil and Gas Interest, and
the Aggregate Defect Threshold has been met (after including the requested
adjustment), the Parent may, at its sole option upon written notice to the
Company, require the Company to transfer such affected Oil and Gas Interest (the
"
Transferred Interest
") to the Transfer Entity in which case the following shall occur:

The Base Merger Consideration shall be reduced by the amount equal to the
Allocated Value of the Transferred Interest; provided that if such adjustment is
made with respect to a Unit or a well or Lease within a Unit, the foregoing
provisions of this Section 5.11(e)(i) shall extend to all wells, Leases and
Units associated with such Unit, and in such case the Base Merger Consideration
shall be reduced by the amount equal to the Allocated Value of all such wells,
Leases and Units;

If the Transferred Interest was transferred on account of an Environmental
Defect and Parent thereafter incurs any Damages on account thereof, Parent shall
be entitled to make a claim against the Escrow Account for such Damages without
regard to any limitations set forth herein.

Minor Title or Environmental Defects

. If the cost to cure or remediate a Title Defect or Environmental Defect equals
fifty percent (50%) or less of the Allocated Value of the affected Oil and Gas
Interest, Company shall not have the right to remove such Oil and Gas Interest
from the Agreement as provided in Sections 5.11(c)(ii)(A) or 5.11(d)(ii)(A), and
in such event Company may, at its sole option and upon written notice to Parent,
take any of the other actions or any combination thereof as provided in
Sections 5.11(c)(ii)(B) and (C) and 5.11(d)(ii)(B) and (C).

Cure of Title Defect or Environmental Defects

.

If a Title Defect or Environmental Defect to be cured or remediated is not cured
or remediated prior to the originally scheduled Closing Date, then Company may
elect to either: (A) extend the Closing Date up to ninety (90) days and complete
the cure or remediation; or (B) close and adjust the Base Merger Consideration
by deducting the cost of the remediation or cure as determined at of the time of
Closing. If the parties cannot agree on the amount of such adjustment, then the
amount of the adjustment will be determined as provided in Section 5.11(a). If
Company elects to extend the Closing Date, it shall give Parent written notice
of its election at least three (3) days prior to the then scheduled Closing Date
and provide a new date for the Closing Date.

If the Company elects to close and deduct from the Base Merger Consideration the
cost of remediation or cure as provided in subsection (i):

if the actual cost of cure or remediation (determined in good faith) exceeds the
adjustment made in respect of such Title Defect or Environmental Defect, then
Parent may claim for such excess amount against the Escrow Funds, or

if the actual cost of cure or remediation (determined in good faith) is less
than the adjustment made in respect of such Title Defect or Environmental
Defect, then Parent shall promptly reimburse such excess amount of the
adjustment at the direction of the Shareholder Representatives.

Company's Right to Terminate

. Company may terminate this Agreement by written notice to Parent if at least
fourteen (14) days prior to the Closing Date Parent identifies (i) Title Defects
and/or Environmental Defects which, without regard to the Individual Title
Defect Threshold, the Individual Environmental Defect Threshold, or the
Aggregate Defect Threshold, would result in adjustments to the Base Merger
Consideration in excess of Ten Million Dollars ($10,000,000); (ii) Environmental
Defects, without regard to the Individual Environmental Defect Threshold or the
Aggregate Defect Threshold, with aggregate remediation costs in excess of
Two Million Dollars ($2,000,000); or (iii) a Groundwater Violation.

Parent's Right to Terminate

. Parent may terminate this Agreement by written notice to Company if at least
fourteen (14) days prior to the Closing Date Parent identifies (i) Title Defects
and/or Environmental Defects which without regard to the Individual Title Defect
Threshold, the Individual Environmental Defect Threshold, or the Aggregate
Defect Threshold would result in adjustments to the Base Merger Consideration in
excess of Ten Million Dollars ($10,000,000) or (ii) Environmental Defects,
without regard to the Individual Environmental Defect Threshold or the Aggregate
Defect Threshold with aggregate remediation costs in excess of Two Million
Dollars ($2,000,000); or (iii) a "
Groundwater Violation
." A "
Groundwater Violation
" means any contamination of groundwater in, under or associated with any of the
Oil and Gas Interests and arising from oil and gas production operations that
(A) is in excess of any allowable standards contained in any applicable
Environmental Law or (B) would give rise to any current or future on-site or
off-site remedial obligations under any Environmental laws;
provided, that
, after June 27, 2001, the Fannett Groundwater Condition shall not for any
reason be considered a Groundwater Violation.

No Limitation on Escrow Funds Claims

. Except for Title Defects or Environmental Defects (i) with respect to which
adjustments to the Base Merger Consideration are made; (ii) which are cured
pursuant to the other provisions of this Section 5.11; or (iii) with respect to
which the affected Oil and Gas Interests are transferred by the Company to a
third party, nothing in this Section 5.11 shall be construed to limit or prevent
Parent or Merger Sub from refusing to close due to a failure to satisfy the
conditions of Section 6.2 as a result of an uncured Title Defect or
Environmental Defect. Nothing in this Section 5.11 shall be construed to limit
or prevent Parent or Merger Sub from making a claim against the Escrow Funds for
a violation of any of the representations set forth herein, including in
Section 3.4, 3,15, or 3.18; provided that if any such claim is made as a result
of a Title Defect or Environmental Defect for which the Base Merger
Consideration was adjusted, such claim may only be made to the extent the cost
to cure or remediate such defect exceeds the adjustment.

