Exhibit 10.1

 

Texas Independent

Exploration Limited

 

1600 SMITH, SUITE 3800

Houston, Texas 77002

Phone: (713) 751-0419 ext. 232

Fax: (713) 759-0234

 

June 15, 2004

 

WHITTIER ENERGY COMPANY

333 Clay Street

Suite 1100

Houston, TX  77002

 

RE:

 

Offer to Sell

 

 

Tom Lyne Field, Live Oak County, TX

 

 

Cameron Field, Starr County, TX

 

 

Scott & Hopper Field, Brooks County, TX

 

Gentlemen:

 

TEXAS INDEPENDENT EXPLORATION LIMITED, a Texas limited partnership and successor
by conversion of Texas Independent Exploration, Inc., GULFCOAST ACQUISITIONS
LIMITED, a Texas limited partnership and successor by conversion of Gulfcoast
Acquisition Corporation, FREDERICK W. ZIMMERMAN, individually, and FREDERICK W.
ZIMMERMAN d/b/a ISLAND RESOURCES (hereinafter collectively referred to as
“Seller” or “Sellers”) hereby offer to sell, subject to the terms and conditions
of this letter agreement (the “Agreement”), to WHITTIER ENERGY COMPANY, a Nevada
corporation (hereinafter referred to as “Buyer”), Seller’s right, title and
interest, as described below, in and to the following assets, SAVE AND EXCEPT
the Excluded Assets (as hereinafter defined) (collectively, the “Properties”):

 

(a)                                  The specific interests set forth on Exhibit
“A” attached hereto and made a part hereof in and to all of the oil and gas
wells (the “Wells”) set forth on Exhibit “A”, together with like interests in
all well bores of the Wells (the “Well Bores”), together with like interests in
the rights to operate, maintain, and produce, receive, sell, dispose and/or
market production from the Wells, together with like interests in the oil, gas
and mineral leases described on Exhibit “A” and any extensions, ratifications,
and amendments thereof (collectively the “Leases”), but only insofar as such
interests are required to operate, maintain, and produce, receive, sell, dispose
and/or market oil, gas and other hydrocarbons produced or capable of being
produced from each of the Wells; and, as to that portion of the Leases covering
lands and subsurface depths other than the lands and subsurface depths covered
or occupied by the Wells and Well Bores, the specific interests set forth on
Exhibit “A” in and to the Leases, insofar as the Leases cover and relate to the
lands and subsurface depths described on Exhibit “A” (the “Lands”);

 

(b)                                 To the extent same are used in connection
with, attributable to or allocable to the Leases, Lands, Wells or Well Bores,
like interests in (i) all machinery,

 

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improvements, personal property, fixtures, equipment, pipelines and other
facilities (except as excluded below) including without limitation wellhead
equipment, pumping units, saltwater disposal facilities, injection facilities,
compression facilities, down hole equipment, casing, pump jacks, storage tanks,
meters, gathering lines, separators, and other equipment, and (ii) all oil, gas
and related hydrocarbons (together with minerals produced in conjunction
therewith) produced on or after the Effective Date (collectively “Personal
Property”);

 

(c)                                  To the extent same relate to or are
attributable or allocable to the Leases, Lands, Wells or Well Bores, like
interests in and to, or otherwise derived from, all presently existing and valid
oil, gas and/or mineral unitization, pooling, and/or communitization agreements,
declarations, designations and/or orders (including, without limitation, those
described on Exhibit A hereto) and in and to the properties covered and the
units created thereby (including, without limitation, all units formed under
orders, rules, regulations, or other official acts of any federal, state, or
other authority having jurisdiction, and voluntary unitization agreements,
designations and/or declarations) (the “Units”); and

 

(d)                                 To the extent same relate to or are
attributable or allocable to the Leases, Lands, Wells, Well Bores, Personal
Property or Units or are used in connection with the exploration, development,
operation or maintenance of the Leases, Lands, Wells, Well Bores, Personal
Property or Units, and to the extent same are assignable or transferable by
Seller without restriction under applicable law or third party agreements
(without the payment of any funds or other consideration), like interests in (i)
all contracts, agreements and other instruments (except as excluded below), (ii)
all rights of way, easements, other rights of surface use, authorizations,
permits, licenses, authorizations, and similar rights and interests, and (iii)
all other rights, privileges, benefits, powers and obligations conferred or
imposed upon the owner and holder of the Leases, Lands, Wells, or Personal
Property.

 

As used herein, the term “Wells” also includes any new well drilled and
completed as a replacement for any well set forth on Exhibit “A” which, although
producing oil or gas in commercially paying quantities or capable of producing
oil or gas in commercial paying quantities, nevertheless encounters downhole
mechanical difficulties or downhole conditions that require such well to be
plugged and abandoned.  In such event, such “replacement well” shall be
considered for all purposes hereunder as one of the Wells.  The surface location
of any “replacement well” shall be within 100’ of the well being replaced, and
Assignee shall use its best efforts as are reasonable under the circumstances to
position the producing bottomhole location of such “replacement well” within
100’ of the previously producing bottomhole location of the well being replaced.

