Exhibit 10.1
 
 
ASSET PURCHASE AND SALE AGREEMENT
 
 
between
 
 
Escondido Resources LP
as "Seller"
 
 
and
 
 
Swift Energy Operating, LLC
as "Buyer"
 
 
 

 
Dated as of September 4, 2007
 

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TABLE OF CONTENTS
                                                                                                                                                                                                                                                                                                                                                               
Page
 
ARTICLE I PROPERTIES TO BE SOLD AND PURCHASED
1
Section 1.1.
Assets Included.
1
Section 1.2.
Assets Excluded.
2
ARTICLE II PURCHASE PRICE
4
Section 2.1.
Purchase Price.
4
Section 2.2.
Accounting Adjustments.
4
Section 2.3.
Closing and Post-Closing Accounting Settlements.
5
Section 2.4.
Payment of Adjusted Purchase Price.
6
Section 2.5.
Allocation of Purchase Price.
6
ARTICLE III THE CLOSING
6
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER
7
Section 4.1.
Organization and Existence.
7
Section 4.2.
Power and Authority.
7
Section 4.3.
Valid and Binding Agreement.
7
Section 4.4.
Non-Contravention.
7
Section 4.5.
Approvals.
7
Section 4.6.
Pending Litigation.
8
Section 4.7.
Contracts.
8
Section 4.8.
Commitments, Abandonments or Proposals.
9
Section 4.9.
Production Sales Contracts.
9
Section 4.10.
Plugging and Abandonment.
9
Section 4.11.
Permits.
9
Section 4.12.
Payment of Expenses.
9
Section 4.13.
Compliance with Laws.
10
Section 4.14.
Imbalances; Prepayments.
10
Section 4.15.
Intellectual Property.
10
Section 4.16.
Taxes.
10
Section 4.17.
Fees and Commissions.
11
Section 4.18.
Operations.
11
Section 4.19.
Environmental Laws.
11
Section 4.20.
Wells.
11
Section 4.21.
Disclaimer of Warranties.
11
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER
12
Section 5.1.
Organization and Existence.
12
Section 5.2.
Power and Authority.
12
Section 5.3.
Valid and Binding Agreement.
12
Section 5.4.
Non-Contravention.
13
Section 5.5.
Approvals.
13
Section 5.6.
Pending Litigation.
13
Section 5.7.
Knowledgeable Purchaser.
13
Section 5.8.
Funds.
14

 
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Section 5.9.
Qualified Leaseholder.
14
Section 5.10.
Fees and Commissions.
14
ARTICLE VI CERTAIN COVENANTS OF SELLER PENDING CLOSING
14
Section 6.1.
Access to Files.
14
Section 6.2.
Conduct of Operations.
14
Section 6.3.
Restrictions on Certain Actions.
14
Section 6.4.
Seller's Confidentiality Obligation.
15
Section 6.5.
Payment of Expenses.
16
Section 6.6.
Preferential Rights and Third Party Consents.
16
ARTICLE VII ADDITIONAL PRE-CLOSING AND POST-CLOSING AGREEMENTS OF BOTH PARTIES
16
Section 7.1.
Reasonable Best Efforts.
16
Section 7.2.
Notice of Litigation.
16
Section 7.3.
Notification of Certain Matters.
17
Section 7.4.
Fees and Expenses.
17
Section 7.5.
Public Announcements.
17
Section 7.6.
Casualty Loss Prior to Closing.
17
Section 7.7.
Governmental Bonds.
18
Section 7.8.
Assumed Obligations.
18
Section 7.9.
Books and Records.
18
Section 7.10.
Suspended Funds.
18
Section 7.11.
Letters-in-Lieu.
18
Section 7.12.
Logos and Names.
18
Section 7.13.
Covenant Regarding Joint Account.
18
Section 7.14.
Further Assurances.
19
ARTICLE VIII DUE DILIGENCE EXAMINATION
19
Section 8.1.
Title Due Diligence Examination.
19
Section 8.2.
Environmental Due Diligence Examination.
22
Section 8.3.
Disputes Regarding Title Defects or Environmental Defects.
24
Section 8.4.
Adjustments to Purchase Price for Defects.
24
Section 8.5.
Buyer Indemnification.
25
ARTICLE IX CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PARTIES
 26
Section 9.1.
Conditions Precedent to the Obligations of Buyer.
26
Section 9.2.
Conditions Precedent to the Obligations of Seller.
27
ARTICLE X TERMINATION, AMENDMENT AND WAIVER
28
Section 10.1.
Termination.
28
Section 10.2.
Effect of Termination.
28
Section 10.3.
Amendment.
29
Section 10.4.
Waiver.
29
ARTICLE XI SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS;
INDEMNIFICATION
29
Section 11.1.
Survival.
29
Section 11.2.
Seller's Indemnification Obligations.
29
Section 11.3.
Buyer's Indemnification Obligations.
30
Section 11.4.
Net Amounts.
30

 
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Section 11.5.
Indemnification Proceedings.
31
Section 11.6.
Indemnification Exclusive Remedy.
31
Section 11.7.
Limited to Actual Damages.
31
Section 11.8.
Indemnification Despite Negligence.
32
Section 11.9.
Limits on Liability.
32
ARTICLE XII MISCELLANEOUS MATTERS
32
Section 12.1.
Notices.
32
Section 12.2.
Entire Agreement.
33
Section 12.3.
Injunctive Relief.
33
Section 12.4.
Binding Effect; Assignment; No Third Party Benefit.
33
Section 12.5.
Severability.
34
Section 12.6.
GOVERNING LAW.
34
Section 12.7.
Counterparts.
34
Section 12.8.
WAIVER OF CONSUMER RIGHTS.
34
Section 12.9.
Competition.
34
ARTICLE XIII DEFINITIONS AND REFERENCES
34
Section 13.1.
Certain Defined Terms.
34
Section 13.2.
Certain Additional Defined Terms.
38
Section 13.3.
References, Titles and Construction.
39

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ASSET PURCHASE AND SALE AGREEMENT
 
THIS ASSET PURCHASE AND SALE AGREEMENT dated September 4, 2007, is made by and
between Escondido Resources LP, a Texas limited partnership ("Seller"), and
Swift Energy Operating, LLC, a Texas limited liability company ("Buyer").
 
RECITALS:
 
A.           Seller desires to sell, assign and convey to Buyer, and Buyer
desires to purchase and accept from Seller, certain oil and gas properties and
related assets located in the counties of Dimmit, La Salle, and Webb, State of
Texas owned and held by Seller.
 
B.           Seller and Buyer deem it in their mutual best interests to execute
and deliver this Agreement.
 
NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual
covenants and agreements contained herein, Seller and Buyer do hereby agree as
follows:
 
AGREEMENT:
 
ARTICLE I
 
Properties To Be Sold and Purchased
 
Section 1.1.                                Assets Included.     Subject to
Section 1.2, Seller agrees to sell and Buyer agrees to purchase, for the
consideration hereinafter set forth, and subject to the terms and provisions
herein contained, the following described properties, rights and interests:
 
(a)           All of Seller's right, title and interest in and to those
properties described in Exhibit I attached hereto and made a part hereof for all
purposes;
 
(b)           Without limitation of the foregoing but subject to Section 1.2,
all other right, title and interest (of whatever kind or character, whether
legal or equitable, and whether vested or contingent) of Seller in and to the
oil, gas and other minerals in and under or that may be produced from the lands
described in Exhibit I hereto (including interests in Leases covering such
lands, overriding royalties, carried, backin, farmout, farmin, reversionary
interest, production payments and net profits interests in such lands or such
Leases, and fee mineral interests, fee royalty interests and other interests in
such oil, gas and other minerals), whether such lands be described in a
description set forth in such Exhibit I or be described in such Exhibit I by
reference to another instrument (and without limitation by any depth limitations
that may be set forth in such Exhibit I or in any such instrument so referred to
for description), even though Seller's interest in such oil, gas and other
minerals may be incorrectly described in, or omitted from, such Exhibit I;
 
(c)           All rights, titles and interests of Seller in and to, or otherwise
derived from, all presently existing and valid oil, gas or mineral unitization,
pooling, or communitization agreements, declarations and/or orders and in and to
the properties covered and the units created thereby (including all units formed
under orders, rules, regulations, or other official acts of any federal, state,
or other authority having jurisdiction, voluntary unitization agreements,
 
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(d)           designations and/or declarations) relating to the properties
described in paragraphs (a) and (b) above;
 
(e)           All rights, titles and interests of Seller in and to all presently
existing and valid production sales (and sales related) contracts, operating
agreements, and other agreements and contracts which relate to any of the
properties described in paragraphs (a), (b) and (c) above, or which relate to
the exploration, development, operation, or maintenance thereof or the
treatment, storage, transportation or marketing of production therefrom (or
allocated thereto);
 
(f)           All rights, titles and interests of Seller in and to all
materials, supplies, machinery, equipment, improvements and other personal
property and fixtures (including all wells, wellhead equipment, pumping units,
flowlines, tanks, buildings, injection facilities, saltwater disposal
facilities, compression facilities, gathering systems, and computer equipment
located on the lands covered by the properties described above which is
necessary to operate such properties), and all easements, rights-of-way, surface
leases and other surface rights, all Permits and licenses, and all other
appurtenances being used or held for use in connection with, or otherwise
related to, the exploration, development, operation or maintenance of any of the
properties described in paragraphs (a), (b) and (c) above, or the treatment,
storage, transportation or marketing of production therefrom (or allocated
thereto); and
 
(g)           Subject to Section 1.2, all of Seller's lease files, title files,
curative reports and information, abstracts and title opinions, division order
files, unitization files, contract files, land surveys and maps (including those
in electronic or digital format), data sheets, land and mineral owner
correspondence, joint operating agreement files, environmental and regulatory
files and reports, operational files and engineering, production records, well
files, accounting records relating directly to the properties described above
(but not including general financial and accounting records), seismic records
and surveys (to the extent freely assignable to Buyer without restrictions of
any kind), gravity maps, electric logs, geological or geophysical data and
records, (to the extent freely assignable to Buyer without restrictions of any
kind), paleontological, geochemical and technical files, analyses,
interpretations, and other files, documents and records (including data and
records in electronic or digital format) of every kind and description which
relate to the properties described above (collectively the "Records"), that
Seller has the right, power and authority to sell, transfer, convey or disclose
to Buyer. Seller will use Reasonable Best Efforts to obtain consents to assign
and transfer seismic data licenses requested by Buyer which may not be freely
assignable.
 
As used herein:  (i) "Oil and Gas Properties" means the properties and interests
described in paragraphs (a), (b) and (c) above, save and except for any such
properties or assets that are Excluded Assets under Section 1.2; and
(ii) "Properties" means any and all portions of the Oil and Gas Properties plus
the properties and interests described in paragraphs (d), (e), and (f) above,
save and except for any such properties or assets that are Excluded Assets under
Section 1.2.
 