Additional Adjustments.

The Base Merger Consideration will be adjusted (i) upward or downward, as
applicable, by the Company's positive or negative Working Capital Balance as of
the Effective Time; (ii) downward, by the amount by which the total principal,
interest, fees and expenses outstanding on all loans outstanding under the Bank
Credit Agreement as of the Effective Time exceeds zero; (iii) downward by the
amount by which the total principal, interest, fees and expenses outstanding on
all other Bank Debt outstanding as of the Effective Time exceeds zero;
(iv) downward by the amount of all fees and expenses incurred by the Company,
but not paid or recorded as a current liability prior to the Effective Time, in
connection with the sale of the Company including, but not limited to, legal,
accounting, investment banking and other professional fees, and title reviews,
environmental surveys and similar costs; (v) downward for any costs to cure a
Title or Environmental Defect incurred or paid on or after the Effective Time;
(vi) upward by an amount equal to the expenditures paid or accrued by the
Company from March 1, 2001 to the Effective Time in connection with the Newfield
Kiev Prospect (the "Newfield Well") and the EOG Caney Creek well (the
"EOG Well") (each as more particularly described in Schedule 3.27 of the
Disclosure Schedule); and (vii) upward for the amount due pursuant to
Section 5.14.

For purposes hereof, the "Working Capital Balance" as of the Effective Time
shall be equal to the Company's current assets less the Company's current
liabilities, each as defined by GAAP consistently applied and as of such date.
For purposes of determining the current liabilities for Taxes of the Company as
of the Effective Time in calculating the Working Capital, (i) the amount of any
compensation, which may be deducted from gross income by the Company, that is
attributable to the exercise (or cancellation) or deemed exercise of Company
Stock Options upon conversion pursuant to Section 2.4(b) at the Closing Date,
shall be treated as paid to such employees prior to the Effective Time; and
(ii) any Taxes payable by the Company with respect to compensation described in
subparagraph (i), including, without limitation, FICA and Medicare Taxes, shall
be treated as attributable to the period prior to the Effective Time.

Not later than five days before the Closing, the Company will deliver to Parent
a statement (the "Closing Date Statement") which sets forth: (i) its estimate of
the Working Capital Balance as at the Effective Time as determined, pursuant to
GAAP consistently applied, using good faith estimates based on the best
available information at such time; (ii) its determination of the other
adjustments to the Base Merger Consideration required under Sections 5.11 and
5.12(a); and (iii) the resulting adjusted Base Merger Consideration which will
be due from Parent at Closing (the "Closing Date Merger Consideration"). Not
later than two days after receiving the Closing Date Statement, Parent will
notify Company of any adjustments to the Closing Date Statement that Parent
believes are appropriate. The parties will negotiate in good faith the
resolution of any differences with regard to the adjustments. Company will give
Parent access to all information related to the determination of the Closing
Date Statement. At the Closing, the Parent shall be entitled to retain Three
Hundred Thousand Dollars ($300,000) from the Closing Date Merger Consideration
(the "Working Capital Holdback") to cover any potential post-closing downward
adjustment resulting from actual Working Capital Balance being less than the
estimated Working Capital Balance.

If information becomes available during the 120-day period following the Closing
that causes either Parent or the Shareholders' Representatives to determine that
the actual Working Capital Balance according to GAAP consistently applied varied
from the estimated Working Capital Balance set forth in the Closing Date
Statement, the Parties shall in good faith work together to reconcile any
discrepancy in the actual adjustments and the estimated adjustments. If the
Parties have not agreed within 150 days following the Closing Date, the final
Working Capital Balance will be determined by Ernst & Young  L.L.P. The Parties
agree that Ernst & Young's final Working Capital Balance shall be conclusive,
and Ernst & Young's fees associated with the determination of such final Working
Capital Balance shall be paid by Parent out of the Working Capital Holdback.

No later than 15 days after the Parties agree on, or Ernest & Young's
determines, the actual Working Capital Balance:

if it is determined that the actual Working Capital Balance at the Effective
Time was less than the estimated Working Capital Balance set forth in the
Closing Date Statement (the amount thereof being referred to as the "Working
Capital Deficiency"), then Parent shall retain for its own account such part of
the Working Capital Holdback as is equal to the Working Capital Deficiency (or
all of the Working Capital Holdback if the Working Capital Deficiency exceeds
the Working Capital Holdback) and, if the Working Capital Deficiency is less
than the Working Capital Holdback, pay the balance of the Working Capital
Holdback to the Shareholders' Representatives for distribution to the former
holders of the Company Certificates, Company Stock Options and Company
Convertible Debentures in accordance with Sections 2.5(a), 2.4(b)(iii) and
2.4(b)(iv); if the Working Capital Deficiency exceeds the Working Capital
Holdback, Parent shall be paid an amount equal to such excess from the Escrow
Fund; and

if it is determined that the actual Working Capital Balance at the Effective
Time was greater than the estimated Working Capital Balance set forth in the
Closing Date Statement (the amount thereof being referred to as the "Working
Capital Surplus") Parent shall pay to the Shareholders' Representatives for
distribution to former holders of Company Certificates, Company Stock Options
and the Company Convertible Debentures in accordance with Sections 2.5(a),
2.4(b)(iii) and 2.4(b)(iv) an amount equal to the sum of the Working Capital
Holdback and the Working Capital Surplus.