 

The Properties do not and will not include any interest in the following assets
and properties (“Excluded Assets”):

 

(a)                                  all (i) trade credits, accounts receivable,
notes receivable and other receivables attributable to each Seller’s interest in
the Properties with respect to any period of time prior to the Effective Date,
and (ii) deposits, cash, checks in process of collection, cash equivalents and
funds attributable to each Seller’s interest in the Properties with respect to
any period of time prior to the Effective Date;

 

(b)                                 all corporate, financial, and tax records of
Sellers (provided, however, Seller shall provide Buyer and Buyer’s independent
accountants with reasonable access to records (including Seller’s supporting
revenue and expense records relating to the

 

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Properties) necessary to satisfy disclosure requirements of federal and state
securities laws;

 

(c)                                  all claims and causes of action of Sellers
(i) arising from acts, omissions or events, or damage to or destruction of
property occurring prior to the Effective Date, or (ii) affecting any of the
Excluded Assets set forth in this definition;

 

(d)                                 all rights, titles, claims and interests of
Sellers accruing prior to the Effective Date (i) under any policy or agreement
of insurance or indemnity, (ii) under any bond, or (iii) to any insurance or
condemnation proceeds or awards;

 

(e)                                  claims of Sellers for refund of, or loss
carry forwards with respect to, income, severance or franchise taxes or any
other taxes attributable to: (i) any period prior to the Effective Date, or (ii)
any of the Excluded Assets set forth in this definition;

 

(f)                                    all amounts due or payable to Sellers as
adjustments or refunds under any contracts or agreements affecting the
Properties, with respect to periods prior to the Effective Date, specifically
including, without limitation, amounts recoverable from audits under operating
agreements;

 

(g)                                 all amounts due or payable to Sellers as
adjustments to insurance premiums related to the Properties with respect to any
period prior to the Effective Date;

 

(h)                                 all proceeds, benefits, income or revenues
accruing (and any security or other deposits made) with respect to (i) the
Properties prior to the Effective Date; and (ii) any of the Excluded Assets set
forth in this definition;

 

(i)                                     all attorney-client communications or
attorney work product, records and documents subject to unaffiliated, third
party confidentiality provisions, or claims of privilege;

 

(j)                                     (i) seismic data and any other data of a
similar nature, (ii) reserve information and reports, (iii) seismic or any
seismic interpretive or forecast data, development and exploration geological
records, geochemical, and geophysical information and data, or other proprietary
information relating thereto, whether owned or licensed by Sellers, and (iv) any
interpretive data;

 

(k)                                  all of Sellers’ intellectual property,
including but not limited to proprietary computer software, patents, trade
secrets, copyrights, names, marks, and logos;

 

(l)                                     all vehicles, furniture, office
supplies, office equipment, telecommunications equipment, telecommunication
facilities, telephones, telephone systems and related equipment, microwave
systems, radios, radio systems and related equipment and licenses, computers,
tools and other similar personal property;

 

(m)                               any pipelines, easements, fixtures, tanks,
LACT units or equipment located on the Properties which belong to third persons,
including lessors, provided, however, that any rights in such items held by
Seller are included in the definition of Properties to the extent such rights
apply to the specific interest set forth on Exhibit “A” and are used in
connection with the Lands, Leases, Wells or Well Bores;

 

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(n)                                 all of Sellers’ interests in the Wells, Well
Bores, Leases, Lands, Personal Property and Units not included within the
specific interests set forth on Exhibit “A” in such Wells, Well Bores, Leases,
Lands, Personal Property and Units; and

 

(o)                                 As to the Swierc Gas Unit facility, the
currently inactive and bypassed Dehi tower and Dehi reboiler located on the
lands covered by the Swierc Gas Unit being identified as follow:

 

 

Item Description

 

Manufacturer

 

Manu/Date

 

Serial #

 

 

 

 

 

 

 

 

 

Dehi Tower

 

Smith Industries

 

1979

 

25919

 

Dehi reboiler

 

Smith Industries

 

1979

 

21763

 

 

(p)                                 the non-exclusive right to use facilities
that are used in common with the Properties and the Excluded Assets for purposes
of the production, treatment and marketing of hydrocarbons, including such
things as meter runs, gathering systems and pipelines.

 

TERMS AND CONDITIONS

 

1.                                       As used herein the term “Purchase
Price” shall mean collectively all consideration given by Buyer to Seller to
purchase the Properties.  Subject to Sections 3 and 33 below, the amount of the
cash purchase price for the Properties to be paid by Buyer to Seller at Closing
(as hereinafter defined) shall be Five Million Two Hundred Seventy Thousand and
No/100 Dollars ($5,270,000.00) (the “Cash Purchase Price”).  Such amount shall
be paid by wire transfer in immediately available funds to Seller’s account as
designated by Seller, which designation shall be made not later than two (2)
Business Days prior to the date such payment is due.  “Business Day” as used in
this Agreement shall mean any day, except a Saturday, Sunday or other day on
which commercial banks in New York, New York or Houston, Texas are required or
authorized by law to be closed.

 

2.                                       In addition to the Cash Purchase Price,
and subject to Section 3 below, as additional consideration to Seller for the
transactions contemplated herein, Buyer shall execute in favor of and deliver to
Seller at Closing, a subordinated promissory note in the principal amount of Two
Million One Hundred Eighty Seven Thousand Three Hundred Thirty and No/100
Dollars ($2,187,330.00) with a coupon rate of 7% simple interest payable
quarterly and convertible immediately after issuance at Seller’s option into
common stock of Whittier Energy Corporation (the “Convertible Note”).  The
Convertible Note conversion price shall be $2.00 per common share.  The
Convertible Note shall be substantially in the form attached hereto as Exhibit
F, and shall also be executed by Whittier Energy Corporation as indicated
therein.

 

3.                                       As additional consideration to Seller
for the transactions contemplated herein, Buyer shall deliver to Seller at
Closing, a warrant, or warrants, substantially in the form attached hereto as
Exhibit I, representing the right to purchase, in the aggregate, 300,000 shares
of common stock of Whittier Energy Corporation at an exercise price of $2.50 per
share and having a term of three years from the date of issuance.

 

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4.                                       In addition to the above, as additional
consideration for the transactions contemplated herein Seller and Buyer shall
execute at Closing the Upside Sharing Payment Agreement attached hereto as
Exhibit “B” (the “Upside Sharing Payment Agreement”).