Section 1.2.                                Assets Excluded.     Notwithstanding
anything herein contained to the contrary, the Properties do not include, and
there is hereby excepted and reserved unto Seller all other assets, properties,
and business of Seller, including the following:
 
(a)           All trade credits attributable to the Properties with respect to
all periods prior to the Effective Date;
 
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(b)           All of Seller's right, title, and interest in any oil, gas, or
mineral Leases, overriding royalties, production payments, net profits
interests, fee mineral interests, fee royalty interests and other interests in
oil, gas, and other minerals not expressly included in the definition of Oil and
Gas Properties and all oil, gas or other Hydrocarbon production from or
attributable to the Properties with respect to all periods prior to the
Effective Date, all proceeds attributable thereto, and all Hydrocarbons that, at
the Effective Date, are owned by Seller and are in storage or within processing
plants;
 
(c)           Any refund of costs, Taxes or expenses borne by Seller or Seller's
predecessors in title attributable to periods prior to the Effective Date;
 
(d)           Any and all proceeds from the settlements of contract disputes
with purchasers of Hydrocarbons from the Properties, including settlement of
take-or-pay disputes, insofar as said proceeds are attributable to periods of
time prior to the Effective Date;
 
(e)           Any and all proceeds from settlements with regard to
reclassification of gas produced from the Properties, insofar as said proceeds
are attributable to periods of time prior to the Effective Date;
 
(f)           All claims (including insurance claims) and causes of action of
Seller against one or more third parties arising from acts, omission or events
occurring prior to the Effective Date and all claims under any joint interest
audit attributable to any period prior to the Effective Date;
 
(g)           All limited partnership, financial, tax and legal (other than
title) books and records of Seller;
 
(h)           Any geological, geophysical or seismic data, materials or
information, including maps, interpretations records or other technical
information related to or based upon any such data, materials or information,
and any other asset, data, materials or information, the transfer of which is
restricted or prohibited under the terms of any third party license,
confidentiality agreement or other agreement or the transfer of which would
require the payment of a fee or other consideration to any third party;
provided, however, that if any such data, materials or information is
transferable upon payment of a fee or other consideration (which Seller will
give notice to Buyer of same), and if Buyer has paid such fee or other
consideration prior to the Closing Date, then such data, materials or
information shall be transferred to Buyer;
 
(i)           All leases for office premises used by Seller, and all furniture,
fixtures and equipment located thereat, including computers, telephone equipment
and other similar items of tangible personal property;
 
(j)           All of Seller's accounting or other administrative systems,
computer software (except that software which may be necessary to operate the
Properties to the extent it is freely transferable to Buyer without restrictions
of any kind), patents, trade secrets, copyrights, names, trademarks, logos and
other intellectual property;
 
(k)           All documents and instruments of Seller that may be protected by
an attorney-client privilege (exclusive of title opinions in respect of the Oil
and Gas Properties);
 
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(l)           All of the other assets described on Exhibit 1.2, together with
any rights, liabilities, or obligations associated with such assets;
 
(m)           The Existing Hedges and all hedging transactions and any gains or
losses attributable to any hedging activities, whether occurring before or after
the Effective Date;
 
(n)           All (i) correspondence or other documents or instruments of Seller
relating to the transactions contemplated hereby, (ii) lists of other
prospective purchasers of Seller or the Properties compiled by Seller, (iii)
bids submitted to Seller by other prospective purchasers of Seller or the
Properties, (iv) analyses by Seller or any Affiliates thereof submitted by other
prospective purchasers of Seller or the Properties, and (v) correspondence
between or among Seller or its Affiliates or their respective representatives
with respect to, or with, any other prospective purchasers of Seller or the
Properties; and
 
(o)           The claims, actions, and litigation listed on Section 4.6 of the
Seller's Disclosure Schedule.
 
The properties and interests specified in the foregoing paragraphs (a) through
(o) of this Section 1.2 are herein collectively called the "Excluded Assets".
 
ARTICLE II
Purchase Price
 
Section 2.1.                                Purchase Price.     In consideration
of the sale of the Properties by Seller to Buyer, Buyer shall pay to Seller cash
in the amount of $245,000,000 (the "Purchase Price"). The Purchase Price, as
adjusted pursuant to this Article II and the other applicable provisions hereof,
is herein called the "Adjusted Purchase Price".
 
Section 2.2.                                Accounting Adjustments.
 
(a)           Subject to Section 2.2(b), appropriate adjustments shall be made
between Buyer and Seller so that:
 
(i)           all expenses (including all drilling costs, all capital
expenditures, and all overhead charges under applicable operating agreements,
and all other overhead charges actually charged by third parties) for work done
in the operation of the Properties after the Effective Date will be borne by
Buyer, and all proceeds (net of applicable production, severance, and similar
Taxes) from the sale of oil, gas or other minerals produced from the Oil and Gas
Properties after the Effective Date will be received by Buyer, and
 
(ii)           all expenses for work done in the operation of the Properties
before the Effective Date will be borne by Seller and all proceeds (net of
applicable production, severance, and similar Taxes) from the sale of oil, gas
or other minerals produced therefrom before the Effective Date will be received
by Seller.
 
(b)           It is agreed that, in making the adjustments contemplated by
Section 2.2(a):
 
(i)           oil which was produced from the Oil and Gas Properties and which
was, on the Effective Date, stored in tanks located on the Oil and Gas
Properties (or located elsewhere but used to store oil produced from the Oil and
Gas Properties prior to delivery
 
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(ii)           to oil purchasers) and above pipeline connections shall be deemed
to have been produced before the Effective Date (it is recognized that such
tanks were not gauged on the Effective Date for the purposes of this Agreement
and that determination of the volume of such oil in storage will be based on the
best available data, which may include estimates) (with the stored crude oil
produced before the Effective Date valued at the price for the month such oil
was sold (or, if not sold yet, the price for the month in which such oil can
reasonably be expected to be delivered to the purchaser thereof)),
 
(iii)           ad valorem Taxes assessed with respect to a period which the
Effective Date splits shall be prorated based on the number of days in such
period which fall on each side of the Effective Date (with the day on which the
Effective Date falls being counted in the period after the Effective Date), and
 
(iv)           no consideration shall be given to the local, state or federal
income tax liabilities of any party.
 
Section 2.3.                                Closing and Post-Closing Accounting
Settlements.
 
(a)           At or before Closing, the parties shall determine, based upon the
best information reasonably available to them, the amount of the adjustments
provided for in Section 2.2. If the amount of adjustments so determined which
would result in a credit to Buyer exceed the amount of adjustments so determined
which would result in a credit to Seller, Buyer shall receive a credit, for the
amount of such excess, against the Purchase Price to be paid at Closing, and, if
the converse is true, Buyer shall pay to Seller, at Closing (in addition to
amounts otherwise then owed), the amount of such excess.
 
(b)           On or before 90 days after Closing, Buyer and Seller shall review
any additional information which may then be available pertaining to the
adjustments provided for in Section 2.2, shall determine if any additional
adjustments (whether the same be made to account for expenses or revenues not
considered in making the adjustments made at Closing, or to correct errors made
in such adjustments) should be made beyond those made at Closing, and shall make
any such adjustments by appropriate payments from Seller to Buyer or from Buyer
to Seller. Following such additional adjustments, no further adjustments to the
Purchase Price shall be made under this Section 2.3.
 
(c)           If a dispute arises under Section 2.3(b) with respect to any
additional adjustments (an "Accounting Dispute") that the parties have been
unable to resolve, then, at the written request of either Seller or Buyer (the
"Request Date"), each of Seller and Buyer shall nominate and commit one of its
senior officers to meet at a mutually agreed time and place not later than ten
days after the Request Date to attempt to resolve same.  If such senior officers
have been unable to resolve such Accounting Dispute within a period of 30 days
after the Request Date, any party shall have the right, by written notice to the
other specifying in reasonable detail the basis for the Accounting Dispute, to
resolve the Accounting Dispute by submission thereof to a nationally recognized
independent public accounting firm commonly considered as one of the "Big 4" and
reasonably acceptable to Seller and Buyer, which firm shall serve as sole
arbitrator (the "Accounting Referee").  The scope of the Accounting Referee's
engagement shall be limited to the resolution of the items described in the
notice of the Accounting Dispute given in accordance with the foregoing and the
corresponding calculation of the adjustments pursuant to Section 2.2.  The
Accounting Referee shall be instructed by the parties to resolve the Accounting
 
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Dispute as soon as reasonably practicable in light of the circumstances but in
no event in excess of 15 days following the submission of the Accounting Dispute
to the Accounting Referee.  The decision and award of the Accounting Referee
shall be binding upon the parties as an award under the Federal Arbitration Act
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 any
party as a final judgment of such court.  The fees and expenses of the
Accounting Referee shall be borne equally by Seller and Buyer.
 
Section 2.4.                                Payment of Adjusted Purchase
Price.     The Adjusted Purchase Price shall be paid to Seller as follows:
 
(a)           Contemporaneously with the execution and delivery of this
Agreement, Buyer shall tender to the Joint Account cash equal to $24,500,000 as
a deposit (such amount, together with all interest earned thereon, the
"Deposit").  The Deposit shall (i) be distributed to Seller and applied against
the Adjusted Purchase Price owing by Buyer at the Closing pursuant to
Section 2.4(b), (ii) distributed to Seller pursuant to Section 10.2 or
(iii) distributed to Buyer pursuant to Section 10.2, as applicable.
 
(b)           At Closing, Buyer shall pay to Seller by bank transfer in
immediately available funds to the account designated by Seller an amount equal
to the Adjusted Purchase Price less the Deposit.
 
(c)           All cash payments by Buyer pursuant to this Section 2.4 shall be
made in immediately available funds by confirmed wire transfer to a bank account
or accounts designated by Seller or the Joint Account Holder, as applicable.
 
Section 2.5.                                Allocation of Purchase Price.
 
  On or before the Closing Date, the Buyer and Seller shall agree in writing as
to the allocation of the Adjusted Purchase Price (plus any fixed liabilities
assumed by the Seller or to which the Properties are subject) among the
Properties under the methodology required by Section 1060 of the Code.  The
Buyer and Seller shall report the transactions contemplated hereby on all Tax
Returns, including, but not limited to Form 8594, in a manner consistent with
such allocation.  If, contrary to the intent of the parties hereto as expressed
in this Section 2.5, any taxing authority makes or proposes an allocation
different from the allocation determined under this Section 2.5, Buyer and
Seller shall cooperate with each other in good faith to contest such taxing
authority's allocation (or proposed allocation), provided, however, that, after
consultation with the party adversely affected by such allocation (or proposed
allocation), the other party hereto may file such protective claims or Tax
Returns as may be reasonably required to protect its interests.
 
ARTICLE III
The Closing
 
The closing of the transactions contemplated hereby (the "Closing") shall take
place (i) at the offices of Thompson & Knight LLP, Houston, Texas, at 10:00 a.m.
(local Houston, Texas time) on October 11, 2007, or (ii) at such other time or
place or on such other date as the parties hereto shall agree.  The date on
which the Closing is required to take place is herein referred to as the
"Closing Date".  All Closing transactions shall be deemed to have occurred
simultaneously.
 
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ARTICLE IV
Representations and Warranties of Seller
 
Except as provided in Seller's Disclosure Schedule, Seller hereby represents and
warrants to Buyer as follows:
 
Section 4.1.                                Organization and Existence.   
 Seller is a limited partnership duly formed and validly existing under the laws
of the State of Texas.
 
Section 4.2.                                Power and Authority.     Seller has
all requisite limited partnership power and authority to execute, deliver, and
perform this Agreement and each other agreement, instrument, or document
executed or to be executed by Seller in connection with the transactions
contemplated hereby to which it is a party and to consummate the transactions
contemplated hereby and thereby.  The execution, delivery, and performance by
Seller of this Agreement and each other agreement, instrument, or document
executed or to be executed by Seller in connection with the transactions
contemplated hereby to which it is a party, and the consummation by it of the
transactions contemplated hereby and thereby, have been duly authorized by all
necessary action of Seller.
 
Section 4.3.                                Valid and Binding Agreement.  
  This Agreement has been duly executed and delivered by Seller and constitutes,
and each other agreement, instrument, or document executed or to be executed by
Seller in connection with the transactions contemplated hereby to which it is a
party has been, or when executed will be, duly executed and delivered by Seller
and constitutes, or when executed and delivered will constitute, a valid and
legally binding obligation of Seller, enforceable against it in accordance with
their respective terms, except that such enforceability may be limited by
(a) applicable bankruptcy, insolvency, reorganization, moratorium, and similar
laws affecting creditors' rights generally and (b) equitable principles which
may limit the availability of certain equitable remedies (such as specific
performance) in certain instances.
 
