Exhibit 10.20

AGREEMENT OF SALE AND PURCHASE

 

This Agreement of Sale and Purchase (the “Agreement”) dated this 11th day of
August, 2004, is by and between PHAWK, LLC, a Delaware limited liability company
(formerly Petrohawk Energy, LLC), (herein called “Seller”) and Petrohawk Energy
Corporation, a Delaware corporation (herein called “Buyer”). Seller and Buyer
are sometimes hereinafter collectively referred to as the “Parties” and
individually as a “Party”. 

 

W I T N E S S E T H:

 

1.        Property to be Sold and Purchased.  Seller agrees to sell and Buyer
agrees to purchase, for the consideration herein set forth, and subject to the
terms and provisions herein contained, the following described properties,
rights and interests:

 

(a)      All right, title and interest of Seller in and to the oil, gas and/or
mineral leases, the wells, the production facility platform, and related
pipelines and associated rights of way,  and that certain abandonment escrow
account, that are described on Exhibit A hereto (such oil, gas and/or mineral
leases described in the Exhibit A hereto are hereinafter collectively referred
to as the “Leases”, and such wells identified on the Exhibit A hereto are
hereinafter referred to as the “Wells”); and

 

(b)      All rights, titles and interests of Seller in and to, or otherwise
derived from, all presently existing and valid oil, gas and/or mineral
unitization, pooling, and/or communitization agreements, declarations and/or
orders (including, without limitation, all units formed under orders, rules,
regulations, or other official acts of any federal, state, or other authority
having jurisdiction, and voluntary unitization agreements, designations and/or
declarations) relating to the properties described in subsection (a) above, to
the extent and only to the extent such rights, titles and interests are
attributable to the properties described in subsection (a) above; and

 

(c)      All rights, titles and interests of Seller in and to all presently
existing and valid production sales contracts, operating agreements, exploration
agreements, farm-out and farm-in agreements, right of way easements, surface use
agreements, seismic data agreements (to the extent transferable and subject to
the limitations set forth below), copies of all lease files, land files, well
files, environmental records, production records, division order files,
abstracts, title opinions, and contract files, and other agreements and
contracts (including but not limited to AMI agreements, if any) which relate to
any of the properties described in subsections (a) and (b) above, to the extent
and only to the extent such rights, titles and interests are attributable to the
properties described in subsections (a) and (b) above; and

 

(d)      All rights, titles and interests of Seller in and to all wells,
wellhead equipment, production facilities, flowlines, tanks, injection
facilities, saltwater disposal facilities, compression facilities, gathering
systems, and other equipment located on the properties described in subsections
(a) and (b) above and currently in use in connection with the

 

 

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operation of such properties, to the extent and only to the extent such rights,
titles and interests are attributable to the properties described in subsections
(a) and (b) above; and

 

(e)      certain office furniture and office equipment, automobiles, assignable
service agreements, warranty agreements and other agreements associated with the
furniture and equipment, as described on Exhibit B, and any logo, service mark,
copyright, trade name or trademark of or associated with the name Petrohawk
Energy or Petrohawk.

 

The properties, rights and interests specified in the foregoing subsections (a)
and (b) are herein sometimes collectively called the “Oil and Gas Properties”,
and the properties, rights and interests specified in the foregoing subsections
(a) through (e), inclusive, but exclusive of the properties, rights and
interests excluded below, are herein sometimes collectively called the
“Properties”.  The Properties do not include, and there is hereby expressly
excepted and excluded therefrom and reserved to Seller the Excluded Properties
described below.

 

(f)            Excluded Properties.

 

The Properties do not include, and there is hereby expressly excepted and
excluded therefrom and reserved to Seller:

 

(i)            any accounts receivable or accounts payable accrued before the
Effective Date, together with all accounts receivable and accounts payable
related to joint interest billings attributable to the Oil and Gas Properties
with respect to all periods prior to the Effective Date;

 

(ii)           all corporate, financial, tax and legal (other than title)
records of Seller, except that Seller will provide Buyer with copies of any tax
records that are necessary for Buyer’s ownership, administration or operation of
the Properties;

 

(iii)          all contracts of insurance or indemnity;

 

(iv)          all hydrocarbon production from or attributable to the Oil and Gas
Properties with respect to all periods prior to the Effective Date, and all
proceeds attributable thereto, together with all production imbalances
attributable to the Oil and Gas Properties with respect to all periods prior to
the Effective Date;

 

(v)           any refund of costs, taxes or expenses borne by Seller
attributable to the period prior to the Effective Date;

 

(vi)          properties excluded from the purchase and sale contemplated by
this Agreement under Section 7;

 

(vii)         except to the extent constituting the suspended funds on royalty
or funds in the abandonment escrow account referred to in Section 1(a) above,
all

 

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deposits, cash, checks, funds and accounts receivable attributable to Seller’s
interests in the Properties with respect to any period of time prior to the
Effective Date; and

 

                (viii)        all rights and causes in action, arising,
occurring or existing and accrued in favor of Seller prior to the Effective Date
or arising out of the operation of or production from the Oil and Gas Properties
prior to the Effective Date (including, but not limited to, any and all contract
rights, claims, receivables, revenues, recoupment rights, recovery rights,
accounting adjustments, mispayments, erroneous payments or other claims of any
nature in favor of Seller and relating and accruing to any time period prior to
the Effective Date).

These excluded properties are collectively referred to as the “Excluded
Properties.”  Buyer shall not be responsible for, and Seller expressly retains,
all obligations and liabilities related to the Excluded Properties, whether such
liabilities arise before or after the Effective Date.  It is understood that
certain of the Excluded Properties may not be embraced by the term “Properties”.

 

2.        Purchase Price.   The purchase price for the Properties shall be Eight
Million Five Hundred Thousand Dollars ($8,500,000) (such amount unadjusted by
any other adjustments provided for in this Agreement or agreed to by the
parties, being herein called the “Base Purchase Price”).  Such Base Purchase
Price may be adjusted as provided in Sections 7 and 11 hereof (the Base Purchase
Price, as so adjusted, and as the same may otherwise be adjusted by mutual
agreement of the parties, being herein called the “Purchase Price”).  Except as
may be provided in Section 11(c), the Purchase Price shall be paid in readily
available funds at the Closing as hereinafter provided.

 

3.        Representations of Seller.

 

(a)      Representations.   Seller represents and warrants to Buyer that:

 

(i)         Organization and Qualification.  Seller is a limited liability
company organized and legally existing and in good standing under the laws of
the State of Delaware.

 

(ii)        Due Authorization.  Seller has full power to enter into and perform
its obligations under this Agreement and has taken all necessary actions to
authorize entering into this Agreement and perform its obligations hereunder.

 

(iii)       Approvals.  Other than requirements (if any) that there be obtained
consents to assignment from third parties (any material contracts containing
such consent requirements being disclosed under Section 3(a)(x) below)  and
except for approvals (“Routine Governmental Approvals”) required to be obtained
from governmental entities who are lessors under Leases or grantors of rights of
way forming a part of the Oil and Gas Properties (or who administer such Leases
or rights of way on behalf of such lessors or grantors) which are customarily
obtained post-closing, and except for

 

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the requirements of any maintenance of uniform interest provisions contained in
any operating or other agreements, to Seller’s knowledge, neither the execution
and delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, nor the compliance with the terms hereof, will result in
any default under any agreement or instrument to which Seller is a party or by
which the Properties are bound, or violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Seller or to the Properties.  Seller’s
“knowledge” or “received” by Seller (except as used in connection with payment
receipts), as used in this Agreement, shall mean to the actual knowledge of one
or more members of the board of directors of Seller.

 

(iv)       Valid, Binding and Enforceable.  This Agreement constitutes (and the
Conveyance provided for herein to be delivered at Closing will, when executed
and delivered, constitute) the legal, valid and binding obligation of Seller,
enforceable in accordance with its terms, except as limited by bankruptcy or
other laws applicable generally to creditor’s rights and as limited by general
equitable principles.

 

            (v)    Litigation.  There are no pending suits, actions, or other
proceedings in which Seller is a party (or to Seller’s knowledge, which have
been threatened to be instituted) which affect the Properties  (including,
without limitation, any actions challenging or pertaining to Seller’s title to
any of the Properties), or affect the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby.

 

(vi)       Title.  Seller is the owner of the Oil and Gas Properties and
represents that Seller has at least the Net Revenue Interests in the Wells set
forth in Exhibit A hereto and no more than the Working Interests in the Wells
set forth on such Exhibit A, and same are free and clear of all liens, burdens,
encumbrances and defects in title; provided, however, with respect to any Oil
and Gas Properties that Seller previously acquired from Buyer or Buyer’s
predecessor in interest, the representations of Seller set forth in this Section
3(a)(vi) and in Section 3(a)(xi) below shall be limited to matters arising by,
through or under Seller, but not otherwise.  Further, it is expressly understood
and agreed that such representations do not cover maintenance of leases in force
or pooling and/or unitization matters.

 

(vii)      Environmental. There are no pending, or to the knowledge of Seller
threatened, actions, suits, orders, claims, notices or proceedings, made or
instituted by applicable governmental authorities, regarding the Properties
alleging a violation or non-compliance with applicable environmental laws, or
with respect to the disposal, discharge or release from the Properties of
hazardous materials or constituents in a manner which is not in  compliance with
such laws.

 

(viii)     Gas Imbalances and Prepayment.  Seller is not obligated, by virtue of
any prepayment arrangement, a “take or pay” arrangement, gas balancing
agreement, a production payment or any other arrangement entered into by it (or,
to Seller’s

 

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knowledge, entered into by any other party and binding on the Oil and Gas
Properties), to deliver hydrocarbons produced from the Oil and Gas Properties at
some future time without then or thereafter receiving full payment therefor.

 

(ix)        Proceeds in Suspense.  Proceeds from the sale of hydrocarbons
produced from the Oil and Gas Properties are being received by Seller in a
timely manner and are not being held in suspense by the purchaser of said
hydrocarbons for any reason, other than amounts held in suspense by such
purchaser in the ordinary course of business which are individually or in the
aggregate with respect to all such purchasers not in excess of $10,000.