Company Employees.

Group Health Benefits

. If after the Closing Date Company terminates any of its group health benefit
plans, Parent shall permit, or shall cause its group health benefits plan to
permit, all individuals who were employed by the Company both immediately prior
to the Closing Date and at the time the plans are terminated (the "
Affected Employees
") and dependents of Affected Employees who were participants in the Company's
group health benefits plan both immediately prior to the Closing Date and at the
time the plans are terminated to become participants in the Parent's group
health benefits plan immediately as of the Closing Date in accordance with the
plan's terms and conditions, without regard to limitations as to preexisting
conditions, exclusions and waiting periods with respect to participation and
coverage requirements under Parent's group health benefits plan. Parent shall
provide, or shall cause its group health benefits plan to provide, each Affected
Employee with credit for any co-payments and deductibles paid prior to the
Closing Date in satisfying any applicable deductible or out-of-pocket
requirements under Parent's group health benefits plan after the Closing Date.

401(k) Plan

. If Parent requests in writing, the Company shall terminate the
Company's 401(k) plan effective the day prior to the Closing Date. If
terminated, the account balances of all Affected Employees shall be fully vested
and nonforfeitable and shall be distributed to the Affected Employees in
accordance with the terms of such plan; provided that any such account balance
that is not distributable in accordance with applicable law shall be retained in
the Company's 401(k) plan or shall be transferred to the Parent's 401(k) plan.

Management after Effective Time. Commencing on the Effective Time and continuing
through the Closing Date the Company shall be operated in the ordinary course of
business, and subject to Section 5.1, for the sole economic benefit of the
Parent. At Closing, Parent will pay the Company a management fee of Ten Thousand
Dollars $10,000) per day for each day from the Effective Time to, but excluding,
the Closing Date. Provided, however, if the Closing Date is extended to after
July 23, 2001, no additional management fee will be due for any period after
July 22, 2001. The amount due pursuant to this Section 5.14 will be paid by the
adjustment provided for in Section 5.12(a)(vii).

Tax Matters. Company shall not file before Closing the federal income Tax Return
or any state income Tax Return required to be filed by or with respect to the
Company for the taxable period ending on December 31, 2000. Whenever pursuant to
the terms hereof an Oil and Gas Interest is transferred out of the Company, the
parties will at that time agree in writing upon a fair market value of the Oil
and Gas Interest and determine the adjusted basis thereof.

Clean Up.

Prior to Closing Parent will identify in writing rubbish and other debris,
including tubing, rods, tanks, steel pits, heater treaters, valves, buildings,
used saltwater disposal filter socks, compressors, pumpjacks, gun barrels, and
other equipment that is not useable for any current oil and gas operation (the
"Debris") located on or associated with any Oil & Gas Interest that it desires
to have removed. Parent will also identify in writing: (i) soil remediation
required due to widespread spills of oil or saltwater resulting from the lack of
containment or associated with the removal of tanks and the abandoning of a tank
battery or the removal of all the tanks in a diked area; (ii) tanks used in
current operations that are leaking and are to be repaired or replaced; and
(iii) missing dikes that need to be constructed and dikes that need to be
repaired (collectively the "Cleanup Activities"). The list of Debris to be
removed and Cleanup Activities shall be identified in good faith and completed
prior to Closing and shall be in accordance with Parent's standards as applied
to other properties on which it is an operator. After Closing, Company will take
such actions as it deems necessary to remove the Debris and complete the Cleanup
Activities. Parent shall withhold One Million Two Hundred Fifty Thousand
Dollars ($1,250,000) (the "Estimated Cleanup Costs") from the Closing Date
Merger Consideration to pay for the Company's costs incurred in the removal of
the Debris and performance of the Cleanup Activities. Immediately after Closing
Company will commence removal of the Debris and Cleanup Activities. If within
120 days after the Closing Date Company and Parent have incurred costs
associated with the removal of Debris and Cleanup Activities of less than
One Million Two Hundred Fifty Thousand Dollars ($1,250,000), Parent shall
promptly pay the difference to the former holders of Company Certificates,
Company Stock Options and the Company Convertible Debentures at the direction of
the Shareholder Representatives. Upon the request of a Shareholder
Representatives, Company shall provide access to books and records necessary to
confirm the costs incurred in removal of the Debris and Cleanup Activities.

Prior to Closing the Company will transfer the West Ganado field office and its
associated 8.825-acre surface property to the Transfer Entity and such property
will then become an Excluded Asset and if tax is incurred on the distribution,
one-half of the amount of such tax will be deducted from the Base Merger
Consideration.