Section 4.4.                                Non-Contravention.     Other than
requirements (if any) that there be obtained consents to assignment (or waivers
of preferential rights to purchase) from third parties, neither the execution,
delivery, and performance by Seller of this Agreement and each other agreement,
instrument, or document executed or to be executed by Seller in connection with
the transactions contemplated hereby to which it is a party nor the consummation
by it of the transactions contemplated hereby and thereby do and will
(a) conflict with or result in a violation of Seller's Governing Documents,
(b) conflict with or result in a violation of any provision of, or constitute
(with or without the giving of notice or the passage of time or both) a default
under, or give rise (with or without the giving of notice or the passage of time
or both) to any right of termination, cancellation, or acceleration under, any
bond, debenture, note, mortgage or indenture, or any material lease, contract,
agreement, or other instrument or obligation to which Seller is a party or by
which Seller or any of its properties may be bound, (c) result in the creation
or imposition of any Lien upon the properties of Seller, or (d) violate any
Applicable Law binding upon Seller, except, in the instance of clause (b) or
clause (c) above, for any such conflicts, violations, defaults, terminations,
cancellations or accelerations which would not, individually or in the
aggregate, have a Material Adverse Effect.
 
Section 4.5.                                Approvals.     Other than
requirements (if any) that there be obtained consents to assignment (or waivers
of preferential rights to purchase) from third parties, no
 
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consent, approval, order, or authorization of, or declaration, filing, or
registration with, any court or governmental agency or of any third party is
required to be obtained or made by Seller in connection with the execution,
delivery, or performance by Seller of this Agreement, each other agreement,
instrument, or document executed or to be executed by Seller in connection with
the transactions contemplated hereby to which it is a party or the consummation
by it of the transactions contemplated hereby and thereby, except for such
consents, approvals, orders, authorizations, declarations, filings or
registrations which, if not obtained or made (as applicable), would not,
individually or in the aggregate, have a Material Adverse Effect.
 
Section 4.6.                                Pending Litigation.     Except as
listed on Section 4.6 of the Seller's Disclosure Schedule, there are no
Proceedings pending or, to Seller's Knowledge, threatened, against or affecting
Seller or the Properties (including any actions challenging or pertaining to
Seller's title to any of the Properties), or affecting the execution and
delivery of this Agreement by Seller or the consummation of the transactions
contemplated hereby by Seller.  There are no outstanding judgments requiring
Seller to take any action of any kind with respect to the Properties, or to
which Seller or any of the Properties are subject, or by which they are bound or
affected.
 
Section 4.7.                                Contracts.
 
(a)           The Leases, Seller's interests in which comprise parts of the Oil
and Gas Properties, and all other material contracts and agreements, licenses,
Permits and easements, rights-of-way and other rights-of-surface use comprising
any part of or otherwise relating to the Properties (such Leases and such
material contracts, agreements, licenses, Permits, easements, rights-of-way and
other rights-of-surface use being herein called the "Basic Documents"), are, in
all material respects, in full force and effect and constitute valid and binding
obligations of the parties thereto.  Seller is not in breach or default (and no
situation exists which with the passing of time or giving of notice would create
a breach or default) of its obligations under the Basic Documents, and (to
Seller's Knowledge) no breach or default by any third party (or situation which
with the passage of time or giving of notice would create a breach or default)
exists, to the extent such breach or default (whether by Seller or such a third
party) could reasonably be expected to result in a Material Adverse Effect after
the Effective Date.  All payments (including all delay rentals, royalties,
shut-in royalties and valid calls for payment or prepayment under operating
agreements) owing under Basic Documents have been and are being made (timely,
and before the same became delinquent) by Seller (and, where the non-payment of
same by a third party could have a Material Adverse Effect after the Effective
Date, have been and are being made, to Seller's Knowledge, by such third
parties).
 
(b)           Section 4.7 of the Seller's Disclosure Schedule is a list of all
material contracts and agreements to which any of the Oil and Gas Properties are
bound (other than the Existing Hedges), including (i) joint operating
agreements, (ii) agreements with any Affiliate of Seller, (iii) any Production
Sales Contracts, (iv) any agreement of Seller to sell, lease, farmout or
otherwise dispose of any of its interests in the Oil and Gas Properties other
than conventional rights of reassignment, (v) gas balancing agreements,
(vi) exploration agreements, (vii) pooling, unitization or communitization
agreement, (viii) area of mutual interest agreements, and (ix) agreements
containing seismic licenses, Permits and other rights to geological or
geophysical data and information directly or indirectly relating to the Oil and
Gas Properties.
 
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   Section 4.8            Commitments, Abandonments or Proposals.      Except as
set forth in Section 6.3 of the Seller's Disclosure Schedule:  (a) Seller has
incurred no expenses, and has made no commitments to make expenditures in
connection with the ownership or operation of the Properties after the Effective
Date, other than routine expenses incurred in the normal operation of existing
wells on the Oil and Gas Properties in accordance with generally accepted
practices in the oil and gas industry; (b) Seller has not abandoned any wells
(or removed any material items of equipment, except those replaced by items of
materially equal suitability and value) on the Oil and Gas Properties since the
Effective Date; and (c) no proposals are currently outstanding by Seller or
other working interest owners to drill additional wells, or to deepen, plug
back, or rework existing wells, or to conduct other operations for which consent
is required under the applicable operating agreement, or to conduct any other
operations other than normal operation of existing wells on the Oil and Gas
Properties, or to abandon any wells, on the Oil and Gas Properties.
 
Section 4.9.                                Production Sales Contracts.   There
exist no agreements or arrangements for the sale of Hydrocarbons from the Oil
and Gas Properties (including calls on, or other rights to purchase, production,
whether or not the same are currently being exercised) other than (a) production
sales contracts (in this Section, the "Scheduled Production Sales Contracts")
disclosed in Section 4.9 of the Seller's Disclosure Schedule or (b) agreements
or arrangements which are cancelable on 90 days notice or less without penalty
or detriment.  Seller is presently receiving a price for all production from (or
attributable to) each Oil and Gas Property covered by a Scheduled Production
Sales Contract as computed in accordance with the terms of such contract, and is
not having deliveries of gas from any Oil and Gas Property subject to a
Scheduled Production Sale Contract curtailed substantially below such property's
delivery capacity.  Seller has not received nor is Seller obligated to receive
any advance, take-or-pay or other similar payments under production sales
contracts that entitle the purchasers thereunder to recoup or otherwise receive
deliveries of Hydrocarbons produced from or attributable to the Properties at
any time at or after the Effective Date without payment therefor.
 
Section 4.10.                                Plugging and Abandonment.   Except
for wells listed in Section 4.10 of the Seller's Disclosure Schedule, there are
no dry holes, or shut in or otherwise inactive wells, located on the Oil and Gas
Properties or on lands pooled or unitized therewith, except for wells that have
been plugged and abandoned, and except for wells drilled to depths not included
within the Oil and Gas Properties or within units in which the Oil and Gas
Properties participate which have never been completed in such depths.
 
Section 4.11.                                Permits.     Seller has all Permits
necessary or appropriate to own and operate the Properties as presently being
owned and operated, except for such Permits the absence of which would not be
reasonably expected to have a Material Adverse Effect, and such Permits are in
full force and effect (and are freely transferable to Buyer or are subject to
being routinely replaced by a license or Permit issued to Buyer as a successor
owner of the Properties).  Except as set forth in Section 4.11 of the Seller's
Disclosure Schedule, Seller has not received written notice of any violations in
respect of any Permits and, to Seller's Knowledge, there are no violations in
respect of any Permit and no one has communicated to Seller that there are any
violations in respect of any Permit, except for such violations which would not
reasonably be expected to have a Material Adverse Effect.
 
Section 4.12.                                Payment of Expenses.     All
expenses (including all bills for labor, materials and supplies used or
furnished for use in connection with the Properties, and all
 
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severance, production, ad valorem and other similar Taxes) relating to the
ownership or operation by Seller of the Properties, have been, and are being,
paid (timely, and before the same become delinquent) by Seller, except such
expenses and Taxes as are disputed in good faith by Seller and for which an
adequate accounting reserve has been established by Seller.  Seller is not
delinquent with respect to its obligations to bear costs and expenses relating
to the development and operation of the Oil and Gas Properties.
 
Section 4.13.                                Compliance with Laws.     The
ownership and operation of the Properties by Seller have been in compliance with
all Applicable Laws, except for such non-compliance which, individually or in
the aggregate, would not reasonably be expected to have a Material Adverse
Effect.  Notwithstanding the foregoing, this Section 4.13 does not relate to
environmental matters (including compliance with Environmental Laws or matters
that would constitute Environmental Defects), it being agreed that such matters
are covered by and dealt with in Section 4.19 and Article VIII exclusively.
 
Section 4.14.                                Imbalances; Prepayments.   
 Section 4.14 of the Seller's Disclosure Schedule sets forth all Imbalances as
of the date set forth in such Section with respect to the Oil and Gas
Properties.  Seller is not obligated by virtue of a take or pay payment, advance
payment or other similar payment (other than royalties, overriding royalties and
similar arrangements reflected in Exhibit 8.1(c)), to deliver Hydrocarbons, or
proceeds from the sale thereof, attributable to the Oil and Gas Properties at
some future time without receiving payment therefor at or after the time of
delivery.
 
Section 4.15.                                Intellectual Property.     Seller
owns or has valid licenses or other rights to use all patents, copyrights,
trademarks, software, databases, geological data, geophysical data, engineering
data, maps, interpretations and other technical information used by Seller in
connection with its ownership and operation of the Properties as presently
conducted, subject to the limitations contained in the agreements governing the
use of the same, which limitations are customary for companies engaged in the
business of the exploration and production of Hydrocarbons.
 
Section 4.16.                                Taxes.
 
(a)           Except as set forth in Section 4.16 of the Seller's Disclosure
Schedule, all ad valorem and severance Taxes due and payable for the Properties
through the year 2006 have been paid.
 
(b)           With respect to all Taxes related to the Properties, (i) all
material Tax Returns relating to the Properties required to be filed on or
before the date hereof by Seller with respect to any Taxes for any period ending
on or before the date hereof have been timely filed with the appropriate
Governmental Entity, (ii) such Tax Returns are true and correct in all material
respects, and (iii) all Taxes reported on such Tax Returns have been paid,
except those being contested in good faith.
 
(c)           With respect to all Taxes related to the Properties (i) there are
not currently in effect any extension or waiver by Seller of any statute of
limitations of any jurisdiction regarding the assessment or collection of any
Tax related to the Properties and (ii) there are no administrative Proceedings
or lawsuits pending against the Properties or Seller with respect to the
Properties by any taxing authority.
 
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(d)           None of the Properties were bound as of the Effective Date or will
be bound at Closing by any tax partnership agreement binding upon Seller.
 
Section 4.17.                                Fees and Commissions.     Except
for the amounts due Simmons & Company and Griffis and Associates by Seller in
respect of the transactions contemplated hereby, no broker, investment banker,
financial advisor or other Person is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Seller.
 
Section 4.18.                                Operations.     All buildings,
fixtures, machinery and equipment currently used in the operations related to
the Properties are adequate for their normal operations consistent with
commonly-accepted industry practice, and conform with all Applicable Laws.
 
Section 4.19.                                Environmental Laws.    With respect
to environmental matters arising from, relating to or affecting the Properties
during Seller's ownership, Seller hereby represents and warrants to Buyer that:
 
(a)           the Properties have been operated in material compliance with all
applicable Environmental Laws, rules and regulations;
 
(b)           Seller has not entered into any agreement with a governmental
authority or private party with respect to any environmental matters; and
 
(c)           no governmental authority investigation under any Environmental
Laws is pending or, to Seller's Knowledge, threatened with respect to the
Properties which would reasonable be expected to have a Material Adverse Effect.
 
Section 4.20.                                Wells.     To Seller's Knowledge,
all of the wells included in the Properties have been drilled and completed
within the boundaries of the Leases included in the Properties or within the
limits otherwise permitted by contract, pooling or unit agreement, and by
Applicable Law, and no well included in the Properties is subject to penalties
after the date of this Agreement because of any violations of Applicable Law or
Permits or judgments, orders or decrees of any court or Governmental Entity.
 