 

5.                                       Also in addition to the forgoing
consideration, as additional consideration for the transactions contemplated
herein, Buyer shall carry the “Retained Interest of Seller” (as defined in the
Exhibit “C” attached hereto and made a part hereof, in the drilling of the first
two (2) wells drilled on the Cameron 137 lease (see Exhibit “A” for description
of said lease) after Closing and in the drilling of the first two (2) wells
drilled on the Scott & Hopper leases (see Exhibit “A” for descriptions of said
leases) after Closing.  The terms and conditions more particularly describing
the Retained Interest of Seller and governing these carried interests, including
the reassignment of certain portions of the Properties from Buyer to Seller upon
the happening of certain events, are set forth on Exhibit “C”.

 

6.                                       Also in addition to the forgoing
consideration, as additional consideration for the transactions contemplated
herein, Seller shall be entitled to the “Scott & Hopper #3 Well Excess
Production Volumes” being 50% of the “Buyer’s Net Revenues” (as hereinafter
defined) attributable to the production produced, saved and sold from the Scott
& Hopper #3 well that is in excess of the production amounts set forth on the
schedule attached hereto as Exhibit “D” and made a part hereof.  Payment(s) of
such Scott & Hopper #3 Well Excess Production Volumes, if any, shall be made on
an annual basis from Buyer to Seller no later than 120 days after Buyer’s fiscal
year-end.  As used in this Section 6, (1) “Buyer’s Net Revenues” shall mean the
proceeds received by Buyer attributable to Buyer’s Net Revenue Interest in
production less (i) any expenses incurred or paid by Buyer, or assessed to or
against Buyer, for actual processing or transportation costs that occur
downstream of the sales meter located on the leased premises on which the
producing well is located, and (ii) severance and ad valorem taxes attributable
to such production, and (2) “Buyer’s Net Revenue Interest” shall mean Buyer’s
share of production in the Properties acquired from Seller pursuant to this
Agreement.

 

7.                                       The Purchase Price and additional
consideration provided for hereunder excludes any sales taxes or other taxes
required to be paid in connection with the sale of the Properties pursuant to
this Agreement.  Buyer, however, shall be liable for any sales and use taxes,
conveyance, transfer and recording fees and real estate transfer stamps or taxes
that may be imposed on any transfer of the Properties pursuant to this
Agreement.  Seller shall, in accordance with applicable law, collect and remit
any sales or similar taxes that are required to be paid as a result of the
transfer of the Properties by Seller to Buyer.

 

8.                                       The effective date of the transaction
shall be 7:00 a.m. local time on March 1, 2004 (“Effective Date”), and, subject
to the conditions stated in this Agreement, the consummation of the transactions
contemplated hereby (the “Closing”) shall occur at Seller’s office on or before
June 10, 2004; provided, however, by mutual agreement Seller and Buyer may
extend the date of Closing to occur on or before five (5) Business Days after
June 10, 2004.  Notwithstanding anything to the contrary contained herein,
either Seller or Buyer, acting independently of one another and in the exercise
of its sole and absolute discretion, has the right to terminate this Agreement
at any time prior to Closing for any reason whatsoever.  In the event of such
termination, (i) this Agreement shall no longer be of any force and effect, and
the transactions contemplated by this Agreement shall be abandoned and (ii) all
rights and obligations of the parties under or pursuant to this Agreement shall
terminate without further liability or obligation from one party to the other
except for the hereinafter identified Prior Confidentiality Agreement

 

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and Due Diligence Letter.  Such termination shall be made by the delivery of
written notice from the terminating party to the other party before Closing.

 

9.                                       Seller shall be liable for all costs
(including but not limited to ad valorem, production, severance or excised taxes
and royalties) and entitled to all revenues attributable to the Properties prior
to the Effective Date.  Buyer shall be responsible for and entitled to same
after the Effective Date.  Any adjustments pursuant to this section will be made
at Closing if possible.  If adjustment amounts are indeterminable as of Closing,
adjustment will be made within ninety (90) days of Closing.  Each of the parties
hereto, on behalf of itself and its parent, subsidiary and affiliated entities,
agrees to indemnify and hold harmless the other from the costs, liabilities and
obligations assumed or retained herein.  In addition, Seller shall be entitled
to retain all COPAS overhead charges applicable to the Properties, even after
the Effective Date, up to the time Seller ceases to be the Operator of the
Properties.

 

10.                                 The obligations of Buyer under this
Agreement shall be in addition to, and not in lieu of, Buyer’s obligations under
any confidentiality agreements previously executed by Seller and Buyer that
relate to the Properties (the “Prior Confidentiality Agreement”). 
Notwithstanding anything to the contrary contained in the Prior Confidentiality
Agreement, Buyer acknowledges and agrees that the terms and provisions of the
Prior Confidentiality Agreement shall not be superseded by the provisions of
this Agreement, but shall continue in full force and effect until the Closing
Date, or if Closing does not occur, under the terms of such Prior
Confidentiality Agreement.  In addition, reference is hereby made to that
certain letter between the parties dated May 3, 2004, a copy of which is
attached hereto as Exhibit G, concerning Buyer’s due diligence pertaining to the
Properties (the “Due Diligence Letter”).  Seller and Buyer agree that the Due
Diligence Letter shall continue in force and effect as written; provided,
however, wherever there is a conflict between a provision of this Agreement and
a provision of the Due Diligence Letter, if any, the provision of this Agreement
shall control.

