Exhibit No. 10.31

PURCHASE AND SALE AGREEMENT

BY AND BETWEEN

PETROLEUM DEVELOPMENT CORPORATION

(Seller)

AND

COG OPERATING LLC

(Buyer)

ANDREWS, MARTIN, ECTOR AND MIDLAND COUNTIES, TEXAS

Dated December 20, 2011

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TABLE OF CONTENTS
 
 
Page

DEFINED TERMS
IV

LIST OF EXHIBITS
VI

LIST OF SCHEDULES
VI

PURCHASE AND SALE AGREEMENT
1

Article 1 PURCHASE AND SALE
1

1.1 Purchase and Sale
1

1.2 Effective Time
1

1.3 Assets
1

1.4 Excluded Assets
2

Article 2 PURCHASE PRICE
3

2.1 Purchase Price
3

2.2 Allocation of the Purchase Price
3

2.3 Adjustments to Purchase Price and Preliminary Settlement
3

Article 3 BUYER'S INSPECTION
5

3.1 Due Diligence
6

3.2 Access to Records
6

3.3 On-Site Inspection
6

3.4 Indemnification
6

3.5 Insurance
6

Article 4 TITLE MATTERS
6

4.1 Seller's Title
6

4.2 Title Adjustment Procedures
8

4.3 Title Dispute Resolution
11

4.4 Consents and Preferential Purchase Rights
11

Article 5 ENVIRONMENTAL MATTERS
12

5.1 Definitions
12

5.2 Environmental Liabilities and Obligations
13

5.3 Environmental Representation and Warranty
13

5.4 Environmental Defect Notice
14

5.5 Seller's Right to Remediate
14

5.6 Environmental Defect Adjustments
14

5.7 Contested Environmental Defects
15

5.8 Exclusive Remedies
15

Article 6 SELLER'S REPRESENTATIONS AND WARRANTIES
15

6.1 Organization and Standing
15

6.2 Power
15

6.3 Authorization and Enforceability
15

6.4 Liability for Brokers' Fees
15

6.5 No Bankruptcy
15

6.6 Litigation
15

6.7 Compliance with Law
16

6.8 Status and Operation of Assets
16

6.9 Taxes
16

6.10 Imbalance Volumes
16

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TABLE OF CONTENTS
(continued)
 
Page

6.11 Leases
16

6.12 Material Agreements
16

6.13 Hydrocarbon Sales Contracts
17

6.14 Areas of Mutual Interest
17

6.15 Production Payments
17

6.16 Surface Access
17

6.17 Insurance
18

6.18 No Other Representations or Warranties; Disclosed Materials
18

6.19 Oil and Gas Operations
18

6.20 Offsite Disposal
18

6.21 Affiliate Transactions
19

6.22 Material Consents
19

6.23 Unplugged Wells
19

6.24 Permits
19

6.25 Expenses
19

6.26 Bonds and Letters of Credit
19

6.27 Suspense Accounts
19

Article 7 BUYER'S REPRESENTATIONS AND WARRANTIES
19

7.1 Organization and Standing
19

7.2 Power
19

7.3 Authorization and Enforceability
19

7.4 Liability for Brokers' Fees
19

7.5 Litigation
20

7.6 Bankruptcy
20

7.7 Financial Resources
20

Article 8 COVENANTS AND AGREEMENTS
20

8.1 Covenants and Agreements of Seller
20

8.2 Covenants and Agreements of Buyer
21

8.3 Covenants and Agreements of the Parties
22

Article 9 TAX MATTERS
23

9.1 Definitions
23

9.2 Apportionment of Property Taxes
24

9.3 Apportionment of Severance Taxes
24

9.4 Transfer Taxes
24

9.5 Section 1031 Exchange
24

9.6 Post-Closing Tax Matters
24

9.7 No Account to be Given to Income Taxes.
25

Article 10 CONDITIONS PRECEDENT TO CLOSING
25

10.1 Seller's Conditions
25

10.2 Buyer's Conditions
26

Article 11 RIGHT OF TERMINATION
26

11.1 Termination
26

11.2 Remedies and Liabilities Upon Termination
26

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TABLE OF CONTENTS
(continued)
 
Page

Article 12 CLOSING
27

12.1 Date of Closing
27

12.2 Place of Closing
27

12.3 Closing Obligations
27

12.4 Non-Foreign Status
28

Article 13 POST-CLOSING OBLIGATIONS
28

13.1 Post-Closing Adjustments
28

13.2 Records
28

13.3 Further Assurances
29

Article 14 ASSUMPTION AND RETENTION OF OBLIGATIONS AND
 
INDEMNIFICATION; DISCLAIMERS
29

14.1 Buyer's Assumption of Liabilities and Obligations
29

14.2 Indemnification
29

14.3 Procedure
30

14.4 No Insurance; Subrogation
31

14.5 Reductions in Losses
31

14.6 Reservation as to Non-Parties
31

14.7 Disclaimers
31

14.8 Tax Treatment of Indemnity Payments.
32

Article 15 MISCELLANEOUS
32

15.1 Schedules
32

15.2 Expenses
32

15.3 Notices
32

15.4 Amendments
32

15.5 Assignment
33

15.6 Headings
33

15.7 Counterparts/Electronic and Fax Signatures
33

15.8 References
33

15.9 Governing Law; Venue; Jury Waiver
33

15.10 Waiver of Certain Damages
33

15.11 Entire Agreement
33

15.12 Severability
33

15.13 Knowledge
34

15.14 Binding Effect
34

15.15 Survival of Warranties, Representations and Covenants
34

15.16 No Third-Party Beneficiaries
34

15.17 Arbitration
34

15.18 Accounting
35

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Defined Terms
AAA Rules
15.17

Affected Asset
4.4(a)

Affiliate Contracts
6.21

Aggregate Deductible
4.2(i)

Agreement
Opening paragraph

Allocated Value
2.2

Arbitrator
15.17

Assets
1.3

Assumed Liabilities
14.1

Business Day
2.1(a)

Buyer's Environmental Liabilities
5.2

Buyer
Opening paragraph

Buyer's Auditor
8.1(h)

Buyer Indemnitees
14.2(a)

Capital Expenditures
6.8

Casualty Loss
8.3(c)

Claim
14.3(b)

Claim Notice
14.3(a)

Closing
12.1

Closing Amount
2.3

Closing Date
12.1

Code
8.1(b)

Condition
5.1(a)

Contracts
1.3(h)

Cooperating Party
9.5

Cure Period
4.2(e)

Defect Notice Date
3.1

Defensible Title
4.1(c)

Deposit
2.1(a)

Disagreements
15.17

Due Diligence Review
3.1

earned
2.3(a)

Effective Time
1.2

Electing Party
9.5

Election Notice
15.17

Environmental Assessment
3.3

Environmental Defect
5.1(b)

Environmental Defect Adjustment
5.6(a)(1)

Environmental Defect Notice
5.4

Environmental Defect Property
5.4

Environmental Defect Value
5.4

Environmental Laws
5.1(c)

Equipment
1.3(e)

Escrow Agent
2.1(a)

Escrow Account
2.1(a)

Escrow Agreement
2.1(a)

Excluded Assets
1.4

Final Purchase Price
13.1(a)

Final Settlement Date
13.1(a)

Final Settlement Statement
13.1(a)

Governmental Entity
5.1(d)

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Hazardous Materials
5.1(e)

Hydrocarbons
1.3(b)

Income Taxes
9.1(a)

incurred
2.3(a)

Indemnified Party
14.3(a)

Indemnifying Party
14.3(a)

Individual Title Threshold
4.2(i)

Information
8.2(b)

Initial Purchase Price
2.1

Knowledge
15.13

Lands
1.3(a)

Leases
1.3(a)

Like-Kind Exchange
9.5

Losses
14.2

Material Agreements
6.12

Net Acres
4.1(c)(3)

Net Casualty Loss
8.3(c)

Net Revenue Interest
4.1(c)(1)

Notice of Defective Interest
4.2(c)

Obligations
14.1

Party, Parties
Opening paragraph

Permitted Encumbrances
4.1(d)

Post-Closing Cure Period
4.2(f)

Preliminary Settlement Statement
2.3

Production Taxes
9.1(b)

Property Expenses
2.3(b)

Property Taxes
9.1(c)

Purchase Price
2.1

Records
1.3(i)

Remediate; Remediation
5.1(f)

Required Consent
4.4(a)

Seller
Opening paragraph

Seller Indemnitees
14.2(b)

Severance Taxes
9.1(d)

Straddle Period
9.1(e)

Survival Period
15.15

Taxes
9.1(f)

Title Benefit
4.2(b)

Title Benefit Amount
4.2(h)

Title Benefit Notice
4.2(d)

Title Benefit Property
4.2(d)

Title Defect
4.2(a)

Title Defect Adjustment
4.2(f)

Title Defect Amount
4.2(g)

Title Defect Property
4.2(c)

Title Disputed Matters
4.3

Transaction
Opening paragraph

Transfer Taxes
9.1(g)

Wells
1.3(c)

Working Interest
4.1(c)(2)

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List of Exhibits
Exhibit A
Leases

Exhibit B
Wells

Exhibit C
Contracts and Easements

Exhibit D
Form of Assignment, Bill of Sale and Conveyance

Exhibit E
Form of Escrow Agreement

Exhibit F
Form of Affidavit of Non-Foreign Status

List of Schedules
Schedule 2.2
Allocated Values

Schedule 4.4(a)
Consents

Schedule 4.4(b)
Preferential Rights

Schedule 6.8
Capital Expenditures

Schedule 6.10
Imbalances

Schedule 6.11
Lease Notices

Schedule 6.13
Hydrocarbon Sales Contracts

Schedule 6.19
Oil and Gas Operations

Schedule 6.20
Offsite Disposal

Schedule 6.21
Affiliate Transactions

Schedule 6.22
Material Consents

Schedule 6.23
Unplugged Wells

Schedule 6.25
Expenses

Schedule 6.26
Bonds and Letters of Credit

Schedule 6.27
Suspense Accounts

Schedule 15.13
Knowledge Representatives

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PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement (the “Agreement”), is dated December 20, 2011,
by and between and Petroleum Development Corporation (dba PDC Energy), a Nevada
corporation, whose address is 1775 Sherman Street, Suite 3000, Denver, CO 80203
(“Seller”), and COG Operating LLC, a Delaware limited liability company
(“Buyer”), whose address is 550 W. Texas, Suite 100, Midland, Texas 79701.
Seller and Buyer are individually referred to herein as a “Party” or
collectively as the “Parties.” The transaction contemplated by this Agreement
may be referred to as the “Transaction.”
RECITALS
A.    Seller owns certain oil and gas leases, wells and associated assets
located in Andrews, Martin, Ector and Midland Counties, Texas as more fully
described in Section 1.3;
B.    Seller desires to sell and Buyer desires to purchase all of Seller's
interest in the Assets, as defined in Section 1.3, upon the terms and conditions
set forth in this Agreement;
AGREEMENT
In consideration of the mutual promises contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Buyer and Seller agree as follows:
ARTICLE 1
PURCHASE AND SALE

1.1Purchase and Sale. Subject to the terms and conditions of this Agreement,
Buyer agrees to purchase from Seller and Seller agrees to sell, assign and
deliver to Buyer, all of Seller's right, title and interest in the Assets for
the consideration specified in Article 2.

1.2Effective Time. The purchase and sale of the Assets shall be effective as of
November 1, 2011, at 12:01 a.m. local time (the “Effective Time”).

1.3Assets. “Assets” refers to all of Seller's right, title and interest, whether
legal or equitable, in and to the following:

(a)The oil, gas and/or mineral leases specifically described in Exhibit A,
together with all amendments, supplements, renewals, extensions or ratifications
thereof (the “Leases”) and all of Seller's oil, gas and/or mineral leasehold,
mineral, royalty, overriding royalty, net profits and other interests in the
lands described on Exhibit A, in the lands covered by the Leases and/or in the
lands pooled or unitized with the lands covered by the Leases (the “Lands”);

(b)The oil, gas, casinghead gas, coalbed methane, condensate and other gaseous
and liquid hydrocarbons or any combination thereof, sulphur extracted from
hydrocarbons and all other lease substances under the Leases (“Hydrocarbons”)
that may be produced under the Leases;

(c)The oil, gas, water or injection wells located on the Lands, whether
producing, shut-in, or temporarily abandoned including, without limitation,
those described in Exhibit B (such wells, together with the behind pipe, proved
developed non-producing, proved undeveloped and unproved wells or well locations
identified on Exhibit B, being collectively the “Wells”);

(d)The unitization, pooling and communitization agreements, declarations,
orders, and the units created thereby relating to the properties and interests
described in Sections 1.3(a) through (c) and to the production of Hydrocarbons,
if any, attributable to said properties and interests;

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(e)All equipment, machinery, fixtures and other tangible personal property and
improvements located on and used or held for use in connection with the
ownership or operation of the interests described in Sections 1.3(a) through (d)
including, without limitation, tanks, boilers, buildings, fixtures, injection
facilities, saltwater disposal facilities, compression facilities, measurement
facilities, pumping units, flow lines, pipelines, gathering systems, gas and oil
treating facilities, machinery, power lines, roads, and other appurtenances,
improvements and facilities (the “Equipment”);

(f)All pipes, casing, tubing, tubulars, fittings, and other spare parts,
supplies, tools, and materials held as inventory in connection with the
interests described in Sections 1.3(a) through (e);

(g)All surface leases, surface fee estates, permits, rights-of-way, licenses,
easements and other surface or subsurface rights or agreements used or held for
use in connection with the interests described in Sections 1.3(a) through (e),
including, without limitation, those used or held for use in connection with the
production, gathering, treatment, processing, storing, sale or disposal of
Hydrocarbons or produced water from the interests described in Sections 1.3(a)
through (e), and further including those described on Exhibit C;

(h)All existing and effective sales and purchase contracts, operating
agreements, exploration agreements, development agreements, geologic,
geophysical or seismic licenses, data and third-party interpretations that can
be transferred without a fee or penalty, balancing agreements, farmout
agreements, service agreements, transportation, processing, treatment and
gathering agreements, equipment leases and other contracts, agreements and
instruments, including, without limitation, the contracts described in Exhibit
C, insofar as they relate to the properties and interests described in Sections
1.3(a) through (g) (the “Contracts”) and provided, however, that “Contracts”
shall not include the instruments constituting the Leases;

(i)Originals (or copies if Seller does not possess originals) of all files and
records relating to the items described in Sections 1.3(a) through (h) above
(the “Records”), which Records shall include, without limitation: lease records;
well records; division order records; contract records; well files, logs and
tests; title records (including abstracts of title, title opinions and
memoranda, and title curative documents); correspondence; maps; production
records; regulatory filing and records; environmental and safety records; Tax
records; and accounting records;

(j)All claims, rights and causes of action, including, without limitation,
causes of action for breach of warranty, against third parties, asserted and
unasserted, known and unknown, but only to the extent such claims, rights and
causes of action affect the value of any of the items described in Sections 1.3
(a) through (i) after the Effective Time, and where necessary to give effect to
the assignment of such rights, claims and causes of action, Seller grants to
Buyer the right to be subrogated to such rights, claims and causes of action;

(k)All rights and benefits arising from or in connection with any wellhead
Hydrocarbon imbalances or pipeline imbalances attributable to Hydrocarbons
produced from the Wells as of the Effective Time; and
(l)All rights to any refunds of Taxes or other costs and expenses borne by Buyer
and attributable to periods from and after the Effective Time.

1.4Excluded Assets. Notwithstanding the foregoing, the Assets shall not include,
and there is excepted, reserved and excluded from the Transaction the following
(collectively, the “Excluded Assets”):

(a)(i) All corporate, financial, income, Tax and legal records of Seller that
relate to Seller's business generally and (ii) all books, records and files that
relate to the Excluded Assets;

(b)All rights to any refunds for Taxes or other costs or expenses borne by
Seller or Seller's predecessors in interest and title attributable to periods
prior to the Effective Time;

(c)Seller's area wide bonds or authorizations used in the conduct of Seller's
business generally;

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(d)All trade credits, accounts receivable, note receivables, take or pay amounts
receivable, and other receivables attributable to the Assets with respect to any
period of time prior to the Effective Time;

(e)(i) All vehicles and vehicle leases, (ii) equipment, inventory, machinery,
fixtures and other tangible personal property and improvements located at or
used solely in connection with any field office or yard of Seller or leased by
Seller that is not used in connection with the Assets, (iii) any computers and
related peripheral equipment that are not located on the Assets or not used
solely in connection with the Assets, (iv) communications equipment that is not
located on the Assets and not used solely in connection with the Assets, (v)
communications licenses granted by the Federal Communications Commission or
other governmental body, and (vi) all office leases and laptop computers;

(f)Any refunds due Seller by a third party for any overpayment of rentals,
royalties, excess royalty interests or production payments attributable to the
Assets with respect to any period of time prior to the Effective Time; and

(g)    All rights and obligations of Seller pursuant to (i) the Purchase and
Sale Agreement, dated May 13, 2010, by and among Merit Management Partners I,
L.P., Merit Management Partners II, L.P., Merit Energy Partners III, L.P., Merit
Energy Partners D-III, L.P., Merit Energy Partners E-III, L.P. and Seller, and
(ii) the Purchase and Sale Agreement, dated October 14, 2010, by and among
Summit West Resources LP, Summit Petroleum Management Corporation, Summit Group,
Summit Petroleum LLC and Seller.