Section 4.21.                                Disclaimer of Warranties.     Other
than those expressly set out in this Article IV or elsewhere in this Agreement,
Seller hereby expressly disclaims any and all representations or warranties with
respect to the Properties, and Buyer agrees that the Properties are being sold
by Seller "where is" and "as is", with all faults.  Specifically as a part of
(but not in limitation of) the foregoing, Buyer acknowledges that Seller has not
made, and Seller hereby expressly disclaims, any representation or warranty
(express, implied, under common law, by statute or otherwise) as to the title or
condition of the Properties (INCLUDING ANY IMPLIED OR EXPRESS WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR CONFORMITY TO MODELS OR
SAMPLES OF MATERIALS).  OTHER THAN THOSE EXPRESSLY SET OUT IN THIS ARTICLE IV OR
ELSEWHERE IN THIS AGREEMENT, SELLER MAKES NO REPRESENTATION OR WARRANTY AS TO
(I) THE AMOUNT, VALUE, QUALITY, QUANTITY, VOLUME, OR DELIVERABILITY OF ANY OIL,
GAS, OR OTHER MINERALS OR RESERVES (IF ANY) IN, UNDER, OR ATTRIBUTABLE TO THE
PROPERTIES,
 
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(II) THE PHYSICAL, OPERATING, REGULATORY COMPLIANCE, SAFETY, OR ENVIRONMENTAL
CONDITION OF THE PROPERTIES, BOTH SURFACE AND SUBSURFACE, INCLUDING MATTERS
RELATED TO THE PRESENCE, RELEASE OR DISPOSAL OF HAZARDOUS MATERIALS, SOLID
WASTES, ASBESTOS OR NATURALLY OCCURRING RADIOACTIVE MATERIALS ("NORM"), OR
(III) THE GEOLOGICAL OR ENGINEERING CONDITION OF THE PROPERTIES OR ANY VALUE
THEREOF.  SELLER MAKES NO WARRANTY OR REPRESENTATION, EXPRESS, STATUTORY, OR
IMPLIED, AS TO (A) THE ACCURACY, COMPLETENESS, OR MATERIALITY OF ANY DATA,
INFORMATION, OR RECORDS FURNISHED TO BUYER IN CONNECTION WITH THE PROPERTIES OR
OTHERWISE CONSTITUTING A PORTION OF THE PROPERTIES; (B) THE PRESENCE, QUALITY,
AND QUANTITY OF HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO THE PROPERTIES;
(C) THE ABILITY OF THE PROPERTIES TO PRODUCE HYDROCARBONS, INCLUDING PRODUCTION
RATES, DECLINE RATES, AND RECOMPLETION OPPORTUNITIES; (D) IMBALANCE OR PAYOUT
ACCOUNT INFORMATION, ALLOWABLES, OR OTHER REGULATORY MATTERS, (E) THE PRESENT OR
FUTURE VALUE OF THE ANTICIPATED INCOME, COSTS, OR PROFITS, IF ANY, TO BE DERIVED
FROM THE PROPERTIES, (F) THE ENVIRONMENTAL CONDITION OF THE PROPERTIES, (G) ANY
PROJECTIONS AS TO EVENTS THAT COULD OR COULD NOT OCCUR, AND (H) ANY OTHER
MATTERS CONTAINED IN OR OMITTED FROM ANY INFORMATION OR MATERIAL FURNISHED TO
BUYER BY SELLER OR OTHERWISE CONSTITUTING A PORTION OF THE PROPERTIES.  ANY
DATA, INFORMATION, OR OTHER RECORDS FURNISHED BY SELLER ARE PROVIDED TO BUYER AS
A CONVENIENCE AND BUYER'S RELIANCE ON OR USE OF THE SAME IS AT BUYER'S SOLE
RISK.
 
ARTICLE V
Representations and Warranties of Buyer
 
Section 5.1.                                Organization and Existence.   
 Buyer is a limited liability company duly organized, legally existing and in
good standing under the laws of the State of Texas, and is qualified to do
business and in good standing in the State of Texas.
 
Section 5.2.                                Power and Authority.     Buyer has
full limited liability company power and authority to execute, deliver, and
perform this Agreement and each other agreement, instrument, or document
executed or to be executed by Buyer in connection with the transactions
contemplated hereby to which it is a party and to consummate the transactions
contemplated hereby and thereby.  The execution, delivery, and performance by
Buyer of this Agreement and each other agreement, instrument, or document
executed or to be executed by Buyer in connection with the transactions
contemplated hereby to which it is a party, and the consummation by it of the
transactions contemplated hereby and thereby, have been duly authorized by all
necessary limited liability company power action of Buyer.
 
Section 5.3.                                Valid and Binding Agreement.   
 This Agreement has been duly executed and delivered by Buyer and constitutes,
and each other agreement, instrument, or document executed or to be executed by
Buyer in connection with the transactions contemplated hereby to which it is a
party has been, or when executed will be, duly executed and delivered by Buyer
and constitutes, or when executed and delivered will constitute, a valid and
legally binding obligation
 
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of Buyer, enforceable against it in accordance with their respective terms,
except that such enforceability may be limited by (a) applicable bankruptcy,
insolvency, reorganization, moratorium, and similar laws affecting creditors'
rights generally, and (b) equitable principles which may limit the availability
of certain equitable remedies (such as specific performance) in certain
instances.
 
Section 5.4.                                Non-Contravention.     The
execution, delivery, and performance by Buyer of this Agreement and each other
agreement, instrument, or document executed or to be executed by Buyer in
connection with the transactions contemplated hereby to which it is a party and
the consummation by it of the transactions contemplated hereby and thereby do
not and will not (i) conflict with or result in a violation of any provision of
Buyer's Governing Documents, (ii) conflict with or result in a violation of any
provision of, or constitute (with or without the giving of notice or the passage
of time or both) a default under, or give rise (with or without the giving of
notice or the passage of time or both) to any right of termination,
cancellation, or acceleration under, any bond, debenture, note, mortgage,
indenture, lease, contract, agreement, or other instrument or obligation to
which Buyer is a party or by which Buyer or any of its properties may be bound,
(iii) result in the creation or imposition of any Lien upon the properties of
Buyer, or (iv) violate any Applicable Law binding upon Buyer.
 
Section 5.5.                                Approvals.     No consent, approval,
order, or authorization of, or declaration, filing, or registration with, any
court or governmental agency or of any third party is required to be obtained or
made by Buyer in connection with the execution, delivery, or performance by
Buyer of this Agreement and each other agreement, instrument, or document
executed or to be executed by Buyer in connection with the transactions
contemplated hereby to which it is a party or the consummation by it of the
transactions contemplated hereby and thereby, except for such consents,
approvals, orders, authorizations, declarations, filings or registrations which,
if not obtained or made (as applicable), would not, individually or in the
aggregate, affect the ability of the Buyer to consummate the transactions
contemplated hereby.
 
Section 5.6.                                Pending Litigation.     There are no
Proceedings pending or, to Buyer's Knowledge, threatened against or affecting
the execution and delivery of this Agreement by Buyer or the consummation of the
transactions contemplated hereby by Buyer.
 
Section 5.7.                                Knowledgeable Purchaser.     Buyer
is a knowledgeable purchaser, owner and operator of oil and gas properties, has
the ability to evaluate (and in fact has evaluated) the Properties for
purchase.  Buyer is an "accredited investor," as defined in Regulation D
promulgated pursuant to the Securities Act, and is acquiring the Properties for
its own account and not with the intent to make a distribution within the
meaning of the Securities Act  (and the rules and regulations pertaining
thereto) or a distribution thereof in violation of any other applicable
securities laws.  Buyer has had access to the Properties, the officers and
consultants of Seller, and the books, Records, and files of Seller relating to
the Properties.  In making the decision to enter into this Agreement and to
consummate the transactions contemplated hereby, Buyer has relied on its own
independent due diligence investigation of the Properties and has been advised
by and has relied solely on its own expertise and legal, land, tax, reservoir
engineering, and other professional counsel concerning this transaction, the
Properties and the value thereof.
 
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     Section 5.8.             Funds.     Buyer has, and at the Closing will
have, sufficient cash and other sources of immediately available funds, as are
necessary in order to pay the Adjusted Purchase Price to Seller at the Closing
and otherwise consummate the transactions contemplated hereby.
 
Section 5.9.                                Qualified Leaseholder.   At Closing,
Buyer will be in compliance with the bonding requirements of the State of Texas
and other Governmental Entities, and after Closing, Buyer reasonably anticipates
that it will continue to be able to meet such bonding requirements.
 
Section 5.10.                                Fees and Commissions.    No broker,
investment banker, financial advisor or other Person is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Buyer.
 
ARTICLE VI
Certain Covenants of Seller Pending Closing
 
Section 6.1.                                Access to Files.     Subject to the
terms of the Confidentiality Agreement and Article IX, from the date hereof
until Closing, Seller will give Buyer, and its attorneys and other authorized
representatives, access at all reasonable times to the Properties and to any
contract files, lease or other title files, production files, well files and
other files of Seller pertaining to the ownership or operation of the
Properties, and Seller will use its Reasonable Best Efforts to arrange for
Buyer, and its attorneys and other representatives, to have access to any such
files in the office of Seller.  Subject to the terms of the Confidentiality
Agreement and Article IX, upon such request for any Records of Seller, Seller
shall provide to Buyer, at Buyer's expense, requested copies made by Seller or,
at either party's option, by a third party approved by Buyer and Seller.
 
Section 6.2.                                Conduct of Operations.     From the
date hereof until Closing, Seller will (i) continue the routine operation of the
Properties in the ordinary course of business and as would a reasonable and
prudent operator and maintain the Properties in a condition consistent with
customarily accepted oilfield industry practices; (ii) operate the Properties in
material compliance with all Applicable Laws and Environmental Laws and in
material compliance with all Basic Documents; and (iii) fulfill all material
obligations under the Basic Documents and, in all material respects, under such
Applicable Laws and Environmental Laws and shall carry on its business with
respect to the Properties in substantially the same manner as before execution
of this Agreement.
 
Section 6.3.                                Restrictions on Certain Actions.   
 From the date hereof until Closing, except as set forth in Seller's development
plan attached as Section 6.3 of the Seller's Disclosure Schedule, Seller will
not, without Buyer's prior consent in connection with the Properties:
 
(a)           expend any funds, or make any commitments to expend funds
(including entering into new agreements which would obligate Seller to expend
funds), or otherwise incur any other obligations or liabilities, other than to
pay expenses or to incur liabilities in connection with routine operation of the
Properties after the Effective Date and except in the event of an emergency
requiring immediate action to protect life or preserve the Properties;
 
(b)           except where necessary to prevent the termination of a Lease or
other material agreement governing Seller's interest in the Properties, propose
the drilling of any additional
 
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(c)           wells, or propose the deepening, plugging back or reworking of any
existing wells, or propose the conducting of any other operations which require
consent under the applicable operating agreement, or propose the conducting of
any other operations other than the normal operation of the existing wells on
the Oil and Gas Properties, or propose the abandonment of any wells on the Oil
and Gas Properties (and Seller agrees that it will advise Buyer of any such
proposals made by third parties and will respond to each such proposal made by a
third party in the manner requested by Buyer) or except in the ordinary course
of business and consistent with past practices, voluntarily waive or release any
material rights with respect to any Property or voluntarily relinquish Seller's
position as operator with respect to any Property;
 
(d)           sell, transfer or abandon any portion of the Properties other than
items of materials, supplies, machinery, equipment, improvements or other
personal property or fixtures forming a part of the Properties (and then only if
the same is replaced with an item of substantially equal suitability, free of
Liens, which replacement item will then, for the purposes of this Agreement,
become part of the Properties);
 
(e)           release (or permit to terminate), or modify or reduce its rights
under, any Lease forming a part of the Oil and Gas Properties, or any other
Basic Document, or enter into any new agreements which would be Basic Documents,
or modify any existing production sales contracts or enter into any new
production sales contracts, except contracts terminable by Seller with notice of
60 days or less;
 
(f)           to the extent that Seller is not operator of any of the
Properties, the obligations of Seller in this Section 6.3 shall be construed to
require that Seller use Reasonable Best Efforts (without being obligated to
incur any expense or institute any cause of action) to cause the operator of
such Properties to take such action or render such performance within the
constraints of the applicable operating agreements and other applicable
agreements;
 
(g)           keep in full force and effect insurance (including producing well
and producing facilities coverages) comparable in amount and scope of coverage
to that maintained by Seller for its Properties at the time of execution of this
Agreement;
 
(h)           promptly notify Buyer of each casualty loss about which Seller
obtains Knowledge during the period between the date hereof and the Closing
Date;
 
(i)           enter into any contract for the sale or other disposition, or any
call or option for such purchase, of Seller's interest in Hydrocarbons produced
or to be produced from the Properties that is not terminable by Seller without
penalty on 70 days' notice or less;
 
(j)           voluntarily compromise, settle or adjust any amounts payable by
reason of any casualty loss; or
 
(k)           commit to do any of the foregoing.
 