CONDITIONS

Conditions to Each Party's Obligation to Proceed with Closing. The respective
obligations of each Party to proceed with Closing shall be subject to the
satisfaction, at or prior to the Closing, of the following conditions:

Approvals and Waivers

. All filings required to be made prior to the Closing with, and all consents,
approvals, permits and authorizations required to be obtained prior to the
Closing from, any Governmental Authority in connection with the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby shall have been made or obtained (as the case may be), except, in each
case, where the failure to obtain such consents, approvals, permits and
authorizations and waivers would not be reasonably likely to result in a
Material Adverse Effect on Parent or the Company (assuming Closing has taken
place) or to materially adversely affect the consummation of the transaction
contemplated by this Agreement.

No Injunctions or Restraints

. No temporary restraining order, preliminary or permanent injunction or other
order issued by any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the transaction contemplated by this
Agreement shall be in effect; provided, however, that prior to invoking this
condition, each Party shall use all reasonable efforts to have any such decree,
ruling, injunction or order vacated, and, if necessary, the Closing shall be
delayed for up to 60 days while such efforts are taking place.

Escrow Agreement

. Parent and the Company shall have duly executed and delivered the Escrow
Agreement in the form attached hereto as Exhibit B.

Conditions to Obligations of Parent and Merger Sub. The obligations of Parent
and Merger Sub to proceed with Closing are subject to the satisfaction of the
following conditions, any or all of which may be waived in whole or in part by
Parent:

Representations and Warranties

. The representations and warranties of the Company set forth in Article 3 shall
be true and correct in all material respects as of the Closing Date as though
made on and as of that time (except that any representations and warranties
which expressly relate only to an earlier date shall be true and correct on the
Closing Date as of such earlier date) and Parent shall have received a
certificate signed by the president or the chief operating officer of the
Company to such effect; provided, however, that a breach of the representations
and warranties in Sections 3.4, 3.15 and 3.18 shall not be considered a breach
preventing satisfaction of this condition regarding any Oil and Gas Interests if
it is a breach for which (i) the Parent has given to the Company on or before
July 6, 2001, written notice specifying a Title Defect or Environmental Defect;
and (ii) in accordance with the provisions of Section 5.11, adjustments to the
Base Merger Consideration are made, or the Company has cured such Title Defect
or Environmental Defect or the Oil and Gas Interest has been transferred by the
Company to a third party. Provided, further, this condition shall be deemed to
be satisfied with respect to the last sentence of Section 3.5 and Sections 3.13
and 3.18 if the representations and warranties set forth in such sections are
true and correct in all respects as of the date fourteen (14) days prior to
Closing as though made as of that time (except that any representations and
warranties therein which expressly relate only to an earlier date shall have
been true and correct as of such earlier time). The foregoing shall not be
construed as a waiver of any of Purchaser's right to make a claim under
Article 8 for a breach of any of Sections 3.4, 3.5, 3.13 or 3.18.

Performance of Covenants and Agreements by the Company

. The Company shall have performed in all material respects all covenants and
agreements required to be performed by it under this Agreement at or prior to
the Closing Date, and Parent shall have received a certificate signed by the
president or the chief operating officer of the Company to such effect.

Legal Opinion

. Parent shall have received an opinion of counsel for the Company, dated the
Closing Date, in form and substance reasonably acceptable to Parent, covering
the subjects set forth in Sections 3.1, 3.2, 3.3, 3.4 and 3.6.

Noncompetition Agreements

. Eric R. Pitcher, Duane H. King, Jim Unverferth and Jon Robin (each a "
Restricted Employee
") shall have executed noncompetition agreements in favor of the Company, which
agreements shall be in the form attached hereto as Exhibit C and which shall
provide, among other things, that for a period of one (1) year from the Closing
Date the Restricted Employees will not and will not cause any of their
Affiliates to (i) solicit the employees of the Company (other than Restricted
Employees, with respect to whom the period shall be six (6) months) to become
employees of any Affiliate of such Restricted Employee or (ii) purchase, lease
or obtain any interest in any mineral interest which is located within a radius
of 1.5 miles of any of the Oil and Gas Interests of the Company unless such
interest is obtained in accordance with the terms of such Restricted Employee's
Non-Competition Agreement; nothing herein shall be deemed to prevent Eric R.
Pitcher and Duane H. King from entering into any agreement with one another as
they determine in their sole discretion.

Bank Release

. Prior to or upon Closing the lender party to the Bank Credit Agreement shall
have been paid in full and the lender shall have delivered appropriate releases
for all Liens held by it.

No Material Adverse Change

. Since the date of this Agreement no event has occurred or condition existed
which has had or could be expected to have a Material Adverse Effect on the
Company.

Consents and Waivers

. All consents and approvals of third parties listed in Section 3.4 of the
Disclosure Schedule shall have been obtained. All waivers shall have been
obtained with respect to preferential rights which become effective upon the
change of control of the Company as set forth in any Material Agreement.

Closing Date Financial Statements

. Company will have delivered to Parent the Company Financial Statements and the
Closing Date Financial Statements.

Seismic Data Consents

. All consents and waivers necessary is order to permit Parent and Company to
use the Seismic Data without limitation and without additional payment, except
as set forth in Section 3.36 of the Disclosure Schedules.