 

11.                                 At the Closing, (i) Seller shall execute,
acknowledge and deliver to Buyer a conveyance of the Properties in the form
attached hereto as Exhibit H (the “Conveyance”) and (ii) to the extent Buyer so
requests, Seller shall execute and deliver to Buyer (1) letters in lieu of
transfer orders (or similar documentation), in form acceptable to all parties,
(2) an affidavit or other certification, as permitted by the Internal Revenue
Code of 1986 as amended (the “Code”) that Seller is not a “foreign person”
within the meaning of Section 1445 of the Code (i.e., Seller is not a
non-resident alien, foreign corporation, foreign partnership, foreign trust or
foreign estate as those terms are defined in such Code and the regulations
promulgated thereunder), (3) Texas Railroad Commission Change of Operator P-4
forms, (4) any other forms required by governmental authority concerning the
transfer of the Properties or change of operator of the Properties, (5)
resignation of operator notices to non-operator working interest owners, and (6)
other operating agreement related letters concerning the transfer of the
Properties or change of operator.

 

12.                                 Exhibit E attached hereto and made a part
hereof sets forth the agreement between Seller and Buyer as to the allocation of
the Purchase Price among the Properties.  Seller and Buyer, to the extent
required by the IRS, agree to consistently report, in all filings, Purchase
Price allocations among the Properties in accordance with Exhibit “E”.  Seller
and Buyer, to the extent required by the IRS, agree to reasonably cooperate with
each other in the preparation, execution and filing of (a) all information
returns and supplements required to be filed with the IRS by the parties under
Section 1060 of the

 

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Code and the Treasury Regulations promulgated thereunder relating to the
allocation of the Purchase Price, and (b) all similar filings required to be
filed with respect to the transactions contemplated by this Agreement with the
IRS and all other appropriate taxing authorities.

 

13.                                 If the Closing occurs, Seller and Buyer
agree as follows:

 

(a)                                  Buyer assumes and agrees to pay, perform
and discharge the following liabilities and obligations (collectively, the
“Assumed Obligations”):

 

(i)                                     all liabilities and obligations that are
attributable to the ownership or operation of the Properties after the Effective
Date, which shall include damage to property, or injury to or death of persons,
in each case occurring after the Effective Date, but attributable, in whole or
in part to physical conditions that existed or field operations that occurred
before the Effective Date;

 

(ii)                                  all liabilities and obligations to
properly plug and abandon all wells and disassemble and remove all related
facilities and equipment now or hereafter located on the Properties and clean up
and restore the Properties (including all obligations to clean, close and
abandon all pits and impoundments) in accordance with applicable laws
(regardless of whether any such obligation to plug, abandon, remove, clean up
and restore is attributable to periods of time prior to or after the Effective
Date);

 

(iii)                               any and all obligations with respect to
imbalances of oil, gas or other hydrocarbons under any gas balancing or similar
arrangements affecting the Properties with respect to amounts owed thereunder by
Seller as of the Effective Date;

 

(iv)                              any obligations or liability for claims
arising from the following occurrences, events and activities on or related to
the Properties, regardless of whether resulting from acts or omissions prior to
the Closing Date, or the condition of the Properties at Closing: (i) any
pollutants, contaminants, or hazardous or toxic waste, substances or materials
at, on, or beneath any Property requiring action to remedy, stabilize, treat,
clean up, or otherwise alter the environmental condition of the air, land, soil,
surface, subsurface strata, surface water, ground water, or sediments with
respect to any Property, (ii) underground injection activities and waste
disposal; or (iii) necessary remediation, and the cost of such remediation, or
any control, assessment, or compliance with respect to any pollution or
contamination.

 

(b)                                 BUYER AGREES TO RELEASE, INDEMNIFY, DEFEND
AND HOLD HARMLESS SELLER AND ITS AFFILIATES AND ITS AND THEIR RESPECTIVE
DIRECTORS, MEMBERS, MANAGERS, GENERAL PARTNERS, OFFICERS, EMPLOYEES, AGENTS,
REPRESENTATIVES, HEIRS, SUCCESSORS AND ASSIGNS (COLLECTIVELY, THE “SELLER
INDEMNIFIED PARTIES”) FROM AND AGAINST ANY AND ALL CLAIMS, LIABILITIES, LOSSES,
COSTS AND EXPENSES (INCLUDING, WITHOUT LIMITATION, COURT COSTS AND REASONABLE
ATTORNEYS’ FEES) (COLLECTIVELY, “LOSSES”) THAT ARE ATTRIBUTABLE TO (i) THE
ASSUMED OBLIGATIONS OR (ii) A BREACH BY BUYER OF ITS WARRANTIES, COVENANTS,
REPRESENTATIONS AND

 

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AGREEMENTS HEREUNDER, IN EACH CASE WITHOUT REGARD TO THE SOLE, PARTIAL OR
CONCURRENT NEGLIGENCE, GROSS NEGLIGENCE, STRICT LIABILITY, OR OTHER FAULT OF THE
SELLER INDEMNIFIED PARTIES;

 

(c)                                  Seller and Buyer agree the indemnity
provisions contained in this Agreement are conspicuous, that the same comply
with the express negligence test and that the parties intend to shift the risk
of liability as therein provided.

 

14.                                 After Closing, Seller and Buyer agree to
take such further actions and to execute, acknowledge and deliver such
additional documents and instruments as may be necessary or useful in carrying
out the purposes of this Agreement or of any document delivered pursuant hereto.