 

(x)         Material Contracts; Preferential Rights.  The Disclosure Schedule
hereto sets forth a description of every material agreement (excluding Leases)
entered into by Seller (or, to Seller’s knowledge, entered into by any other
party and binding on the Oil and Gas Properties), and relating to the Oil and
Gas Properties, and no written claim has been received by Seller that it is in
default under any such agreement.  The Disclosure Schedule also identifies such
material agreements, if any, (excluding Leases) that contain consent to assign
provisions.  No hydrocarbons produced from the Oil and Gas Properties are
subject to a  sales contract or other arrangement entered into by Seller and
relating to the production, gathering, transporting, processing, treating or
marketing of hydrocarbons (other than a contract disclosed on the Disclosure
Schedule), and, except as included in agreements set forth on the Disclosure
Schedule, no person has any preferential right to purchase any Oil and Gas
Property and no person has any call upon, option to purchase, preferential right
to purchase or similar rights granted by Seller with respect to production from
the Oil and Gas Properties and none of the persons so listed on the Disclosure
Schedule have exercised any such rights.

 

(xi)        Receipt of Proceeds; Payment of Expenses.  With respect to each
existing Well identified on Exhibit A, Seller is currently receiving from all
purchasers of production from the Oil and Gas Properties at least the “Net
Revenue Interests” set forth on such Exhibit A without suspense.  With respect
to each existing Well listed on Exhibit A, Seller is currently paying the
operators of the Oil and Gas Properties for the development and operation
thereof no more than the Working Interests set forth on such Exhibit A, and
Seller is current for all costs and expenses pertaining to the development and
operation of the Oil and Gas Properties, except for those being contested in
good faith and so listed on the Disclosure Schedule.

 

(xii)       Payment of Royalties.  Seller has received no written claims that
royalties and other payments due by it under the Leases have not been properly
and timely paid, or that any conditions necessary to keep the Leases in force
have not been fully performed.

 

(xiii)      Compliance with Laws.  Seller has received no claims, orders,
notices or other written communications from applicable governmental authorities
that the

 

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operation of the Oil and Gas Properties has not been conducted in accordance
with all laws, rules, regulations, ordinances and orders (including without
limitation, those pertaining to the environment) of all local, state and federal
governmental bodies, authorities and agencies having jurisdiction of the Oil and
Gas Properties.

 

(xiv)     Taxes.  Ad valorem, property, production, severance, excise and
similar taxes and assessments based on or measured by ownership of property or
the production of hydrocarbons or the receipt of proceeds therefrom on the Oil
and Gas Properties that have become due and payable have been properly and
timely paid, except for those being contested in good faith and so listed on the
Disclosure Schedule.  For purposes of this Agreement, taxes based on or measured
by production shall be deemed attributable to the period in which the production
occurred, regardless of the fact that such taxes may not be assessed or payable
until some subsequent period.

 

(xv)      Operating Agreements.  Except as disclosed by Seller in the Disclosure
Statement, as to any and all operating agreements affecting any of the Property,
each of which operating agreements is listed on the Disclosure Schedule: (i)
there are no outstanding calls, advances or payments that have been advanced on
behalf of or are due from Seller or that Seller has committed to make that have
not been paid, (ii) there are no operations with respect to which Seller is a
non-consenting party, and (iii) except for an emergency, Seller will not
authorize any expenditure over $25,000 after the date of this Agreement without
first obtaining the written consent to such expenditure from Buyer, which
consent will not be unreasonably withheld, conditioned or delayed.

 

(xvi)     Permitted User.  After the Closing, Buyer shall be a “Permitted User”
as defined in that certain License Agreement dated October 10, 2003, between
Fairfield Industries Incorporated and Seismic Exchange, Inc., as “Data Owners”,
and Petrohawk Energy, LLC, as Licensee.

 

(xvii)    Majority Owner.  Seller owns a majority of the equity interests of
Buyer.

 

(b)      Disclaimers.  THE EXPRESS REPRESENTATIONS AND WARRANTIES OF SELLER
CONTAINED IN SECTION 3(a) ABOVE ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER
REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AND,
WITHOUT LIMITATION ON THE EXPRESS REPRESENTATIONS AND WARRANTIES CONTAINED IN
SECTION 3(a) ABOVE, SELLER EXPRESSLY DISCLAIMS ANY AND ALL OTHER REPRESENTATIONS
AND WARRANTIES (WITHOUT LIMITATION, EXCEPT FOR THE EXPRESS REPRESENTATIONS AND
WARRANTIES CONTAINED IN SECTION 3(a) ABOVE, THE PROPERTIES SHALL BE CONVEYED
PURSUANT HERETO WITHOUT ANY WARRANTY OR REPRESENTATION WHETHER EXPRESS, IMPLIED,
STATUTORY OR OTHERWISE, RELATING TO THE CONDITION, QUANTITY, QUALITY, FITNESS
FOR A PARTICULAR PURPOSE, CONFORMITY TO THE MODELS OR

 

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SAMPLES OF MATERIALS OR MERCHANTABILITY OF ANY EQUIPMENT FOR ITS FITNESS FOR ANY
PURPOSE).  UPON CLOSING, BUYER SHALL HAVE INSPECTED, OR WAIVED ITS RIGHT TO
INSPECT, THE PROPERTIES FOR ALL PURPOSES AND SATISFIED ITSELF AS TO THEIR
PHYSICAL AND ENVIRONMENTAL CONDITION, BOTH SURFACE AND SUBSURFACE, INCLUDING BUT
NOT LIMITED TO CONDITIONS SPECIFICALLY RELATED TO THE PRESENCE, RELEASE OR
DISPOSAL OF HAZARDOUS SUBSTANCES, SOLID WASTES, ASBESTOS AND OTHER MAN MADE
FIBERS, OR NATURALLY OCCURRING RADIOACTIVE MATERIALS (“NORM”).  BUYER IS RELYING
UPON ITS OWN INSPECTION OF THE PROPERTIES, AND BUYER SHALL ACCEPT ALL OF THE
SAME IN THEIR “AS IS, WHERE IS” CONDITION.

 

SELLER MAKES NO WARRANTY OR REPRESENTATION, EXPRESS, IMPLIED, STATUTORY OR
OTHERWISE, AS TO THE ACCURACY OR COMPLETENESS OF ANY DATA, REPORTS, RECORDS,
PROJECTIONS, INFORMATION OR MATERIALS NOW, HERETOFORE OR HEREAFTER FURNISHED OR
MADE AVAILABLE TO BUYER IN CONNECTION WITH THIS AGREEMENT INCLUDING, WITHOUT
LIMITATION, RELATIVE TO PRICING ASSUMPTIONS, OR QUALITY OR QUANTITY OF
HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO THE PROPERTIES OR THE ABILITY OR
POTENTIAL OF THE PROPERTIES TO PRODUCE HYDROCARBONS OR THE ENVIRONMENTAL
CONDITION OF THE PROPERTIES OR ANY OTHER MATTERS CONTAINED IN ANY MATERIALS
FURNISHED OR MADE AVAILABLE TO BUYER BY SELLER OR BY SELLER’S AGENTS OR
REPRESENTATIVES.  ANY AND ALL SUCH DATA, RECORDS, REPORTS, PROJECTIONS,
INFORMATION AND OTHER MATERIALS (WRITTEN OR ORAL) FURNISHED BY SELLER OR
OTHERWISE MADE AVAILABLE OR DISCLOSED TO BUYER ARE PROVIDED TO BUYER AS A
CONVENIENCE AND SHALL NOT CREATE OR GIVE RISE TO ANY LIABILITY OF OR AGAINST
SELLER AND ANY RELIANCE ON OR USE OF THE SAME SHALL BE AT BUYER’S SOLE RISK TO
THE MAXIMUM EXTENT PERMITTED BY LAW.  TO THE BEST OF SELLER’S KNOWLEDGE, THE
INFORMATION CONTAINED IN EXHIBITS A AND B IS TRUE, ACCURATE AND COMPLETE.

 

4.        Representations of Buyer.  Buyer represents to Seller that:

 

(a)      Organization and Qualification.  Buyer is a corporation duly organized
and legally existing and in good standing under the laws of its state of
Delaware and is qualified to do business and is in good standing in the States
of Louisiana and Texas.  Buyer is also qualified to own and operate oil and gas
properties with all applicable governmental agencies having jurisdiction over
the Properties, to the extent such qualification is necessary or appropriate or
will be necessary or appropriate upon consummation of the transactions

 

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contemplated hereby (including, without limitation, Buyer has met all bonding
requirements of such agencies).

 

(b)      Due Authorization.  Buyer has full power to enter into and perform its
obligations under this Agreement and has taken all proper action to authorize
entering into this Agreement and performance of its obligations hereunder.

 

(c)      Approvals.  Other than requirements (if any) that there be obtained
consents to assignment (or waivers of preferential rights to purchase) from
third parties, and except for Routine Governmental Approvals, neither the
execution and delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, nor the compliance with the terms hereof, will
result in any default under any agreement or instrument to which Buyer is a
party, or violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Buyer.

 

(d)      Valid, Binding and Enforceable.  This Agreement constitutes (and the
Conveyance provided for herein to be delivered at Closing will, when executed
and delivered, constitute) the legal, valid and binding obligation of Buyer,
enforceable in accordance with its terms, except as limited by bankruptcy or
other laws applicable generally to creditor’s rights and as limited by general
equitable principles.

 

(e)      No Litigation.  There are no pending suits, actions, or other
proceedings in which Buyer is a party (or, to Buyer’s knowledge, which have been
threatened to be instituted against Buyer) which affect the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby.

 

(f)       Knowledgeable Buyer, No Distribution.  Buyer is a knowledgeable
purchaser, owner and operator of oil and gas properties, has the ability to
evaluate (and in fact has evaluated) the Properties for purchase, and is
acquiring the Properties for its own account and not with the intent to make a
distribution in violation of the Securities Act of 1933 as amended (and the
rules and regulations pertaining thereto) or in violation of any other
applicable securities laws, rules or regulations.  Buyer acknowledges that the
Properties are being purchased from an “interested party” and that six members
of Buyer’s board of directors are affiliated with Seller.  Buyer is exercising
its authority to purchase the Properties through its Special Committee of
Directors, comprised of its only disinterested director, Robert C. Stone, Jr.
(“Stone”) and Buyer  has taken all necessary and appropriate action to approve
the transaction under Delaware law.

 

(g)           Funds.  Buyer has, and at the Closing will have, such funds as are
necessary for the consummation by Buyer of the transactions contemplated hereby.