Certificate of Nonforeign Status

. Each Shareholder shall have delivered to Parent a certificate of non-foreign
status of such Shareholder which meets the requirements of Treasury Regulation
Section 1.1445-2(b)(2);
provided, however
, that with respect to any Shareholder that is unable to provide such
certification, Seller shall waive such obligation and, in lieu thereof, shall
withhold ten percent of the Merger Consideration paid to such Shareholder in
accordance with Treasury Regulation Section 1.1445-1(b)(1). Notwithstanding the
preceding sentence, Parent will withhold all amounts required to be withheld
from the Merger Consideration paid to a Shareholder that has provided such
certification if Parent has actual notice that such Shareholder's certification
is false, or if Parent receives notice that such certification is false pursuant
to Treasury Regulation Section 1.1445-4.

Shareholder Approval of Options

. The stockholders of the Company shall have met the shareholder approval
requirements of Section 280G(b)(5)(B) of the Code and Q&A-7 of Proposed Treasury
Regulation 1.280G-1 with respect to the acceleration of the vesting of any
option to acquire Company stock that, without such approval, could give rise to
an amount being treated as a "parachute payment" as defined in
Section 280G(b)(2) of the Code, including, without limitation, such shareholder
approval determining the right of the individual to become vested in such option
based upon or arising out of this transaction. Notwithstanding the preceding
sentence, Parent may, in its sole discretion, waive the fulfillment of this
condition at any time prior to Closing.

Conditions to Obligations of the Company. The obligations of the Company to
proceed with Closing are subject to the satisfaction of the following
conditions, any or all of which may be waived in whole or in part by the
Company:

Representations and Warranties

. The representations and warranties of Parent set forth in Article 4 shall be
true and correct in all material respects as of the Closing Date as though made
on and as of that time (except that any such representations and warranties
which expressly relate only to an earlier date shall be true and correct on the
Closing Date as of such earlier date), and the Company shall have received a
certificate signed by the chief executive officer or the chief operating officer
of Parent to such effect.

Performance of Covenants and Agreements by Parent

. Parent shall have performed in all material respects all covenants and
agreements required to be performed by it under this Agreement at or prior to
the Closing Date, and the Company shall have received a certificate signed by
the chief executive officer, the chief operating officer or the chief financial
officer of Parent to such effect.

Legal Opinion

. The Company shall have received an opinion of counsel to Parent, dated the
Closing Date, in form and substance reasonably acceptable to the Company,
covering the subjects set forth in Sections 4.1, 4.2, 4.3 and 4.4.

TERMINATION

Termination Rights. This Agreement may be terminated at any time prior to the
Closing:

By mutual written consent of Parent and the Company;

By either Parent or the Company if (i) the Closing has not occurred by July 23,
2001 (provided, however, that the right to terminate this Agreement pursuant to
this clause (i) shall not be available to any Party whose breach of any
representation or warranty or failure to perform any covenant or agreement under
this Agreement has been the cause of or resulted in the failure of Closing to
occur on or before such date); or (ii) any Governmental Authority shall have
issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting Closing and such order, decree,
ruling or other action shall have become final and nonappealable (provided,
however, that the right to terminate this Agreement pursuant to this clause (ii)
shall not be available to any Party until such Party has used all reasonable
efforts to remove such injunction, order or decree);

By Parent if the Company has failed to comply in any material respect with any
of its covenants or agreements contained in this Agreement, but only if Parent
has given the Company at least 15 days' prior notice of such failure and such
failure has not been, or cannot be, cured before expiration of such period; or

By the Company if the Parent or Merger Sub has failed to comply in any material
respect with any of its respective covenants or agreements contained in this
Agreement, but only if Company has given Parent or Merger Sub at least 15 days'
prior notice of such failure and such failure has not been, or cannot be, cured
before expiration of such period; or

By Company in the circumstance provided in Section 5.11(f).

By Parent in the circumstance provided in Section 5.11(g).

Effect of Termination. If this Agreement is terminated by either Parent or the
Company pursuant to the provisions of Section 7.1, this Agreement shall
forthwith become void except for, and there shall be no further obligation on
the part of any Party or its respective Affiliates, directors, officers,
employees or shareholders except pursuant to, the provisions of Sections 4.7
(with respect to the indemnification provisions contained therein), 5.2(b) (but
only to the extent of the confidentiality and indemnification provisions
contained therein), 5.4 (with respect to the confidentiality provisions
contained therein), 5.6 and the Confidentiality Agreement (which shall continue
pursuant to their terms); provided, however, that a termination of this
Agreement shall not relieve any Party from any liability for damages incurred as
a result of a breach by such Party of its covenants, agreements or other
obligations hereunder occurring prior to such termination. Upon termination, the
Earnest Money shall be paid from escrow pursuant to the terms of Section 2.9.