 

15.                                 IF THE CLOSING OCCURS AND WITHOUT LIMITING
BUYER’S OBLIGATIONS HEREUNDER, BUYER HEREBY ASSUMES AND SHALL BE RESPONSIBLE FOR
AND AGREES TO INDEMNIFY, RELEASE, DEFEND AND HOLD HARMLESS THE SELLER
INDEMNIFIED PARTIES FROM AND AGAINST ANY AND ALL LOSSES ATTRIBUTABLE TO DAMAGE
TO PROPERTY, INJURY TO OR DEATH OF PERSONS OR OTHER LIVING THINGS, NATURAL
RESOURCE DAMAGES, CERCLA RESPONSE COSTS, ENVIRONMENTAL REMEDIATION AND
RESTORATION COSTS, OR FINES OR PENALTIES (COLLECTIVELY, “CLAIMS”) ARISING OUT OF
OR ATTRIBUTABLE TO, IN WHOLE OR IN PART, EITHER DIRECTLY OR INDIRECTLY, THE
CONDITION OR OPERATION OF THE PROPERTIES AT ANY TIME BEFORE, AT OR AFTER THE
EFFECTIVE DATE (INCLUDING, WITHOUT LIMITATION, ANY CLAIMS RELATING TO ANY
CONDITION EXISTING ON, IN OR UNDER, OR RESULTING FROM OPERATION OF, THE
PROPERTIES AS OF THE EFFECTIVE DATE) THAT IS DETERMINED TO BE A RESULT OF OR
CAUSED IN WHOLE OR IN PART BY SELLER’S VIOLATION OF, FAILURE TO FULFILL DUTIES
IMPOSED BY OR INCURRENCE OF LIABILITY UNDER, ANY ENVIRONMENTAL LAWS (AS DEFINED
BELOW) OR UNDER ANY PRINCIPLE OF COMMON LAW RELATING TO DUTIES TO PROTECT OR NOT
UNDULY DISTURB HUMAN HEALTH OR ENVIRONMENTAL QUALITY.

 

As used herein, the term “Environmental Laws” shall mean any and all laws,
statutes, regulations, rules, orders, ordinances, permits, waivers, or
determinations of any federal, state or local governmental authority pertaining
to safety, health or conservation or protection of the environment, wildlife, or
natural reserves in effect in any and all jurisdictions in which the Properties
are located, including, without limitation, the Clean Air Act, as amended, the
Federal Water Pollution Control Act, as amended, the Safe Drinking Water Act, as
amended, the Comprehensive Environmental Response, Compensation and Liability
Act, as amended  (“CERCLA”), the Superfund Amendments and Reauthorization Act of
1986, as amended (“SARA”), the Resource Conservation and Recovery Act, as
amended (“RCRA”), the Hazardous and Solid Waste Amendments Act of 1984, as
amended, the Toxic Substances Control Act, as amended, and the Occupational
Safety and Health Act, as amended (“OSHA”), and any applicable state, tribal, or
local counterparts.  The terms “hazardous substance”, “release”, and “threatened
release” shall have the meanings specified in CERCLA; provided, however, that to
the extent the laws of the state in which the Properties are located are
applicable and have established a meaning for “hazardous substance”, “release”,
“threatened release”, “solid

 

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waste”, “hazardous waste”, and “disposal” that is broader than that specified in
CERCLA or RCRA, such broader meaning shall apply with respect to the matters
covered by such laws.

 

16.                                 Upon Buyer’s acceptance of this offer in the
manner provided for herein, subject to the termination right of the parties set
forth in Section 8 above, this offer shall constitute a binding and enforceable
agreement between the parties.

 

17.                                 Except as expressly provided herein to the
contrary, neither party shall assign this Agreement or any of its rights or
obligations hereunder without the prior written consent of the other party and
any assignment made without such consent shall be void; provided, however, that
Buyer hereby consents to (i) an assignment by Seller of all or part of its
rights under this Agreement in order to accomplish a like kind exchange and (ii)
an assignment by Seller of all or any portion of its rights hereunder, but not
its obligations, after the Closing.  Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, successors and permitted assigns.

 

18.                                 In the event there is a conflict between the
terms of this Agreement and the Conveyance, the terms and conditions of this
Agreement shall prevail.

 

19.                                 Except as otherwise provided herein, each
party shall be solely responsible for all expenses incurred by it in connection
with this transaction (including, without limitation, fees and expenses of its
own counsel and consultants).  Buyer shall pay for all documentary, filing and
recording fees required in connection with the filing and recording of the
Conveyance delivered by Seller to Buyer at Closing.  Within 45 days following
Closing, Buyer shall furnish Seller with a statement setting forth the recording
information for each county or parish wherein such Conveyance was recorded.

 

20.                                 If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced under any rule of
law, 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 transactions contemplated hereby is not affected in a materially adverse
manner with respect to either party.

 

21.                                 Seller and Buyer shall consult with each
other with regard to all publicity and other releases issued at or prior to the
Closing concerning this Agreement and the transactions contemplated hereby and,
except as required by applicable law or the applicable rules or regulations of
any governmental body or stock exchange, neither party shall issue any publicity
or other release without the prior written consent of the other party.

 

22.                                 NOTWITHSTANDING ANYTHING HEREIN TO THE
CONTRARY, SELLER MAKES NO REPRESENTATION OR WARRANTIES OF ANY KIND TO BUYER THAT
BUYER WILL SUCCEED TO SELLER’S OPERATORSHIP OF ANY WELL CONSTITUTING A PART OF
THE PROPERTIES.  BUYER ACKNOWLEDGES AND AGREES THAT BUYER WILL BE REQUIRED TO
COMPLY WITH THE TERMS OF ANY APPLICABLE OPERATING AGREEMENT, UNIT OPERATING
AGREEMENT OR OTHER CONTRACT RELATING TO ANY ELECTIONS OR OTHER SELECTION
PROCEDURES IN ORDER TO SUCCEED SELLER AS OPERATOR THEREUNDER.