 

(h)           Opportunity to Verify Information.  Without limitation of Buyer’s
rights under Section 6, Buyer has been furnished with all materials

 

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relating to the Properties requested by Buyer and has been afforded the
opportunity to ask questions of the Seller (or a person or persons acting on its
behalf) concerning the Properties, and all such questions have been answered to
the full satisfaction of the Buyer.  Without limitation of Buyer’s rights under
Section 6, Buyer has received all materials, documents, and other information
relating to the Properties that Buyer deems necessary to evaluate the Properties
and understand the merits and risks of an investment in the Properties.  Buyer
has made its own independent investigation to the extent necessary to verify the
truth and accuracy of such materials, documents, and other information furnished
by Seller.

 

(i)            Merits and Risks of an Investment in the Properties.  Buyer
understands and acknowledges that:  (i) an investment in the Properties involves
certain risks; (ii) neither the United States Securities and Exchange Commission
nor any federal, state or foreign agency has passed upon the Properties or made
any findings or determination as to the fairness of an investment in the
Properties or the accuracy or adequacy of the disclosures made to Buyer, and
(iii) except as set forth in Section 8 of this Agreement, Buyer is not entitled
to cancel, terminate or revoke this Agreement.

 

5.        Certain Covenants of Seller Pending Closing.  Between the date of this
Agreement and the Closing Date:

 

(a)      Access by Buyer.

 

(i)            Records.  Seller will give Buyer, or Buyer’s authorized
representatives, at Seller’s office (or at other locations to be designated by
Seller) and at all reasonable times before the Closing Date, access to Seller’s
records pertaining to the ownership and/or operation of the Properties
(including, without limitation, title files, division order files, well files,
and production, severance and ad valorem tax records), for the purpose of
conducting due diligence reviews contemplated by Section 6 below.  Buyer may
make copies of such records, but shall, if Seller so requests, return all copies
so made if the Closing does not occur; all costs of copying such items shall be
borne by Buyer.  Seller shall not be obligated to provide Buyer with access to
any records or data which Seller believes that Seller cannot provide to Buyer
without, in Seller’s reasonable opinion, breaching, or risking a breach of,
agreements with other parties, or waiving, or risking waiving, legal privilege. 
BUYER RECOGNIZES AND AGREES THAT ALL MATERIALS MADE AVAILABLE TO IT IN
CONNECTION WITH THE TRANSACTION CONTEMPLATED HEREBY, WHETHER MADE AVAILABLE
PURSUANT TO THIS SECTION OR OTHERWISE, ARE MADE AVAILABLE TO IT AS AN
ACCOMMODATION, AND WITHOUT REPRESENTATION OR WARRANTY OF ANY KIND AS TO THE
ACCURACY AND COMPLETENESS OF SUCH MATERIALS.  NO

 

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WARRANTY OF ANY KIND IS MADE BY SELLER AS TO THE INFORMATION SUPPLIED TO BUYER
OR WITH RESPECT TO PROPERTIES TO WHICH THE INFORMATION RELATES, AND BUYER
EXPRESSLY AGREES THAT ANY CONCLUSIONS DRAWN THEREFROM SHALL BE THE RESULT OF ITS
OWN INDEPENDENT REVIEW AND JUDGMENT.

 

(ii)        Physical Inspection.  Seller shall make a good faith effort to give
Buyer, or Buyer’s authorized representatives, at all reasonable times before the
Closing Date and upon adequate notice to Seller, physical access to the
Properties for the purpose of inspecting same.  Buyer recognizes that some or
all of the Properties may be operated by parties other than Seller and that
Seller’s ability to obtain access to such properties, and the manner and extent
of such access, is subject to such third parties.  Buyer agrees to comply fully
with the rules, regulations and instructions issued by Seller (and, where
Properties are operated by other parties, such other parties) regarding the
actions of Buyer while upon, entering or leaving the Properties.  Buyer shall
furnish, free of costs, Seller with a copy of any written report prepared by or
for Buyer related to any environmental or physical investigation of the
Properties as soon as reasonably possible after it is prepared.

 

(iii)       Exculpation and Indemnification.  If Buyer exercises rights of
access under this Section or otherwise, or conducts examinations or inspections
under this Section or otherwise, then (a) such access, examination and
inspection shall be at Buyer’s sole risk, cost and expense and Buyer waives and
releases all claims against Seller (and the affiliates of Seller and the
respective directors, officers, employees, attorneys, contractors and agents of
Seller and such affiliates) arising in any way therefrom or in any way connected
therewith or arising in connection with the conduct of its directors, officers,
employees, attorneys, contractors and agents in connection therewith and (b)
Buyer shall indemnify, defend and hold harmless Seller and its members and its
and their affiliates and the respective officers, directors, employees,
attorneys, contractors and agents of such parties) from any and all claims,
actions, causes of action, liabilities, damages, losses, costs or expenses
(including, without limitation, court costs and attorneys’ fees) (i) for
personal  injuries to or death of employees of the Buyer, its contractors,
agents, consultants and  representatives, and damage to the property of Buyer or
others acting on behalf of Buyer, (ii)  for personal injuries to or death of
employees of Seller or third  parties, and damage to the property of Seller or
third parties, to the extent caused by the negligence, gross negligence or
willful misconduct of Buyer, but excluding in all cases  claims arising out of
or resulting from Seller’s (or its employees’, contractors’, successors’  or
assigns’) gross negligence or willful misconduct, or (iii) liens or encumbrances
for labor or materials, arising out of or in any way connected with Buyer’s
examinations or inspections.

 

THE FOREGOING RELEASE AND INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH
CLAIMS, ACTIONS, CAUSES OF ACTION,

 

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LIABILITIES, DAMAGES, LOSSES, COSTS OR EXPENSES ARISE OUT OF  (i) NEGLIGENCE
(INCLUDING SOLE NEGLIGENCE, SINGLE NEGLIGENCE, CONCURRENT NEGLIGENCE, ACTIVE OR
PASSIVE NEGLIGENCE, BUT EXPRESSLY NOT INCLUDING GROSS NEGLIGENCE) OF ANY
INDEMNIFIED PARTY, OR (ii) STRICT LIABILITY.

 

                (b)           Interim Operation.    From the date of execution
of this Agreement until Closing, Seller shall not commence or consent to
commencement of, and shall not elect to go non-consent in, any operation for the
drilling of any new well or the fracing, recompletion, deepening, reworking,
plugging back, plugging and abandonment or other operation with respect to any
Well without the prior written consent of Buyer, which consent will not be
unreasonably withheld. Buyer shall respond promptly to any written requests for
such consent. Seller will use its commercially reasonable efforts from the date
of execution of this Agreement until Closing, to maintain and operate the Oil
and Gas Properties in a reasonable and prudent manner, in full compliance with
law and orders of any governmental authority, to maintain insurance now in force
with respect to the Oil and Gas Properties, to pay when due all costs and
expenses coming due and payable in connection with the Oil and Gas Properties,
and to perform all of the covenants and conditions contained in the Leases and
all related contracts.  Without the prior written consent of Buyer, which
consent will not be unreasonably withheld, Seller will not: (i) develop,
maintain or operate the Oil and Gas Properties in a manner inconsistent with
prior operations or introduce any new method of operation or accounting with
respect to the Oil and Gas Properties; (ii) enter into any new agreements or
commitments with respect to the Oil and Gas Properties; (iii) incur any
liabilities other than in the ordinary course for normal operating expenses on
the Oil and Gas Properties; (iv) abandon, or consent to abandonment of, any
producing, shut-in or injection Well located on the Oil and Gas Properties, nor
release or abandon all or any portion of the Leases; (v) modify or terminate any
of the Leases  or waive any right thereunder; or (vi) encumber, sell or
otherwise dispose of any of the Oil and Gas Properties other than personal Oil
and Gas Properties that is replaced with equivalent property or consumed in the
ordinary course of operation of the Oil and Gas Properties and other than
hydrocarbons sold in the ordinary course of business (except that Seller will
not enter into any new production purchase or sale agreement with a term greater
than 30 days relating to the Oil and Gas Properties).  Buyer will respond
promptly to any written requests for such consent.

 

Without expanding any obligations which Seller may have to Buyer, it is
expressly agreed that Seller shall never have any liability to Buyer with
respect to operation of a Property greater than that which it might have as the
operator to a non-operator under the applicable operating agreement (or, in the
absence of such an agreement, under the AAPL 610 (1989 Revision) form Operating
Agreement), IT BEING RECOGNIZED THAT, UNDER SUCH AGREEMENTS AND SUCH FORM, THE
OPERATOR IS NOT RESPONSIBLE FOR ITS OWN NEGLIGENCE, AND HAS NO RESPONSIBILITY
OTHER THAN FOR GROSS NEGLIGENCE OR WILFUL MISCONDUCT.

 

(c)      Consents to Assignment.  Seller will use commercially reasonable
efforts,

 

11

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consistent with industry practices in transactions of this type, to identify,
with respect to all material Oil and Gas Properties, (i) all requirements that
consents to assignment (“Consents”) be obtained which would be applicable to the
transactions contemplated hereby and (ii) the names and addresses of parties
holding such Consent rights; provided, however, Seller shall in no event be
obligated to go beyond its own records.  Except for contracts that may be
cancelled by either party thereto upon giving 30 days or less prior notice and
the governmental consents to assignment described in Section 3(a)(iii), prior to
Closing Seller will request, from the parties so identified (and in accordance
with the documents creating such rights), execution of Consents so identified. 
If any consent to assignment is not obtained by Closing, then, at Buyer’s
option: (A) the portion of the Properties affected by such consent shall be
withdrawn from the sale and retained by Seller and the Purchase Price shall be
reduced by an amount mutually agreed to by the Parties and, at Buyer’s sole
option, the Parties shall proceed to Closing; or (B) Buyer may waive the failure
to receive the consent and proceed to purchase the affected portion of the
Properties.