Section 6.4.                                Seller's Confidentiality
Obligation.    During the period between date hereof and the Closing Date,
Seller shall use its Reasonable Best Efforts to protect the confidentiality of
all geological and geophysical information in Seller's possession concerning the
Properties and is not otherwise publicly known or required by Applicable Law or
any stock exchange to be disclosed.
 
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Section 6.5              Payment of Expenses.     Seller will cause all expenses
(including all bills for labor, materials and supplies used or furnished for use
in connection with the Properties and all severance, production, and similar
Taxes) relating to the ownership or operation of the Properties prior to the
date of Closing to be promptly paid and discharged, except for expenses disputed
in good faith.
 
Section 6.5.                                Preferential Rights and Third Party
Consents.     Seller will request, from the appropriate parties (and in
accordance with the documents creating such rights and/or requirements), waivers
of the preferential rights to purchase, or requirements that consent to
assignment be obtained, which are identified in Section 6.5 of the Seller's
Disclosure Schedule.  Seller shall have no obligation hereunder other than to so
request such waivers (i.e., Seller shall have no obligation to assure that such
waivers are obtained), and if all such waivers (or any other waivers of
preferential rights to purchase or requirements that consent be obtained to
assignment, even if the same are not listed on such Section 6.5) are not
obtained, Buyer may treat any waiver which is not obtained as a matter which
causes Seller's title to not be sufficient to meet the standards set forth in
Article VIII; provided, however, that if the unobtained waiver is a waiver of a
preferential right to purchase, and if both Buyer and Seller agree to this
treatment of such matter (and agree upon an appropriate allocation of the
Purchase Price), Seller will tender (at the agreed allocated portion of the
Purchase Price) the required interest in the Property affected by such unwaived
preferential right to purchase to the holder, or holders, of such right who have
elected not to waive such preferential right to purchase, and if, and to the
extent that, such preferential right to purchase is exercised by such party or
parties, such interest in such Property will be excluded from the transaction
contemplated hereby and the Purchase Price will be reduced by the agreed
allocated portion of the Purchase Price attributable to such Property.
 
ARTICLE VII
Additional Pre-Closing and Post-Closing Agreements of Both Parties
 
Section 7.1.                                Reasonable Best Efforts.     Each
party hereto agrees that it will not voluntarily undertake any course of action
inconsistent with the provisions or intent of this Agreement and will use its
Reasonable Best Efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things reasonably necessary, proper, or advisable under
Applicable Laws to consummate the transactions contemplated by this Agreement,
including (i) cooperation in determining whether any consents, approvals,
orders, authorizations, waivers, declarations, filings, or registrations of or
with any Governmental Entity or third party are required in connection with the
consummation of the transactions contemplated hereby; (ii) Reasonable Best
Efforts to obtain any such consents approvals, orders, authorizations, and
waivers and to effect any such declarations, filings, and registrations;
(iii) Reasonable Best Efforts to cause to be lifted or rescinded any injunction
or restraining order or other order adversely affecting the ability of the
parties to consummate the transactions contemplated hereby; (iv) Reasonable Best
Efforts to defend, and cooperation in defending, all Proceedings challenging
this Agreement or the consummation of the transactions contemplated hereby; and
(v) the execution of any additional instruments necessary to consummate the
transactions contemplated hereby.
 
Section 7.2.                                Notice of Litigation.     Until the
Closing, (i) Buyer, upon learning of the same, shall promptly notify Seller of
any Proceeding which is commenced or threatened against Buyer and which affects
this Agreement or the transactions contemplated hereby and (ii)  Seller, upon
learning of the same, shall promptly notify Buyer of any Proceeding which is
commenced
 
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or threatened against Seller which affects this Agreement or the transactions
contemplated hereby.
 
Section 7.3.                                Notification of Certain Matters.   
 Until the Closing, Seller shall give prompt notice to Buyer of:  (i) the
occurrence or nonoccurrence of any event the occurrence or nonoccurrence of
which, to Seller's Knowledge, would be likely to cause any representation or
warranty made by Seller in Article IV to be untrue or inaccurate at or prior to
the Closing and (ii) any failure of Seller to comply with or satisfy any
covenant, condition, or agreement to be complied with or satisfied by Seller
hereunder prior to Closing.  Until the Closing, Buyer shall give prompt notice
to Seller of:  (i) the occurrence or nonoccurrence of any event the occurrence
or nonoccurrence of which, to Buyer's Knowledge, would be likely to cause any
representation or warranty contained in Article V to be untrue or inaccurate at
or prior to the Closing, and (ii) any failure of Buyer to comply with or satisfy
any covenant, condition, or agreement to be complied with or satisfied by Buyer
hereunder prior to Closing.  The delivery of any notice pursuant to this Section
7.3 shall not be deemed to (x) modify the representations or warranties
hereunder of the party delivering such notice, (y) modify the conditions set
forth in Article IX, or (z) limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
 
Section 7.4.                                Fees and Expenses.
 
(a)           Except as otherwise provided herein, (i) all fee and expenses
incurred in connection with this Agreement by Seller will be borne by and paid
by Seller and (ii) all fees and expenses incurred in connection with this
Agreement by Buyer will be borne by and paid by Buyer.
 
(b)           All required documentary, filing and recording fees and expenses
in connection with the filing and recording of the Assignment and other
instruments required to convey title to the Properties to Buyer shall be borne
by Buyer.  Buyer shall assume responsibility for, and shall bear and pay, all
state sales and use Taxes (including any applicable interest or penalties)
incurred or imposed with respect to the transactions contemplated by this
Agreement.
 
Section 7.5.                                Public Announcements.     Except as
may be required by Applicable Law, neither Buyer, on the one hand, nor Seller,
on the other hand, shall issue any press release or otherwise make any statement
to the public generally with respect to this Agreement or the transactions
contemplated hereby without the prior consent of the other party (which consent
shall not be unreasonably withheld and which consent, if given verbally, shall
be confirmed in writing within one Business Day thereafter).  Any such press
release or statement required by Applicable Law shall only be made after
reasonable notice to the other parties.
 
Section 7.6.                                Casualty Loss Prior to Closing.   
 In the event of damage by fire or other casualty to the Properties after the
Effective Date and prior to the Closing, then this Agreement shall remain in
full force and effect, and (unless Buyer and Seller shall otherwise agree) in
such event:
 
(a)           as to each such Property so damaged which is an Oil and Gas
Property, then, at Buyer's election, either (i) such Property shall be treated
as if it had an asserted Title Defect associated with it and the procedure
provided for in Article VIII shall be applicable thereto, or (ii) the Purchase
Price will not be adjusted, and if Seller should be entitled to make any claims
 
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(b)           under any insurance policy with respect to such damage, Seller
shall, at Seller's election, either collect (and when collected pay over to
Buyer), or assign to Buyer, such claims, and
 
(c)           as to each such Property which is other than an Oil and Gas
Property, Seller shall, at Seller's election, either collect (and when collected
pay over to Buyer), or assign to Buyer, any and all insurance claims relating to
such loss, and Buyer shall take title to the Property affected by such loss
without reduction of the Purchase Price.
 
Section 7.7.                                Governmental Bonds.     At or prior
to Closing, Buyer shall deliver to Seller evidence that Buyer has completed all
action necessary to permit Buyer to post bonds or other security immediately
following the Closing with all applicable Governmental Entities meeting the
requirements of such Governmental Entities to own, and where appropriate,
operate, the Properties.
 
Section 7.8.                                Assumed Obligations.     At Closing,
Buyer shall assume and agree to pay, perform and discharge the Assumed
Obligations.
 
Section 7.9.                                Books and Records.     At or
promptly after Closing, but in no event later than 15 days after the Closing,
Seller will deliver to Buyer all Records that are a part of the Properties to a
location designated by Buyer.  Buyer will promptly reimburse Seller for all
reasonable costs of shipping or transporting such Records.  Seller (or its
Affiliates) shall have the right to have reasonable access during Buyer's
reasonable and customary business hours to inspect and copy (at Seller's or such
Affiliate's expense) the Records so delivered under this Section 7.9 for the
six-year period commencing on the Closing Date.
 
Section 7.10.                                Suspended Funds.     As soon as
practicable after the Closing Date, but no later than 30 days thereafter, Seller
shall provide to Buyer a listing showing all proceeds from production
attributable to the wells which are currently held in suspense by Seller and
shall transfer to Buyer all those suspended proceeds (the "Suspended
Proceeds").  Thereafter, Buyer shall be responsible for distribution of the
Suspended Proceeds to the parties entitled to them to the extent and only to the
extent of Suspended Proceeds, provided, however, Buyer shall not be responsible
for any errors or mistakes relating to the Suspended Proceeds where such errors
or mistakes were made prior to the Closing by Seller.
 
Section 7.11.                                Letters-in-Lieu.     Either at or
after Closing, Seller shall execute and deliver letters in lieu of transfer
orders (or similar documentation) in form reasonably acceptable to Buyer and
Seller.
 
Section 7.12.                                Logos and Names.     As soon as
practicable after the Closing, Buyer will remove or cause to be removed the
names and marks used by Seller and all variations and derivatives thereof and
logos relating thereto from the Properties.
 
Section 7.13.                                Covenant Regarding Joint
Account.     Without limiting its covenants and agreements regarding the Joint
Account hereunder (including Sections 8.4(d) and 10.2), if, under the terms and
provisions of this Agreement, funds held in the Joint Account are required to be
disbursed therefrom and paid to Buyer or Seller, as applicable (such payee, the
"Required Payee"), (i) Buyer covenants and agrees that it will cause the
Authorized Buyer Representative to execute such instructions and to take such
other reasonable actions, in the name and on behalf
 
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Buyer, to implement the terms hereof and to cause such funds to be disbursed and
paid to the Required Payee, and (ii) Seller covenants and agrees that it will
cause the Authorized Seller Representative to execute such instructions and to
take such other reasonable actions, in the name and on behalf Seller, to
implement the terms hereof and to cause such funds to be disbursed and paid to
the Required Payee.
 
Section 7.14.                                Further Assurances.     From time
to time following the Closing, at the request of any party hereto and without
further consideration, the other party or parties hereto shall execute and
deliver to such requesting party such instruments and documents and take such
other action (but without incurring any material financial obligation) as such
requesting party may reasonably request in order to consummate more fully and
effectively the transactions contemplated hereby.
 
ARTICLE VIII
Due Diligence Examination
 
Section 8.1.                                Title Due Diligence Examination.
 