 

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23.                           This Agreement, including all Exhibits attached
hereto and made a part hereof, together with the Prior Confidentiality Agreement
and Due Diligence Letter, constitute the entire agreement between the parties
with respect to the subject matter hereof and thereof and supersede all prior
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties with respect to same.  No supplement, amendment,
alteration, modification, waiver or termination of this Agreement shall be
binding unless executed in writing by the parties hereto.

 

24.                           This Agreement is governed under the laws of the
State of Texas excluding any conflicts of law rules or principal that might
apply the law of another jurisdiction.  All disputes shall be submitted to the
jurisdiction of the courts in the State of Texas and venue shall be in Harris
County, Texas.

 

25.                           The representations, warranties, covenants and
obligations of the parties under this Agreement shall survive the Closing.

 

26.                                 Seller represents to Buyer that:

 

(a)                                  Organization and Qualification.  Texas
Independent Exploration Limited is a limited partnership duly organized and
legally existing and in good standing under the laws of the State of Texas. 
Gulfcoast Acquisitions Limited is a limited partnership duly organized and
legally existing and in good standing under the laws of the State of Texas.

 

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

 

(c)                                  Approvals.  To Seller’s “Knowledge” (which,
as used in this Agreement, shall mean the actual knowledge of Frederick W.
Zimmerman for all matters, Kent Davidson for land matters, and Todd Grabois for
accounting and financial matters), neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, nor the
compliance with the terms hereof, will result in any default under any agreement
or instrument to which Seller is a party or by which any of the Properties are
bound, or violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Seller or to any of the Properties.

 

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

 

(e)                                  No Litigation.  To Seller’s Knowledge,
there are no pending or threatened suits, actions, administrative or arbitration
proceedings in which Seller is a party for which demands have been made upon
Seller and which materially affect the Properties or materially affect Seller’s
title to any of the Properties, or the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby.

 

(f)                                    Warranty of Title.  Except for a mortgage
to Compass Bank, Seller has not previously sold, conveyed, mortgaged or
transferred, or is subject to an enforceable

 

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agreement to sell, convey, mortgage or transfer, the Properties (or any interest
therein).  Except for the Permitted Encumbrances (below defined), the Properties
are free and clear of any and all liens, security interests, encumbrances, and
other burdens caused or created by, through or under Seller, but not otherwise. 
As used in this Agreement the term “Permitted Encumbrances” shall mean:  (i) any
materialman’s, mechanic’s, repairman’s, employee’s, contractor’s, operator’s or
other similar liens or charges for unpaid liquidated amounts arising in the
ordinary course of business which are not yet due; (ii) liens for taxes and
similar assessments which are not yet due; (iii) all lessors’ royalties,
overriding royalties, and other similar burdens which are of record or which are
reflected on Seller’s division of interest pay decks provided by Seller to
Buyer’s consultants pertaining to the Properties; (iv) unitization and pooling
designations, declarations, and orders, (v) agreements which are of record or
copies of which were provided by Seller to Buyer or its consultants, or which
were secured by Buyer from Seller, pertaining to Buyer’s due diligence relative
to the Properties or which are set forth on Exhibit “A” and (vi) the existing
mortgage to Compass Bank.

 

(g)                                 AFE Items.  (i) Seller has not incurred any
single expense, or made any commitments to make a single expenditure, in
connection with (and no other obligations or liabilities have been incurred
which would adversely affect) the ownership or operation of the Properties after
the Effective Date, which exceeds $50,000, net to Seller’s interest, as to any
individual well or surface facility.

 

(h)                                 Tax Partnerships.  To Seller’s Knowledge,
none of the Properties is subject to a tax partnership.

 

(i)                                     No Material Misstatement.  No
representation or warranty made by Seller in this Agreement contains or will
contain, at the time of execution of this Agreement and at the Closing, any
untrue statement of a material fact.

 

27.                                 Buyer represents to Seller that:

 

(a)                                  Organization and Qualification.  Whittier
Energy Company is a corporation duly organized and legally existing and in good
standing under the laws of the State of Nevada.

 

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

 

(c)                                  Approvals.  To Buyer’s Knowledge (which, as
used in this Agreement, shall mean the actual knowledge, after reasonable
inquiry, of any officer or manager of Buyer or Whittier Energy Corporation in
charge of a discrete business area or function having responsibility for the
referenced matter), neither the execution and delivery of this Agreement, nor
the consummation of the transactions contemplated hereby, nor the compliance
with the terms hereof, will result in any default under any agreement or
instrument to which Buyer is a party, or violate any order, writ, injunction,
decree, statute, rule or regulation applicable to Buyer.

 

(d)                                 Valid, Binding and Enforceable.  This
Agreement constitutes (and the Conveyance provided for herein to be delivered at
Closing will, when executed and delivered, constitute) the legal, valid and
binding obligation of Buyer, enforceable in

 

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accordance with its terms, except as limited by bankruptcy or other laws
applicable generally to creditor’s rights and as limited by general equitable
principles.

 

(e)                                  No Litigation.  To Buyer’s Knowledge, there
are no pending suits, actions, administrative or arbitration proceedings in
which Buyer is a party, and which materially affect Buyer’s execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, and to Buyer’s Knowledge, no demands which might lead to the same have
been made on Buyer.

 

(f)                                    Exhibit “D”, Net production forecast
schedule for Scott & Hopper #3 Existing Completion, is the production forecast
schedule for said well that Buyer has provided Compass Bank.

 

(g)                                 Preferred Stock.  As of Closing, neither
Buyer nor Whittier Energy Corporation has any issued or outstanding shares of
preferred stock.