 

6.        Due Diligence Reviews.

 

(a)      Review By Buyer.  Buyer may conduct, at its sole cost, such title
examination or investigation, and other examinations and investigations, as it
may in its sole discretion choose to conduct with respect to the Properties in
order to determine whether Defects (as below defined) exist.  Should, as a
result of such examinations and investigations, or otherwise, one or more
matters come to Buyer’s attention which would constitute a Defect, and should
there be one or more of such Defects which Buyer is unwilling to waive and close
the transaction contemplated hereby notwithstanding the fact that such Defects
exist, Buyer shall notify Seller in writing of such Defects as soon as the same
are identified by Buyer, but in no event no later than five (5) days prior to
Closing (the “Defect Date”) (such Defects of which Buyer so provides notice are
herein called “Asserted Defects”).  Such notification shall include, for each
Asserted Defect, (i) a description of the Asserted Defect and the lands, wells
and/or units listed on Exhibit A to which it relates, (ii) whether the Defect is
a Defect to be governed by Section 7(b)(i) below, (iii) for each applicable well
or unit, if applicable, the size of any variance from “Net Revenue Interest” or
“Working Interest” which does or could result from such Asserted Defect, and
(iv) the amount by which Buyer would propose to adjust the Purchase Price.  All
Defects with respect to which Buyer fails to so give Seller notice by the Defect
Date will be deemed waived for all purposes; provided, however, such deemed
waiver shall not apply to any breach by Seller of any of the representations of
Seller set forth in Section 3 hereof.  All access to Seller’s records and the
Properties in connection with such due diligence shall be subject and pursuant
to Section 5(a) (including, without limitation, the exculpation and
indemnification provisions contained in Section 5(a)(iii)).

 

(b)      Nature of Defects.  The term “Defect” as used in this Section shall
mean the following:

 

(i)         NRI or WI Variances.  Seller’s ownership of the Properties is such
that,

 

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with respect to a well listed on Exhibit A hereto, it  (A) entitles Seller to
receive a decimal share of the oil, gas and other hydrocarbons produced from
currently producing completions in such well which is less than the decimal
share set forth on Exhibit A in connection with such well in the column headed
“Net Revenue Interest” or (B) causes Seller to be obligated to bear a decimal
share of the cost of operation of such well greater than the decimal share set
forth on Exhibit A in connection with such well in the column headed “Working
Interest” (without at least a proportionate increase in the share of production
to which Seller is entitled to receive from such well).

 

(ii)        Liens.  Seller’s ownership of an Oil and Gas Property is subject to
a lien other than (A) a lien for taxes which are not yet delinquent or (B) a
mechanic’s or materialmen’s lien (or other similar lien), or a lien under an
operating agreement or similar agreement, to the extent the same relates to
expenses incurred which are not yet delinquent or (C) liens which will be
released at or before Closing.

 

(iii) Imperfections in Title.  Seller’s ownership of an Oil and Gas Property is
subject to an imperfection in title which, if asserted, would cause a Defect, as
defined in subparagraph (i) above, to exist, and such imperfection in title is
not such as would normally be waived by persons engaged in the oil and gas
business when purchasing producing properties.

 

(iv)       Environmental.  Seller’s ownership of an Oil and Gas Property is
subject to remediation or correction under applicable environmental laws.

 

           (c)        Defect Exceptions.  Notwithstanding anything in the
foregoing which may appear to the contrary, unleased interests or non pooled, or
ineffectively pooled, interests in a tract on which no well included in the
Properties is located shall not constitute a “Defect”.  Similarly, in some cases
where an “APO NRI” net revenue interest is shown for a well on Exhibit A where
one or more third parties have elections at payout (which do not have to be
exercised until then) to take one of two or more possible interests, and such
net revenue interest shown on Exhibit A assumes one of such interests would be
elected; notwithstanding anything in the foregoing which appears to the
contrary, the fact that a third party may make a different election at payout
than that assumed in computing the net revenue interest shown on Exhibit A will
not constitute a “Defect”.  The presence of naturally occurring radioactive
materials (“NORM”) in circumstances where, under current governmental rules and
regulations, remediation is not currently required will not constitute a
“Defect”.  Additionally, notwithstanding any other provision in this Agreement
to the contrary, the following matters shall not constitute, and shall not be
asserted as, a Defect:   (i) defects or irregularities arising out of lack of
corporate authorization or a variation in corporate name, unless Buyer provides
affirmative evidence that such corporate action was not authorized and results
in another person’s superior claim of title to the relevant Property; (ii)
defects or irregularities that have been cured or remedied by the passage of
time, including, without limitation, applicable statutes of limitation or
statutes for

 

13

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prescription; (iii) defects or irregularities in the chain of title consisting
of the failure to recite marital status in documents or omissions of heirship
proceedings which has not delayed or prevented Seller from receiving its Net
Revenue Interest share of the proceeds of production; (iv) defects or
irregularities in title which for a period of 5 years or more has not delayed or
prevented Seller (or Seller’s predecessor, if owned by Seller less than 5 years)
from receiving its Net Revenue Interest share of the proceeds of production or
causes it to bear a share of expenses and costs greater than its Working
Interest share from any unit or well; and (v) conventional rights of
reassignment normally actuated by an intent to abandon or release a lease and
requiring notice to the holders of such rights and any defect or irregularity as
would normally be waived by persons engaged in the oil and gas business when
purchasing producing properties.

 

(d)      Seller’s Response.  In the event that Buyer notifies Seller of Asserted
Defects:

 

(i)         Cure.  Seller may (but shall have no obligation to)  cure, prior to
Closing, one or more Asserted Defects.

 

(ii)        Postpone Closing.  Whether or not Seller has then begun to, or ever
begins to, cure one or more Asserted Defects (and whether or not Seller has
elected options (iii) or (iv) below with respect to one or more Asserted
Defects), Seller may postpone the Closing by designating a new Closing Date not
later than August 31, 2004.  Notwithstanding any such election to postpone
Closing, Seller shall still have no obligation to cure Asserted Defects.

 

(iii)       Adjustment.  Notwithstanding any other election made under this
Section (without limitation, it being expressly recognized that Seller may
attempt to cure Asserted Defects while acting under this election), Seller may
elect to have one or more Asserted Defects handled under Section 7 below.

 

7.        Certain Price Adjustments.

 

(a)      Procedures.  In the event that, as a part of the due diligence reviews
provided for in Section 6 above, Asserted Defects are presented to Seller and
Seller is unable (or unwilling) to cure such Asserted Defects prior to Closing,
or in the event that Buyer or Seller has elected (pursuant to Section 14) to
treat an Oil and Gas Property affected by a casualty loss as if it was an Oil
and Gas Property affected by an Asserted Defect, then:

 

(i)         Agree Upon Adjustment.  Buyer and Seller shall, with respect to each
Property affected by such matters, attempt to agree upon an appropriate downward
adjustment of the Purchase Price to account for such matters.

 

(ii)        Exclude Property.  With respect to each well listed on Exhibit A as
to which Buyer and Seller are unable to agree upon appropriate adjustment with
respect to all such matters affecting such well, such well (together with such
related rights in any

 

14

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unit including the same, and other rights, as may be necessary or appropriate to
own, operate and produce the same) will be excluded from the transaction
contemplated hereby, and a downward adjustment of the Purchase Price will be
made by the amount mutually agreed to by the Parties.

 

(iii)       Environmental Reductions.  If the Asserted Defect is a Defect
described in Section 6(b)(iv): the estimated amount mutually agreed to by the
Parties of all costs and claims associated with the existence, remediation or
correction of the environmental condition plus the penalty, fine or damage
payment reasonably likely to result from a prosecution, if instituted.

 

(b)      Certain Adjustments.  In the event that Buyer raises as an Asserted
Defect the following type of Defect, Seller may (but shall not be obligated to)
propose (and Buyer shall accept) the adjustment of the Purchase Price set forth
below in connection with such Defect:

 

(i)         Liens/Payoff Amount.  If the Asserted Defect is a Defect described
in Section 6(b)(ii):  a downward adjustment equal to the amount of the debt
secured by such lien.

 

If Seller proposes such an adjustment, such adjustment will be deemed an
adjustment agreed to under Section 7(a)(i) above.

 

If, in the exercise of good faith negotiations between the Parties, the Parties
are unable to mutually agree to an adjustment of the Purchase Price under this
Section 7 or under Section 5(c), either Party shall have the right to terminate
this Agreement by giving written notice to the other Party and thereafter
neither Party shall have any liability to the other under this Agreement.

 

(c)      Limitations on Adjustments.  If the Purchase Price reduction  with
respect to a particular Asserted Defect which would result from the above
provided for procedure does not exceed Ten Thousand Dollars ($10,000), no
adjustment shall be made for such Asserted Defect.  If the Purchase Price
reduction which would result from the above provided for procedure, as applied
to all Asserted Defects for which an adjustment is to be made, does not exceed
One Hundred Thousand Dollars ($100,000), then no adjustment of the Purchase
Price shall occur, and none of the Properties which would be excluded by such
procedure shall be excluded.  If the Purchase Price reduction which would result
from the above provided for procedure, as applied to all Asserted Defects for
which an adjustment is to be made exceeds One Hundred Thousand Dollars
($100,000), the Purchase Price shall be adjusted by the amount of such
reduction.

 

8.        Conditions Precedent to the Obligations of Buyer.  The obligations of
Buyer under this Agreement are subject to each of the following conditions being
met:

 

(a)      Representations True and Correct.  Each and every representation of
Seller

 

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under this Agreement shall be true and accurate  as of the date when made and
shall be deemed to have been made again at and as of the time of Closing and
shall at and as of such time of Closing be true and accurate except as to
changes specifically contemplated by this Agreement or consented to by Buyer.

 

(b)      Compliance with Covenants and Agreements.  Seller shall have performed
and complied with (or compliance therewith shall have been waived by Buyer) each
and every covenant and agreement required by this Agreement to be performed or
complied with by Seller prior to or at the Closing.

 

(c)      Price Adjustment Limitations.  The aggregate downward adjustment (if
any) of the Purchase Price which results from the procedures set forth in
Section 7 does not exceed Seven Hundred Fifty Thousand Dollars ($750,000).

 

(d)      No Material Adverse Effect.  Between the date of this Agreement and the
Closing there has not been a Material Adverse Effect.  “Material Adverse Effect”
shall mean any event circumstance, condition, development or occurrence causing,
causing, resulting in or having (or with the passage of time likely to cause,
result in or have) an adverse effect on the Properties, having a value in excess
of $500,000; provided, however, that in no event shall any of the following be
deemed to constitute or be taken into account in determining a Material Adverse
Effect: any event, circumstance, change or effect that results from changes
affecting the economy generally or changes in the market price of oil or natural
gas.