ARTICLE 2
PURCHASE PRICE

2.1Purchase Price. The purchase price for the Assets shall be $173,894,419.31
(the “Initial Purchase Price”), subject to adjustment in accordance with the
terms and conditions set forth in this Agreement (as adjusted, the “Purchase
Price”). The Purchase Price shall be payable as follows:

(a)Upon execution hereof, Seller, Buyer and Wells Fargo Bank, National
Association (the “Escrow Agent”) shall enter into the escrow agreement (the
“Escrow Agreement”) in substantially the form attached hereto as Exhibit E, and
Buyer shall deposit with Escrow Agent into an escrow account (“Escrow Account”),
by wire transfer of immediately available funds, an amount equal to ten percent
(10%) of the Initial Purchase Price (the “Deposit”). The Deposit and accrued
interest thereon shall be applied to the Closing Amount (as defined in Section
2.3 below) at Closing. Upon any termination of this Agreement, the Deposit and
accrued interest thereon shall be paid to Seller or returned to Buyer in
accordance with Article 11. Escrow fees charged by the Escrow Agent pursuant to
the Escrow Agreement shall be paid one-half by Seller and one-half by Buyer. As
used herein, the term “Business Day” shall mean any day on which national banks
are open for business in Midland, Texas.

(b)After Closing, final adjustments to the Initial Purchase Price shall be made
pursuant to the Final Settlement Statement to be delivered pursuant to Section
13.1(a) and payments made by Buyer or Seller as provided in Section 13.1(a).

2.2Allocation of the Purchase Price. The Initial Purchase Price is allocated
among the Assets as set forth on Schedule 2.2, which amounts shall be referred
to as the “Allocated Value.”

2.3Adjustments to Purchase Price and Preliminary Settlement. The Initial
Purchase Price shall be adjusted according to this Section 2.3 without
duplication. Seller shall deliver to Buyer at least five (5) Business Days prior
to Closing a draft settlement statement (“Preliminary Settlement Statement”)
that shall set forth the adjusted Initial Purchase Price reflecting each
adjustment in accordance with this Agreement as of the date of preparation of
such Preliminary Settlement Statement, together with all documents reasonably
necessary to support Seller's estimated adjustments to the Initial Purchase
Price as set forth in the Preliminary Settlement Statement. If Buyer notifies
Seller on or before the Closing Date that it disputes Seller's estimate of the
adjustments to the Initial Purchase Price and the Parties cannot agree to the
adjustments prior to Closing, then the Purchase Price paid at Closing shall be
the amount

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that is midway between Seller's and Buyer's estimated amounts. The Preliminary
Settlement Statement will be used to adjust the Initial Purchase Price at
Closing, which adjusted amount is referred to herein as the “Closing Amount.”

(a)Proration of Costs and Revenues. Buyer shall be entitled to all production of
Hydrocarbons from or attributable to the Leases, Lands, and Wells at and after
the Effective Time (and all products and proceeds attributable thereto), and to
all other income, proceeds, receipts and credits earned with respect to the
Assets at or after the Effective Time, and shall be responsible for (and
entitled to any refunds with respect to) all Property Expenses (as defined in
Section 2.3(b) below) incurred at and after the Effective Time. Seller shall be
entitled to all proceeds from Hydrocarbon production from or attributable to the
Leases, Lands, and Wells prior to the Effective Time, and to all other income,
proceeds, receipts and credits earned with respect to the Assets prior to the
Effective Time, and shall be responsible for (and entitled to any refunds with
respect to) all Property Expenses incurred prior to the Effective Time. The
terms “earned” and “incurred”, as used in this Agreement shall be interpreted in
accordance with generally accepted accounting principles utilized by Seller,
except as otherwise specified herein. For purposes of allocating production (and
accounts receivable with respect thereto), under this Section 2.3(a), (i) liquid
Hydrocarbons, including natural gas liquids, shall be deemed to be “from or
attributable to” the Leases, Lands, and Wells when they pass through the
pipeline connecting into the storage facilities into which they are run or into
tanks connected to the Wells and (ii) gaseous Hydrocarbons shall be deemed to be
“from or attributable to” the Leases, Lands, and Wells when they pass through
the royalty measurement meters, delivery point sales meters or custody transfer
meters on the gathering lines or pipelines through which they are transported
(whichever meter is closest to the well). Seller shall utilize reasonable
interpolative procedures, consistent with industry practice, to arrive at an
allocation of production when exact meter readings or gauging and strapping data
are not available. As part of the Preliminary Settlement Statement, Seller shall
provide to Buyer, all data necessary to support any estimated allocation, for
purposes of establishing the Closing Amount.

(b)Property Expenses. The term “Property Expenses” means all capital expenses
(including all capital expenditures authorized by Section 8.1(a) and operating
expenses incurred in the ownership, development and operation of the Assets in
the ordinary course of business and, where applicable, in accordance with any
relevant operating agreement, if any, and all Lease rental and maintenance
costs, net profit payments, royalties, overriding royalties and other similar
burdens incurred in connection with the Leases or the production and sale of
Hydrocarbons therefrom, but excluding Production Taxes (which shall be
apportioned as of the Effective Time in accordance with Article 9). “Property
Expenses” shall include overhead for the period between the Effective Time and
the Closing Date based upon the applicable joint operating agreement; provided,
however, that where no joint operating agreement is applicable, the overhead
shall be eight hundred dollars ($800.00) per month for each producing Well,
prorated for partial months.

(c)Upward Adjustments. To calculate the Closing Amount, the Initial Purchase
Price shall be adjusted upward by the following:

(1)The proceeds received by Buyer, net of royalties, overriding royalties,
profit payments and similar burdens, from the sale of any Hydrocarbons that were
produced from the Assets prior to the Effective Time;

(2)An amount equal to all Property Expenses attributable to the Assets for the
period from and after the Effective Time that were paid by Seller prior to
Closing;

(3)An amount equal to the value of (i) all oil and other Hydrocarbons in
pipelines or flowlines or in tanks above the pipeline sales connection
(exclusive of any brine, sludge or water that may be present in the oil storage
tanks), in each case that at the Effective Time, estimated based on run tickets
as of the Effective Time, is credited to Seller's interest in the Leases, Lands
or Wells and (ii) all unsold inventory of gas plant products attributable to
Seller's interests in the Leases, Lands or Wells at the Effective Time, each
such value to be the contract price in effect as of the Effective Time or, in
the absence of an applicable contract price, the average price per unit for
sales of production for the respective production period attributable to the
Leases, Lands or Wells as of the Effective Time, less any applicable royalties;

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(4)To the extent that there are any pipeline imbalances, if the net of such
imbalances is an overdelivery imbalance (that is, at the Effective Time, Seller
has delivered more gas to the pipeline than the pipeline has redelivered for
Seller), the Purchase Price shall be adjusted upward by the first-of-the-month
price of spot gas delivered to pipelines for El Paso Natural Gas Co. (Permian
Basin) as reported in Inside F.E.R.C.'s Gas Market Report for the month in which
the Effective Time occurs times the net overdelivery imbalance in MMbtus. In the
event such publication shall cease to be published, the Parties shall select a
comparable publication; and

(5)Any other amount provided for in this Agreement or otherwise agreed to by
Buyer and Seller.

(d)Downward Adjustments. To calculate the Closing Amount, the Initial Purchase
Price shall be adjusted downward by the following:

(1)An amount equal to the Title Defect Adjustment, if any, pursuant to
Section 4.2(f);
(2)An amount equal to the Environmental Defect Adjustment, if any, pursuant to
Section 5.6(a)(1);

(3)An amount equal to the Allocated Value of Assets not conveyed at Closing due
to the exercise of any preferential rights to purchase in accordance with
Section 4.4(b) or the failure to obtain a consent to assign in accordance with
Section 4.4(a);

(4)Any proceeds on Hydrocarbons produced from and after the Effective Time, net
of royalties, overriding royalties, net profit payments and similar burdens,
received by Seller between the Effective Time and Closing relating to the
Assets;
(5)An amount equal to all Property Expenses attributable to the Assets for the
period prior to the Effective Time that are paid by Buyer;

(6)To the extent that there are any pipeline imbalances, if the net of such
imbalances is an underdelivery imbalance (that is, at the Effective Time, Seller
has delivered less gas to the pipeline than the pipeline has redelivered for
Seller), the Purchase Price shall be adjusted downward by the first-of-the-month
price of spot gas delivered to pipelines for El Paso Natural Gas Co. (Permian
Basin) as reported in Inside F.E.R.C.'s Gas Market Report for the month in which
the Effective Time occurs times the net underdelivery imbalance in MMbtus. In
the event such publication shall cease to be published, the Parties shall select
a comparable publication;

(7)The value of any Casualty Loss pursuant to Section 8.3(c);

(8)An amount equal to the revenue from the Wells held in suspense by Seller for
third party leasehold interests and for royalties, overriding royalties and
similar leasehold burdens, including, without limitation, the suspensed revenues
identified in accordance with Section 8.1(i); and

(9)Any other amount provided in this Agreement or otherwise agreed to by Buyer
and Seller.

(e)Well Imbalance Adjustments. Seller and Buyer agree that the Purchase Price
will be adjusted downward or upward, as appropriate, by an amount equal to the
well imbalances existing as of the Effective Time multiplied by the average
value on an MMbtu basis at the wellhead for sales of production during the month
in which the Effective Time occurs.

ARTICLE 3
BUYER'S INSPECTION

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3.1Due Diligence. Upon execution of this Agreement, but subject to the other
provisions of this Agreement (including this Section 3.1) and obtaining any
required consents of third parties (with respect to which consents Seller shall
use its commercially reasonable efforts to obtain), Seller will afford Buyer and
its representatives reasonable access to the Assets during normal business hours
for inspection, review and copying to permit Buyer to perform its due diligence
(such due diligence, the “Due Diligence Review”) as hereinafter provided. All
notices pertaining to Title Defects and Environmental Defects based on the Due
Diligence Review must be received by Seller no later than 5:00 p.m., Mountain
Time, on February 20, 2012 (the “Defect Notice Date”).

3.2Access to Records. From the date hereof and through the Closing Date, Seller
shall provide Buyer, and its counsel, accountants and other representatives,
reasonable access during normal business hours to the Records to enable Buyer to
complete its Due Diligence Review.

3.3On-Site Inspection. Seller hereby consents to Buyer and its representatives
conducting, prior to Closing and upon advance notice to Seller, at Buyer's sole
risk and expense, (i) on-site inspections; and (ii) an environmental assessment
no more stringent than an ASTM Phase One Environmental Assessment (an
“Environmental Assessment”) of the Assets. In connection with any Environmental
Assessment, Buyer agrees not to interfere with the normal operation of the
Assets and agrees to comply with all written requirements and safety policies of
the operator. The Parties shall execute a “common undertaking” letter regarding
the confidentiality of an Environmental Assessment in any case where Buyer is
required pursuant hereto to provide Seller with a copy of any part of Buyer's
Environmental Assessment. In the event Buyer determines that more than an
Environmental Assessment is required in order to properly determine the
environmental condition of an Asset, including, without limitation, the
conducting of invasive sampling or testing, then Buyer shall provide Seller with
a copy of the Environmental Assessment prepared with respect to such Asset and a
written request describing the proposed activities to be performed; provided,
however, that no such activities shall be performed by Buyer without the prior
written consent of Seller, which consent shall not be unreasonably withheld or
delayed. Any dispute between the Parties arising in connection with a request by
Buyer to perform additional activities beyond an Environmental Assessment shall
be finally determined by binding arbitration in accordance with the procedures
set forth in Section 15.17. Notwithstanding the foregoing or any other terms and
provisions of this Agreement, in the event Buyer determines, in its reasonable
discretion, that more than an Environmental Assessment is required in order to
properly determine the environmental condition of an Asset and Seller refuses to
consent to such activities, then Buyer shall have the right at any time prior to
Closing to remove the affected Asset from the Transaction and reduce the
Purchase Price by the Allocated Value of such Asset, in which case such Asset
shall constitute an Excluded Asset.

3.4Indemnification. Buyer agrees to defend, indemnify and hold harmless each of
the operators of the Assets, Seller and the other Seller Indemnified Parties
from and against any and all Losses caused by any field visit, on-site
inspection, Environmental Assessment or other due diligence activity conducted
by Buyer or any representative of Buyer with respect to the Assets, EVEN IF SUCH
LIABILITIES ARISE OUT OF OR RESULT FROM THE ACTIVE, PASSIVE, CONCURRENT OR
COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OR VIOLATION OF LAW OF
OR BY A SELLER INDEMNIFIED PARTY, EXCEPTING ONLY LIABILITIES RESULTING FROM OR
ARISING OUT OF THE SOLE NEGLIGENCE, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF A
SELLER INDEMNIFIED PARTY.

3.5Insurance. During all periods that Buyer and/or any of Buyer's
representatives are present on the Assets, Buyer shall maintain, at its sole
expense, policies of insurance covering Buyer's and its representatives'
activities and presence on the Assets, which insurance shall be of the type and
in the amounts consistent with sound business practices.

ARTICLE 4
TITLE MATTERS
4.1Seller's Title.
  
(a)Limited Defensible Title Representation. Seller represents and warrants to
Buyer that, as of the Effective Time and as of the Defect Notice Date, its title
to the Leases and Wells is Defensible

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Title as defined in Section 4.1(c). Except as set forth in this Section 4.1(a)
and the Assignment, Bill of Sale and Conveyance to be delivered at Closing, the
form of which is attached hereto as Exhibit D, Seller makes no warranty or
representation, express, implied, statutory or otherwise, with respect to
Seller's title to the Leases and Wells and Buyer hereby acknowledges and agrees
that Buyer's sole remedy for any defect of title, including any Title Defect,
with respect to any of the Leases and Wells before Closing, shall be Buyer's
right to adjust the Purchase Price to the extent provided in this Article 4, or
terminate this Agreement pursuant to Section 11.1(f).

(b)Exclusive Remedy. With the exception of the special warranty of title in the
Assignment, Bill of Sale and Conveyance, as described in Section 4.1(a), (i) the
representation and warranty in Section 4.1(a) shall terminate as of the Defect
Notice Date and shall have no further force and effect thereafter, and (ii)
Section 4.2 shall be the exclusive right and remedy of Buyer with respect to
Seller's failure to have Defensible Title with respect to the Leases and Wells.

(c)Defensible Title - Leases and Wells. The term “Defensible Title” means such
ownership of record deducible from the applicable county, state and federal
records, such that a prudent person engaged in the business of the ownership,
development and operation of oil and gas leasehold and properties and having
knowledge of all of the facts and their legal bearing would be willing to accept
the same, to the Leases, Lands and Wells, and that, subject to and except for
Permitted Encumbrances as defined in Section 4.1(d):

(1)Entitles Seller (and Buyer from and after the Effective Time) to receive a
share of the Hydrocarbons produced, saved and marketed from any Lease or Well
throughout the duration of the productive life of such Lease or Well or such
specified zone(s) therein after satisfaction of all royalties, overriding
royalties, nonparticipating royalties, net profits interests, production
payments or other similar burdens on or measured by production of Hydrocarbons
(a “Net Revenue Interest”), of not less than the Net Revenue Interest or NRI
shown in Exhibit A and Exhibit B for such Lease or Well except for (i) decreases
in connection with those operations in which Seller may, from and after the date
of this Agreement, be a non-consenting co-owner (to the extent permitted
pursuant to Section 8.1(a) or 8.1(b)), (ii) decreases resulting from the
establishment or amendment from and after the date of this Agreement of pools or
units (to the extent permitted pursuant to Section 8.1(a) or 8.1(b), and (iii)
as otherwise stated in Exhibit A and Exhibit B;

(2)Obligates Seller (and Buyer from and after the Effective Time) to bear a
percentage of the costs and expenses for the maintenance, development, operation
and the production relating to any Lease or Well throughout the productive life
of such Lease or Well (“Working Interest”) not greater than the Working Interest
or WI shown in Exhibit A and Exhibit B for such Lease or Well without increase,
except (i) increases to the extent that they are accompanied by a proportionate
increase in Seller's Net Revenue Interest, (ii) increases resulting from
contribution requirements with respect to defaults by co-owners from and after
the date of this Agreement under applicable joint operating agreements (to the
extent permitted pursuant to Section 8.1(a) or 8.1(b), and (iii) as otherwise
stated in Exhibit A and Exhibit B;

(3)Results in Seller owning at least the number of total net mineral acres set
forth in Exhibit A (“Net Acres”), provided that there shall be no duplication of
Title Defects asserted under this Section 4.1(c)(3) and under Sections 4.1(c)(1)
or (2); and

(4)is free and clear of liens, encumbrances and defects.