 

(h)                                 Employee Stock Options.  As of Closing, the
Buyer has no outstanding options to acquire its common stock.  At Closing,
Whittier Energy Corporation will have no more than 1,600,000 shares of its
common stock available for issuance under outstanding stock option plans (“Stock
Incentive Plans”), including Whittier Energy Corporation’s Long Term Incentive
Plan, and will have no more than 916,500 options to acquire shares of Whittier
Energy Corporation’s common stock issued and outstanding under its existing
Stock Incentive Plans.

 

28.                                 If Closing occurs, Seller will deliver to
Buyer, within ten (10) days after Closing, all of Seller’s files, records and
data pertaining to the ownership and/or operation of the Properties (including,
without limitation, title records, lease files, division order files,
non-geophysical surveys and non-interpretive maps, contracts and contract files,
production marketing records, correspondence files, well files and production
records, production and severance tax records, ad valorem tax records,
production accounting records, environmental records and regulatory and
regulatory compliance records), other than those which Seller cannot provide to
Buyer without breaching confidentiality agreements with third parties (provided
that Seller will cooperate with Buyer to obtain a release of such restriction or
otherwise obtain access).  Any Seller may, at its election, and at its expense,
make and retain copies of any or all such files.

 

29.                                 If Closing occurs, Seller shall, on the date
of Closing, agree (and, upon the delivery to Buyer of the Conveyance, shall be
deemed to have agreed), to continue to be responsible for payment of all costs
and expenses relating to the operation of the Properties before the Closing
Date.

 

30.                                 Prior to the Closing Seller agrees to inform
Buyer concerning active proposals (whether made by Seller or by any other party)
to deepen, plug back, rework or abandon any wells included in the Properties, to
conduct other operations with respect to the Properties for which consent is
required under the applicable operating agreement, or to conduct any other
operations with respect to the Properties other than routine operation of the
producing wells located on the Properties.

 

31.                                 Seller agrees to indemnify and hold harmless
Buyer (and its partners and its and their respective affiliates, and the
respective officers, directors, employees, attorneys and agents of such parties)
from and against any and all claims, actions, causes of action,

 

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liabilities, damages, losses, costs or expenses (including, without limitation,
court costs and reasonable attorneys fees) of any kind or character arising out
of or resulting from any agreement, arrangement or understanding alleged to have
been made by, or on behalf of, Seller with any broker or finder in connection
with this Agreement or the transaction contemplated hereby.  Buyer agrees to
indemnify and hold harmless Seller (and its partners and its and their
respective affiliates and the respective officers, directors, employees,
attorneys and agents of such parties) from and against any and all claims,
actions, causes of action, liabilities, damages, losses, costs or expenses
(including, without limitation, court costs and reasonable attorneys fees) of
any kind or character arising out of or resulting from any agreement,
arrangement or understanding alleged to have been made by, or on behalf of,
Buyer with any broker or finder in connection with this Agreement or the
transaction contemplated hereby.

 

32.                                 With respect to any third party that Seller
has not previously sent information to or negotiated with concerning the sale or
disposal of the Properties, while this Agreement is in force and effect, Sellers
and any of their officers, directors, employees, or agents shall not, directly
or indirectly, solicit any offer from, initiate or engage in any discussions or
negotiations with, or provide any information to, such third parties concerning
any possible proposal regarding a merger, sale of assets or stock, or other
transaction involving the acquisition, disposition or conveyance of the
Properties.

 

33.                                 The amount of the Cash Purchase Price of
$5,270,000.00 and the amount due on the Convertible Note in the amount of
$2,187,330.00 shall each be adjusted at Closing as herein after provided by the
amount of the Upward Adjustments and Downward Adjustments defined below as
follows:

 

(a)                                  Upward Adjustments.  The amount of the Cash
Purchase Price and the Convertible Note in the proportions provided for in (c)
below shall be adjusted upward by the following amounts (determined without
duplication and on a cash basis in accordance with generally accepted accounting
principles consistently applied):

 

(i)                                     the amount of all expenses (net to
Sellers’ interest) incurred and paid on behalf of Sellers that are attributable
to the ownership or operation of the Properties and to the period of time from
and after the Effective Date through May 31, 2004, including without limitation,
capital expenditures, ad valorem, property and similar taxes and assessments,
severance, sales and production taxes (but excluding income taxes and franchise
taxes), rentals and similar charges, amounts billed under applicable operating
agreements and prepaid expenses;

 

(ii)                                  the value of all merchantable, allowable
oil in storage (net to Seller’s interest) above the pipeline connection at the
Effective Date net of severance taxes and royalty, the value to be the posted
price on the Effective Date less taxes and deductions/adjustments by the
purchaser for gravity, transportation, and other customary
deductions/adjustments; and

 

(iii)                               any other amount agreed upon by Seller and
Buyer.

 

(b)                                 Downward Adjustments.  The amount of the
Cash Purchase Price and the Convertible Note in the proportions provided for in
(c) below shall be adjusted downward by the following amounts (determined
without duplication and on a cash basis in accordance with generally accepted
accounting principles consistently applied):

 

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(i)                                     the amount of all proceeds (net to
Sellers’ interest) earned and received by or on behalf of Sellers that are
attributable to the ownership or operation of the Properties for the period of
time from and after the Effective Date through May 31, 2004, which Seller shall
be entitled to keep;

 

(ii)                                  any property taxes allocated to Seller
pursuant to Section 34; and

 

(iii)                               any other amount agreed upon by Seller and
Buyer.

 

All such adjustments made as of Closing shall be set forth on a preliminary
settlement statement (“Preliminary Settlement Statement”) to be prepared by
Seller and Buyer within two days of Closing.  All such adjustments on the
Preliminary Settlement Statement shall be made based on actual numbers, or if
such numbers are not available, on estimated numbers, with such estimates to be
corrected to actual numbers in the Final Recap Statement (as defined in
Section 35 below).