 

(e)           Litigation.  No suit, action or other proceedings by any
governmental entity or third party shall, on the date of Closing, be pending or
threatened before any court or governmental agency seeking to restrain,
prohibit, or obtain material damages or other material relief in connection with
the consummation of the transactions contemplated by this Agreement.

 

If any such condition on the obligations of Buyer under this Agreement is not
met as of the Closing Date, or in the event the Closing does not occur on or
before the Closing Date (as may be extended by Seller pursuant to Section
6(e)(ii)), and (in either case) Buyer is not in material breach of its
obligations hereunder in the absence of Seller being in material breach of its
obligations hereunder, this Agreement may, at the option of Buyer, be
terminated.  In the event such a termination by Buyer occurs the parties shall
have no further obligations to one another hereunder (other than the obligations
under Sections 5(a)(iii), 13 and 17(c) hereof all of which will survive such
termination).

 

9.        Conditions Precedent to the Obligations of Seller.  The obligations of
Seller under this Agreement are subject to the each of the following conditions
being met:

 

(a)      Representations True and Correct.  Each and every representation of
Buyer under this Agreement shall be true and accurate as of the date when made
and shall be deemed to have been made again at and as of the time of Closing and
shall at and as of such

 

16

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time of Closing be true and accurate except as to changes specifically
contemplated by this Agreement or consented to by Seller.

 

(b)      Compliance With Covenants and Agreements.  Buyer shall have performed
and complied with (or compliance therewith shall have been waived by Seller)
each and every covenant and agreement required by this Agreement to be performed
or complied with by Buyer prior to or at the Closing.

 

(c)      Price Adjustment Limitations.  The aggregate downward adjustment (if
any) of the Purchase Price which results from the procedures set forth in
Section 7 does not exceed Seven Hundred Fifty Thousand Dollars ($750,000).

 

(d)      Litigation.  No suit, action or other proceedings by any governmental
entity or third party shall, on the date of Closing, be pending or threatened
before any court or governmental agency seeking to restrain, prohibit, or obtain
material damages or other material relief in connection with the consummation of
the transactions contemplated by this Agreement.

 

If any such condition on the obligations of Seller under this Agreement is not
met as of the Closing Date, or in the event the Closing does not occur on or
before the Closing Date, and (in either case) Seller is not in material breach
of its obligations hereunder in the absence of Buyer being in material breach of
its obligations hereunder, this Agreement may, at the option of Seller, be
terminated, in which case the parties shall have no further obligations to one
another hereunder (other than the obligations under Sections 5(a)(iii), 13 and
17(c) hereof all of which will survive such termination).

 

10.      Closing.

 

(a)      Actions At Closing.  The closing (herein called the “Closing”) of the
transaction contemplated hereby shall take place on or before, August 13, 2004,
at the offices of Seller; or (i) such date and time and location as the Buyer
and Seller may mutually agree upon; or (ii) at such time to which Seller may
postpone the Closing pursuant to Section 6 hereof (such date and time, as
changed pursuant to clauses (i) and (ii), being herein called the “Closing
Date”).  At the Closing:

 

(i)         Delivery of Conveyance.  Seller shall execute, acknowledge and
deliver to Buyer a conveyance of the Properties (the “Conveyance”), in the form
attached hereto as Schedule I (and with Exhibit A hereto, with such
modifications as may be mutually agreed to by Buyer and Seller, being attached
thereto), effective as to runs of oil and deliveries of gas and for all other
purposes as of 7:00  a.m., Central Daylight Time on June 1, 2004 (herein called
the “Effective Date”).

 

(ii)        Payment to Seller.  Buyer shall deliver to the Seller, by wire
transfer of immediately available funds to an account designated by Seller in a
bank located in the

 

17

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United States, an amount equal to (A) the Purchase Price less or plus (as the
case may be) (B) any adjustments under Section 11 which are to be made at
Closing.

 

(iii)       Turn Over Possession.  Seller shall, to the extent Seller can do so,
turn over possession of the Properties.

 

(iv)       Succession by Buyer.  Buyer shall (A) furnish to Seller such evidence
(including, without limitation, evidence of satisfaction of all applicable
bonding requirements) as Seller may require that Buyer is qualified with the
applicable authorities to succeed Seller as the owner and, where applicable,
operator of the Properties, (B) with respect to properties operated by Seller
where Buyer is to succeed Seller as operator, execute and deliver to Seller
appropriate evidence reflecting change of operator as required by applicable
authorities (including, without limitation, all the change of operator form
MD-10-R-AQ that should be filed with the Louisiana Conservation Commission), and
(C) execute and deliver to Seller such forms as Seller may reasonably request
for filing with the applicable authorities to reflect Buyer’s assumption of
plugging and abandonment liabilities and platform abandonment and removal
liabilities with respect to the Properties and/or with respect to the wells
located on the Properties or on units in which the Properties participate.

 

(v)        Non-Foreign Status Tax Affidavit.  If Buyer so requests, Seller will
execute and deliver to Buyer an affidavit or other certification (as permitted
by such code) that Seller is not a “foreign person” within the meaning of
Section 1445 (or similar provisions) of the Internal Revenue Code of 1986 as
amended (i.e., Seller is not a non-resident alien, foreign corporation, foreign
partnership, foreign trust or foreign estate as those terms are defined in such
code and regulations promulgated thereunder).

 

(vi)       Federal and State Conveyance Forms.  Seller shall, where appropriate,
prepare, execute (and, where required, acknowledge) and deliver to Buyer forms
of conveyance or assignment as required by the applicable authorities for
transfers of interests in state and federal leases included in the Oil and Gas
Properties.

 

(vii)      Letters in Lieu.  Seller shall prepare, execute and deliver to Buyer
letters in lieu of transfer orders (or similar documentation), in form
acceptable to both parties.

 

(b)      Post Closing Actions.

 

(i)       Transfer of Files.  Seller will use its best efforts to deliver to
Buyer, at Buyer’s expense, and within 10 days after Closing, all of Seller’s
lease files, abstracts and title opinions, division order files, production
records, well files, accounting records (but not including general financial
accounting or tax accounting records), and other similar files and records which
directly relate to the Properties, provided that Seller shall not be obligated
to turn over to Buyer any records or data which Seller believes that Seller
cannot provide to Buyer without, in Seller’s reasonable opinion, breaching, or
risking a breach of, agreements

 

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with other parties, or waiving, or risking waiving, legal privilege;  it is
expressly understood that Buyer is not acquiring, and Seller is not obligated to
transfer to Buyer, any seismic data, geological or geophysical data, or other
similar data, or any interpretations thereof or other data or records related
thereto, covering lands or depths not covered by the Properties.  Seller may, at
its election and expense, make and retain copies of any or all such files. 
Buyer shall preserve all files so delivered by Seller of a period of eight (8)
years following Closing and will allow Seller access (including, without
limitation, the right to make copies at Seller’s expense) to such files at all
reasonable times.

 

(ii)        Operational Transition.  For a reasonable period of time after
Closing, Buyer and Seller shall undertake reasonable efforts to cooperate with
respect to transition activities as to Oil and Gas Properties where Buyer
succeeds Seller as operator.  IT IS RECOGNIZED THAT THERE IS NO ASSURANCE GIVEN
BY SELLER THAT BUYER SHALL SUCCEED SELLER AS OPERATOR OF ANY PROPERTY WHERE
OTHER PARTIES OWN INTERESTS IN THE WELLS LOCATED THEREON.  To the extent Seller
remains an operator after Closing (which it shall have no obligation to do), it
shall serve as operator under the applicable operating agreement in the manner
provided by such agreement and, to the extent Seller so operates any Oil and Gas
Properties after Closing and/or provides disbursement services under subsection
(iii) below, its obligations to Buyer with respect thereto shall be no greater
than those which it would have to a non-operator under the applicable operating
agreement (and, in the absence of an operating agreement, under the AAPL 610
(1989 Revision) form Operating Agreement), IT BEING RECOGNIZED THAT, UNDER SUCH
AGREEMENTS AND SUCH FORM, THE OPERATOR IS NOT RESPONSIBLE FOR ITS OWN
NEGLIGENCE, AND HAS NO RESPONSIBILITY OTHER THAN FOR GROSS NEGLIGENCE OR WILFUL
MISCONDUCT.

 

(iii)       Transition of Certain Accounting Matters.  With respect to each Oil
and Gas Property as to which Buyer becomes successor operator and with respect
to which Seller is disbursing proceeds of production attributable to other
parties entitled thereto, Seller shall continue to receive such proceeds of
production up to the Closing and, to the extent it actually receives such
proceeds, shall be responsible for making disbursements, in accordance with its
normal procedures (and at normal times), of such proceeds of production to the
parties entitled to same, with any such proceeds of production after the Closing
received by Seller to be promptly forwarded to Buyer (who shall thereafter
account for same to the parties entitled thereto) and Seller shall, as promptly
as possible after Closing, deliver to Buyer a copy of its “pay list” for each
such property (which list shall include the names of all parties for whom it is
holding in suspense proceeds of production).  Seller will retain all suspense
funds, and responsibility therefor.  Following delivery of the materials
referred to above, Buyer shall become responsible for all disbursements of
proceeds of production from such properties and such disbursement activities
shall be included in the matters which Buyer assumes, and indemnifies Seller
with respect to, under Section 12 below.

 

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(iv)       Notifications by Buyer.  Immediately after the Closing, Buyer shall
notify all applicable operators, non-operators, vendors, oil and gas purchasers,
and government agencies that it has purchased the Properties.