(d)Permitted Encumbrances. The term “Permitted Encumbrances” shall mean:

(1)lessors' royalties, overriding royalties, net profits interests, production
payments, reversionary interests and similar burdens if the net cumulative
effect of such burdens does not operate to reduce the Net Revenue Interests of
Seller (or Buyer from and after the Effective Time) below those set forth on
Exhibit A and Exhibit B;

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(2)liens for Taxes or assessments not yet due or delinquent, provided in each
case that Seller has agreed to pay the same pursuant to the terms of this
Agreement;

(3)all rights to consent by, required notices to, filings with, or other actions
by Governmental Entities, in connection with the conveyance of the applicable
Asset if the same are customarily sought after such conveyance;

(4)conventional rights of reassignment contained in any Leases, or assignments
thereof, providing for reassignment upon the surrender or expiration of any
Leases;

(5)easements, rights-of-way, servitudes, permits, surface leases and other
rights with respect to surface operations, on, over or in respect of any of the
Assets that do not materially reduce or interfere with the operation,
development, ownership or value of the affected Asset as currently conducted;

(6)materialmen's, mechanics', operators' or other similar liens arising in the
ordinary course of business if such liens and charges are for payments that have
not yet become due or delinquent and Seller has agreed to make such payments
pursuant to the terms of this Agreement;

(7)such Title Defects (as defined in Section 4.2(a)) as Buyer has waived;

(8)any defects, irregularities or deficiencies in title to easements,
rights-of-way or surface use agreements that do not materially adversely affect
the operation, development, use, ownership or value of any Asset;

(9)the Contracts set forth on Exhibit C, to the extent complete executed copies
of such Contracts are included in the Records and the same do not operate to
reduce the Net Revenue Interests of Seller, or Buyer from and after the
Effective Time, below those set forth in Exhibit A and Exhibit B, increase the
Working Interests of Seller, or Buyer from and after the Effective Time, above
those set forth in Exhibit A and Exhibit B without a corresponding increase in
the Net Revenue Interests, delay or prevent timely drilling and development of
the Assets or receipt of proceeds of Hydrocarbon production therefrom, or
materially interfere with, diminish or detract from the ownership, operation,
development, value or use of the affected Assets;

(10)any liens burdening the Assets that are released at or before Closing, as
contemplated by this Agreement; and

(11)all other liens, charges, encumbrances, contracts, agreements, instruments,
obligations, defects and irregularities affecting the Assets that do not (or
would not upon foreclosure or other enforcement) reduce the Net Revenue Interest
set forth in Exhibit A and Exhibit B or prevent the receipt of proceeds of
production therefrom, increase the share of costs above the Working Interest set
forth in Exhibit A and Exhibit B (unless the Net Revenue Interest is greater
than the Net Revenue Interest set forth on Exhibit A and Exhibit B, in the same
proportion as any increase in such Working Interest) or materially interfere
with or detract from the ownership, operation, development, value or use of the
Assets burdened thereby.

4.2Title Adjustment Procedures

(a)Title Defect. As used in this Agreement, the term “Title Defect” means any
lien, charge, encumbrance, obligation (including contract obligation), defect,
condition or other matter (including without limitation a discrepancy in Net
Revenue Interest or Working Interest) that causes a breach of Seller's
representation and warranty in Section 4.1(a). Notwithstanding the foregoing,
the following shall not be considered Title Defects:

(1)defects based solely on lack of information in Seller's files that is filed
of record;

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(2)defects in the chain of title arising prior to the year 2001 and consisting
of the mere failure to recite marital status in a document or omission of
probate succession, heirship or estate proceedings, unless Buyer provides
reasonable evidence that such failure or omission results in another person's
actual and superior claim of title to the relevant Asset;

(3)defects asserting a change in Working Interest or Net Revenue Interest based
on a change in drilling and spacing units, tract allocation or other changes in
pool or unit participation occurring after the date of this Agreement (to the
extent such changes are permitted by Section 8.1(a) or 8.1(b));

(4)defects arising prior to the year 2001 out of lack of corporate or other
entity authorization unless Buyer provides a reasonable basis for the assertion
that such corporate or other entity action was not authorized and results in
another person's actual and superior claim of title to the relevant Asset; or

(5)defects that have been cured by applicable laws of limitations or
prescription such that any claim against Seller's title is barred.

(b)Title Benefit. As used in this Agreement, the term “Title Benefit” shall mean
any right, circumstance or condition that operates to (a) increase the Net
Revenue Interest being assigned to Buyer in any Lease or Well above that shown
for such Lease or Well in Exhibit A and Exhibit B, to the extent the same does
not cause a greater than proportionate increase in the Working Interest being
assigned to Buyer therein above that shown in Exhibit A and Exhibit B, or (b)
increase the Net Acres being assigned to Buyer in any Lease to greater than that
shown therefor in Exhibit A.

(c)Notice of Defective Interest. On or before the Defect Notice Date, Buyer
shall advise Seller in writing of any matters that in Buyer's reasonable opinion
constitute a Title Defect with respect to Seller's title to all or any portion
of the Leases and Wells (“Notice of Defective Interest”). The Notice of
Defective Interest shall be in writing and contain the following: (i) a
description of the alleged Title Defect(s), (ii) the Leases or Wells (and the
applicable zone(s) therein) affected by the alleged Title Defect (each a “Title
Defect Property”), (iii) the Allocated Value of each Title Defect Property,
(iv) supporting documentation reasonably necessary for Seller (as well as any
title attorney or examiner hired by Seller) to verify the existence of the
alleged Title Defect(s), and (v) the amount by which Buyer reasonably believes
the Allocated Value of each Title Defect Property is reduced by the alleged
Title Defect(s) and the computations and information upon which Buyer's belief
is based. To give Seller an opportunity to commence reviewing and curing Title
Defects, Buyer agrees to use reasonable efforts to give Seller, on or before the
end of each calendar week prior to the Defect Notice Date, written notice of all
Title Defects discovered by Buyer or any of its representatives, during the
calendar week preceding the calendar week then ending, which may be preliminary
in nature and supplemented prior to the Defect Notice Date; provided, however,
that the failure of Buyer to give Seller any such preliminary notices shall not
waive any Title Defects or constitute a breach of this Agreement. Buyer shall
also promptly furnish Seller with written notice of any Title Benefit which is
discovered by Buyer or any of its representatives while conducting Buyer's title
review, due diligence or investigation with respect to the Leases or Wells.

(d)Notice of Title Benefits. On or before the Defect Notice Date, Seller shall
have the right, but not the obligation, to advise Buyer in writing of any
matters that in Seller's reasonable opinion constitute a Title Benefit with
respect to Seller's title to all or any portion of the Leases and Wells (a
“Title Benefit Notice”). The Title Benefit Notice shall be in writing and
contain the following: (i) a description of the Title Benefit, (ii) the Leases
or Wells (and the applicable zone(s) therein) affected by the Title Benefit
(“Title Benefit Property”), (iii) the Allocated Values of the Leases or Wells
(and the applicable zone(s) therein) subject to such Title Benefit, (iv)
supporting documentation reasonably necessary for Buyer to verify the existence
of the alleged Title Benefit, and (v) the amount by which the Seller reasonably
believes the Allocated Value of those Leases or Wells (and the applicable
zone(s) therein) is increased by the Title Benefit, and the computations and
information upon which Seller's belief is based. Seller shall be deemed to have
waived all Title Benefits of which it has not given notice on or before the
Defect Notice Date.

(e)Seller's Right to Cure. Seller shall have the right, but not the obligation,
to attempt, at its sole

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cost, to cure or remove at any time prior to Closing (the “Cure Period”), to
Buyer's reasonable satisfaction, any Title Defects of which it has been advised
by Buyer.

(f)Remedies for Title Defects. Subject to Seller's continuing right to dispute
the existence of a Title Defect or the Title Defect Amount asserted with respect
thereto, in the event that any Title Defect timely asserted by Buyer in
accordance with Section 4.2(c) actually exists and is not waived by Buyer or
cured on or before Closing, Seller shall convey the Title Defect Property to
Buyer at Closing with a reduction to the Purchase Price, provided, however, that
Seller shall retain the right to cure such Title Defects after Closing as
provided below. The reduction to the Purchase Price contemplated by the
foregoing sentence shall equal the amount of the aggregate Title Defect Amounts
for all such Title Defects as determined pursuant to Section 4.2(g), subject to
the Individual Title Threshold and the Aggregate Deductible set forth in Section
4.2(i), less an amount equal to the aggregate of all Title Benefit Amounts (as
so calculated, the “Title Defect Adjustment”). Seller shall have one hundred
twenty (120) days after the Closing Date (the “Post-Closing Cure Period”) in
which to attempt to cure any such Title Defects subject to the continuing
application of the Individual Title Threshold and the Aggregate Deductible.
Buyer shall use reasonable efforts to cooperate with Seller's efforts to cure
such Title Defects. If Seller cures any such Title Defect to Buyer's reasonable
satisfaction prior to the end of the Post-Closing Cure Period, then the Title
Defect Amount with respect to the Title Defect that is so cured shall promptly
be paid by Buyer to Seller.

(g)Title Defect Amount. The “Title Defect Amount” means the amount by which the
value of the Title Defect Property affected by such Title Defect is reduced as a
result of the existence of such Title Defect and shall be determined in
accordance with the following methodology, terms and conditions:

(1)if Buyer and Seller agree on the Title Defect Amount, that amount shall be
the Title Defect Amount;

(2)if the Title Defect is a lien, encumbrance or other charge which is
undisputed and liquidated in amount, then the Title Defect Amount shall be the
amount of the payment necessary to remove the Title Defect from the Title Defect
Property;

(3)if the Title Defect represents a decrease between (A) the actual Net Acres
for any Title Defect Property and (B) the Net Acres for such Title Defect
Property stated in Exhibit A, then the Title Defect Amount shall be an amount
equal to (x) a fraction, the numerator of which is the Allocated Value
attributable to such Title Defect Property and the denominator of which is the
number of Net Acres for such Title Defect Property stated in Exhibit A,
multiplied by (y) the difference between (I) the Net Acres for such Title Defect
Property stated in Exhibit A, and (II) the actual Net Acres for any Title Defect
Property; and

(4)if the Title Defect represents an obligation, encumbrance, burden or charge
upon or other defect in title to the Title Defect Property of a type not
described in subsections (1) or (2) above, the Title Defect Amount shall be
determined by taking into account the following factors: (i) any discrepancy
between (A) the Net Revenue Interest or Working Interest for any Title Defect
Property and (B) the Net Revenue Interest or Working Interest stated in
Exhibit A and Exhibit B; (ii) the Allocated Value of the Title Defect Property;
(iii) the portion of the Title Defect Property affected by the Title Defect;
(iv) the legal effect of the Title Defect; (v) the values placed upon the Title
Defect by Buyer and Seller and (vi) such other reasonable factors as are
necessary to make a proper evaluation.

Notwithstanding anything to the contrary in this Article 4, the aggregate Title
Defect Amounts attributable to the effects of all Title Defects upon any Title
Defect Property shall not exceed the Allocated Value of the Title Defect
Property.
(h)Title Benefit Amount. “Title Benefit Amount” means the amount by which the
value of the Title Benefit Property affected by such Title Benefit is increased
as a result of the existence of such Title Benefit and shall be determined in
accordance with the following methodology, terms and conditions:

(1)if Buyer and Seller agree on the amount of the Title Benefit, that amount
shall be the

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Title Benefit Amount;

(2)if the Title Benefit represents an increase between (A) the actual Net Acres
for any Title Benefit Property and (B) the Net Acres for such Title Benefit
Property stated in Exhibit A, then the Title Benefit Amount shall be an amount
equal to (x) a fraction, the numerator of which is the Allocated Value
attributable to such Title Benefit Property and the denominator of which is the
number of Net Acres for such Title Benefit Property stated in Exhibit A,
multiplied by (y) the difference between (I) the actual Net Acres for any Title
Benefit Property and (II) the Net Acres for such Title Benefit Property stated
in Exhibit A;

(3)if the Title Benefit is of a type not described above, then the applicable
Title Benefit Amount shall be determined by taking into account the following
factors: (i) any discrepancy between (A) the Net Revenue Interest or Working
Interest for any Title Benefit Property and (B) the Net Revenue Interest or
Working Interest stated in Exhibit A and Exhibit B; (ii) the Allocated Value of
the Title Benefit Property; (iii) the portion of the Title Benefit Property
affected by the Title Benefit; (iv) the legal effect of the Title Benefit; and
(v) such other reasonable factors as are necessary to make a proper evaluation;
and

(4)if a Title Benefit Property has no Allocated Value, then such Title Benefit
Property shall have no Title Benefit Amount.

(i)Title Deductibles. Notwithstanding anything to the contrary contained in this
Agreement, (i) in no event shall there be any adjustments to the Purchase Price
or other remedies provided by Seller for any individual Title Defect for which
the Title Defect Amount does not exceed thirty-five thousand dollars ($35,000)
(“Individual Title Threshold”); and (ii) in no event shall there be any
adjustments to the Purchase Price or other remedies provided by Seller for any
Title Defect that exceeds the Individual Title Threshold unless the aggregate
amount of the Title Defect Amounts for all Title Defects that exceed the
Individual Title Threshold (excluding any Title Defects cured by Seller and less
an amount equal to the aggregate of all Title Benefit Amounts) plus the
Environmental Defect Value of all Environmental Defects, in the aggregate,
exceeds three and one half percent (3.5%) of the Initial Purchase Price
(“Aggregate Deductible”), after which point Buyer shall be entitled to
adjustments to the Purchase Price or other remedies only with respect to such
Title Defects in excess of the Aggregate Deductible. Notwithstanding the
foregoing, the Individual Title Threshold and the Aggregate Deductible shall not
apply to Title Defects arising from Seller's failure to obtain any third party
consents to assign any of the Assets to Buyer, such that Buyer shall receive an
adjustment to the Purchase Price equal to the full Title Defect Amounts
attributable to any such Title Defects.

4.3Title Dispute Resolution. The Parties agree to resolve disputes concerning
the following matters pursuant to this Section 4.3: (i) the existence and scope
of a Title Defect or Title Benefit, (ii) the Title Defect Amount or Title
Benefit Amount, as the case may be, relating to the portion of the Asset
affected by a Title Defect or Title Benefit and (iii) the adequacy of Seller's
Title Defect curative materials and Buyer's reasonable satisfaction thereof (the
“Title Disputed Matters”). The Parties agree to attempt to initially resolve all
disputes through good faith negotiations. If the Parties cannot resolve disputes
regarding items (i), (ii) and (iii) on or before Closing, the affected Asset
shall be conveyed to Buyer at Closing and Buyer shall pay an amount equal to the
aggregate of all claimed Title Defect Amounts with respect to Title Disputed
Matters into the Escrow Account. The Escrow Agreement shall provide, with
respect to the Title Disputed Matters, that funds will be released from the
Escrow Account only upon the joint written instructions of the Parties (which
instructions shall be given by the Parties so as to give effect to the decision
of the Arbitrator within five (5) Business Days after the Arbitrator renders a
decision pursuant to Section 15.17). Further, the Title Disputed Matters will be
finally determined by binding arbitration pursuant to Section 15.17.

4.4Consents and Preferential Purchase Rights. The remedies set forth in this
Section 4.4 are the exclusive remedies under this Agreement for consents to
assign and preferential rights to purchase.

(a)Consents. All required consents to assignment that are necessary for Seller
to execute, deliver and perform its obligations under this Agreement (each, a
“Required Consent”) are set forth on Schedule 4.4(a). Seller shall use
reasonable efforts to obtain all Required Consents prior to Closing. Consents
and approvals which are customarily obtained post-Closing shall not be
considered Required Consents. If prior to Closing, Seller fails to obtain

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a Required Consent to assign that would invalidate the conveyance of the Asset
affected by the consent to assign, that would materially affect the value or use
of the Asset (“Affected Asset”) or that Buyer is unwilling to waive as a Title
Defect (provided that Buyer shall have no right to waive Seller's failure to
obtain any Material Consent), then Seller shall retain the Affected Asset and
the Purchase Price shall be reduced by the Allocated Value of the Affected
Asset. Seller, with Buyer's assistance, shall use its reasonable efforts to
obtain such Required Consent as promptly as possible following Closing. If such
Required Consent has been obtained as of the Final Settlement Date, Seller shall
convey the Affected Asset to Buyer effective as of the Effective Time and Buyer
shall pay Seller the Allocated Value of the Affected Asset, less any proceeds
from the Affected Asset attributable to the period of time after the Effective
Time received and retained by Seller (net of any Property Expenses paid by
Seller attributable to such period) and otherwise subject to the Purchase Price
adjustments provided for in this Agreement. If such Required Consent has not
been obtained as of the Final Settlement Date, the Affected Asset shall be
excluded from the sale and the Purchase Price shall be deemed to be reduced by
an amount equal to the Allocated Value of the Affected Asset. Buyer shall
reasonably cooperate with Seller in obtaining any Required Consent including
providing assurances of reasonable financial conditions, but Buyer shall not be
required to expend funds or make any other type of financial commitments in
order to obtain such consent.