 

(c)                                  Adjustment Amount.  As used herein the, the
term “Preliminary Settlement Amount” shall mean the amount that results from
subtracting the total of Downward Adjustments as reflected in the Preliminary
Settlement Statement from the total of Upward Adjustments as reflected in the
Preliminary Settlement Statement.  The Preliminary Settlement Amount shall be
allocated 1/3 to the Cash Purchase Price and 2/3 to the Convertible Note with
the amount of each at Closing either being increased or reduced appropriately.

 

34.                                 Real estate and personal property taxes, if
any, for the calendar year January 1, 2004, through December 31, 2004, shall be
prorated to the Effective Date based upon the most recent property tax
assessments and most recent certified tax rates.  Such tax proration shall be
settled at Closing by an adjustment to the Cash Purchase Price.  Buyer will
assume responsibility for the actual payment to applicable government
authorities of any unpaid property taxes not yet due.

 

35.                                 Within 90 days after the Closing, Seller
shall provide to Buyer, for Buyer’s review, a proposed final recapitulation
settlement in the form of the Preliminary Settlement Statement (the “Final Recap
Statement”) to account for all adjustments known as of such date pursuant to
Section 33 (the “Final Recap”).  Buyer shall have the right, within 30 days
after receipt of the Final Recap Statement, to audit the Final Recap Statement. 
If Buyer disagrees with the Final Recap Statement, Buyer and Seller shall use
best efforts to reach agreement within 30 days following Buyer’s audit of the
Final Recap Statement.

 

Should the parties be unable to resolve any disagreements relating to the Final
Recap, such disagreement shall, at the earliest practicable date, be referred,
by either or both of the parties, to an accounting firm mutually acceptable to
Buyer and Seller (the “Accounting Firm”), along with all audit reports, work
papers, schedules, and calculations related to the matter in dispute.  Within 25
days after such submission, the Accounting Firm shall issue a letter report
determining the Final Recap, which shall be final and binding.  Each party shall
bear its own fees and expenses incurred in resolving any dispute under this
Section 35, except for the Accounting Firm, which shall be borne equally by the
parties.

 

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Payment of monies owed under the Final Recap shall be made by check from one
party to the other and shall be paid within 10 days from the date Seller and
Buyer agree on the Final Recap Statement, or 10 days from the determination of
the Final Recap by the Accounting Firm, whichever is later.

 

36.                                 Notwithstanding anything else herein
contained to the contrary, and except for (i) the indemnity of Sellers provided
for in Section 37 and in the Upside Sharing Payment Agreement and (ii) the
representations, warranties, covenants and obligations of Seller under this
Agreement that are timely made the subject matter of a Buyer’s Claim or Claims
(as defined below), the representations, warranties, covenants and obligations
of Seller under this Agreement shall survive the Closing only for a period of
one (1) year from and after the Closing Date; provided, however, that any claim
with respect to the breach of such representations, warranties, covenants and
obligations of Seller may be made only if Buyer shall have notified Seller in
writing of such claim, containing reasonable details concerning the nature of
such claim, on or before one (1) year from and after the Closing Date (“Buyer’s
Claim or Claims”).  With respect to any representations, warranties, covenants
and obligations of Seller under this Agreement that are the subject matter of a
Buyer’s Claim or Claims, such representations, warranties, covenants and
obligations of Seller under this Agreement shall continue to be in force and
effect only for the purpose of permitting Buyer to pursue Buyer’s Claim(s)
described in the notice and then only until such time as the particular Buyer’s
Claim or Claims pertaining thereto is resolved, either by agreement of the
parties or judicial decree.  Seller shall not have any obligation or liability
under this Agreement or in connection with or with respect to the transactions
contemplated in this Agreement for any breach, misrepresentation or
noncompliance with respect to any representation, warranty, covenant, indemnity
or obligation (a) if such breach, misrepresentation or noncompliance shall have
been waived by the Buyer in writing or (b) if the Buyer had knowledge of, or
pursuant to its due diligence review should have had knowledge of, the relevant
facts based on Buyer’s due diligence review of documents made available by
Seller to Buyer at or before Closing.

 

37.                                 Each of the Sellers (i) hereby instructs and
authorizes Buyer to make all payments due Sellers under this Agreement and the
Exhibits attached hereto, including, without limitation, payment of the Purchase
Price, to Texas Independent Exploration Limited (“TIE”) and (ii) agrees to hold
Buyer harmless and indemnify Buyer, to the extent and amount of such payments,
from and against any claim made by a Seller concerning such payments made by
Buyer to TIE.

 

TEXAS INDEPENDENT EXPLORATION LIMITED

 

By: Independent Operating, L.L.C., a Texas limited

liability company, its general partner

 

 

By:

/s/ Frederick W. Zimmerman

 

 

Frederick W. Zimmerman, Manager

 

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GULFCOAST ACQUISITIONS LIMITED

By: Blanco Minerals, L.L.C., a Texas limited
liability company, its general partner

 

 

By:

/s/ Frederick W. Zimmerman

 

 

Frederick W. Zimmerman, Manager

 

 

 

 

 

/s/ Frederick W. Zimmerman

 

 

Frederick W. Zimmerman

 

 

 

 

FREDERICK W. ZIMMERMAN

d/b/a ISLAND RESOURCES

 

 

 

 

By:

/s/ Frederick W. Zimmerman

 

 

Frederick W. Zimmerman

 

 

AGREED TO AND ACCEPTED THIS 15th DAY OF JUNE, 2004.

 

WHITTIER ENERGY COMPANY

 

By:

/s/ Daniel H. Silverman

 

 

 

Name:

Daniel H. Silverman

 

 

Title:

Chief Operating Officer

 

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