 

11.      Certain Accounting Adjustments.

 

(a)      Adjustments for Revenues and Expenses.  Appropriate adjustments shall
be made between Buyer and Seller so that (i) Buyer will bear all expenses which
are incurred in the operation of the Properties after the Effective Date
(including, without limitation, all drilling costs, all capital expenditures,
all overhead charges under applicable operating agreements computed in
accordance with Seller’s existing accounting practices  (regardless of whether
such operating agreements are with third parties or related entities and
regardless of whether Seller is the operator or a non-operator)), and all other
overhead charges actually charged by Seller (and for which Seller bills third
parties for their respective shares) or charged to Seller by third parties, and
operating expenses, and Buyer will receive all proceeds (net of applicable
production, severance, and similar taxes) from sales of oil, gas and/or other
minerals which are produced from (or attributable to) the Properties and which
are produced after the Effective Date, and (ii) Seller will bear all expenses
which are incurred in the operation of the Properties before the Effective Date
and Seller will receive all proceeds (net of applicable production, severance,
and similar taxes) from the sale of oil, gas and/or other minerals which were
produced from (or attributable to) the Properties and which were produced before
the Effective Date.  It is agreed that, in making such adjustments:  (i) oil
which was produced from the Oil and Gas Properties and which was, on the
Effective Date, stored in tanks located on the Oil and Gas Properties (or
located elsewhere but used by Seller to store oil produced from, or attributable
to, the Oil and Gas Properties prior to delivery to oil purchasers) and above
pipeline connections shall be deemed to have been produced before the Effective
Date, (ii) ad valorem and similar taxes assessed with respect to production for
periods prior to the Effective Date shall be borne by Seller and ad valorem
taxes assessed with respect to production for periods on or after the Effective
Date shall be borne by Buyer, (iii) ad valorem and similar taxes assessed with
respect to production with respect to a period which the Effective Date splits
shall be prorated based on the number of days in such period which fall on each
side of the Effective Date (with the day on which the Effective Date falls being
counted in the period after the Effective Date), (iv) casualty losses shall be
handled in accordance with Section 14,  and (vi) no consideration shall be given
to the local, state or federal income tax liabilities of any party.

 

(b)      Initial Adjustment at Closing.  At least 3 days before the Closing
Date, Seller shall provide to Buyer a statement showing its computations of its
estimated amount of the adjustments provided for in subsection (a) above based
on amounts which prior to such time have actually been paid or received by
Seller.  Buyer and Seller shall attempt to agree upon such adjustments prior to
Closing, provided that if agreement is not reached, Seller’s computation shall
be used at Closing, subject to further adjustment under subsection (c) below. 
If the amount of adjustments so determined which would result in a credit to
Buyer

 

20

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exceed the amount of adjustments so determined which would result in a credit to
Seller, Buyer shall receive a credit at Closing for the amount of such excess,
and if the converse is true, then the amount to be paid by Buyer to Seller at
Closing shall be increased by the amount of such excess.

 

(c)      Adjustment Post Closing.  On or before 90 days after Closing, Seller
shall provide to Buyer a statement showing its reasonable computations regarding
any information which may then be available pertaining to the adjustments
provided for in subsection (a) above, and Buyer shall review such statement.  If
Buyer and Seller cannot agree on such adjustments within 30 days of Buyer’s
receipt of such statement from Seller, then such adjustments shall be determined
by an independent third party chosen by mutual agreement of Seller and Buyer. If
Seller and Buyer are unable to agree on the selection of an independent third
party, then each shall select an independent third party who in turn shall
mutually agree upon an independent third party. Such third party shall provide
Buyer and Seller with a statement showing its reasonable computations regarding
any information which may then be available pertaining to the adjustments. The
parties shall make any such adjustments by appropriate payments from Seller to
Buyer or from Buyer to Seller.  After such adjustments are made, no further
adjustments shall be made under this Section 11.

 

12.                   Assumption and Indemnification.

 

12.1         Buyer’s Rights After Closing.  Upon and after Closing, Buyer will
receive and assume all of Seller’s right, title and interest in the Properties,
with effect as of the Effective Date.

 

12.2         Buyer’s Obligations After Closing.

 

12.2.1      Description of Obligations. Upon and after Closing, Buyer will
assume, pay and perform the following (collectively the “Buyer’s Assumed
Obligations”):

 

(i)                                     Responsibility for payment of all
operating expenses and capital expenditures related to the Properties and
arising and attributable to the period on and after the Effective Date;

 

(ii)                                  Responsibility for payment of all
royalties, overriding royalties, production payments, net profits obligations,
rentals, shut-in payments and other burdens or encumbrances to which the
Properties is subject that are attributable to periods on and after the
Effective Date;

 

(iii)                               Responsibility for proper accounting for and
disbursement of production proceeds from the Properties attributable to periods
on and after the Effective Date;

 

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(iv)                              All obligations, liabilities and duties with
respect to the ownership and operation of the Properties that are attributable
to periods on and after the Effective Date; and

 

(v)                                 The Plugging and Abandonment Obligations,
the Environmental Obligations, and all other obligations assumed by Buyer under
this Agreement.

 

Except for the Buyer’s Assumed Obligations, Buyer assumes no other liability or
obligation of Seller with respect to the Properties.

 

12.3         Seller’s Obligations After Closing.

 

12.3.1                  Description of Obligations After Closing. Seller will
retain responsibility for all liabilities, obligations and duties with respect
to the ownership and (if applicable) operation of the Properties that are
attributable to periods before the Effective Date, except as otherwise
specifically provided in this Agreement (the “Seller’s Retained Obligations”).
 The Seller’s Retained Obligations consist of:

 

(i)                                     Responsibility for the payment of all
operating expenses and capital expenditures related to the Properties and
attributable to the period prior to the Effective Date;

 

(ii)                                  Responsibility for payment of all
royalties, overriding royalties, production payments, net profits obligations,
rentals, shut-in payments and other burdens or encumbrances to which the
Properties are subject that are attributable to periods before the Effective
Date;

 

(iii)                               Responsibility for proper accounting for and
disbursement of production proceeds from the Properties attributable to periods
before the Effective Date; and

 

(iv)                              Responsibility for the exclusions from the
Environmental Obligations described in Section 12.5.2.

 

12.4         Plugging and Abandonment Obligations.

 

12.4.1                  Buyer’s Obligations.  Upon and after Closing, Buyer
assumes full responsibility and liability for the following plugging and
abandonment obligations related to the Properties (the “Plugging and Abandonment
Obligations”), regardless of whether they are attributable to the ownership or
operation of the Properties before or after the Effective Date:

 

(i)                                     The necessary and proper plugging,
replugging and abandonment of all wells on the Properties, whether plugged and
abandoned before or after the

 

 

22

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                                                Effective Date, as may be
required by applicable governmental laws, rules and regulations;

 

(ii)                                  The necessary and proper removal,
abandonment, and disposal of all platforms, structures, pipelines, equipment,
abandoned Properties and junk located on or comprising part of the Properties,
including junk on the sea floor at the Leases, as may be required by applicable
governmental laws, rules and regulations;

 

(iii)                               The necessary and proper capping and burying
of all flow lines associated with the Wells and located on or comprising part of
the Properties, as may be required by applicable governmental laws, rules and
regulations;

 

(iv)                              The necessary and proper restoration of the
Properties, both surface, sea floor, and subsurface, as may be required by
applicable governmental laws, rules and regulations;

 

(v)                                 Any necessary clean-up or disposal of
Properties contaminated by naturally occurring radioactive material (“NORM”), as
may be required by applicable governmental laws, rules and regulations; and

 

(vi)                              All plugging and abandonment obligations
arising from contractual requirements and demands made by courts or other
authorized regulatory bodies.

 

12.5         Environmental Obligations.

 

12.5.1                  Buyer’s Obligations. Except as provided in Section
12.5.2, upon and after Closing, Buyer assumes full responsibility and liability
for the following occurrences, events and activities on or related to the
Properties (the “Environmental Obligations”), regardless of whether arising from
the ownership or operation of the Properties before or after the Effective Date,
and regardless of whether resulting from any acts or omissions of Seller or the
condition of the Properties when acquired:

 

(i)                                     Environmental pollution or
contamination, including pollution or contamination of the soil, sea,
groundwater or air by oil, gas, condensate, distillate, other hydrocarbons,
brine, NORM or otherwise;

 

(ii)           Underground injection activities and waste disposal onsite;

 

(iii)                               Clean-up responses, and the cost of
remediation, control, assessment or compliance with respect to surface, sea
floor, and subsurface pollution caused by spills;

 

23

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(iv)                              Failure to comply with applicable land use,
surface disturbance, licensing or notification requirements;

 

(v)                                 Disposal on the Properties of any hazardous
substances, wastes, materials and products generated by or used in connection
with the ownership or operation of the Properties before or after the Effective
Date; and

 

(vi)                              Non-compliance with environmental or land use
rules, regulations, demands or orders of appropriate state or federal regulatory
agencies.

 

12.5.2                  Exclusions from Buyer’s Obligations. Buyer’s
Environmental Obligations do not include:

 

(i)                                     Any civil or criminal fines or penalties
that may be levied against Seller or Buyer by any court or regulatory authority
for any such violation of any laws, rules or regulations in connection with the
ownership or operation of the Properties before the Effective Date, all of which
shall remain the responsibility of Seller; and

 

(ii)                                  Transportation and disposal offsite from
the Properties before the Effective Date of any hazardous substances, wastes,
NORM, materials and products generated by or used in connection with the
ownership or operation of the Properties before the Effective Date.

 

12.6         Indemnities; Definition of Claims.  As used in this Agreement, the
term “Claims” means any and all losses, liabilities, damages, punitive damages,
obligations, expenses, fines, penalties, costs, claims, causes of action and
judgments for: (i) breaches of contract; (ii) loss or damage to Properties,
injury to or death of persons, and other tortious injury; and (iii) violations
of applicable laws, rules, regulations, orders or any other legal right or duty
actionable at law or equity. The term “Claims” also includes reasonable
attorneys fees, court costs, and other reasonable costs of litigation resulting
from the defense of any claim or cause of action within the scope of the
indemnities in this Agreement.

 

12.7         Application of Indemnities.

 

12.7.1                  Covered Claims and Parties. All indemnities set forth in
this Agreement extend to the officers, directors, employees and affiliates of
the party indemnified. Unless this Agreement expressly provides to the contrary,
the indemnities set forth in this Agreement apply regardless of whether the
indemnified party (or its employees, agents, contractors, successors or assigns)
causes, in whole or part, an indemnified Claim, including indemnified Claims
arising out of or resulting, in whole or part, from the condition of the
Properties or the indemnified party’s (or its employees’, agents’, contractors’,
successors’ or assigns’) sole or concurrent negligence, strict liability or
fault. However, the indemnities set forth in this Agreement do not extend

 

24

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                                                to any part of an indemnified
Claim that (i) is the result of the gross negligence, willful misconduct or
fraud of the indemnified party or (ii) is the result of the imposition of civil
or criminal fines or penalties by any court or regulatory authority on the
indemnified party due the indemnified party’s failure to comply with applicable
laws, regulations or orders.