(b)Preferential Purchase Rights. All preferential rights to purchase that are
necessary for Seller to execute, deliver and perform its obligations under this
Agreement are set forth on Schedule 4.4(b). Prior to Closing, Seller shall use
reasonable good faith efforts to give notices required in connection with such
preferential purchase rights together with any other preferential rights to
purchase discovered by Buyer prior to Closing. If any preferential right to
purchase any portion of the Assets is timely and properly exercised prior to
Closing, then that portion of the Assets affected by such preferential purchase
right shall be sold to the exercising party on the same terms and conditions
provided in this Agreement and the Purchase Price shall be adjusted downward by
an amount equal to the Allocated Value of such affected Assets. Upon the
consummation of any such sale of Assets to an exercising third party, the Assets
sold shall be deemed to be Excluded Assets. If by Closing, the time frame for
the exercise of a preferential purchase right has not expired and Seller has not
received written notice of an intent not to exercise or a written waiver of the
preferential purchase right, then Seller shall retain the affected Assets and
the Purchase Price shall be adjusted downward by an amount equal to the
Allocated Value of such affected Assets. As to any Assets retained by Seller
hereunder, following Closing if a preferential right to purchase is not
consummated within the time frame specified in the preferential purchase right,
or if the time frame for exercise of the preferential purchase right expired
without exercise after the Closing, Seller shall promptly convey the affected
Asset to Buyer effective as of the Effective Time, and Buyer shall pay the
Allocated Value thereof pursuant to the terms of this Agreement, subject to
applicable Purchase Price adjustments provided in this Agreement.

ARTICLE 5
ENVIRONMENTAL MATTERS

5.1Definitions. For the purposes of the Agreement, the following terms shall
have the following meanings:

(a)“Condition” means any circumstance, status or defect that requires
Remediation to comply with Environmental Laws or any Lease or Contract.

(b)“Environmental Defect” means a Condition in, on, under or relating to a
particular Asset (including, without limitation, air, land, soil, surface and
subsurface strata, surface water, groundwater, or sediments) that causes a
particular Asset to be in violation of an Environmental Law, Lease or Contract,
if the estimated cost of Remediation of the Asset consistent with applicable
Environmental Laws and the requirements of any applicable Lease or Contract
exceeds thirty-five thousand dollars ($35,000) per Condition.

(c)“Environmental Law” or “Environmental Laws” shall mean, as of the date of
this Agreement, any federal, tribal, state, local or foreign law (including
common law), statute, rule, regulation, requirement, ordinance and any writ,
decree, bond, authorization, approval, license, permit, registration, binding
criteria, standard, consent decree, settlement agreement, judgment, order,
directive or binding policy issued by or entered into with a Governmental Entity
pertaining or relating to: (a) pollution or pollution control, including,
without limitation, storm water;

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(b) protection of human health, wildlife, natural resources or the environment;
(c) employee safety in the workplace; or (d) the management, presence, use,
generation, processing, extraction, treatment, recycling, refining, reclamation,
labeling, transport, storage, collection, distribution, disposal or release or
threat of release of Hazardous Materials. “Environmental Laws” shall include,
without limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act, 42 U.S.C. § 9601 et seq., the Solid Waste Disposal Act (as
amended by the Resource Conservation and Recovery Act), 42 U.S.C. § 6901
et seq., the Hazardous Materials Transportation Act, 49 U.S.C. § 1801 et seq.,
the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq., the Federal Water
Pollution Control Act, 33 U.S.C. § 1251 et seq., the Federal Safe Drinking Water
Act, 42 U.S.C. §§ 300f-300, the Federal Air Pollution Control Act, 42 U.S.C.
§ 7401 et seq., the Oil Pollution Act, 33 U.S.C. § 2701 et seq., the
Occupational Safety and Health Act, 29 U.S.C. § 651 et seq., the Endangered
Species Act, and the regulations and orders respectively promulgated thereunder,
each as amended, or any equivalent or analogous state or local statutes, laws or
ordinances, any regulation promulgated thereunder and any amendments thereto.

(d)“Governmental Entity” means any national, state, local, native or tribal
government or any subdivision, agency, court, commission, department, board,
bureau, regulatory authority or other division or instrumentality thereof.

(e)“Hazardous Materials” shall mean, without limitation, any waste, substance,
product, or other material (whether solid, liquid, gas or mixed), which is or
becomes identified, listed, published, or defined as a hazardous substance,
hazardous waste, hazardous material, toxic substance, radioactive material, oil,
or petroleum waste, or which is otherwise regulated or restricted under any
Environmental Law.

(f)“Remediation” or “Remediate” means investigation, assessment,
characterization, delineation, monitoring, sampling, analysis, removal action,
remedial action, response action, corrective action, mitigation, treatment or
cleanup of Hazardous Materials or other similar actions as required by any
applicable Environmental Laws, Lease or Contract from soil, land surface,
groundwater, sediment, surface water, or subsurface strata or otherwise for the
general protection of human health and the environment.

5.2Environmental Liabilities and Obligations. Upon Closing, Buyer agrees to
assume and pay, perform, fulfill and discharge all claims, costs, expenses,
liabilities and obligations accruing or relating to and release Seller, its
stockholders, directors, officers, employees, agents and representatives, and
their respective successors and assigns (but no other third parties) from all
Losses (including any civil fines, penalties, costs of assessment, clean-up,
removal and Remediation) and expenses for the modification, repair or
replacement of facilities on the Lands brought or assessed by any and all
persons, including any Governmental Entity, as a result of any personal injury,
illness or death, any damage to, destruction or loss of property, and any damage
to natural resources (including soil, air, surface water or groundwater) to the
extent any of the foregoing directly or indirectly is caused by or otherwise
involves any Condition of the Assets whether created or attributable to periods
either before or after the Effective Time, including, but not limited to, the
presence, disposal or release of any Hazardous Material of any kind in, on or
under the Assets or the Lands (collectively, “Buyer's Environmental
Liabilities”). Notwithstanding anything contained in this Agreement, “Buyer's
Environmental Liabilities” shall not include any claims, costs, expenses,
liabilities or obligations arising from or related to any disposal prior to the
Closing Date by Seller or any of its affiliates of any Hazardous Material or
other material or substances generated or used on the Assets, at sites off of
the Assets.

5.3Environmental Representation and Warranty. With respect to the Assets, Seller
has not entered into, and is not subject to, any agreement, consent, order,
decree, judgment, license, permit condition or other directive of any
Governmental Entity that (i) is in existence as of the date of this Agreement,
(ii) is based on any Environmental Laws that relate to the future use of any of
the Assets and (iii) requires any change in the present conditions of any of the
Assets. As of the date of this Agreement, Seller has not received written notice
from any person, entity or Governmental Entity of any release, disposal, event,
condition, circumstance, activity, practice or incident concerning any land,
facility, asset or property included in the Assets that: (i) interferes with or
prevents compliance by Seller with any Environmental Law or the terms of any
license or permit issued pursuant thereto or (ii) gives rise to or results in
any common law or other liability of Seller to any person, entity or
Governmental Entity.

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5.4Environmental Defect Notice. On or before the Defect Notice Date, Buyer shall
give Seller written notice of any Environmental Defects as to which Buyer has
knowledge prior to the Defect Notice Date (an “Environmental Defect Notice”).
Buyer shall be deemed to have waived its right to assert an Environmental Defect
if Buyer does not include such Environmental Defect in an Environmental Defect
Notice delivered to Seller on or before the Defect Notice Date. An Environmental
Defect Notice shall contain the following: (i) a description of the Condition
in, on, under or relating to the Asset that causes the alleged Environmental
Defect; (ii) a description of the Asset affected by the alleged Environmental
Defect (each an “Environmental Defect Property”); (iii) the Allocated Value of
each Environmental Defect Property; (iv) supporting documentation reasonably
necessary for Seller (as well as any consultant hired by Seller) to verify the
existence of the alleged Environmental Defect(s), including, without limitation,
that portion of any Environmental Assessment prepared by Buyer or its
representatives to the extent and only to the extent the same relates to the
Environmental Defect Property, and (v) Buyer's estimated cost to Remediate the
alleged Environmental Defect (the “Environmental Defect Value”).

5.5Seller's Right to Remediate. Seller shall have the right, but not the
obligation, to attempt, at its sole cost, to Remediate at any time prior to
Closing any Environmental Defects of which it has been advised by Buyer prior to
the Defect Notice Date.

5.6Environmental Defect Adjustments. Upon delivery of a timely Environmental
Defect Notice, the Parties shall proceed as follows:

(a)With respect to each Environmental Defect asserted by Buyer on or before the
Defect Notice Date, Seller may elect, in its sole discretion, on or before the
date that is two (2) days prior to Closing, to:

(1)reach agreement with Buyer on the existence and scope of the Environmental
Defect and subject to Section 5.6(b), adjust the Purchase Price by the
Environmental Defect Value of the Environmental Defect Property (the
“Environmental Defect Adjustment”), whereupon Seller shall convey the
Environmental Defect Property to Buyer at Closing and Buyer shall thereafter
assume all liability for Remediation of the Environmental Defect Property;

(2)if the Environmental Defect Value exceeds the Allocated Value of the
Environmental Defect Property, then Seller may elect to remove the Environmental
Defect Property from the Transaction and reduce the Purchase Price by the
Allocated Value of the Environmental Defect Property, in which event such
Environmental Defect Property shall constitute an Excluded Asset; or

(3)challenge the existence and/or scope of the Environmental Defect and/or
Environmental Defect Value asserted by Buyer pursuant to Section 5.7. If Seller
elects to challenge the existence of an Environmental Defect and/or
Environmental Defect Value and such dispute has not been resolved as of Closing,
at Closing Buyer shall pay an amount equal to the claimed Environmental Defect
Value into the Escrow Account, such amount to be released to Buyer or Seller
based on the joint instructions of the Parties. If the Environmental Defect
Value of any Asset, as finally determined, exceeds the Allocated Value of such
Asset, either Seller or Buyer may elect to remove the Asset from the Transaction
and reduce the Purchase Price by the Allocated Value of such Asset, in which
event such Environmental Defect Property shall constitute an Excluded Asset.

(b)There shall be no reduction to the Purchase Price or other remedies provided
by Seller for any Environmental Defect unless the Environmental Defect Values of
all Environmental Defects in the aggregate (excluding any Environmental Defects
Remediated by Seller), plus the Title Defect Amounts of all Title Defects in the
aggregate, exceed the Aggregate Deductible, after which point Buyer shall be
entitled to adjustments to the Purchase Price and remedies only with respect to
such Environmental Defects in excess of the Aggregate Deductible.

(c)Notwithstanding anything contained in this Agreement, if the Environmental
Defect Value exceeds the Allocated Value of any Environmental Defect Property,
then Buyer may at any time prior to Closing elect to remove such Environmental
Defect Property from the Transaction and, subject to application of the
Aggregate Deductible,

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reduce the Purchase Price by the Allocated Value of such Environmental Defect
Property, in which event such Environmental Defect Property shall constitute an
Excluded Asset.

5.7Contested Environmental Defects. If, pursuant to Section 5.6(a)(3), Seller
elects to proceed under this Section 5.7 with respect to an Environmental
Defect, the following matters shall be determined pursuant to this Section 5.7:
(a) the existence and scope of an Environmental Defect, and (b) the
Environmental Defect Value. The Parties agree to attempt to initially resolve
all disputes through good faith negotiations. If the Parties cannot resolve
disputes regarding items (a) or (b) within thirty (30) days after the Defect
Notice Date, the disputed matters will be finally determined by binding
arbitration in accordance with the procedures set forth in Section 15.17.

5.8Exclusive Remedies. The right of Buyer to reduce the Purchase Price to
reflect one or more Environmental Defect Adjustments pursuant to this Article 5,
to remove the Environmental Defect Property from the Transaction pursuant to
Section 3.3 or this Article 5 or to terminate this Agreement pursuant to Section
11.1(f), shall be the exclusive right and remedy of Buyer with respect to
environmental matters with respect to the Assets, except with respect to
environmental matters related to the offsite disposal of Hazardous Materials or
other materials or substances. Notwithstanding anything herein provided to the
contrary, except as provided in the preceding sentence, if an Environmental
Defect under this Article 5 results from any matter which could also result in
the breach of any representation or warranty of Seller in this Agreement, then
Buyer shall only be entitled to assert such matter before the Defect Notice Date
as an Environmental Defect to the extent permitted by this Article 5. Buyer
shall be precluded from also asserting such matter as the basis of the breach of
any such representation or warranty.

ARTICLE 6
SELLER'S REPRESENTATIONS AND WARRANTIES

Seller makes the following representations and warranties as of Closing and as
of the Effective Time except where otherwise indicated. The term “Knowledge” has
the meaning set forth in Section 15.13.
6.1Organization and Standing. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada and is
qualified to carry on its business in the State of Texas.

6.2Power. Seller has all requisite corporate power and authority to carry on its
business as presently conducted. The execution and delivery of this Agreement
does not, and the fulfillment of and compliance with the terms and conditions
hereof will not, as of Closing, violate, or be in conflict with, any provision
of Seller's governing documents, or any material provision of any agreement or
instrument to which Seller is a party or by which Seller or the Assets is bound,
or any judgment, decree, order, statute, law, rule or regulation applicable to
Seller or the Assets.

6.3Authorization and Enforceability. The execution, delivery and performance of
this Agreement and the transactions contemplated hereby are duly and validly
authorized by all requisite corporate action on the part of Seller. This
Agreement constitutes, and the documents to be executed by Seller at Closing
will constitute, Seller's legal, valid and binding obligations, enforceable in
accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws for
the protection of creditors, as well as to general principles of equity.

6.4Liability for Brokers' Fees. Seller has not incurred any liability,
contingent or otherwise, for brokers' or finders' fees or any commission
relating to the Transaction for which Buyer shall have any responsibility,
liability or obligations whatsoever.

6.5No Bankruptcy. There are no bankruptcy, reorganization, liquidation or
receivership proceedings pending, being contemplated by or, to Seller's
Knowledge, threatened against Seller.

6.6Litigation.
  
(a)There are no actions, suits, investigations, arbitration or other
proceedings, notices of violation

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or claims pending or, to the Knowledge of Seller, threatened, affecting the
Assets or that would impair Seller's ability to consummate the Transaction or to
assume the liabilities to be assumed by Seller under this Agreement.

(b)There are no actions, suits, investigations, arbitration or other
proceedings, notices of violation or claims pending or, to the Knowledge of
Seller, threatened, against the Seller or affecting any of the Assets, in any
court or by or before any Governmental Entity involving the ownership or
operation of the Assets; nor is Seller in default under any order, writ,
injunction, or decree of any court or Governmental Entity, in each case that
would be reasonably likely to have a material adverse effect on any of the
Assets.

(c)This Section 6.5 does not include any matters with respect to Environmental
Laws, such matters being addressed exclusively in Article 5.

6.7Compliance with Law. The Assets have been operated in compliance in all
material respects with all applicable federal, state and local laws, rules,
regulations and orders. Seller has not received any written notice of a material
violation of any statute, law, ordinance, regulation, rule or order of any
Governmental Entity, or any judgment, decree or order of any court, applicable
to the Assets. This Section 6.7 does not include any matters with respect to
Environmental Laws, such matters being addressed exclusively in Article 5.

6.8Status and Operation of Assets. Except as described on Schedule 6.8 (“Capital
Expenditures”), (i) Seller has incurred no expenses, and has made no commitments
to make expenditures in connection with the ownership or operation of the Assets
after the Effective Time which expenditures are, individually, estimated to cost
seventy-five thousand dollars ($75,000) or more, net to Seller's interest, and
(ii) no contractual obligations, proposals or authorities for expenditures are
currently outstanding (whether made by Seller or by any other party) to drill
additional wells, or to deepen, plug back, rework any Well, or to conduct other
operations on the Assets for which consent is required under the applicable
operating agreement, to abandon any Well, or to conduct any other operation on
the Assets for which the estimated cost exceeds seventy-five thousand dollars
($75,000), net to Seller's interest.

6.9Taxes. All Taxes and assessments pertaining to the Assets that are due and
payable have been properly paid by Seller. There are no liens for Taxes with
respect to the Assets other than Permitted Encumbrances. There are no suits or
proceedings pending, or to Seller's Knowledge, any claims, investigations,
audits, inquiries pending or threatened against Seller in respect of Taxes which
affect or may reasonably be expected to affect any of the Assets. No Asset is
subject to any partnership within the meaning of subchapter K of Chapter 1 of
Subtitle A of the Code. Seller has not granted any waiver of any statute of
limitations with respect to, or any extension of a period for the assessment of,
any Tax affecting the Assets.

6.10Imbalance Volumes. There are no oil or gas well or pipeline imbalances other
than those listed in Schedule 6.10 which are associated with the Assets.

6.11Leases. To Seller's Knowledge, all of the Leases are in full force and
effect insofar as they cover the lands described on Exhibit A and Seller is not
in default with respect to any of its material obligations under any of the
Leases. Except as set forth in Schedule 6.11, Seller has not received any
written notice of default or breach under any of the Leases which default or
breach has not been cured or remedied to the satisfaction of the applicable
lessor.

6.12Material Agreements.
  