(a)           From the date of this Agreement until 5:00 p.m. (local time in
Houston, Texas) on October 1, 2007 (the "Examination Period"), Seller shall
afford to Buyer and its authorized representatives reasonable access during
normal business hours to the office, personnel and Records of Seller in order
for Buyer to conduct a title examination as it may in its sole discretion choose
to conduct with respect to the Oil and Gas Properties in order to determine
whether Title Defects (as defined below) exist ("Buyer's Title Review").  Such
Records shall include all abstracts of title, title opinions, title files,
ownership maps, lease files, assignments, division orders, operating records and
agreements, well files, financial and accounting records, geological,
geophysical and engineering records, in each case insofar as same may now be in
existence and in the possession of Seller, excluding, however, any information
that Seller is prohibited from disclosing by bona fide, third party
confidentiality restrictions; provided, that if requested by Buyer, Seller shall
use its Reasonable Best Efforts to obtain a waiver of any such restrictions in
favor of Buyer.  The cost and expense of Buyer's Title Review, if any, shall be
borne solely by Buyer.
 
(b)           If Buyer discovers any Title Defect affecting any of the Oil and
Gas Properties, Buyer shall notify Seller prior to the expiration of the
Examination Period of such alleged Title Defect.  To be effective, such notice
("Title Defect Notice") must (i) be in writing, (ii) be received by Seller prior
to the expiration of the Examination Period, (iii) describe the Title Defect in
reasonable detail (including any alleged variance in the Net Revenue Interest to
the extent it is possible to estimate same), (iv) identify the specific Oil and
Gas Property affected by such Title Defect, and (v) include the value of such
Title Defect as determined by Buyer in good faith.  Any matters that may
otherwise constitute Title Defects, but of which Seller has not been
specifically notified by Buyer in accordance with the foregoing, shall be deemed
to have been waived by Buyer for all purposes.  Upon the receipt of such
effective Title Defect Notice from Buyer, Seller shall have the option, in
addition to the remedies set forth in Section 8.1(c) (the "Remedies for Title
Defects"), but not the obligation, to attempt to cure such Title Defect at any
time prior to the Closing.  The Oil and Gas Property affected by such uncured
Title Defect shall be a "Title Defect Property".  Notwithstanding the foregoing,
Buyer retains the right to assert that any offered written undertaking by Seller
is insufficient to constitute an actual cure of a Title Defect and Buyer
possesses the right to reject such offered undertaking.
 
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(c)           With respect to each Title Defect that is not cured on or before
the Closing, the Purchase Price shall be reduced, subject to this Article VIII,
by the Title Defect Amount with respect to such Title Defect Property.  The
"Title Defect Amount" shall mean, with respect to a Title Defect Property, the
amount by which such Title Defect Property is impaired as a result of the
existence of one or more Title Defects, which amount shall be determined as
follows:
 
(i)           The Title Defect Amount with respect to a Title Defect Property
shall be determined by taking into consideration the "Allocated Value" (as set
forth in Exhibit 8.1(c) attached hereto) of the Oil and Gas Property subject to
such Title Defect, the portion of the Oil and Gas Property subject to such Title
Defect, and the legal effect of such Title Defect on the Oil and Gas Property
affected thereby; provided, however, that:  (A) if such Title Defect is in the
nature of Seller's Net Revenue Interest in an Oil and Gas Property being less
than the Net Revenue Interest set forth in Exhibit 8.1(c) hereto and the Working
Interest remains the same, then the Title Defect Amount shall equal the
Allocated Value for the relevant Oil and Gas Property multiplied by the
percentage reduction in such Net Revenue Interest as a result of such Title
Defect or (B) if such Title Defect is in the nature of a Lien, then the Title
Defect Amount shall equal the amount required to fully discharge such Lien; and
 
(ii)           If the Title Defect results from any matter not described in
Section 8.1(c)(i), the Title Defect Amount shall be an amount equal to the
difference between the value of the Title Defect Property affected by such Title
Defect with such Title Defect and the value of such Title Defect Property
without such Title Defect (taking into account the portion of the Allocated
Value of the Title Defect Property).
 
(d)           As used in this Section 8.1:
 
(i)           "Defensible Title" means, as of the date of this Agreement and the
Closing Date, with respect to the Oil and Gas Properties, such record title and
ownership by Seller that:
 
(A)           entitles Seller to receive and retain, without reduction,
suspension or termination, not less than the percentage set forth in
Exhibit 8.1(c) as Seller's Net Revenue Interest of all Hydrocarbons produced,
saved and marketed from each Lease comprising such Oil and Gas Property as set
forth in Exhibit 8.1(c), through plugging, abandonment and salvage of all wells
comprising or included in such Oil and Gas Property, and except for changes or
adjustments that result from the establishment of units, changes in existing
units (or the participating areas therein), or the entry into of pooling or
unitization agreements after the date hereof unless made in breach of the
provisions of Section 6.3;
 
(B)           obligates Seller to bear not greater than the percentage set forth
in Exhibit 8.1(c) as Seller's Working Interest of the costs and expenses
relating to the maintenance, development and operation of each Lease comprising
such Oil and Gas Property, through plugging, abandonment and salvage of all
wells comprising or included in such Oil and Gas Property, and except for
changes or adjustments that result from the establishment of units, changes in
existing units (or the participating areas therein), or the entry into of
pooling or unitization
 
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(C)           agreements after the date hereof unless made in breach of the
provisions of Section 6.3;
 
(D)           is free and clear of all Liens, except Permitted Encumbrances;
 
(E)           reflects that all consents to assignment, notices of assignment or
preferential purchase rights which are applicable to or must be complied with in
connection with the transaction contemplated by this Agreement, or any prior
sale, assignment or the transfer of such Oil and Gas Property, have been
obtained and complied with to the extent the failure to obtain or comply with
the same could render this transaction or any such sale, assignment or transfer
(or any right or interest affected thereby) void or voidable or could result in
Buyer or Seller incurring any liability; and
 
(F)           is free of imperfections in title which a reasonable and
experienced purchaser of oil and gas properties would, in accordance with
customary and generally accepted industry practices and norms, consider a defect
in title and not normally waive.
 
(ii)           "Permitted Encumbrances" shall mean (A) Liens for Taxes which are
not yet delinquent or which are being contested in good faith and for which
adequate reserves have been established; (B) normal and customary Liens of
co-owners under operating agreements, unitization agreements, and pooling orders
relating to the Oil and Gas Properties, which obligations are not yet due and
pursuant to which Seller is not in default; (C) mechanic's and materialman's
Liens relating to the Oil and Gas Properties, which obligations are not yet due
and pursuant to which Seller is not in default; (D) Liens in the ordinary course
of business consisting of minor defects and irregularities in title or other
restrictions (whether created by or arising out of joint operating agreements,
farm-out agreements, Leases and assignments, contracts for purchases of
Hydrocarbons or similar agreements, or otherwise in the ordinary course of
business) that are of the nature customarily accepted by prudent purchasers of
oil and gas properties and do not decrease the Net Revenue Interest, increase
the Working Interest (without a proportionate increase in the Net Revenue
Interest) or materially affect the value of any property encumbered thereby;
(E) all approvals required to be obtained from Governmental Entities that are
lessors under Leases forming a part of the Oil and Gas Properties (or who
administer such Leases on behalf of such lessors) which are customarily obtained
post-closing; (F) preferential rights to purchase and consent to transfer
requirements of any Person (to the extent same have been complied with in
connection with the prior sale, assignment or the transfer of such Oil and Gas
Property and are not triggered by the consummation of the transactions
contemplated herein); (G) Liens under the Senior Credit Facility (provided such
Liens are released at Closing); (H) Liens under the Existing Hedges (provided
such Liens are released at Closing); and (I) conventional rights of reassignment
normally actuated by an intent to abandon or release a Lease and requiring
notice to the holders of such rights.
 
(iii)           "Title Defect" shall mean any particular defect in or failure of
Seller's ownership of any Oil and Gas Property:  (A) that causes Seller to not
have Defensible Title to such Oil and Gas Property, (B) that has attributable
thereto a Title Defect Amount in excess of $50,000 and (C) regarding which a
Title Defect Notice has been timely and
 
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(iv)           otherwise validly delivered.  Notwithstanding any other provision
in this Agreement to the contrary, the following matters shall not constitute,
and shall not be asserted as, a Title Defect:  (A) defects or irregularities
arising out of lack of corporate authorization; (B) defects or irregularities
that have been cured or remedied by the applicable statutes of limitation or
statutes for prescription; (C) defects or irregularities in the chain of title
consisting of the failure to recite marital status in documents or omissions of
heirship Proceedings; (D) minor defects or irregularities in title which for a
period of ten years or more have not delayed or prevented Seller (or Seller's
predecessor) from receiving its Net Revenue Interest share of the proceeds of
production and have not caused Seller to bear a share of expenses and costs
greater than its Working Interest share from each Lease, unit or Well; and
(E) defects or irregularities resulting from or related to probate Proceedings
or the lack thereof which defects or irregularities have been outstanding for
ten years or more.  Further, notwithstanding any other provisions in this
Agreement to the contrary, Buyer agrees that (i) if any of the following Leases
have expired or expire prior to the Closing, such expiration will not be
asserted as a Title Defect:  Fidelity-Philadelphia Mineral Trust (expires May 2,
2007), JCM Jr. Minerals Co. No. 2 (expires September 1, 2007), Briscoe Ranch,
Inc (2004 Lease which expires September 7, 2007 and Gloria A. Reeves (one third
interest in 960 acres; and (ii) if an to the extent that Buyer asserts a Title
Defect with respect to any undeveloped acreage included in the Properties, the
Title Defect Value will be computed on the basis of $150 per acre.
 
(e)           If Seller and Buyer are unable to reach an agreement as to whether
a Title Defect exists or, if it does exist, the Title Defect Amount attributable
such Title Defect, the provisions of Section 8.3 shall be applicable.
 
Section 8.2.                                Environmental Due Diligence
Examination.
 
(a)           Buyer shall have the right, or the right to cause an environmental
consultant reasonably acceptable to Seller ("Buyer's Environmental Consultant"),
to conduct an environmental review of the Properties prior to the expiration of
the Examination Period ("Buyer's Environmental Review").  No less than 48 hours
prior to the proposed commencement date of Buyer's Environmental Review, Buyer
shall furnish Seller with an outline of the proposed scope of such review,
including the locations of such activities.  The cost and expense of Buyer's
Environmental Review, if any, shall be borne solely by Buyer.  No Person, other
than Buyer's Environmental Consultant and Buyer's employees may conduct Buyer's
Environmental Review.  Seller shall have the right to have representatives
thereof present to observe Buyer's Environmental Review conducted in Seller's
offices or on Seller's properties.  With respect to any samples taken in
connection with Buyer's Environmental Review, Seller shall be permitted to take
split samples.  Buyer agrees to conduct Buyer's Environmental Review in a manner
so as not to unduly interfere with the business operations of Seller and in
compliance with all Applicable Laws, and Buyer shall exercise due care with
respect to Seller's properties and their condition.
 
(b)           Prior to the Closing, unless otherwise required by Applicable Law
or Environmental Laws, Buyer shall (and shall cause Buyer's Environmental
Consultant, if applicable, to) treat confidentially any matters revealed by
Buyer's Environmental Review and any reports or data generated from such review
(the "Environmental Information"), and Buyer shall not (and shall cause Buyer's
Environmental Consultant, if applicable, to not) disclose any
 
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(c)           Environmental Information to any Governmental Entity or other
third party without the prior written consent of Seller.  Prior to the Closing,
unless otherwise required by Applicable Law or Environmental Law, Buyer may use
the Environmental Information only in connection with the transactions
contemplated by this Agreement.  If Buyer, Buyer's Environmental Consultant, if
applicable, or any third party to whom Buyer has provided any Environmental
Information become legally compelled to disclose any of the Environmental
Information, Buyer shall provide Seller with prompt notice and Seller, at
Seller's expense, may file any protective order, or seek any other remedy, as it
deems appropriate under the circumstances.  If this Agreement is terminated
prior to the Closing, Buyer shall deliver the Environmental Information to
Seller, which Environmental Information shall become the sole property of
Seller.  Upon Seller's written request to Buyer, Buyer shall provide copies of
the Environmental Information to Seller without charge.
 