PAYMENT FROM ESCROW FUNDS

Right To Payment From Escrow Funds. If Parent or Company or any of their
respective officers, directors, employees, shareholders, agents, representatives
or Affiliates (each a "Claimant") experience, incur or suffer any claims,
damages, losses, liabilities, obligations penalties, actions, lawsuits,
proceedings, demands, assessments, costs or expenses (including, but without
limitation, fees, disbursements and expenses of attorneys, accountants, other
professional advisors and of expert witnesses and costs of investigation and
preparation) (collectively, the "Damages") directly or indirectly arising out of
any breach or inaccuracy in any representation or warranty by the Company set
forth in Article 3 of this Agreement or certificates delivered hereunder, then
subject to the limitations of Section 8.2, the Claimant shall be paid from the
Escrow Funds an amount equal to such Damages; provided, however, for purposes of
determining a breach of Section 3.18(j) and resulting Damages collectible under
this Article 8, the representations shall be deemed to read as provided in
Section 3.18(j) but excluding the phrase "that would have a Material Adverse
Effect." Parent and Company shall also be entitled to payment of Escrow Funds
pursuant to the provisions of Subsection 5.11(g) and Sectio 5.12 but without
regard to the limitations of Section 8.2. All payments shall be made in
accordance with the terms of the Escrow Agreement.

Limitation on Claims. No Claimant will have a right to Damages from the Escrow
Funds for any Damages arising out of a breach or inaccuracy unless the Damages
(to Claimants in the aggregate) exceed $10,000 (a "Qualified Claim") and the
aggregate of Qualified Claims exceeds $100,000. Provided, however, the foregoing
sentence shall not apply to claims for the cost of curing Title or Environmental
Defects for which the cure or remediation cost exceed the Defect Deduction made
for such Title or Environmental Defect. Any Claimants' rights to make a claim
for payment under this Article 8 and the Escrow Agreement shall terminate on
March 31, 2002.

Escrow Funds As Cap To All Claimant's Damages. Notwithstanding any other
provision of this Agreement, a Claimant's right to payment of Damages described
in Section 8.1 shall be without recourse to any former holder of Company
Certificates or any former officer or director of the Company and, subject to
the provisions of the Escrow Agreement, Claimant's sole recourse in connection
with any such Damages shall be limited to the amount in the Escrow Fund.

ARBITRATION

Jurisdiction. The parties hereby agree that all controversies, claims and
matters of difference, other than those determinable by the consultants subject
to Section 5.11, shall be resolved by binding arbitration (an "Arbitration
Proceeding") before the American Arbitration Association (the "AAA") located in
Harris County, Texas (the "County"), according to the commercial rules and
practices of the AAA from time-to-time in force; provided however that the
parties hereto reserve their rights to seek and obtain injunctive or other
equitable relief from a court of competent jurisdiction, without waiving the
right to compel such arbitration pursuant to this paragraph. Without limiting
the generality of the foregoing, the following shall be considered controversies
for this purpose: (A) all questions relating to the breach of any obligation,
warranty, promise, right or condition hereunder; (B) the failure of any party to
deny or reject a claim or demand of any other party; and (C) any question as to
whether the right to arbitrate a certain dispute exists. This agreement to
arbitrate shall be self-executing without the necessity of filing any action in
any court and shall be specifically enforceable under the prevailing arbitration
law.

Injunctive Relief. Notwithstanding Section 9.1, should any party seek temporary,
preliminary or permanent injunctions, such injunctions shall be obtained through
a court of competent jurisdiction, and not through an Arbitration Proceeding,
without otherwise waiving the right to compel or be bound by arbitration
pursuant to this Article 9. In such case, the arbitrator shall be bound by the
terms of injunctive relief issued by a court of competent jurisdiction.

Initiation. A party shall institute an Arbitration Proceeding by sending written
notice of an intent to arbitrate (hereinafter the "Arbitration Notice") to the
other parties and to the AAA in accordance with the manner of Notice provided in
this Agreement. The Arbitration Notice shall set forth a description of the
dispute, the amount in controversy, and the remedy sought. An Arbitration
Proceeding may proceed in the absence of any party if the Arbitration Notice has
been properly given to such party.

Selection of Arbitrator. Within fifteen (15) days of the date of the Arbitration
Notice, each party to this Agreement shall appoint one arbitrator and notify the
other party of such appointment; provided, however, that no officer, agent,
attorney, employee or other person who has a financial interest in said dispute
may be appointed. Promptly after their appointment, the two (2) arbitrators
appointed by the parties shall meet and select the third and presiding
arbitrator from a panel provided by the AAA. In the event the first two (2)
arbitrators cannot agree upon the selection of the third arbitrator within 30
days, the third arbitrator shall be appointed by the AAA pursuant to its rules.
Each Arbitrator shall have at least ten years of experience in evaluating and
buying and selling oil and gas interests. If the three (3) arbitrators are
unable to unanimously agree upon an award, the third arbitrator shall be
entitled to render the award alone. The third arbitrator shall be entitled to
ascertain from the party-appointed arbitrator the nature and extent of any
relationship between the arbitrators and the parties that appointed the
arbitrators and whether there will be any direct communication between such
arbitrators and the parties that appointed them.

Procedures. The date of hearing for any Arbitration Proceeding shall be set, and
all matters shall be calendared, in accordance with the Texas Rules of Civil
Procedure. All testimony shall be given under oath. Each party shall have the
right to be represented by legal counsel throughout the Arbitration Proceeding.