(a)Except for the Leases, Exhibit C sets forth all material Contracts related to
the ownership and operation of the Assets that are of the type described below
(collectively, the “Material Agreements”):

(1)any Contract that can reasonably be expected to result in aggregate payments
by Seller of more than fifty thousand dollars ($50,000) during the current or
any subsequent fiscal year or two hundred fifty thousand dollars ($250,000) in
the aggregate over the term of such Contract (in each case, based solely on the
terms thereof and without regard to any expected increase in volumes or
revenues) that cannot be terminated by the Seller on ninety (90) days or less
notice;

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(2)any Contract that can reasonably be expected to result in aggregate revenues
to Seller of more than fifty thousand dollars ($50,000) during the current or
any subsequent fiscal year or two hundred fifty thousand dollars ($250,000) in
the aggregate over the term of such Contract (in each case, based solely on the
terms thereof and without regard to any expected increase in volumes or
revenues);

(3)any Hydrocarbon purchase and sale, transportation, processing or similar
Contract that is not terminable without penalty on sixty (60) days or less
notice;

(4)any Contract that is an indenture, mortgage, loan, credit or sale-leaseback,
guaranty of any obligation, bonds, letters of credit or similar financial
Contract;

(5)any Contract that constitutes a lease under which Seller is the lessor or the
lessee of real, immovable, personal or movable property which lease (A) cannot
be terminated by Seller without penalty upon sixty (60) days or less notice and
(B) involves an annual base rental of more than fifty thousand dollars
($50,000); and

(6)any Contract with any affiliate of Seller that will be binding on Buyer after
Closing and will not be terminable by Buyer within thirty (30) days or less
notice.

(b)There exist no defaults under the Material Agreements by Seller or, to
Seller's Knowledge, by any other person that is a party to such Material
Agreements.

6.13Hydrocarbon Sales Contracts. Except for the Hydrocarbon sales contracts
listed on Exhibit C, no Hydrocarbons produced from the Assets are subject to a
sales contract and no person has any call upon, option to purchase or similar
rights with respect to any material amounts of production from the Assets.
Except as set forth on Schedule 6.13, (i) there have been no written claims from
any third party for any price reduction or increase or volume reduction or
increase under any Hydrocarbon sales contract related to the Assets, and Seller
has not made any claims for any price reduction or increase or volume reduction
or increase under any Hydrocarbon sales contract related to the Assets, (ii) to
the Knowledge of Seller, payments for Hydrocarbons sold pursuant to each
Hydrocarbon sales contract related to the Assets have been made (subject to
adjustment in accordance with such Hydrocarbon sales contract) in accordance
with prices or price-setting mechanisms set forth in such Hydrocarbon sales
contracts, and (iii) no purchaser under any Hydrocarbon sales contract related
to the Assets has notified Seller in writing (or, to the Knowledge of Seller,
the operator of any Asset) of its intent to cancel, terminate, or renegotiate
any such Hydrocarbon sales contract or has otherwise failed or is currently
refusing to take and pay for Hydrocarbons in the quantities and at the price set
out in any such Hydrocarbon sales contract, whether such failure or refusal was
pursuant to any force majeure, market out, or similar provisions contained in
such Hydrocarbon sales contract or otherwise.

6.14Areas of Mutual Interest. No Asset is subject to (or has related to it) any
area of mutual interest agreement, or any farmout agreement, farmin agreement or
similar agreement under which any party thereto is entitled to receive
assignments not yet made, or could earn additional assignments after the
Effective Time.

6.15Production Payments. Except for the imbalance volumes and the contracts and
arrangements listed in Schedule 6.10, Seller is not obligated, by virtue of a
production payment, prepayment arrangement under any contract for the sale of
Hydrocarbons and containing a “take or pay”, advance payment or similar
provision, gas balancing agreement or any other arrangement to deliver any
material amounts of Hydrocarbons without then or thereafter receiving full
payment therefor, or to make payment for any material amounts of Hydrocarbons
already produced and sold.

6.16Surface Access. Other than the surface leases, permits, rights-of-way,
licenses, easements, and other surface rights agreements described on Exhibit C,
there are no surface use or access agreements currently in force and effect that
would materially interfere with oil and gas operations on the Leases as
currently conducted. Seller has a legal right of access to all of the Leases and
Wells.

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6.17Insurance. As of the Effective Time, Seller has maintained, and through the
Closing Date will maintain, with respect to the Assets, the insurance coverage
in amounts and on terms Seller reasonably believes to be appropriate and
customary in the circumstances.

6.18No Other Representations or Warranties; Disclosed Materials.
  
(a)Except for the representations and warranties contained in this Agreement or
the documents assigning the Assets, Seller makes no other (and Buyer
acknowledges that it is not relying upon any) express or implied representation
or warranty with respect to Seller, the Assets or the Transaction, and Seller
disclaims any other representations or warranties not contained in this
Agreement or the documents assigning the Assets, whether made by Seller, any
affiliate of Seller, or any of their respective officers, directors, managers,
employees or agents. Except for the representations and warranties contained in
this Agreement, the disclosure of any matter or item in the Schedules shall not
be deemed to constitute an acknowledgement that any such matter would or would
reasonably be expected to have a material adverse effect on any of the Assets.

(b)The information relating to the Assets contained in this Agreement or the
Schedules or Exhibits hereto is true and correct in all material respects. In
connection with this Agreement or the documents furnished to Buyer and Buyer's
representatives hereunder, Seller has not (i) knowingly employed any device,
scheme or artifice to mislead or defraud Buyer or (ii) knowingly engaged in any
act, practice, or course of business which operates or would operate as a fraud
or deceit upon Buyer or any third party.

6.19Oil and Gas Operations. Except as set forth in Schedule 6.19:

(a)none of the Wells have been produced in excess of their allowable such that
they are subject to being shut-in or to any overproduction penalty, and Seller
has not received any payment for Hydrocarbon production from any Well which is
subject to refund or recoupment out of future production;

(b)there have been no changes proposed to reduce the production allowables for
any Well that are currently pending;

(c)all of the Wells have been (if drilled) drilled and (if completed) completed,
operated, and produced in accordance with good oil and gas field practices and
in compliance in all material respects with the applicable Leases and Contracts,
and applicable laws, rules, regulations and permits;

(d)Seller has not abandoned any Well operated by it, except in accordance with
the applicable Leases, Contracts, laws, rules, and regulations and good oil and
gas industry practices;

(e)proceeds from the sale of Hydrocarbons produced from and attributable to the
Assets are being received by Seller in a timely manner and are not being held in
suspense for any reason;

(f)all royalties, overriding royalties, compensatory royalties and other
payments due from or in respect of Hydrocarbon production from the Assets, have
been or will be, prior to the Closing Date, properly and correctly paid or
provided for in all respects, except for those for which Seller has a legal
right to suspend;

(g)except as set forth on Exhibit B, none of the Wells have a payout balance
which will result in a reduction in Seller's interest therein after payout
occurs; and

(h)all of the Wells that have been drilled and completed have been drilled and
completed on lands currently covered by the Leases or on lands properly pooled
or unitized therewith.

6.20Offsite Disposal. Except as set forth in Schedule 6.20 and except for de
minimis quantities of waste materials generated in the ordinary course of
Seller's business, Seller has not disposed of any produced water, hazardous

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substances or solid waste materials generated on the Assets or used on the
Assets, at sites off of the Assets.

6.21Affiliate Transactions. Except as set forth in Schedule 6.21, there are no
transactions or Contracts affecting any of the Assets between Seller and any
affiliate of Seller (“Affiliate Contracts”) that will continue beyond the
Closing. All of the Affiliate Contracts can be terminated by Seller prior to the
Closing or by Buyer after the Closing upon thirty (30) days or less notice. As
used in this Agreement, "affiliate" means, with respect to any person or entity,
each other person or entity directly or indirectly controlling, controlled by or
under common control with such person.

6.22Material Consents. Except as set forth in Schedule 6.22, there are no
consents to assignment relating to the Assets where the consent provision
provides that an assignment in violation thereof is void or voidable, triggers
the payment of specified liquidated damages, or causes termination of the
affected Lease or other Asset to be assigned (“Material Consents”).

6.23Unplugged Wells. Except for wells listed in Schedule 6.23, there are no dry
holes, or shut-in or otherwise inactive wells, located on the Lands, except for
wells that have been plugged or abandoned in compliance with applicable laws and
regulations, and except for wells drilled to depths not included within the
Assets.

6.24Permits. Seller possesses all material permits required to be obtained for
conducting its business with respect of the Assets as presently conducted, and
Seller has not received written notice of any violations of the permits that
remain uncured or that any permit will not be renewed.

6.25Expenses. To the Knowledge of Seller, in the ordinary course of business,
Seller has paid all lease operating expenses, capital expenses, joint interest
billings and other costs and expenses attributable to the ownership and
operation of the Assets in a timely manner before becoming delinquent, except
such costs and expenses as are disputed in good faith by Seller and set forth in
Schedule 6.25.

6.26Bonds and Letters of Credit. Except as set forth in Schedule 6.26, there are
no bonds, letters of credit, guarantees or other similar commitments held by
Seller that are required by third parties in order for Seller to own the Assets,
and if operated by Seller or an affiliate of Seller, to operate the Assets.

6.27Suspense Accounts. Schedule 6.27 sets forth a true and complete amount, as
of November 1, 2011, of all third party proceeds of production from the Assets
being held in suspense by Seller.

ARTICLE 7
BUYER'S REPRESENTATIONS AND WARRANTIES

Buyer makes the following representations and warranties as of Closing and as of
the Effective Time:
7.1Organization and Standing. Buyer is a limited liability company duly
organized, validly existing and in good standing under the laws of Delaware and
is duly qualified to carry on its business in the State of Texas.

7.2Power. Buyer has all requisite power and authority to carry on its business
as presently conducted. The execution and delivery of this Agreement does not,
and the fulfillment of and compliance with the terms and conditions hereof will
not, as of Closing, violate, or be in conflict with, any material provision of
Buyer's governing documents, or any material provision of any agreement or
instrument to which Buyer is a party or by which it is bound, or, any judgment,
decree, order, statute, rule or regulation applicable to Buyer.

7.3Authorization and Enforceability. This Agreement constitutes Buyer's legal,
valid and binding obligation, enforceable in accordance with its terms, subject,
however, to the effects of bankruptcy, insolvency, reorganization, moratorium
and other laws for the protection of creditors, as well as to general principles
of equity, regardless whether such enforceability is considered in a proceeding
in equity or at law.

7.4Liability for Brokers' Fees. Buyer has not incurred any liability, contingent
or otherwise, for brokers'

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or finders' fees or any commission relating to the Transaction for which Seller
shall have any responsibility, liability or obligations whatsoever.

7.5Litigation. There is no action, suit, proceeding, claim or investigation by
any person, entity, or Governmental Entity pending or, to Buyer's Knowledge,
threatened against it before any Governmental Entity that impedes or is likely
to impede its ability to consummate the Transaction.

7.6Bankruptcy. There are no bankruptcy, reorganization or receivership
proceedings pending, being contemplated by or, to Buyer's Knowledge, threatened
against Buyer.

7.7Financial Resources. Buyer has, and shall have as of Closing, sufficient
funds with which to pay the Closing Amount and consummate the Transaction and,
following Closing, Buyer will have sufficient funds to pay any adjustments to
the Purchase Price and meet its other payment obligations under this Agreement.

ARTICLE 8
COVENANTS AND AGREEMENTS

8.1Covenants and Agreements of Seller. Seller covenants and agrees with Buyer as
follows:

(a)Operations Prior to Closing. Except as otherwise consented to in writing by
Buyer or provided in this Agreement, from the date of execution of this
Agreement to the Closing, Seller will (i) use reasonable efforts to cause the
Assets to be operated in a good and workmanlike manner consistent with past
practices and in compliance in all material respects with all applicable Leases,
Contracts, laws, rules regulations and permits, (ii) pay or cause to be paid its
proportionate share of all costs and expenses incurred in connection with such
operations, (iii) notify Buyer and obtain Buyer's consent (which shall not be
unreasonably withheld or delayed) to capital expenditures anticipated to cost in
excess of seventy-five thousand dollars ($75,000) per operation, net to Seller's
interest, conducted on the Assets, exclusive of the Capital Expenditures listed
on Schedule 6.8, (iv) give prompt written notice to Buyer of any notice of
asserted default or violation received or given by Seller under any Lease,
Contract, laws, rules, regulations or permits affecting any Asset, and (v) cause
its employees to furnish Buyer with such financial and operating data and other
information with respect to the Assets as Buyer may from time to time reasonably
request.

(b)Restriction on Operations. Subject to Section 8.1(a), unless Seller obtains
the prior written consent of Buyer to act otherwise (which shall not be
unreasonably withheld or delayed), from the date of execution of this Agreement
until Closing, Seller will not (i) abandon any part of the Assets (except in the
ordinary course of business or the abandonment of leases upon the expiration of
their respective primary terms), (ii) except for the Capital Expenditures listed
on Schedule 6.8, approve, propose to any third party or commence any operations
on the Assets anticipated in any instance to cost more than seventy-five
thousand dollars ($75,000) per operation, net to Seller's interest (excepting
emergency operations required under presently existing contractual obligations,
and operations undertaken to avoid a monetary penalty or forfeiture provision of
any applicable agreement or order all of which shall be deemed to be approved,
provided that Seller immediately notifies Buyer of any emergency operation or
operation to avoid monetary penalty or forfeiture excepted herein),
(iii) encumber, convey or dispose of, or remove from the Lands, any part of the
Assets (other than sale or disposal of equipment replaced with items of
comparable or superior quality or sale of Hydrocarbons produced from the Assets
in the regular course of business), (iv) enter into any farmout or farmin
affecting the Assets, (v) let lapse any insurance now in force with respect to
the Assets, (vi) materially modify, or terminate prior to its stated expiration,
any Material Agreement, (vii) make any non-consent elections with respect to
operations affecting the Assets, (viii) relinquish any operating rights or other
rights with respect to the Assets, (ix) enter into any agreements that would
constitute a Material Agreement, provided that Seller will promptly notify Buyer
of any agreements entered into affecting or related to any of the Assets
(provided that any failure of Seller to provide notice to Buyer of any agreement
entered into shall not constitute a breach of this Agreement); (x) subject any
of the Assets to any partnership within the meaning of subchapter K of Chapter 1
of Subtitle A of the Internal Revenue Code of 1986, as amended (the “Code”), or
(xi) settle or compromise any claim or proceeding, or waive or extend any period
of limitations, relating to Taxes attributable to any of the Assets.

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(c)Marketing. Unless Seller obtains the prior written consent of Buyer (which
shall not be unreasonably withheld or delayed) to act otherwise, Seller will not
alter any existing marketing contracts currently in existence, or enter into any
new marketing contracts or agreements providing for the sale of Hydrocarbons for
a term in excess of one month.

(d)Consents. For the purposes of obtaining the written consents required in
Sections 8.1(a) through (c), Buyer designates the following contact person: Mr.
Steve Guthrie, at the address for Buyer set forth in Section 15.3,
sguthrie@concho.com or facsimile no. (432) 684-7137. Such consents may be
obtained in writing by overnight courier or given by .pdf or facsimile
transmission.

(e)Status. Seller shall use all reasonable efforts to assure that as of the
Closing Date, Seller will not be under any material legal or contractual
restriction that would prohibit or delay the timely consummation of the
Transaction.

(f)Notices of Claims. Seller shall promptly notify Buyer in writing, if, between
the date of execution of this Agreement and the Closing Date, Seller receives
notice (written or verbal) of any claim, suit, action or other proceeding
affecting the Assets or notice (written or verbal) of any default under the
Leases or any Material Agreement.

(g)Compliance with Laws. During the period from the date of execution of this
Agreement to the Closing Date, Seller shall use reasonable efforts to cause the
Assets to be operated in compliance in all material respects with all applicable
Leases, Contracts, permits, statutes, ordinances, rules, regulations and orders.

(h)Audit Rights. Seller shall cooperate with Buyer and make available, during
normal business hours, to Buyer and its representatives prior to and for a
period of fifteen (15) months following the Closing any and all existing
information and documents relating to revenues and expenses attributable to the
Assets and in the possession of Seller (subject to the rights of third parties)
that Buyer may reasonably require to comply with Buyer's tax and financial
reporting requirements and audits, including any filings with any Governmental
Entity and filings that may be required by the Securities and Exchange
Commission under the Securities Act of 1933 and/or the Securities Exchange Act
of 1934. Without limiting the generality of the foregoing, Seller will use its
commercially reasonable efforts after execution of this Agreement and following
Closing to cooperate with the independent auditors chosen by Buyer (“Buyer's
Auditor”) in connection with their audit or review of any revenue and expense
records pertaining to the Assets that Buyer or any of its affiliates requires to
comply with their tax, financial and other reporting requirements. Seller's
cooperation will include (i) reasonable access during normal business hours to
Seller's employees and representatives designated by Seller who were responsible
for preparing or maintaining the revenue and expense records and work papers and
other supporting documents used in the preparation of such financial statements
as may be required by Buyer's Auditor to perform an audit or conduct a review in
accordance with generally accepted auditing standards or to otherwise verify
such financial statements; and (ii) delivery of one or more customary
representation letters from Seller to Buyer's Auditor that are reasonably
requested by Buyer to allow such auditors to complete an audit (or review of any
financial statements), and to allow Buyer's Auditor to issue an opinion with
respect to its audit or review. Buyer will pay or, if paid, reimburse Seller,
within ten (10) Business Days after demand therefor, for any reasonable
out-of-pocket and overhead costs incurred by Seller in complying with the
provisions of this Section 8.1(h).