 

12.7.2                  Other Limitations. The indemnities of the indemnifying
party in this Agreement do not cover or include any amounts that the indemnified
party legally recoups from other third party owners under applicable joint
operating agreements or other agreements, or for which the indemnified party is
reimbursed by any third party. The indemnities in this Agreement do not relieve
the parties to this Agreement from any obligations to third parties. The
indemnities of the parties in this Agreement do not relieve the indemnified
party from, or extend to cover, any obligations of the indemnified party under
the terms of any operating agreement or other cost-sharing arrangement which is
applicable to any Claim. There will be no upward or downward adjustment in the
Purchase Price as a result of any matter for which Buyer or Seller is
indemnified under this Agreement.

 

12.8         Buyer’s Indemnity. Buyer shall indemnify, defend and hold Seller
harmless from and against any and all Claims caused by, resulting from or
incidental to:

 

12.8.1                  Buyer’s Assumed Obligations;

 

12.8.2                  Any violation by Buyer of state or federal securities
laws, or any subsequent sale or other disposition of the Properties (or portion
thereof) by Buyer; its affiliates or Buyers;

 

12.8.3                  Buyer’s inspection of the Properties under Section
5(a)(iii); and

 

12.8.4                  Buyer’s breach of its representations and warranties
under Section 4 hereof.

 

12.9         Seller’s Indemnity.  Seller shall indemnify, defend and hold Buyer
harmless from and against any and all Claims caused by, resulting from or
incidental to:

 

12.9.1                  Seller’s Retained Obligations and the exclusions from
the Environmental Obligations assumed by Buyer in the Buyer’s Assumed
Obligations under Section 12.5.2; and

 

12.9.2                  Seller’s breach of its representations and warranties
under Section 3 hereof.

 

12.10       Notices and Defense of Indemnified Claims.  Each party shall
immediately notify the other party of any Claim of which it becomes aware and
for which it is entitled to indemnification from the other party under this
Agreement. The indemnifying party shall be obligated to defend at the
indemnifying party’s sole expense any litigation or other administrative or
adversarial proceeding against the indemnified party relating to any Claim

 

25

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for which the indemnifying party has agreed to indemnify and hold the
indemnified party harmless under this Agreement. However, the indemnified party
shall have the right to participate with the indemnifying party in the defense
of any such Claim at its own expense.

 

12.11       Waiver of Consequential and Punitive Damages.  Notwithstanding any
other provision of this Agreement, Seller and Buyer waive and release any claim
against the other for consequential damages (except to the extent such damages
are asserted in a claim by a third party for which indemnification is provided
hereunder), however and whenever arising under this Agreement or as a result of
or in connection with the assignments contemplated herein, and whether based on
negligence, breach of warranty, breach of contract, strict liability or
otherwise. Consequential damages shall include but not be limited to loss of
revenue, profit or use of capital, production delays, loss of product, reservoir
loss or damage, losses resulting from failure to meet other contractual
commitments or deadlines and downtime of facilities.

 

13.      No Commissions Owed.  Seller agrees to indemnify and hold Buyer and its
affiliates, and the respective officers, directors, employees, attorneys,
contractors and agents of Buyer and its affiliates, harmless from and against
any and all claims, actions, causes of action, liabilities, damages, losses,
costs or expenses (including, without limitation, court costs and attorneys’
fees) of any kind or character arising out of or resulting from any agreement,
arrangement or understanding alleged to have been made by, or on behalf of,
Seller with any broker or finder in connection with this Agreement or the
transaction contemplated hereby.  Buyer agrees to indemnify and hold Seller (and
its members and its and their affiliates, and the respective officers,
directors, employees, attorneys, contractors and agents of Seller and such
parties) harmless from and against any and all claims, actions, causes of
action, liabilities, damages, losses, costs or expenses (including, without
limitation, court costs and attorneys’ fees) of any kind or character arising
out of or resulting from any agreement, arrangement or understanding alleged to
have been made by, or on behalf of, Buyer with any broker or finder in
connection with this Agreement or the transaction contemplated hereby.

 

14.      Casualty Loss.  In the event of damage by fire or other casualty to the
Properties prior to the Closing, this Agreement shall remain in full force and
effect, and in such event:

 

(a)      Oil and Gas Properties.  As to each such Property so damaged which is
an Oil and Gas Property, then (unless Seller elects to repair such damage, which
Seller shall have no obligation to do, in which case all rights to insurance
proceeds, and claims against third parties, related thereto shall belong to
Seller), (i) at the election of either Buyer of Seller, such Property shall be
treated as if it had an Asserted Defect associated with it and the procedure
provided for in Section 7 shall be applicable thereto (in which case, unless
Buyer and Seller agree to the contrary, all rights to insurance proceeds, and
claims against third parties, related thereto shall belong to Seller), or, (ii)
if no such election is made by Buyer or Seller, the Purchase Price will not be
adjusted, and Seller shall, at Seller’s election, either collect (and when
collected pay over to Buyer) any insurance proceeds related to such damage, or
assign to Buyer such insurance proceeds, and, in either event, Buyer shall take
title to the Property affected by such loss without reduction of the Purchase
Price.

 

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(b)      Other Properties.  As to each such Property so damaged which is other
than an Oil and Gas Property, Seller shall, at Seller’s election, either
(i) repair such damage or replace such Property, (ii) collect (and when
collected pay over to Buyer) any insurance proceeds related to such damage, or
(iii) assign to Buyer any insurance proceeds related to such damage, and Buyer
shall take title to the Property affected by such loss without reduction of the
Purchase Price.

 

Seller has no obligation to carry insurance coverage, or to carry any particular
types or amounts of coverage, and, in the event of a loss which is not covered
by insurance, Seller shall have no obligation to Buyer with respect thereto.

 

15.      Notices.  All notices and other communications required under this
Agreement shall (unless otherwise specifically provided herein) be in writing
and be delivered personally, by recognized commercial courier or delivery
service which provides a receipt, by facsimile (with receipt acknowledged), or
by registered or certified mail (postage prepaid), at the following addresses:

 

If to Seller:                                       PHAWK, LLC

1100 Louisiana, Suite 4400

Houston, Texas 77002

Fax:  (832) 204-2800

Attention:  Stephen W. Herod

 

If to Buyer:            The Special Committee of Disinterested Directors

49 Allard Boulevard

New Orleans, Louisiana 70119

(504) 486-7643

Fax:   (504) 552-4757

Attention: Mr. Robert C. Stone, Jr.

 

and shall be considered delivered on the date of receipt.  Either Buyer or
Seller may specify as its proper address any other post office address within
the continental limits of the United States by giving notice to the other party,
in the manner provided in this Section, at least ten (10) days prior to the
effective date of such change of address.

 

16.      Survival of Provisions.  All representations and warranties made herein
by Buyer and Seller shall be continuing and shall be true and correct on and as
of the date of Closing with the same force and effect as if made at that time
(and shall inure to the benefit of the respective successors and assigns of
Buyer and Seller), and all of such representations and warranties shall survive
the Closing and the delivery of the Conveyance for a period of one (1) year,
provided, however, that the representations of Seller in Sections 3(a)(xvi) and
(xvii) shall survive the Closing and delivery of the Conveyance for a period of
two (2) years.  The provisions of Section 10 (to the extent the same are, by
mutual agreement, not performed at Closing), and Sections 11, 13, 15 and 17
shall (subject to any

 

27

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limitations set forth therein) survive the Closing and delivery of the
Conveyance indefinitely subject to any applicable statute of limitations.  The
obligations under Section 12 shall survive the Closing and the delivery of the
Conveyance indefinitely.

 

 17.     Miscellaneous Matters.

 

(a)      Further Assurances.  After the Closing, (i) Seller shall execute and
deliver, and shall otherwise cause to be executed and delivered, from time to
time, such further instruments, notices, division orders, transfer orders and
other documents, and do such other and further acts and things, as may be
reasonably necessary to more fully and effectively grant, convey and assign the
Properties to Buyer, and (ii) Buyer shall execute and deliver, and shall
otherwise cause to be executed and delivered, from time to time, such further
instruments and documents, and do such other and further acts and things, as may
be reasonably necessary to consummate the transactions contemplated by this
Agreement.

 

(b)      Deceptive Trade Practices Waiver.  TO THE EXTENT APPLICABLE TO THE
TRANSACTION CONTEMPLATED HEREBY OR ANY PORTION THEREOF, BUYER WAIVES BUYER’S
RIGHTS UNDER THE PROVISIONS OF THE TEXAS DECEPTIVE TRADE PRACTICES - CONSUMER
PROTECTION ACT, SECTIONS 17.41 ET. SEQ. OF THE TEXAS BUSINESS AND COMMERCE CODE,
A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND PROTECTIONS, AND ANY COMPARABLE
ACT IN ANY OTHER STATE IN WHICH THE PROPERTIES ARE LOCATED.  BUYER STATES THAT,
AFTER CONSULTATION WITH AN ATTORNEY OF BUYER’S SELECTION, BUYER VOLUNTARILY
CONSENTS TO THIS WAIVER.

 

(c)      Parties Bear Own Expenses/No Special Damages.  Each party shall bear
and pay all expenses (including, without limitation, legal fees) incurred by it
in connection with the transaction contemplated by this Agreement. 
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY NEITHER PARTY SHALL HAVE ANY
OBLIGATIONS WITH RESPECT TO THIS AGREEMENT, OR OTHERWISE IN CONNECTION HEREWITH,
FOR ANY SPECIAL, CONSEQUENTIAL OR PUNITIVE DAMAGES.

 

(d)      No Sales Taxes.  No sales, transfer or similar tax will be collected at
Closing from Buyer in connection with this transaction.  If, however, this
transaction is later deemed to be subject to sales, transfer or similar tax, for
any reason, Buyer agrees to be solely responsible, and shall indemnify and hold
Seller (and its affiliates, and its and their directors, officers, employees,
attorneys, contractors and agents) harmless, for any and all sales, transfer or
other similar taxes (including related penalty, interest or legal costs) due by
virtue of this transaction on the Properties transferred pursuant hereto and the
Buyer shall remit such taxes at that time.  Seller and Buyer agree to cooperate
with each other in demonstrating that the requirements for exemptions from such
taxes have been met.

 

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(e)      Entire Agreement.  This Agreement and the “Broker Leases Agreement”
between the Parties of same date as this Agreement contain the entire
understanding of the Parties hereto with respect to subject matter hereof and
supersedes all prior agreements, understandings, negotiations, and discussions
among the Parties with respect to such subject matter.