(d)           If Buyer or Buyer's Environmental Consultant, if applicable,
discovers any Environmental Defect (as herein defined) prior to the expiration
of the Examination Period, Buyer shall notify Seller prior to the expiration of
the Examination Period of such alleged Environmental Defect.  To be effective,
such notice (an "Environmental Defect Notice") must (i) be in writing; (ii) be
received by Seller prior to the expiration of the Examination Period;
(iii) describe the Environmental Defect in reasonable detail, including (A) the
specific Properties affected by or associated with such Environmental Defect,
and (B) the written conclusion of Buyer's Environmental Consultant, if
applicable, that an Environmental Defect is believed to exist, which conclusion
shall be reasonably substantiated by the factual data gathered in Buyer's
Environmental Review; and (iv) set forth Buyer's good faith estimate of the
Environmental Defect Value, including the basis for such estimate.  Any matters
that may otherwise constitute Environmental Defects, but of which Seller has not
been specifically notified by Buyer in accordance with the foregoing, together
with any environmental matter that does not constitute an Environmental Defect,
shall be deemed to have been waived by Buyer for purposes of this
Section 8.2.  Upon the receipt of such effective notice from Buyer, Seller shall
have the option, in addition to the remedy set forth in Section 8.4(c), but not
the obligation, to attempt to cure such Environmental Defect at any time prior
to the Closing, at the sole cost and expense of Seller.  If Seller and Buyer are
unable to reach an agreement as to whether an Environmental Defect exists or, if
it does exist, the amount of the Environmental Defect Value attributable
thereto, the provisions of Section 8.3 shall be applicable.  Notwithstanding the
foregoing, Buyer retains the right to assert that any offered written
undertaking by Seller is insufficient to constitute an actual cure of an
Environmental Defect and Buyer possesses the right to reject such offered
undertaking.
 
(e)           If any Environmental Defect described in a notice delivered in
accordance with Section 8.2 is not cured on or before the Closing, then the
Purchase Price shall be reduced, subject to Section 8.4, by the Environmental
Defect Value of such Environmental Defect.
 
(f)           As used in this Section 8.2:
 
(i)           "Environmental Defect" shall mean, with respect to any given
Property, a violation of Environmental Laws in effect as of the date hereof in
the jurisdiction in which such Property is located, an obligation under
Environmental Laws to complete immediately or promptly after the Closing any
corrective action at the Property, or any Environmental Liability arising from
or attributable to any condition, event, circumstance, activity, practice,
incident, action, or omission existing or occurring prior
 
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(ii)           to the Closing Date, or the use, release, storage, treatment,
transportation, or disposal of Hazardous Materials prior to the Closing Date,
(A) regarding which an Environmental Defect Notice has been timely and otherwise
validly delivered, (B) that has an Environmental Defect Value attributable
thereto in excess of $50,000, and (C) is not otherwise disclosed in that certain
report of Carr Environmental Group, Inc. dated as of January, 2006, a copy of
which has heretofore been provided by Seller to Buyer.
 
(iii)           "Environmental Defect Value" shall mean, (A) the net present
value of the reasonably estimated costs and expenses to correct such
Environmental Defect in the most cost effective manner reasonably available,
consistent with Environmental Laws, or (B) the net present value of the amount
of Environmental Liabilities reasonably believed will be incurred or required to
be paid by Seller with respect thereto. The parties recognize that the
calculation of an Environmental Defect Value may require the use of assumptions
and extrapolations; however, it is acknowledged and agreed that any such
assumptions and extrapolations will be consistent with the known factual
information and reasonable in nature.
 
Section 8.3.                                Disputes Regarding Title Defects or
Environmental Defects.     If Seller and Buyer are unable to reach an agreement
as to whether a Title Defect or an Environmental Defect exists, or if it does
exist, the Title Defect Amount or Environmental Defect Value attributable to
such Title Defect or Environmental Defect, or disputes relating to Post-Closing
Defects pursuant to Section 8.4(c) (a "Defect Dispute"), each party shall have
the right to submit a Defect Dispute to an independent expert (the "Independent
Expert"), who shall serve as sole arbitrator.  The Independent Expert shall be
appointed by mutual agreement of Seller and Buyer from among candidates
(including lawyers) with experience and expertise in the area that is the
subject of such Defect Dispute, and failing such agreement, such Independent
Expert for such Defect Dispute shall be selected in accordance with the
Commercial Arbitration Rules of the AAA (the "Rules").  Defect Disputes to be
resolved by an Independent Expert shall be resolved in accordance with mutually
agreed procedures and rules and failing such agreement, in accordance with the
Rules.  The Independent Expert shall be instructed by the parties to resolve
such Defect Dispute as soon as reasonably practicable in light of the
circumstances.  The decision and award of the Independent Expert shall be
binding upon the parties as an award under the Federal Arbitration Act 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 any party as
a final judgment of such court.
 
Section 8.4.                                Adjustments to Purchase Price for
Defects.
 
(a)           Notwithstanding anything to the contrary contained in this
Agreement, no adjustment of the Purchase Price shall be made for Title Defects
unless the aggregate of the Title Defect Amounts, as determined in accordance
with this Agreement, equals or exceeds $1,000,000, in which event the Purchase
Price shall be adjusted downward by the total of such Title Defect Amounts.
 
(b)           Notwithstanding anything to the contrary contained in this
Agreement, no adjustment of the Purchase Price shall be made for Environmental
Defects unless the aggregate of the Environmental Defect Values, as determined
in accordance with this Agreement, equals or exceeds $1,000,000, in which event
the Purchase Price shall be adjusted downward by the amount such Environmental
Defect Values exceed $1,000,000 in the aggregate.
 
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(c)           Notwithstanding anything herein to the contrary, if Seller is
unable to cure a Title Defect or an Environmental Defect (a "Post-Closing
Defect") on or prior to Closing, Seller shall have the option, by notice in
writing to Buyer on or before Closing, to attempt to cure such Post-Closing
Defect within the 90-day period commencing the Closing Date (the "Cure
Period").  In such event, the transactions contemplated hereby will close as
provided herein, but an amount equal to the applicable Title Defect Amount or
Environmental Defect Value to which the Post-Closing Defect pertains shall be
deducted from the Adjusted Purchase Price otherwise payable at Closing and paid
into the Joint Account.  The amount deposited into the Joint Account with
respect to a Post-Closing Defect will remain therein until released as provided
in Section 8.4(d).
 
(d)           Buyer will act in good faith and reasonably cooperate with the
Seller after the Closing to timely cure a Post-Closing Defect.  If Seller and
Buyer mutually agree that a Post-Closing Defect has been cured, then within two
Business Days after such determination, the amount withheld in the Joint Account
with respect thereto (together with any interest earned thereon) shall be
released to Seller.  If Seller and Buyer mutually agree that a Post-Closing
Defect has been partially cured, then Seller and Buyer shall mutually determine
the portion of the amount retained in the Joint Account with respect thereto
(together with any interest earned thereon) that should be paid to Buyer to
compensate it for the uncured portion thereof (together with interest earned
thereon), and the remaining portion of such amount shall be released to Seller
(together with any interest earned thereon).  If Seller and Buyer mutually agree
that a Post-Closing Defect has not been cured, then within two Business Days
after such determination, the amount withheld in the Joint Account with respect
thereto (together with any interest earned thereon) shall be released to
Buyer.  If, at the end of the Cure Period, Seller has been unable to cure a
Post-Closing Defect (and there is no dispute as to whether or not it has been
cured), the amount withheld in the Joint Account with respect thereto (together
with any interest earned thereon) shall be released to Buyer. If, at the end of
the Cure Period, Seller and Buyer are unable to agree whether there has been a
satisfactory resolution of a Post-Closing Defect, then such disagreement shall
be resolved as provided in Section 8.3.
 
Section 8.5.                                Buyer Indemnification.     BUYER
HEREBY INDEMNIFIES AND SHALL DEFEND AND HOLD SELLER, AFFILIATES THEREOF, AND ITS
AND THEIR RESPECTIVE OWNERS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
REPRESENTATIVES, CONTRACTORS, SUCCESSORS, AND ASSIGNS HARMLESS FROM AND AGAINST
ANY AND ALL OF THE FOLLOWING CLAIMS ARISING FROM BUYER'S INSPECTING AND
OBSERVING THE PROPERTIES:  (I) CLAIMS FOR PERSONAL INJURIES TO OR DEATH OF
EMPLOYEES OF BUYER, ITS CONTRACTORS, AGENTS, CONSULTANTS, AND REPRESENTATIVES,
AND DAMAGE TO THE PROPERTY OF BUYER OR OTHERS ACTING ON BEHALF OF BUYER, EXCEPT
FOR INJURIES OR DEATH CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF
SELLER, AFFILIATES THEREOF OR ITS OR THEIR RESPECTIVE EMPLOYEES, CONTRACTORS,
AGENTS, CONSULTANTS, OR REPRESENTATIVES; AND (II) CLAIMS FOR PERSONAL INJURIES
TO OR DEATH OF EMPLOYEES OF SELLER OR THIRD PARTIES, AND DAMAGE TO THE PROPERTY
OF SELLER OR THIRD PARTIES, TO THE EXTENT CAUSED BY THE NEGLIGENCE, GROSS
NEGLIGENCE, OR WILLFUL MISCONDUCT OF BUYER.  TO THE EXTENT PROVIDED ABOVE, THE
FOREGOING INDEMNITY INCLUDES, AND THE PARTIES INTEND IT TO INCLUDE, AN
INDEMNIFICATION OF THE INDEMNIFIED PARTIES FROM AND
 
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AGAINST CLAIMS ARISING OUT OF OR RESULTING, IN WHOLE OR PART, FROM THE CONDITION
OF THE PROPERTY OR THE SOLE, JOINT, COMPARATIVE, OR CONCURRENT NEGLIGENCE OR
STRICT LIABILITY OF ANY OF THE INDEMNIFIED PARTIES.  THE PARTIES HERETO AGREE
THAT THE FOREGOING COMPLIES WITH THE EXPRESS NEGLIGENCE RULE AND IS CONSPICUOUS.
 
ARTICLE IX
Conditions Precedent to the Obligations of the Parties
 
Section 9.1.                                Conditions Precedent to the
Obligations of Buyer.     The obligations of Buyer under this Agreement are
subject to each of the following conditions being met:
 
(a)           Each of the representations and warranties of Seller contained in
this Agreement shall be true and correct in all material respects as of the date
made and (having been deemed to have been made again on and as of the Closing
Date in the same language) on and as of the Closing Date as if made on and as of
such date, except (i) as affected by transactions contemplated or permitted by
this Agreement, (ii) to the extent that any such representation or warranty is
made as of a specified date, in which case such representation or warranty shall
have been true and correct in all material respects as of such specified date,
and (iii) any such inaccuracies or breaches which, in the aggregate, have not
had or could not reasonably be expected to have, a Material Adverse Effect.
 
(b)           Seller shall have performed and complied in all material respects
with (or compliance therewith shall have been waived in writing by Buyer) each
and every covenant, agreement and condition required by this Agreement to be
performed or complied with by Seller prior to or at the Closing.
 
(c)           Seller shall have delivered a certificate executed by the
president of Seller dated the Closing Date, representing and certifying in such
detail as Buyer may reasonably request that the conditions set forth in
subsections (a) and (b) above have been fulfilled and certifying on behalf of
Seller the incumbency of each individual on behalf of Seller executing this
Agreement or any document delivered in connection with the Closing.
 
(d)           No Proceeding (excluding any Proceeding initiated by Buyer or any
of its affiliates) shall, on the Closing Date, be pending or threatened before
any Governmental Entity or arbitration seeking to restrain, prohibit, or obtain
damages or other relief in connection with the consummation (in whole or in
part) of the transactions contemplated by this Agreement.
 