(i)Suspense Accounts. Prior to Closing, Seller shall prepare a schedule setting
forth the following information: (i) all proceeds of production attributable to
the Assets held by Seller in suspense, (ii) the reason such proceeds are being
held in suspense, and (iii) if known, the name or names of the persons claiming
such proceeds. To the extent Buyer receives a reduction in the Purchase Price
pursuant to this Agreement for such suspense funds, Buyer agrees to indemnify
Seller against any claim relating to the failure to pay such fund after Closing.

8.2Covenants and Agreements of Buyer. Buyer covenants and agrees with Seller as
follows:

(a)Status. Buyer shall use reasonable efforts to assure that as of the Closing
Date it will not be under any material legal or contractual restriction that
would prohibit or delay the timely consummation of the

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Transaction.

(b)Confidentiality. Upon Closing, the Confidentiality Agreement dated November
17, 2011, between Seller and Buyer shall terminate. All information obtained
from Seller in connection with the Transaction whether before or after the
execution of this Agreement (“Information”) is deemed by the Parties to be
confidential and proprietary to Seller. Buyer shall take reasonable steps to
ensure that Buyer's employees, consultants and agents comply with the provisions
of this Section 8.2(b). Until completion of the Closing, except as required by
law, Buyer and its officers, agents and representatives will hold in strict
confidence the terms of this Agreement and all Information, subject to such
exceptions as are contained in the Confidentiality Agreement. Upon Closing, any
obligation of confidentiality under this Section 8.2(b) shall terminate.

(c)Governmental Bonds. Buyer acknowledges that none of the bonds, letters of
credit and guarantees, if any, posted by Seller or its affiliates with
Governmental Entities and relating to the Assets are transferable to Buyer. At
or prior to Closing upon reasonable written request from Seller, Buyer shall
deliver to Seller evidence of the posting of bonds or other security with all
applicable Governmental Entities meeting the requirements of such Governmental
Entities to own the Assets.

(d)Successor Operator. Seller is designated as operator of certain Assets
pursuant to joint operating agreements with third parties and at Closing will
tender operation of such Assets to Buyer. Buyer acknowledges that such third
parties may not agree to allow Buyer to succeed Seller as operator under such
joint operating agreements or may otherwise exercise other rights they may have
that would preclude Buyer from succeeding Seller as operator. Buyer specifically
acknowledges and agrees that Seller has made no representation or guarantee that
Buyer will succeed Seller as operator under any joint operating agreement;
provided that Seller shall use commercially reasonably efforts, if requested by
Buyer, to support Buyer's succession of Seller as operator as to any of the
Assets currently operated by Seller, subject to the provisions of any applicable
joint operating agreement.

8.3Covenants and Agreements of the Parties.

(a)Communication Between the Parties Regarding Breach. If Buyer develops
information during its Due Diligence Review that leads Buyer to believe that
Seller has materially breached a representation or warranty under this
Agreement, Buyer shall use reasonable efforts to inform Seller in writing of
such material breach as soon as reasonably practicable, but in any event, at or
prior to Closing. If any Party believes the other Party has materially breached
any term of this Agreement, the Party who believes the breach has occurred shall
promptly give written notice to the breaching Party of the nature of the breach.

(b)Announcements. For a period of three (3) months following the date of this
Agreement, Seller and Buyer shall consult with each other with regard to all
press releases and other announcements concerning this Agreement or the
Transaction, allowing a reasonable period of time for comment by the other
Party; provided, however, that the foregoing shall not prevent either Party from
timely complying with any applicable securities laws or stock exchange rules.
Neither Party shall be named in any press release or announcement of the other
Party without such Party's prior written consent, which shall not be
unreasonably withheld or delayed.

(c)Casualty Loss. Prior to Closing, if a portion of the Assets is destroyed by
fire or other casualty or if a portion of the Assets is taken or threatened to
be taken in condemnation or under the right of eminent domain (“Casualty Loss”),
and the resulting loss from such Casualty Loss exceeds two hundred thousand
dollars ($200,000) based on the Allocated Value of the affected Assets, Buyer
shall not be obligated to purchase such Asset. If Buyer declines to purchase
such Asset, the Purchase Price shall be reduced by the Allocated Value of such
Asset. If Buyer elects to purchase such Asset, the Purchase Price shall be
reduced by the estimated cost to repair such Asset (with equipment of similar
utility), less all insurance proceeds which shall be payable to Buyer, up to the
Allocated Value thereof (the reduction being the “Net Casualty Loss”). Seller,
at its sole option, may elect to cure such Casualty Loss and, in such event,
Seller shall be entitled to all insurance proceeds. If Seller elects to cure
such Casualty Loss, Seller may replace any personal property that is the subject
of a Casualty Loss with equipment of similar grade and utility, or replace any
real property with real property of similar nature and kind if such property is
reasonably acceptable to

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Buyer. If Seller elects to cure the Casualty Loss, and the Casualty Loss is
cured to Buyer's reasonable satisfaction, Buyer shall purchase the affected
Asset at Closing for the Allocated Value thereof.

(d)Written Instructions. Seller and Buyer covenant and agree that when a Party
becomes entitled to any distribution from the Escrow Account, the Parties shall
within five (5) Business Days execute and deliver to the Escrow Agent joint
written instructions setting forth the amounts to be paid to such Party, if any,
from the Escrow Account in accordance with this Agreement. In the event the
Parties do not submit joint written instructions when required by the terms of
this Section 8.3(d), the Parties shall submit to binding arbitration, as
provided in this Agreement upon the request of either Party to settle any
dispute or unresolved issue.

ARTICLE 9
TAX MATTERS

9.1Definitions. For the purposes of this Agreement:

(a)“Income Taxes” means all Taxes based upon, measured by, or calculated with
respect to (i) gross or net income or gross or net receipts or profits
(including, but not limited to, Texas franchise Tax and any capital gains,
alternative minimum Taxes, net worth and any Taxes on items of Tax preference,
but not including sales, use, goods and services, real or personal property
transfer or other similar Taxes), (ii) multiple bases (including, but not
limited to, corporate franchise, doing business or occupation Taxes) if one or
more of the bases upon which such Tax may be based upon, measured by, or
calculated with respect to, is described in clause (i) above, or (iii)
withholding Taxes measured with reference to or as a substitute for any Tax
described in clauses (i) or (ii) above, and (iv) and any penalties, additions to
Tax, and interest levied or assessed with respect to a Tax described in (i),
(ii), or (iii) above;

(b)“Production Taxes” shall mean all Severance Taxes and Property Taxes;

(c)“Property Taxes” shall mean all ad valorem, real property, personal property,
and all other Taxes and similar obligations, and any penalties, additions to
Tax, and interest levied or assessed thereon, assessed against the Assets or
based upon or measured by the ownership of the Assets, but not including Income
Taxes, Severance Taxes and Transfer Taxes;

(d)“Severance Taxes” shall mean all extraction, production, excise, net
proceeds, severance, windfall profit and all other Taxes and similar
obligations, and any penalties, additions to Tax, and interest levied or
assessed thereon, with respect to the Assets that are based upon or measured by
the production of Hydrocarbons or the receipt of proceeds therefrom, but not
including Property Taxes, Income Taxes, and Transfer Taxes;

(e)“Straddle Period” means any taxable period including, but not ending on, the
date of the Effective Time;

(f)“Taxes” means (a) any taxes and assessments imposed by any Governmental
Entity, including net income, gross income, profits, gross receipts, net
receipts, capital gains, net worth, doing business, license, stamp, occupation,
premium, alternative or add-on minimum, ad valorem, real property, personal
property, transfer, real property transfer, value added, sales, use,
environmental (including taxes under Code Section 59A), customs, duties, capital
stock, stock, stamp, document, filing, recording, registration, authorization,
franchise, excise, withholding, social security (or similar), fuel, excess
profits, windfall profit, severance, extraction, production, net proceeds,
estimated or other tax, including any interest, penalty or addition thereto,
whether disputed or not, and any expenses incurred in connection with the
determination, settlement or litigation of the Tax liability, (b) any
obligations under any agreements or arrangements with respect to Taxes described
in clause (a) above, and (c) any liability in respect of Taxes described in
clauses (a) and (b) above payable by reason of assumption, transferee liability,
operation of Law, Treasury Regulation Section 1.1502-6(a) (or any predecessor or
successor thereof or any analogous or similar provision under Law) or otherwise;
and

(g)“Transfer Taxes” means any sales, use, excise, stock, stamp, document,
filing, recording,

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registration, authorization and similar Taxes, fees and charges, and any
penalties, additions to Tax, and interest levied or assessed thereon, but not
including Production Taxes or Income Taxes.

9.2Apportionment of Property Taxes. Property Taxes shall be prorated as of the
Effective Time based on the number of days in the tax period before and after
the Effective Time, and liability therefor allocated to Seller for pre-Effective
Time Property Taxes and to Buyer for post-Effective Time Property Taxes, without
duplicating any adjustment to the Purchase Price required by Section 2.3. For
the purpose of calculating the Final Purchase Price under Section 13.1(a),
Property Taxes shall be based on actual Property Taxes assessed for the year
2011. After Closing, Buyer shall timely file or cause to be filed all required
reports and returns for, related to, or incident to the Property Taxes, and
shall timely pay or cause to be paid to the taxing authorities all Property
Taxes for the Property Tax period during which the Closing Date occurs. Any
penalties, additions to Tax, or interest levied or assessed with respect to any
failure of Buyer to comply with the previous sentence shall be allocated to, and
shall be payable by, Buyer.

9.3Apportionment of Severance Taxes. Severance Taxes shall be deemed
attributable to the period during which the production of the Hydrocarbons with
respect to such Severance Taxes occurred, and liability therefor shall be
allocated to Seller for pre-Effective Time Severance Taxes and to Buyer for
post-Effective Time Severance Taxes, without duplicating any adjustment to the
Purchase Price required by Section 2.3. For the purpose of calculating the Final
Purchase Price under Section 13.1(a), Severance Taxes determined with respect to
2011 production shall be estimated based on current State of Texas Production
Tax rates. After Closing, Buyer shall timely file or cause to be filed all
required reports and returns for, related to, or incident to Severance Taxes for
any Straddle Period that are due after the Closing Date and shall timely pay or
cause to be paid to the taxing authorities all Severance Taxes for all taxable
periods including the Closing Date. Any penalties, additions to Tax, or interest
levied or assessed with respect to any failure of Buyer to comply with the
previous sentence shall be allocated to, and shall be payable by, Buyer.

9.4Transfer Taxes. Notwithstanding anything to the contrary herein, the Purchase
Price excludes, and Buyer shall be liable for, any Transfer Taxes required to be
paid in connection with the sale of the Assets pursuant to this Agreement.
Seller shall timely file or cause to be filed all required reports and returns
for, related to, or incident to such Transfer Taxes and shall timely collect,
remit and pay or cause to be paid to the taxing authorities all Transfer Taxes.
Any penalties, additions to Tax, or interest levied or assessed with respect to
any failure of Seller to comply with the previous sentence shall be allocated
to, and shall be payable by, Seller.

9.5Section 1031 Exchange. If either Party hereto elects (the “Electing Party”)
to accomplish the Transaction in a manner that will comply, either in whole or
in part, with the requirements of a like-kind exchange pursuant to Section 1031
of the Code (a “Like-Kind Exchange”), the Electing Party shall so notify the
other Party hereto in writing, and such other Party hereto (the “Cooperating
Party”) agrees to cooperate, as set forth below, with the Electing Party in
complying with the requirements under Section 1031 of the Code to effect a
Like-Kind Exchange.  In the event of such an election, the Electing Party agrees
to indemnify, defend and hold the Cooperating Party harmless from and against
any and all claims, demands, causes of action, liabilities, costs and expenses,
including reasonable attorneys' fees and costs of litigation, that the
Cooperating Party may suffer or incur by reason of such cooperation or Like-Kind
Exchange.  Buyer and Seller expressly reserve the right to assign their rights,
but not their obligations, hereunder to a Qualified Intermediary as provided in
IRC Reg. 1.1031(k)-1(g)(4) or an Exchange Accommodation Titleholder as provided
in Rev. Proc. 2000-37, 2000-2 C.B. 308 on or before the Closing Date.  The
Cooperating Party agrees to cooperate, but at no cost, expense or risk to the
Cooperating Party, and take any actions reasonably requested by the Electing
Party, to cause the Transaction, in whole or in part, to be consummated as and
to qualify as a Like-Kind Exchange, including, but not limited to, (a)
permitting this Agreement to be assigned to a Qualified Intermediary or Exchange
Accommodation Titleholder and (b) conveying the Assets to, or at the direction
of, the Qualified Intermediary or Exchange Accommodation Titleholder.  In no
event, however, shall any Like-Kind Exchange extend, delay or otherwise
adversely affect the Closing Date and in no event shall the Cooperating Party be
required to take title to any other property in connection with such Like-Kind
Exchange.

9.6Post-Closing Tax Matters.

(a)The Parties shall estimate all Taxes (excluding Seller's Income Taxes)
attributable to the

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ownership or operation of the Assets to the extent they relate to the period on
and after the Effective Time and through the Closing Date and all Transfer Taxes
and, to the extent applicable, incorporate such estimates into the Preliminary
Settlement Statement. Any Production Taxes allocable under Sections 9.2 and 9.3
to periods after the Effective Time and paid by Seller on or prior to the
Closing Date shall be for the account of Seller. The actual amounts (to the
extent applicable and to the extent the actual amounts differ from the estimates
included in the Preliminary Settlement Statement and are known at the time of
the Final Settlement Statement) shall be accounted for in the Final Settlement
Statement. If the actual amounts are not known at the time of the Final
Settlement Statement, the amounts shall be re-estimated based on the best
information available at the time of the Final Settlement Statement. When the
actual amounts are known, Buyer or Seller shall make such payments to the other
(if any) as are necessary to effect the allocation of Taxes described in this
Section 9.6.

(b)After the Closing Date, each of Buyer and Seller shall:

(1)reasonably assist the other in preparing any Tax returns with respect to any
Tax incurred or imposed, or required to be filed, in connection with the
Transaction, and in qualifying for any exemption or reduction in Tax that may be
available;

(2)reasonably cooperate in preparing for any audits or examinations by, or
disputes with, taxing authorities regarding any Tax incurred or imposed in
connection with the Transaction;

(3)make available to the other, and to any taxing authority as reasonably
requested, any information, records, and documents relating to a Tax incurred or
imposed in connection with the Transactions; provided however, no Party shall be
required to provide to the other Party any information, records or documents
subject to attorney-client privilege or any information, records or documents
related to Income Taxes; and

(4)provide timely notice to the other in writing of any pending or threatened
Tax audit, examination, or assessment that could reasonably be expected to
affect the other's Tax liability under applicable law or this Agreement, and to
promptly furnish the other with copies of all correspondence with respect to any
such Tax audit, examination, or assessment.

9.7No Account to be Given to Income Taxes. Anything in this Agreement to the
contrary notwithstanding, no account shall be given to any Party's Income Taxes
for purposes of making any adjustment to the Purchase Price pursuant to this
Agreement.

ARTICLE 10
CONDITIONS PRECEDENT TO CLOSING

10.1Seller's Conditions. The obligations of Seller at the Closing are subject,
at the option of Seller, to the satisfaction or waiver at or prior to the
Closing of the following conditions precedent:

(a)All representations and warranties of Buyer contained in this Agreement shall
be true and correct in all material respects (provided, however, that any such
representation or warranty of the Buyer that is qualified by a materiality
standard shall not be further qualified by materiality for purposes of this
Section 10.1(a) at and as of the Closing Date in accordance with their terms as
if such representations and warranties were remade at and as of the Closing Date
(except to the extent such representations and warranties are made as of a
specified date, in which case such representations and warranties shall be true
and correct as of the specified date); and Buyer shall have performed and
satisfied all covenants and agreements required by this Agreement to be
performed and satisfied by Buyer at or prior to the Closing in all material
respects and Buyer shall deliver a certificate to Seller confirming the
foregoing; and

(b)No order has been entered by any Governmental Entity having jurisdiction over
the Parties or the subject matter of this Agreement that restrains or prohibits
the purchase and sale contemplated by this Agreement and that remains in effect
at Closing.

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10.2Buyer's Conditions. The obligations of Buyer at the Closing are subject, at
the option of Buyer, to the satisfaction or waiver at or prior to the Closing of
the following conditions precedent:

(a)All representations and warranties of Seller contained in this Agreement
shall be true and correct in all material respects (provided, however, that any
such representation or warranty of the Seller that is qualified by a materiality
standard shall not be further qualified by materiality for purposes of this
Section 10.2(a) at and as of the Closing Date in accordance with their terms as
if such representations were remade at and as of the Closing Date (except to the
extent such representations and warranties are made as of a specified date, in
which case such representations and warranties shall be true and correct as of
the specified date); and Seller shall have performed and satisfied all covenants
and agreements required by this Agreement to be performed and satisfied by
Seller or Seller at or prior to the Closing in all material respects and Seller
shall deliver a certificate to Buyer confirming the foregoing; and
(b)No order has been entered by any Governmental Entity having jurisdiction over
the Parties or the subject matter of this Agreement that restrains or prohibits
the purchase and sale contemplated by this Agreement and that remains in effect
at the time of Closing.