Discovery. The parties shall have the right to engage in any and all discovery
pertaining to civil litigation as they would be entitled to pursuant to the
Texas Rules of Civil Procedure including, without limitation, all pre-hearing
discovery as would be permitted in civil litigation. Said discovery shall
proceed pursuant to the provisions of the Texas Rules of Civil Procedure
governing discovery in civil litigation and all conditions and objections
allowed under the rules of said Texas Rules of Civil Procedure shall be allowed
with respect to such discovery. The arbitrator shall rule upon motions to compel
or limit discovery and shall have the authority to impose sanctions, including
attorneys' fees and costs, to the same extent as a court of law or equity should
the arbitrators determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial
justification.

Scope of Powers. The arbitrators shall have the power to issue any award,
judgment, decree or order of relief that a court of law could issue under such
applicable law including, but not limited to, money damages; and for such
purposes it is hereby expressly acknowledged and agreed that damages at law will
be inadequate remedy for a breach or threatened breach of any provision of this
Agreement, it being the intention of this sentence to make clear the agreement
of the parties hereto that the respective rights and obligations of the parties
hereto hereunder shall be enforceable in any arbitration proceedings in
accordance with principles of law. The arbitrators shall not have the authority
to grant injunctive relief.

Written Decision. The arbitrators shall prepare a written decision, signed by
the arbitrator, that shall be sent to the parties within thirty (30) calendar
days following the conclusion of the hearing. The written statement will be
supported by written findings of fact and conclusions which adequately set forth
the basis of the arbitrators' decision and which cite the statutes and
precedents applied and relied upon in reaching said decision. The arbitrators
shall also be entitled to award to the prevailing party attorneys' fees and
costs, plus the AAA's and the arbitrators' fees and expenses.

Awards. The parties agree to abide by all awards, judgments, decrees or orders
rendered in an Arbitration Proceeding by the arbitrators. The award, judgment,
decree or order of the arbitrators, and the findings of the arbitrators, shall
be final, conclusive and binding upon the parties hereto to the extent and in
the manner provided by Texas statute. Any judgment upon the award and
enforcement of any other judgment, decree or order of relief granted by the
arbitrators may be entered or obtained in any court of competent jurisdiction,
state or federal, in the county in which the residence or principal office of a
non-prevailing party is located, as a basis of judgment and of the issuance of
execution for its collection and, at the election of the party making such
filing, with the clerk of one or more other courts, state or federal, having
jurisdiction over the party against whom such an award is rendered or such
party's property. The parties shall have the right to petition the District
Court of Harris County to confirm, correct or vacate the arbitrators' award in
accordance with the provisions of the Texas Rules of Civil Procedure.

MISCELLANEOUS

Survival of Representations and Warranties. The representations and warranties
contained in Article 3 and Article 4 and the covenants and agreements of the
parties hereto contained in Sections 5.7, 5.12, 5.13, Articles 8 and 9; and
Section 10.2 of this Agreement shall survive the Closing until March 31, 2002.

Shareholders' Representatives. The Company shall use reasonable efforts to cause
the former holders of Company Certificates to designate Duane H. King, Eric
Pitcher and Richard Covington as Shareholders' Representatives (the
"Shareholders' Representatives") pursuant to the terms and conditions of that
certain Shareholders' Representatives Agreement, in the form attached hereto as
Exhibit D for the purposes of providing the Shareholders Representative with
authority to act on the behalf of the former holders of the Company Certificates
in all matters occurring after the Closing Date which are related to this
Agreement.

Employees. Prior to the Closing Date, the Company shall use reasonable efforts
to cause the employees of the Company to continue as employees for a period of
time of at least six (6) months following the Closing Date, provided that the
continued employment of Eric R. Pitcher and Duane H. King will be for a period
of at least three (3) months following the Closing Date and nothing herein shall
be deemed to prevent Eric R. Pitcher and Duane H. King from entering into any
agreement with one another as they determine in their sole discretion. Prior to
the Effective Time the Company shall accrue an amount for the payment of an
incentive bonuses to be paid to Company employees. The bonuses will equal
ten percent (10%) of an employee's annual salary. The bonuses are to be payable
to those employees who remain employees as of the six-month anniversary of the
Closing Date (the "Bonus Payment Date") or who are terminated without cause
prior to the Bonus Payment Date. Any employee who is terminated with cause or
voluntarily terminates his or her employment prior to the Bonus Payment Date
will not be entitled to the bonus.

Amendment. This Agreement may not be amended except by a written instrument
signed on behalf of each of the Parties.