 

(f)       Amendments, Waivers.  This Agreement may be amended, modified,
supplemented, restated or discharged (and provisions hereof may be waived) only
by an instrument in writing signed by the party against whom enforcement of the
amendment, modification, supplement, restatement or discharge (or waiver) is
sought.

 

(g)      Choice of Law.  Without regard to principles of conflicts of law, this
Agreement shall be construed and enforced in accordance with and governed by the
laws of the State of Texas applicable to contracts made and to be performed
entirely within such state and the laws of the United States of America, except
that, to the extent that the law of a state in which a portion of the Properties
is located (or which is otherwise applicable to a portion of the Properties)
governs, the law of such state shall apply as to that portion of the property
located in (or otherwise subject to the laws of) such state.

 

(h)      Headings, Time of Essence, etc.  The descriptive headings contained in
this Agreement are for convenience only and shall not control or affect the
meaning or construction of any provision of this Agreement.  Within this
Agreement words of any gender shall be held and construed to cover any other
gender, and words in the singular shall be held and construed to cover the
plural, unless the context otherwise requires.  Time is of the essence in this
Agreement.

 

(i)       No Assignment.  Prior to Closing, neither party shall have the right
to assign its rights under this Agreement, without the prior written consent of
the other party first having been obtained.

 

(j)       Successors and Assigns.  Subject to the limitation on assignment
contained in subsection (i) above, this Agreement shall be binding on and inure
to the benefit of the parties hereto and their respective successors and
assigns.

 

(k)      Counterpart Execution.  This Agreement may be executed in counterparts,
all of which are identical and all of which constitute one and the same
instrument.  It shall not be necessary for Buyer and Seller to sign the same
counterpart.

 

 

[SIGNATURE PAGES TO FOLLOW]

 

29

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IN WITNESS WHEREOF, this Agreement is executed by the parties hereto on the date
set forth above.

 

 

“SELLER”

 

 

 

 

PHAWK, LLC

 

 

 

 

 

 

 

By:

 

 

 

Floyd C. Wilson, President

 

 

 

 

 

 

 

 

 

 

“BUYER”

 

 

 

 

PETROHAWK ENERGY CORPORATION

 

 

 

 

 

 

 

By:

 

 

 

Robert C. Stone, Jr.

 

 

Chairman of Special Committee

 

 

 

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Disclosure Schedule

 

 

Environmental:

 

1.               There have been oil and gas production and exploitation
activities on the Lands and Leases for a number of years.  During such period,
the Properties have been used for natural gas, crude oil and salt production,
transportation, storage and related activities.  As is customary in conducting
operations of this nature, leaks and spills likely have occurred from time to
time in connection with such activities.  In addition, the Properties may
contain abandoned or out-of-service wells and other equipment incident to such
operations.    The physical and environmental condition of the Properties may
not be ascertainable by visual inspection.  However, to the best of Seller’s
knowledge, the Properties have been operated and maintained in compliance in all
material respects with applicable environmental laws. The statements in this
paragraph are intended as disclosures of possible conditions existing on the
Properties.

 

 

 

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SCHEDULE I

 

NOTICE OF CONFIDENTIALITY RIGHTS: IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR
STRIKE ANY OF THE FOLLOWING INFORMATION FROM THIS INSTRUMENT BEFORE IT IS FILED
FOR RECORD IN THE PUBLIC RECORDS: YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER’S
LICENSE NUMBER.

 

CONVEYANCE

 

 

PHAWK, LLC, a Delaware limited liability company, (formerly Petrohawk Energy,
LLC), (herein called “Grantor”), for Ten Dollars and other good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged),
does hereby GRANT, BARGAIN, SELL, CONVEY, ASSIGN, TRANSFER, SET OVER, and
DELIVER unto PETROHAWK ENERGY CORPORATION, a Delaware corporation (herein called
“Grantee”), whose address is 1100 Louisiana, Suite 4400, Houston, Texas 77002,
the following described properties, rights and interests:

 

(a)      All right, title and interest of Grantor in and to the oil, gas and/or
mineral leases, the wells, the production facility platform, and related
pipelines and associated rights of way,  and that certain abandonment escrow
account, that are described on Exhibit A hereto; and

 

(b)      All rights, titles and interests of Grantor in and to, or otherwise
derived from, all presently existing and valid oil, gas and/or mineral
unitization, pooling, and/or communitization agreements, declarations and/or
orders (including, without limitation, all units formed under orders, rules,
regulations, or other official acts of any federal, state, or other authority
having jurisdiction, and voluntary unitization agreements, designations and/or
declarations) relating to the properties described in subsection (a) above, to
the extent and only to the extent such rights, titles and interests are
attributable to the properties described in subsection (a) above; and

 

(c)      All rights, titles and interests of Grantor in and to all presently
existing and valid production sales contracts, operating agreements, exploration
agreements, farm-out and farm-in agreements, right of way easements, surface use
agreements, seismic data agreements (to the extent transferable and subject to
the limitations set forth below), copies of all lease files, land files, well
files, environmental records, production records, division order files,
abstracts, title opinions, and contract files, and other agreements and
contracts (including but not limited to AMI agreements, if any) which relate to
any of the properties described in subsections (a) and (b) above, to the extent
and only to the extent such rights, titles and interests are attributable to the
properties described in subsections (a) and (b) above; and

 

(d)      All rights, titles and interests of Grantor in and to all wells,
wellhead equipment, production facilities, flowlines, tanks, injection
facilities, saltwater disposal facilities, compression facilities, gathering
systems, and other equipment located on the properties described in subsections
(a) and (b) above and currently in use in connection with the

 

 

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operation of such properties, to the extent and only to the extent such rights,
titles and interests are attributable to the properties described in subsections
(a) and (b) above; and

 

(e)      certain office furniture and office equipment, automobiles, assignable
service agreements, warranty agreements and other agreements associated with the
furniture and equipment, as described on Exhibit B, and any logo, service mark,
copyright, trade name or trademark of or associated with the name Petrohawk
Energy or Petrohawk.

 

The properties, rights and interests specified in the foregoing subsections (a)
through (e), inclusive, are herein sometimes collectively called the “Subject
Properties”.  The Subject Properties do not include, and there is hereby
expressly excepted and excluded therefrom and reserved to Grantor, (i) all
rights and causes in action, arising, occurring or existing and accrued in favor
of Grantor prior to the effective date hereof or arising out of the operation of
or production from the Subject Properties prior to the effective date hereof
(including, but not limited to, any and all contract rights, claims,
receivables, revenues, recoupment rights, recovery rights, accounting
adjustments, mispayments, erroneous payments or other claims of any nature in
favor of Grantor and relating and accruing to any time period prior to the
effective date), and (ii) any seismic data covering lands or depths not covered
by the Subject Properties, any seismic data not owned by or licensed to Grantor
and any seismic data which is not transferable.

 

TO HAVE AND TO HOLD the Subject Properties unto Grantee, Grantee’s successors
and assigns, forever.

 

This Conveyance is made subject to that certain Agreement of Sale and Purchase
between Grantor and Grantee dated August ___, 2004.  Such Agreement of Sale and
Purchase contains certain representations, warranties, indemnities and
agreements between the parties, some of which may survive the delivery of this
Conveyance, as more particular provided for therein, but  third parties may
conclusively rely on this Conveyance to vest title to the Subject Properties in
Grantee.  Subject to the terms and provisions of such Agreement of Sale and
Purchase:

 

(a)                                  GRANTOR AGREES TO WARRANT AND FOREVER
DEFEND TITLE TO THE SUBJECT PROPERTIES UNTO GRANTEE AND ITS SUCCESSORS AND
ASSIGNS, AGAINST THE CLAIMS AND DEMANDS OF ALL PERSONS CLAIMING, OR TO CLAIM THE
SAME, OR ANY PART THEREOF BY, THROUGH OR UNDER GRANTOR, BUT NOT OTHERWISE;

 

(b)                                 THE EXPRESS WARRANTY OF TITLE SET FORTH
ABOVE IS EXCLUSIVE, AND IN LIEU OF ALL OTHER REPRESENTATIONS AND WARRANTIES,
EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AND GRANTOR EXPRESSLY DISCLAIMS ANY
AND ALL SUCH OTHER REPRESENTATIONS AND WARRANTIES;

 

(c)                                  WITHOUT LIMITATION OF THE FOREGOING, THE
SUBJECT PROPERTIES ARE CONVEYED PURSUANT HERETO WITHOUT ANY WARRANTY OR
REPRESENTATION WHETHER EXPRESS, IMPLIED, STATUTORY OR

 

 

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                                                OTHERWISE, RELATING TO THE
CONDITION, QUANTITY, QUALITY, FITNESS FOR A PARTICULAR PURPOSE, CONFORMITY TO
THE MODELS OR SAMPLES OF MATERIALS OR MERCHANTABILITY OF ANY EQUIPMENT OR ITS
FITNESS FOR ANY PURPOSE, AND, EXCEPT AS PROVIDED OTHERWISE IN (a) ABOVE, WITHOUT
ANY OTHER EXPRESS, IMPLIED, STATUTORY OR OTHER WARRANTY OR REPRESENTATION
WHATSOEVER;

 

Grantor agrees to execute and deliver to Grantee, from time to time, such other
and additional instruments, notices, division orders, transfer orders and other
documents, and to do all such other and further acts and things as may be
necessary to more fully and effectively grant, convey and assign to Grantee the
Subject Properties.

 

This Conveyance is being executed in several counterparts all of which are
identical.

 

IN WITNESS WHEREOF this Conveyance has been executed on August      , 2004,
effective as to runs of oil and deliveries of gas, and for all other purposes,
as of 7:00 a.m. Central Daylight Time on June 1, 2004.

 

 

WITNESSES:

 

 

 

PHAWK, LLC

 

 

 

 

Name:

 

 

 

 

 

By:

 

 

 

Floyd C. Wilson, President

 

 

 

 

Name:

 

 

 

 

 

 

 

WITNESSES:

 

 

 

PETROHAWK ENERGY CORPORATION

 

 

 

 

Name:

 

 

 

 

 

 

 

 

 

By;

 

 

Name:

 

 

 

Title:

 

Name:

 

 

 

 

 

 

[add acknowledgments]

 

 

 

 

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