ARTICLE 11
RIGHT OF TERMINATION

11.1Termination. This Agreement may be terminated in accordance with the
following provisions:

(a)by mutual consent of Seller and Buyer;

(b)by Seller, if Seller's conditions set forth in Section 10.1(a) are not
satisfied or are not capable of satisfaction at such time through no fault of
Seller, or are not waived by Seller, as of the Closing Date;

(c)by Buyer, if Buyer's conditions set forth in Section 10.2(a) are not
satisfied or are not capable of satisfaction at such time through no fault of
Buyer, or are not waived by Buyer, as of the Closing Date;

(d)by Seller, if, through no fault of Seller, the Closing does not occur on or
before March 31, 2012;

(e)by Buyer, if, through no fault of Buyer, the Closing does not occur on or
before March 31, 2012; or

(f)by Buyer or Seller, in the event that the aggregate reduction to the Purchase
Price due to Title Defects, Environmental Defects, Net Casualty Losses, failures
by Seller to obtain consents to assignment of any of the Assets where the party
having the right to consent has affirmatively denied the request to consent to
the assignment, failures by Seller to obtain any Material Consents, and any
preferential rights exercised with respect to the Assets exceeds twenty percent
(20%) of the Initial Purchase Price;

provided, however, that neither Party shall have the right to terminate this
Agreement pursuant to clause (b), (c), (d) or (e) above if such Party is at such
time in material breach of any provision of this Agreement.
If Buyer or Seller terminates this Agreement pursuant to this Section 11.1 and
asserts that a breach of this Agreement has occurred, the notice of termination
shall include a statement describing the nature of the alleged breach together
with supporting documentation.
11.2Remedies and Liabilities Upon Termination.
  
(a)Buyer's Default. If Buyer wrongfully fails to tender performance at Closing
or otherwise materially breaches this Agreement prior to Closing and all of the
conditions to Closing under Section 10.2(a) have been satisfied or waived,
Seller shall be entitled to terminate this Agreement pursuant to Section 11.1(b)
and retain the

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Deposit and any interest accrued thereon as its sole and exclusive remedy for
Buyer's breach of this Agreement and as full and final settlement of all
liabilities associated with Buyer's breach of this Agreement or obligation to
purchase the Assets. Buyer and Seller acknowledge and agree that (i) Seller's
actual damages upon such a termination would be difficult to ascertain with any
certainty, (ii) that the Deposit and any interest accrued thereon is a
reasonable estimate of such actual damages, and (iii) such liquidated damages do
not constitute a penalty. Buyer's failure to close shall not be considered
wrongful if (1) Buyer's conditions under Section 10.2(a) are not satisfied
through no fault of Buyer and are not waived, or (2) Buyer has the right to
terminate or has terminated this Agreement as of right under Section 11.1.

(b)Seller's Default. If Seller wrongfully fails to tender performance at Closing
or otherwise materially breaches this Agreement prior to Closing and all of the
conditions to Closing under Section 10.1(a) have been satisfied or waived, then
Buyer shall have the option, in its sole discretion, (i) to consummate the
Transaction through the enforcement of specific performance, or (ii) to
terminate this Agreement and have the Deposit and all accrued interest thereon
returned to Buyer as Buyer's sole remedy. The only circumstances by which Seller
may make a claim for retention of the Deposit are set forth in Section 11.2(a)
above and Buyer shall be entitled to receive the Deposit (and all earned
interest, if any, thereon) immediately after the determination that the Closing
will not occur for any other reason. Seller's failure to close shall not be
considered wrongful if (i) Seller's conditions under Section 10.1(a) are not
satisfied through no fault of Seller and are not waived; or (ii) Seller has
terminated this Agreement as of right under Section 11.1.

ARTICLE 12
CLOSING

12.1Date of Closing. The “Closing” of the Transaction shall be held on February
29, 2012, or such other date as the Parties may agree (the “Closing Date”).
Subject to the rights of the Parties under Section 11.1, if Closing does not
occur on February 29, 2012, the Parties shall make a good faith effort to
determine a mutually acceptable alternative Closing Date.

12.2Place of Closing. The Closing shall be held at the offices of Seller at
9:00 a.m. or at such other time and place as Buyer and Seller may agree in
writing.

12.3Closing Obligations. At Closing, the following events shall occur, each
being a condition precedent to the others and each being deemed to have occurred
simultaneously with the others:

(a)Seller and Buyer shall execute, acknowledge and deliver to Buyer (i) an
Assignment, Bill of Sale and Conveyance of the Assets effective as of the
Effective Time substantially in the form of Exhibit D with a special warranty of
title by, through and under Seller but not otherwise and with no warranties,
express or implied, as to the personal property, fixtures or condition of the
Assets which are conveyed “as is, where is”; and (ii) such other assignments,
bills of sale, or deeds necessary to transfer the Assets to Buyer including
without limitation federal and state forms of assignment;

(b)Seller and Buyer shall deliver the certificates required in Sections 10.2(a)
and 10.1(a), respectively.

(c)Seller and Buyer shall execute the Preliminary Settlement Statement agreed to
in accordance with Section 2.3;

(d)Buyer shall cause the Closing Amount to be paid by wire transfer of
immediately available funds to the account(s) designated by Seller in writing
and, if required by any provision of this Agreement, to the Escrow Account;

(e)Seller shall execute, acknowledge and deliver transfer orders or letters in
lieu thereof, in form and substance reasonably satisfactory to Buyer, notifying
all purchasers of production of the change in ownership of

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the Assets and directing all purchasers of production to make payment to Buyer
of proceeds attributable to production from the Assets;

(f)Seller shall execute and deliver to Buyer all required change of operator
forms and notices;

(g)Seller shall execute and deliver to Buyer a certificate of non-foreign status
in the form of Exhibit F and a Request for Taxpayer Identification and
Certificate on Form W-9 certifying Seller's federal employer identification
number;

(h)Seller shall deliver, or cause to be delivered, recordable forms of releases,
in form and substance reasonably satisfactory to Buyer, for any pledge,
mortgage, financing statement, fixture filing or security agreement filed in
connection with Seller's senior credit facility or otherwise and affecting the
Assets;

(i)Seller shall deliver possession of the Assets to Buyer; and

(j)Seller and Buyer shall take such other actions and deliver such other
documents as are contemplated by this Agreement.

12.4Non-Foreign Status. If on or prior to the Closing Date, Seller provides
Buyer with the certificate of non-foreign status described in Section 12.3(g)
and Buyer is otherwise permitted to rely on such certificate under Treasury
Regulations § 1.1445-2, Buyer shall not withhold any amount under Section 1445
of the Code.

ARTICLE 13
POST-CLOSING OBLIGATIONS

13.1Post-Closing Adjustments.

(a)Final Settlement Statements. As soon as practicable after the Closing, but in
no event later than one hundred twenty (120) days after Closing, Seller, with
the assistance of Buyer's staff and with access to such records as necessary,
will cause to be prepared and delivered to Buyer, in accordance with customary
industry accounting practices, the final settlement statement (the “Final
Settlement Statement”) setting forth each adjustment to the Purchase Price in
final form in accordance with Section 2.3 and showing the calculation of such
adjustments and the resulting final purchase price (the “Final Purchase Price”).
Seller shall provide Buyer with such data and information as Buyer may
reasonably request supporting the amounts reflected on the Final Settlement
Statement. As soon as practicable after receipt of the Final Settlement
Statement but in no event later than on or before thirty (30) days after receipt
of such statement, Buyer shall deliver to Seller a written report containing any
changes that Buyer proposes to make to the Final Settlement Statement. Buyer's
failure to deliver to Seller a written report detailing proposed changes to the
Final Settlement Statement by that date shall be deemed an acceptance by Buyer
of the Final Settlement Statement as submitted by Seller. The Parties shall
agree with respect to the changes proposed by Buyer, if any, no later than
thirty (30) days after receipt of Buyer's proposed changes to the Final
Settlement Statement. The date upon which such agreement is reached or upon
which the Final Purchase Price is established shall be herein called the “Final
Settlement Date.” If the Final Purchase Price is more than the Closing Amount,
Buyer shall pay to Seller the amount of such difference by wire transfer in
immediately available funds no later than five (5) days after the Final
Settlement Date. If the Final Purchase Price is less than the Closing Amount,
Seller shall pay the amount of such difference to Buyer by wire transfer in
immediately available funds no later than five (5) days after the Final
Settlement Date.

(b)Dispute Resolution. If the Parties are unable to resolve a dispute as to the
Final Purchase Price within sixty (60) days after Buyer's receipt of Seller's
proposed Final Settlement Statement, the Parties shall submit the dispute to
binding arbitration to be conducted in accordance with the provisions of Section
15.17.

13.2Records. Seller shall make the Records available at Seller's office for
pick-up by Buyer at Closing to the extent possible, but in any event within five
(5) days after Closing. Seller may retain copies of the Records and Seller shall
have the right to review and copy the Records during standard business hours
upon reasonable notice for

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so long as Buyer retains the Records. Buyer agrees that the Records will be
maintained in compliance with all applicable laws governing document retention.

13.3Further Assurances. From time to time after Closing, Seller and Buyer shall
each execute, acknowledge and deliver to the other such further instruments and
take such other action as may be reasonably requested in order to accomplish
more effectively the purposes of the Transaction, including assurances that
Seller and Buyer are financially capable of performing any indemnification
required hereunder.

ARTICLE 14
ASSUMPTION AND RETENTION OF OBLIGATIONS AND INDEMNIFICATION; DISCLAIMERS

14.1Buyer's Assumption of Liabilities and Obligations. Upon Closing, Buyer shall
assume and pay, perform, fulfill and discharge all claims, costs, expenses,
liabilities and obligations (“Obligations”), relating to the (a) ownership and
operation of the Assets after the Effective Time including the owning,
developing, exploring, operating or maintaining the Assets or the producing,
transporting and marketing of Hydrocarbons from the Assets including, without
limitation, the payment of Property Expenses; (b) the obligation to plug and
abandon all Wells located on the Lands and reclaim all well sites located on the
Lands; (c) the Buyer's Environmental Liabilities; and (d) all Obligations (other
than plugging and abandonment obligations and Buyer's Environmental Liabilities)
accruing or relating to the ownership or operation of the Assets before the
Effective Time for which claims have not been asserted pursuant to Section 14.3
before the date that is twelve (12) months following the Closing Date
(collectively, the “Assumed Liabilities”); provided, however, Buyer does not
assume any Obligations of Seller attributable to the Assets to the extent that
such Obligations are:

(a)attributable to or arise out of the ownership, use or operation of the
Excluded Assets;

(b)attributable to any Obligation of Seller or any of its affiliates
attributable to any Income Tax measured by or imposed on the net income of
Seller or any of its affiliates that was or is attributable to Seller's or any
of its affiliates' ownership of an interest in or the operation of the Assets;
or

(c)attributable to matters for which Seller indemnifies Buyer pursuant to
Section 14.2(a).

14.2Indemnification. “Losses” shall mean any actual losses, costs, expenses
(including court costs, reasonable fees and expenses of attorneys, technical
experts and expert witnesses and the cost of investigation), liabilities,
damages, demands, suits, claims, and sanctions of every kind and character
(including civil fines) arising from, related to or reasonably incident to
matters indemnified against.

After the Closing, Buyer and Seller shall indemnify each other as follows:
(a)Seller's Indemnification of Buyer. Seller assumes all risk, liability,
obligation and Losses in connection with, and shall defend, indemnify, and save
and hold harmless Buyer, its affiliates, and its and their respective owners,
members, managers, partners, officers, directors, employees, representatives and
agents (“Buyer Indemnitees”), from and against all Losses which arise directly
or indirectly from or in connection with (i) all Obligations relating to the
ownership or operation of the Assets prior to the Effective Time, other than the
Buyer's Environmental Liabilities, for which claims have been asserted pursuant
to Section 14.3 before the date that is twelve (12) months following the Closing
Date, (ii) any act or omission by Seller involving or relating to the Excluded
Assets, (iii) any breach by Seller of any of Seller's representations or
warranties contained in this Agreement subject to the respective Survival Period
set forth in Section 15.15, or (iv) any breach by Seller of its covenants and
agreements contained in this Agreement, in each case, excluding any Buyer
Indemnitee's gross negligence or willful misconduct.

(b)Buyer's Indemnification of Seller. Buyer assumes all risk, liability,
obligation and Losses in connection with, and shall defend, indemnify, and save
and hold harmless Seller, its officers, directors, employees and agents (“Seller
Indemnitees”), from and against all Losses which arise directly or indirectly
from

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or in connection with (i) the Assumed Liabilities, (ii)  any breach by Buyer of
any of Buyer's representations or warranties contained in Article 7 that survive
Closing for the respective Survival Period set forth in Section 15.15, or (iii)
any breach by Buyer of its covenants and agreements contained in this Agreement,
in each case, excluding any Seller Indemnitee's gross negligence or willful
misconduct.

(c)Limitations on Seller's Indemnity. Notwithstanding anything to the contrary
set forth herein, Seller shall have no liability for indemnification hereunder
in connection with the breach of any representation, warranty or covenant
contained herein or for any Losses arising in connection with or with respect to
the Transaction until (i) the individual amount of any Loss exceeds fifty
thousand dollars ($50,000) and (ii) the total of all Losses with respect to such
matters exceeds a threshold of three and one half percent (3.5%) of the Initial
Purchase Price. Seller shall not have any liability for indemnification with
respect to Losses suffered by the Buyer in excess of thirty percent (30%) of the
Initial Purchase Price. From and after the Closing, indemnification under this
Section 14.2 shall be the sole and exclusive remedy available to any Party
hereto against any other Party hereto for any claims arising out of or based
upon the matters set forth in this Agreement and the Transaction, and no Party
shall seek relief against any other Party to this Agreement other than through
indemnification provided in this Section 14.2, subject to the limitations
provided for in this Section 14.2(c).

14.3Procedure. The indemnifications contained in Section 14.2 shall be
implemented as follows:

(a)Claim Notice. The Party seeking indemnification under the terms of this
Agreement (“Indemnified Party”) shall submit a written “Claim Notice” to the
other Party (“Indemnifying Party”) which, to be effective, must be delivered
prior to the end of the Survival Period and must state: (i) to the extent
reasonably possible the amount of each payment claimed by an Indemnified Party
to be owing, (ii) to the extent reasonably possible the basis for such claim,
with supporting documentation, and (iii) a list identifying to the extent
reasonably possible each separate item of Loss for which payment is so claimed.
The amount claimed shall be paid by the Indemnifying Party to the extent
required herein within thirty (30) days after receipt of the Claim Notice, or
after the amount of such payment has been finally established, whichever last
occurs.

(b)Information. Within thirty (30) days after the Indemnified Party receives
notice of a claim or legal action by a third party that may result in a Loss for
which indemnification may be sought under this Article 14 (a “Claim”), the
Indemnified Party shall give written notice of such Claim to the Indemnifying
Party; provided that the failure of the Indemnified Party to give written notice
of a Claim as provided in this Section 14.3 shall not relieve the Indemnifying
Party from its obligations under this Agreement except to the extent such
failure results in insufficient time being available to permit the Indemnifying
Party to effectively defend the Claim or otherwise materially prejudices the
Indemnifying Party's ability to defend against the Claim. If the Indemnifying
Party or its counsel so requests, the Indemnified Party shall furnish the
Indemnifying Party with copies of all pleadings and other information with
respect to such Claim. At the election of the Indemnifying Party, which must be
made within sixty (60) days after receipt of such notice and not thereafter, the
Indemnified Party shall permit the Indemnifying Party to assume control of such
Claim (to the extent only that such Claim, legal action or other matter relates
to a Loss for which the Indemnifying Party is liable), including the
determination of all appropriate actions, the negotiation of settlements on
behalf of the Indemnified Party, and the conduct of litigation through attorneys
of the Indemnifying Party's choice; provided, however, that no such settlement
can result in any liability or cost to the Indemnified Party for which it is
entitled to be indemnified hereunder without its prior written consent. If the
Indemnifying Party elects to assume control, (i) all reasonable expenses
incurred by the Indemnified Party in connection with the investigation or
defense of the Claim, legal action or other matter prior to the time the
Indemnifying Party assumes control shall be reimbursed and paid by the
Indemnifying Party, (ii) any expenses incurred by the Indemnified Party
thereafter for investigation or defense of the matter shall be borne by the
Indemnified Party except for reasonable expenses incurred in connection with
providing information or assistance to the Indemnifying Party as required by
subsection (iii), and (iii) the Indemnified Party shall give all reasonable
information and assistance, other than pecuniary, that the Indemnifying Party
shall deem necessary to the proper defense of such Claim, legal action, or other
matter but shall be reimbursed and paid for such expenses as provided for in
subsection (ii). Before such election is made or in the absence of such an
election, the Indemnified Party shall use its reasonable best efforts to defend
any Claim, legal action or other matter and shall be reimbursed and paid by the
Indemnifying Party for all reasonable expenses incurred in such defense. Before
such election is made

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or in the absence of such election, the Indemnified Party may settle any Claim,
legal action or other matter for which notice has been provided as required by
Section 14.3(a), but only with the consent of the Indemnifying Party, which
consent may not be unreasonably withheld. If such a Claim requires immediate
action, both the Indemnified Party and the Indemnifying Party will cooperate in
good faith to take appropriate action so as not to jeopardize defense of such
Claim or either Party's position with respect to such Claim.