Notices. Any notice or other communication required or permitted hereunder shall
be in writing and either delivered personally (effective upon delivery), by
facsimile transmission (effective on the next day after transmission), by
recognized overnight delivery service (effective on the next day after delivery
to the service), or by registered or certified mail, postage prepaid and return
receipt requested (effective on the fifth day after being so mailed), at the
following addresses or facsimile transmission numbers (or at such other address
or facsimile transmission number for a Party as shall be specified by like
notice):

If to Parent or Merger Sub:

Penn Virginia Energy
11757 Katy Freeway, Suite 300
Houston, TX 77079
Attention: H. Baird Whitehead
Facsimile: 281/966-3870

with copies to:

Penn Virginia Corporation
One Radnor Corporate Center
100 Matsonford Rd., Suite 200
Radnor, PA 19087-4515
Attention: Nancy M. Snyder
Facsimile: 610/687-3688

and

Michael C. Blaney
Vinson & Elkins LLP
2300 First City Tower
1001 Fannin
Houston, TX 77002-6760
Facsimile: 713/615-5487

If to the Company or the shareholders of the Company:

Synergy Oil & Gas, Inc.
9821 Katy Freeway, Suite 100
Houston, TX 77024
Attention: Eric R. Pitcher
Facsimile: 713/461-4475

with a copy to:

Jackson Walker L.L.P.
1100 Louisiana, Suite 4200
Houston, TX 77002
Attention: Richard L. Burleson
Facsimile: 713/752-4221

Counterparts. This Agreement may be executed in two or more counterparts, all of
which shall be considered one and the same agreement and shall become effective
when one or more counterparts have been signed by each of the Parties and
delivered to the other Parties, it being understood that all Parties need not
sign the same counterpart.

Severability. Any term or provision of this Agreement that is invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction. If any provision of this Agreement is
so broad as to be unenforceable, such provision shall be interpreted to be only
so broad as is enforceable.

Entire Agreement; No Third-Party Beneficiaries. This Agreement (together with
the Confidentiality Agreement and the documents and instruments delivered by the
Parties pursuant to this Agreement): (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the Parties with respect to the subject matter hereof; and (b) except as
provided in Sections 5.2 and 5.7, is solely for the benefit of the Parties and
their respective successors, legal representatives and assigns and does not
confer on any other Person any rights or remedies hereunder.

Applicable Law. This Agreement shall be governed in all respects, including
validity, interpretation and effect, by the laws of the State of Texas,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof.

No Remedy in Certain Circumstances. Each Party agrees that, should any court or
other competent authority hold any provision of this Agreement or part hereof to
be null, void or unenforceable, or order any Party to take any action
inconsistent herewith or not to take an action consistent herewith or required
hereby, the validity, legality and enforceability of the remaining provisions
and obligations contained or set forth herein shall not in any way be affected
or impaired thereby, unless the foregoing inconsistent action or the failure to
take an action constitutes a material breach of this Agreement or makes this
Agreement impossible to perform, in which case this Agreement shall terminate
pursuant to Article 7. Except as otherwise contemplated by this Agreement, to
the extent that a Party took an action inconsistent herewith or failed to take
action consistent herewith or required hereby pursuant to an order or judgment
of a court or other competent Governmental Authority, such Party shall not incur
any liability or obligation unless such Party breached its obligations under
Section 5.6 or did not in good faith seek to resist or object to the imposition
or entering of such order or judgment.

Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the Parties (whether by
operation of law or otherwise) without the prior written consent of the other
Parties, except that Parent may assign, in its sole discretion, its rights,
interests and obligations hereunder to any wholly-owned Subsidiary of Parent,
provided that Parent shall notify the Company of any such assignment and remain
responsible for all of its obligations hereunder. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the Parties and their respective successors and assigns.

Waivers. At any time prior to the Closing, the Parties may, to the extent
legally allowed: (a) extend the time for the performance of any of the
obligations or other acts of the other Parties; (b) waive any inaccuracies in
the representations and warranties contained herein or in any document delivered
pursuant hereto; and (c) waive performance of any of the covenants or
agreements, or satisfaction of any of the conditions, contained herein. Any
agreement on the part of a Party to any such extension or waiver shall be valid
only if set forth in a written instrument signed on behalf of such Party. Except
as provided in this Agreement, no action taken pursuant to this Agreement,
including any investigation by or on behalf of any Party, shall be deemed to
constitute a waiver by the Party taking such action of compliance with any
representations, warranties, covenants or agreements contained in this
Agreement. The waiver by any Party of a breach of any provision hereof shall not
operate or be construed as a waiver of any prior or subsequent breach of the
same or any other provisions hereof.

Confidentiality Agreement. The Confidentiality Agreement is hereby incorporated
herein by reference and shall constitute a part of this Agreement for all
purposes and shall remain in full force and effect following the execution of
this Agreement until terminated in accordance with its terms. Any and all
information received by Parent or Merger Sub pursuant to the terms and
provisions of this Agreement shall be governed by the applicable terms and
provisions of the Confidentiality Agreement.

Incorporation. Exhibits and Schedules referred to herein are attached to and by
this reference incorporated herein for all purposes.

Cooperation After Closing. Each Party, shall, at any time and from time to time
after Closing, execute, acknowledge where appropriate and deliver such further
instruments and documents and take such other action as may be reasonably
requested by another Party in order to carry out the intent and purpose of this
Agreement.

IN WITNESS WHEREOF

, the Parties have caused this Agreement to be executed by their duly authorized
representatives, on the date first written above.

"PARENT"

PENN VIRGINIA CORPORATION

By:
Name: H. Baird Whitehead
Title: Executive Vice President

"MERGER SUB"

VIRGINIA ACQUISITION CORP.

By:
Name:
Title:

"COMPANY"

SYNERGY OIL & GAS, INC.

By:
Name: Eric R. Pitcher
Title: Chairman and Chief Operating Officer