14.4No Insurance; Subrogation. The indemnifications provided in this Article 14
shall not be construed as a form of insurance. Buyer and Seller hereby waive for
themselves, their successors or assigns, including, without limitation, any
insurers, any rights to subrogation for Losses for which each of them is
respectively liable or against which each respectively indemnifies the other,
and, if required by applicable policies, Buyer and Seller shall obtain waiver of
such subrogation from its respective insurers.

14.5Reductions in Losses. Each Indemnified Party shall use commercially
reasonable efforts to mitigate any Losses, including by maintaining insurance
coverage with respect to the Assets and making claims relating to the Assets
thereunder. The amount of any Losses for which an Indemnified Person is entitled
to indemnity under this Article 14 shall be reduced by the amount of insurance
proceeds realized by the Indemnified Person or its affiliates with respect to
such Losses.

14.6Reservation as to Non-Parties. Nothing herein is intended to limit or
otherwise waive any recourse Buyer or Seller may have against any non-party for
any obligations or liabilities that may be incurred with respect to the Assets.

14.7Disclaimers.
  
(a)EXCEPT FOR SELLER'S EXPRESS REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS
AGREEMENT, AND SELLER'S SPECIAL WARRANTY OF TITLE IN THE ASSIGNMENT EXECUTED AND
DELIVERED TO BUYER AT CLOSING, THE ASSETS ARE BEING CONVEYED BY SELLER TO BUYER
WITHOUT WARRANTY OF ANY KIND, EXPRESS, IMPLIED, STATUTORY, COMMON LAW OR
OTHERWISE, AND THE PARTIES HEREBY EXPRESSLY DISCLAIM, WAIVE AND RELEASE ANY
EXPRESS WARRANTY OF MERCHANTABILITY, CONDITION OR SAFETY AND ANY EXPRESSED
WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE; AND BUYER ACCEPTS THE ASSETS, “AS
IS, WHERE IS, WITH ALL FAULTS, WITHOUT RECOURSE.” AS TO ALL PERSONAL PROPERTY
BEING CONVEYED BY SELLER TO BUYER, BUYER EXPRESSLY WAIVES THE WARRANTY OF
FITNESS AND THE WARRANTY AGAINST VICES AND DEFECTS, WHETHER APPARENT OR LATENT,
IMPOSED BY ANY APPLICABLE STATE OR FEDERAL LAW. THE PARTIES HEREBY ACKNOWLEDGE
AND AGREE THAT, TO THE EXTENT REQUIRED BY APPLICABLE LAW, THE DISCLAIMERS
CONTAINED IN THIS AGREEMENT ARE “CONSPICUOUS” FOR THE PURPOSES OF SUCH
APPLICABLE LAW.

(b)SELLER HEREBY EXPRESSLY DISCLAIMS AND NEGATES ANY IMPLIED OR EXPRESS WARRANTY
AT COMMON LAW, BY STATUTE OR OTHERWISE RELATING TO THE ACCURACY OF ANY OF THE
INFORMATION FURNISHED WITH RESPECT TO THE EXISTENCE OR EXTENT OF RESERVES OR THE
VALUE OF THE ASSETS BASED THEREON OR THE CONDITION OR STATE OF REPAIR OF ANY OF
THE ASSETS; THIS DISCLAIMER AND DENIAL OF WARRANTY ALSO EXTENDS TO ANY EXPRESS
OR IMPLIED REPRESENTATION OR WARRANTY AS TO THE PRICES BUYER AND SELLER ARE OR
WILL BE ENTITLED TO RECEIVE FROM PRODUCTION OF OIL, GAS OR OTHER SUBSTANCES FROM
THE ASSETS, IT BEING ACKNOWLEDGED, AGREED AND EXPRESSLY UNDERSTOOD THAT ALL
RESERVE, PRICE AND VALUE ESTIMATES UPON WHICH BUYER HAS RELIED OR IS RELYING
HAVE BEEN DERIVED BY THE INDIVIDUAL EVALUATION OF BUYER. BUYER ALSO STIPULATES,
ACKNOWLEDGES AND AGREES THAT RESERVE REPORTS ARE ONLY ESTIMATES OF PROJECTED
FUTURE OIL AND/OR GAS VOLUMES, FUTURE FINDING COSTS AND FUTURE OIL AND/OR GAS
SALES PRICES, ALL OF WHICH FACTORS ARE INHERENTLY IMPOSSIBLE TO PREDICT
ACCURATELY EVEN WITH ALL AVAILABLE DATA AND INFORMATION.

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14.8Tax Treatment of Indemnity Payments. Unless otherwise required by applicable
law, the Parties each agree to treat any indemnity payment made pursuant to this
Agreement as an adjustment to the Purchase Price for federal, state, local and
foreign Income Tax purposes.

ARTICLE 15
MISCELLANEOUS

15.1Schedules. The Schedules and Exhibits to in this Agreement are hereby
incorporated in this Agreement by reference and constitute a part of this
Agreement.

15.2Expenses. Except as otherwise specifically provided, all fees, costs and
expenses incurred by Buyer or Seller in negotiating this Agreement or in
consummating the Transaction shall be paid by the Party incurring the same,
including, without limitation, engineering, land, title, legal and accounting
fees, costs and expenses.

15.3Notices. All notices and communications required or permitted under this
Agreement shall be in writing and addressed as set forth below. Any
communication or delivery hereunder shall be deemed to have been duly made and
the receiving Party charged with notice, whether personally delivered, sent by
facsimile transmission, mail or overnight courier, when received. All notices
shall be addressed as follows:

If to Seller:
Petroleum Development Corporation
1775 Sherman Street, Suite 3000
Denver, Colorado 80203
Attn: Jim Schaff, Vice President - Land
Telephone: (303) 860-5832
Facsimile: (303) 860-5838
Email: jschaff@petd.com

If to Buyer:
COG Operating LLC
550 West Texas, Suite 100
Midland, Texas 79701
Attn: C. William Giraud
Telephone: (432) 686-3094
Facsimile: (432) 687-8020
Email: wgiraud@conchoresources.com

With copy to:
Cotton, Bledsoe, Tighe & Dawson, P.C.
500 W. Illinois, Suite 300
Midland, Texas 79701
Attn: Bill Howard
Telephone: (432) 685-8551
Facsimile: (432) 684-3132
Email: bhoward@cbtd.com

Any Party may, by written notice so delivered to the other Party, change the
address or individual to which delivery shall thereafter be made.
15.4Amendments. Except for waivers specifically provided for in this Agreement,
this Agreement may not be amended nor any rights hereunder waived except by an
instrument in writing signed by the Party to be charged

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with such amendment or waiver and delivered by such Party to the Party claiming
the benefit of such amendment or waiver.
15.5Assignment. Neither Seller nor Buyer shall assign all or any portion of its
respective rights or delegate all or any portion of its respective duties under
this Agreement without the written consent of the other Party, which consent
shall not be unreasonably withheld.

15.6Headings. The headings of the Articles and Sections of this Agreement are
for guidance and convenience of reference only and shall not limit or otherwise
affect any of the terms or provisions of this Agreement.

15.7Counterparts/Electronic and Fax Signatures. This Agreement may be executed
by Buyer and Seller in any number of counterparts, each of which shall be deemed
an original instrument, but all of which together shall constitute but one and
the same instrument. Electronic and fax signatures shall be considered binding.

15.8References. References made in this Agreement, including use of a pronoun,
shall be deemed to include where applicable, masculine, feminine, singular or
plural, individuals or entities. As used in this Agreement, “person” shall mean
any natural person, corporation, partnership, trust, limited liability company,
court, or Governmental Entity.

15.9Governing Law; Venue; Jury Waiver. THIS AGREEMENT, THE OTHER DOCUMENTS
DELIVERED PURSUANT HERETO AND THE LEGAL RELATIONS BETWEEN THE PARTIES SHALL BE
GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS,
EXCLUDING ANY CONFLICTS OF LAW, RULE OR PRINCIPLE THAT MIGHT REFER CONSTRUCTION
OF THIS AGREEMENT AND SUCH OTHER DOCUMENTS TO THE LAWS OF ANOTHER JURISDICTION.
THE PARTIES HERETO CONSENT TO THE EXERCISE OF JURISDICTION IN PERSONAM BY THE
COURTS OF THE STATE OF TEXAS FOR ANY ACTION ARISING OUT OF THIS AGREEMENT OR THE
OTHER DOCUMENTS EXECUTED PURSUANT TO OR IN CONNECTION WITH THIS AGREEMENT. ALL
ACTIONS OR PROCEEDINGS WITH RESPECT TO, ARISING DIRECTLY OR INDIRECTLY IN
CONNECTION WITH, OUT OF, RELATED TO OR FROM THIS AGREEMENT OR THE OTHER
DOCUMENTS EXECUTED PURSUANT TO OR IN CONNECTION WITH THIS AGREEMENT SHALL BE
EXCLUSIVELY LITIGATED IN COURTS HAVING SITES IN THE STATE OF TEXAS. EACH PARTY
HERETO WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT
MAY HAVE TO A TRIAL BY A JURY IN RESPECT OF ANY ACTION, SUIT OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT.

15.10Waiver of Certain Damages. NO PARTY SHALL BE LIABLE FOR ANY PUNITIVE,
INCIDENTAL, SPECIAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES, ARISING IN CONNECTION
WITH OR WITH RESPECT TO THIS AGREEMENT, PROVIDED, HOWEVER, THAT THIS WAIVER
SHALL NOT APPLY TO THE EXTENT SUCH PUNITIVE, INCIDENTAL, SPECIAL, EXEMPLARY OR
CONSEQUENTIAL DAMAGES ARE AWARDED IN A PROCEEDING BROUGHT OR ASSERTED BY A THIRD
PARTY AGAINST AN INDEMNIFIED PARTY.

15.11Entire Agreement. This Agreement constitutes the entire understanding among
the Parties, with respect to the subject matter hereof, superseding all
negotiations, prior discussions and prior agreements and understandings relating
to such subject matter. The Parties stipulate and agree that this Agreement
shall be deemed and considered for all purposes, as prepared through the joint
efforts of the Parties, and shall not be construed against one Party or the
other as a result of the preparation, submittal or other event of negotiation,
drafting or execution thereof.

15.12Severability. If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
Transaction is not affected in any adverse manner to either Party. Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the Parties shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the Parties as closely as
possible in an acceptable manner to the end that the Transaction is fulfilled to
the extent

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possible.

15.13Knowledge. “Knowledge,” with respect to Seller, means the actual knowledge
of Seller's representatives listed on Schedule 15.13 hereto after due inquiry
and with respect to Buyer, means the actual knowledge of Buyer's representatives
listed on Schedule 15.13 hereto after due inquiry.

15.14Binding Effect. This Agreement shall be binding upon, and shall inure to
the benefit of, the Parties hereto, and their respective successors and assigns.

15.15Survival of Warranties, Representations and Covenants. The representations
and warranties contained in Sections 4.1(a) and 5.3 shall terminate on the
Defect Notice Date; the representations and warranties contained in Sections 6.1
through 6.5, and Sections 7.1 through 7.7 shall survive the Closing
indefinitely; and the representations and warranties contained in Sections 6.6
through 6.27 shall survive the Closing for the period of twelve (12) months.
Each applicable survival period may be referred to herein as a “Survival
Period”. Except as otherwise provided in this Section 15.15, all
representations, covenants, indemnities and agreements contained in the
Agreement shall survive the Closing and continue in accordance with their
respective terms.

15.16No Third-Party Beneficiaries. This Agreement is intended only to benefit
the Parties hereto and their respective permitted successors and assigns.

15.17Arbitration. Scope; Appointment of Arbitrator. Notwithstanding the
provisions of this Agreement (including, without limitation, Section 15.9), all
disputes between the Parties regarding Title Defects, Title Benefits, Title
Defect Amounts, Title Benefit Amounts, Environmental Defects or Environmental
Defect Values, or calculations for the Final Settlement Statement or revisions
thereto (“Disagreements”) shall be exclusively and finally resolved pursuant to
this Section 15.17. If the Parties are unable to reach resolution as to any such
outstanding Disagreement within five (5) days following delivery of a written
notice from either Buyer or Seller to the other Party that Buyer or Seller, as
applicable, intends to submit such Disagreement to the Arbitrator for resolution
pursuant to this Section 15.17, then either Party may, by written notice to the
other Party (an “Election Notice”), elect to submit such Disagreement to a
single arbitrator (the “Arbitrator”), who shall be selected by mutual agreement
of Buyer and Seller within fifteen (15) days after the delivery of such Election
Notice in accordance with the following:

(i)    in the case of any Disagreement regarding Title Defects, Title Benefits,
Title Defect Amounts or Title Benefit Amounts, the Arbitrator shall be a title
attorney with at least twenty (20) years experience in oil and gas titles
involving properties in the regional area in which the Assets with respect to
which such alleged Title Defects or Title Benefits are located and who is
licensed to practice law in the state in which such Assets are located;

(ii)    in the case of any Disagreement regarding Environmental Defects or
Environmental Defect Values, the Arbitrator shall be an environmental consultant
with at least twenty (20) years experience involving properties in the regional
area in which the Assets with respect to which such alleged Environmental
Defects are located;

(iii)    in the case of any Disagreement regarding the calculation of the Final
Settlement Statement or revisions thereto, the Arbitrator shall be a senior
partner of an independent accounting firm mutually acceptable to Buyer and
Seller; and

(iv)    in the case of any Disagreement, the Arbitrator shall not have had a
substantial relationship with either Party or any affiliate of either Party
during the two (2) years prior to such selection;

provided that, in any case, in the absence of such agreement with respect to the
selection of the Arbitrator within fifteen (15) days of the delivery of the
Election Notice, the Arbitrator shall be selected as would a single arbitrator
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association (the “AAA Rules”) notwithstanding the selection method and criteria
set forth in clauses (i)-(iv) above.
 

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(b)    Additional Procedures. All proceedings under this Section 15.17 shall be
held in Houston, Texas, and shall be conducted in accordance with the AAA Rules,
to the extent such rules do not conflict with the terms of this Section 15.17.
The Arbitrator's final determination shall be made within twenty-one (21) days
after submission of the matters in dispute to the Arbitrator, and the Arbitrator
shall agree to comply with this schedule before accepting appointment. In making
its determination, the Arbitrator shall be bound by terms of this Agreement, to
the extent applicable, and, subject to the foregoing, may consider such other
matters as in the opinion of the Arbitrator are necessary to make a proper
determination. The Arbitrator, however, may not determine that a (a) Title
Defect Amount is greater than the Title Defect Amount claimed by Buyer in its
applicable Notice of Defective Interest or (b) Environmental Defect Value is
greater than the Environmental Defect Value claimed by Buyer in its applicable
Environmental Defect Notice. The Arbitrator shall act as an expert for the
limited purpose of determining the specific disputed Title Defects, Title
Benefits, Title Defect Amounts, Title Benefit Amounts, Environmental Defects or
Environmental Defect Values, or calculations for the Final Settlement Statement
or revisions thereto submitted by either Party and may not award damages,
interest or penalties to either Party with respect to any matter. Seller and
Buyer shall each bear their own legal fees and other costs of presenting its
case. Seller and Buyer shall each bear one-half of the costs and expenses of the
Arbitrator.
 
(c)    Waiver. Notwithstanding anything to the contrary in this Agreement, at
any time Buyer may waive any Title Defect, Title Defect Value, Environmental
Defect or Environmental Defect Value previously asserted by Buyer.

(d)    Binding Nature. The decision and award of the Arbitrator with respect to
any arbitration under this Section 15.17 shall be binding upon the Parties and
final and nonappealable to the maximum extent permitted by law, and judgment
thereon may be entered in a court of competent jurisdiction and enforced by
either Party as a final judgment of such court.

(e)    Confidentiality. Except to the extent necessary to enforce a decision and
award of the Arbitrator, to enforce other rights of the Parties hereunder, or as
required by applicable law or the rules of any stock exchange on which the
securities of either Party or any of its affiliates are listed or are in the
process of being listed, the Arbitrator and Parties, and their counsel,
consultants and other representatives, shall maintain as confidential the fact
any proceedings are ongoing, or have been completed, under this Section 15.17,
any decision and award of the Arbitrator and all documents prepared and
submitted by either Party, or its counsel, consultants and other agents and
representatives, in connection with any proceedings under this Section 15.17.

15.18Accounting During the period from the date of execution of this Agreement
until the Closing, Seller will cooperate and assist Buyer in the transition of
regulatory production reporting and revenue accounting for the Assets. In
addition, at the request of Buyer, Seller will continue, following the Closing,
to provide regulatory production reporting and revenue disbursement accounting
services for Buyer as they relate to the Assets and the production months
through the month of Closing. Buyer will promptly reimburse Seller for any
out-of-pocket costs incurred by Seller in performing such services.

[Remainder of page intentionally left blank. Signature page follows.]

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IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of the day
and year first above written.
SELLER:

PETROLEUM DEVELOPMENT CORPORATION

By:         
Name:
Title:

BUYER:

COG OPERATING LLC

By:        
Name:
Title:

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