(e)           Buyer shall have received a release of Liens with respect to the
Properties, executed in recordable form by the Senior Lender, and in form and
substance agreeable to Buyer delivered on or before the Closing.
 
(f)           Buyer shall have received an assignment of the Properties executed
and delivered by Seller, which assignment shall be substantially in the form of
the instrument attached hereto as Exhibit 9.1(f) in all material respects (the
"Assignment"), delivered at Closing.
 
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(g)           Buyer shall have received a certificate of non-foreign status in
form, date and content reasonably acceptable to Buyer, executed and delivered by
Seller pursuant to Section 1445 of the Code and the regulations promulgated
thereunder.
 
(h)           Buyer shall have received all other agreements, instruments and
documents which are required by other terms of this Agreement to be executed or
delivered by Seller or any other party to Buyer prior to or in connection with
the Closing.
 
(i)           Seller shall have delivered a preliminary accounting statement,
which preliminary accounting statement shall consist only of those adjustments
agreed to (or deemed agreed to) in accordance with this Agreement.
 
(j)           Seller shall have delivered a certificate (duly executed by the
secretary or any assistant secretary of Seller or otherwise by any authorized
individual for Seller) on behalf of Seller, dated as of the Closing, attaching
and certifying on behalf of Seller as complete and correct, copies of the
resolutions authorizing the execution, delivery and performance by Seller of
this Agreement and the transactions contemplated hereby.
 
(k)           Seller shall execute, acknowledge and deliver to Buyer letters in
lieu of transfer or division orders directing all purchasers of production from
the subject Properties to make payment of proceeds attributable to such
production from and after the Effective Date to Buyer.
 
(l)           Seller shall deliver to Buyer appropriate change of operator forms
on those Properties operated by Seller and which operatorships can be
transferred to Buyer at Closing.
 
Section 9.2.                                Conditions Precedent to the
Obligations of Seller.     The obligations of Seller under this Agreement are
subject to each of the following conditions being met:
 
(a)           Each of the representations and warranties of Buyer contained in
this Agreement shall be true and correct in all material respects as of the date
made and (having been deemed to have been made again on and as of the Closing
Date in the same language) on and as of the Closing Date, except as affected by
transactions permitted by this Agreement and except to the extent that any such
representation or warranty is made as of a specified date, in which case such
representation or warranty shall have been true and correct in all material
respects as of such specified date.
 
(b)           Buyer shall have performed and complied in all material respects
with (or compliance therewith shall have been waived by Seller) each and every
covenant, agreement and condition required by this Agreement to be performed or
complied with by Buyer prior to or at the Closing.
 
(c)           No Proceeding (excluding any Proceeding initiated by Seller or any
of its affiliates) shall, on the Closing Date, be pending or threatened before
any Governmental Entity seeking to restrain, prohibit, or obtain damages or
other relief in connection with the consummation of the transactions
contemplated by this Agreement.
 
(d)           Seller shall have received all other agreements, instruments and
documents which are required by other terms of this Agreement to be executed or
delivered by Buyer or any other party to Seller prior to or in connection with
the Closing.
 
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ARTICLE X
Termination, Amendment and Waiver
 
Section 10.1.                                Termination.     This Agreement may
be terminated and the transactions contemplated hereby abandoned at any time
prior to the Closing in the following manner:
 
(a)           by mutual written consent of Seller and Buyer; or
 
(b)           by either Seller or Buyer, if:
 
(i)           the Closing shall not have occurred on or before 5:00 p.m., local
Houston, Texas time, on or before October 11, 2007, unless such failure to close
shall be due to a breach of this Agreement by the party seeking to terminate
this Agreement pursuant to this clause (i); or
 
(ii)           there shall be any statute, rule, or regulation that makes
consummation of the transactions contemplated hereby illegal or otherwise
prohibited or a Governmental Entity shall have issued an order, decree, or
ruling or taken any other action permanently restraining, enjoining, or
otherwise prohibiting the consummation of the transactions contemplated hereby,
and such order, decree, ruling, or other action shall have become final and
nonappealable; or
 
(c)           by Buyer or Seller, if the aggregate amount of the Title Defect
Amounts and the Environmental Defect Values exceeds ten percent of the Purchase
Price; or
 
(d)           by Seller, if (i) there shall be a material breach of any
representation and warranty of Buyer contained in Article V, or (ii) there shall
be a material breach by Buyer of any of its covenants and agreements contained
in this Agreement, which breach, in the case of clause (i) or clause (ii), is
not capable of being cured or, if it is capable of being cured, has not been
cured by the 5th Business Day following written notice to Buyer from the Seller
of such breach; or
 
(e)           by Buyer, if (i) there shall be a material breach of any
representation and warranty of Seller contained in Article IV, other than any
such breaches which, in the aggregate, have not had or could not reasonably be
expected to have a Material Adverse Effect, or (ii) there shall be a material
breach by Seller of any of its covenants and agreements contained in this
Agreement, which breach, in the case of clause (i) or clause (ii), is not
capable of being cured or, if it is capable of being cured, has not been cured
by the 5th Business Day following written notice to Seller from Buyer of such
breach.
 
Section 10.2.                                Effect of Termination.     In the
event of the termination of this Agreement pursuant to Section 10.1 by Seller,
on the one hand, or Buyer, on the other, written notice thereof shall forthwith
be given to the other party or parties specifying the provision hereof pursuant
to which such termination is made, and this Agreement shall become void and have
no effect, except that the agreements contained in this Article X, in
Sections 7.4, 7.5 and 8.5 and in Articles XII and XIII shall survive the
termination hereof.  Nothing contained in this Section 10.2 shall relieve any
party from liability for damages actually incurred as a result of any breach of
this Agreement.  If this Agreement is terminated by Seller pursuant to
(i) Section 10.1(b)(i) (and Buyer is in material breach of this Agreement) or
(ii) Section 10.1(d), Seller shall be
 
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entitled to the Deposit.  If this Agreement is terminated under Section 10.1 for
any other reason, the Deposit shall be returned to Buyer.
 
Section 10.3.                                Amendment.     This Agreement may
not be amended except by an instrument in writing signed by or on behalf of all
the parties hereto.
 
Section 10.4.                                Waiver.     Seller, on the one
hand, or Buyer, on the other, may:  (i) waive any inaccuracies in the
representations and warranties of the other contained herein or in any document,
certificate, or writing delivered pursuant hereto, or (ii) waive compliance by
the other with any of the other's agreements or fulfillment of any conditions to
its own obligations contained herein.  Any agreement on the part of a party
hereto to any such waiver shall be valid only if set forth in an instrument in
writing signed by or on behalf of such party.  No failure or delay by a party
hereto in exercising any right, power, or privilege hereunder shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power, or
privilege.
 
ARTICLE XI
Survival of Representations, Warranties and Covenants; Indemnification
 
Section 11.1.                                Survival.
 
(a)           The representations and warranties of the parties hereto contained
in this Agreement shall terminate at Closing except that the representations
made by Seller pursuant to Article IV, and the representations and warranties
made by Buyer pursuant to Article V shall survive the Closing and shall remain
in effect thereafter for the period that an Indemnified Party is entitled to
indemnification based on a breach of such representation or warranty contained
in this Article XI.
 
(b)           No party hereto shall have any indemnification obligation pursuant
to this Article XI or otherwise in respect of any representation, warranty or
covenant unless (i) it shall have received from the party seeking
indemnification written notice of the existence of the claim for or in respect
of which indemnification in respect of such representation, warranty or covenant
is being sought and (ii) if applicable, such notice is received on or before the
Survival Date.  Such notice shall set forth with reasonable specificity (i) the
basis under this Agreement, and the facts that otherwise form the basis of such
claim, (ii) the estimate (to the extent it is possible to estimate same) of the
amount of such claim (which estimate shall not be conclusive of the final amount
of such claim) and an explanation of the calculation of such estimate, including
a statement of any significant assumptions employed therein, and (iii) the date
on and manner in which the party delivering such notice became aware of the
existence of such claim.
 
Section 11.2.                                Seller's Indemnification
Obligations.     Seller shall, on the date of Closing, agree (and, upon delivery
to Buyer of the Assignment, shall be deemed to have agreed), subject to the
limitations and procedures contained in this Article XI, following the Closing,
to indemnify and hold Buyer, its Affiliates and its and their respective
successors and permitted assigns and all of their respective stockholders,
partners, members, managers, directors, officer, employees, agents and
representatives harmless from and against any and all claims, obligations,
actions, liabilities, damages or expenses (collectively, "Buyer's Losses"):
 
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resulting from a breach of any of the representations or warranties made by
Seller in Article IV (other than pursuant to Section 4.1, 4.2, 4.3, 4.4, 4.5,
4.17, or 4.19);
 
(a)           resulting from a breach of any of the representations or
warranties made by Seller in Section 4.19;
 
(b)           arising out of claims for royalties, rentals, Taxes (or other loss
burdens on production of any kind) attributable to Seller's ownership of the
Properties before the Effective Date;
 
(c)           relating to the Excluded Assets; or
 
(d)           resulting from a breach of any of the representations or
warranties made by Seller in Section 4.1, 4.2, 4.3, 4.4, 4.5, or  4.17.
 
provided, however, that Seller's indemnification obligations for Buyer's Losses
under Section 11.2(a), (b), and (c) shall expire on the one-year anniversary of
the Closing Date (the "Survival Date"), except for Buyer's Losses for which a
notice is received by Seller as provided in this Agreement prior to such date.
 
Section 11.3.                                Buyer's Indemnification
Obligations.    Buyer shall, on the date of Closing, agree (and, upon delivery
to Buyer of the Assignment, shall be deemed to have agreed), subject to the
limitations and procedures contained in this Article XI, following the Closing,
to indemnify and hold Seller, its Affiliates and its and their respective
successors and permitted assigns and all of their respective stockholders,
partners, members, managers, directors, officer, employees, agents and
representatives harmless from and against any and all claims, obligations,
actions, liabilities, damages, costs or expenses, (collectively, "Seller's
Losses"):
 
(a)           resulting from any misrepresentation or breach of any warranty,
covenant or agreement of Buyer contained in this Agreement or any certificate
delivered by Buyer at the Closing; or
 
(b)           relating to the Assumed Obligations;
 
provided, however, that Buyer's indemnification obligations for Seller's Losses
under Section 11.3(a) shall expire on the Survival Date, except for Seller's
Losses for which a notice is received by Buyer as provided in this Agreement
prior to such date; and further provided, however, that Buyer's indemnification
obligations for Seller's Losses under Section 11.3(b) shall not expire but shall
remain in effect until such Assumed Obligations are fully satisfied.
 
Section 11.4.                                Net Amounts.     Any amounts
recoverable by any party pursuant to this Article XI with respect to any Buyer's
Losses or Seller's Losses, as the case may be, shall be increased by any net tax
costs to the Indemnified Party (Taxes incurred with respect to any indemnity
payment less tax benefits resulting from the circumstances serving as the basis
for such Buyer's Loss or Seller's Loss, as the case may be) and shall be
decreased by (i) any net tax benefit to the Indemnified Party (tax benefits less
Taxes incurred, as calculated above), and (ii) insurance proceeds or other
amounts relating to such Buyer's Loss or Seller's Loss, as the case may be, paid
to such Indemnified Party by any Person (other than any Affiliate of such
Indemnified Party) not a party to this Agreement.
 
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     Section 11.5.         Indemnification Proceedings.     In the event that
any claim or demand for which a party (an "Indemnifying Party"), would be liable
to the another party under Section 11.2 or Section 11.3 (an "Indemnified Party")
is asserted against or sought to be collected from an Indemnified Party by a
third party, the Indemnified Party shall with reasonable promptness notify the
Indemnifying Party of such claim or demand, but the failure so to notify the
Indemnifying Party shall not relieve the Indemnifying Party of its obligations
under this Article XI, except to the extent the Indemnifying Party demonstrates
that the defense of such claim or demand is materially prejudiced thereby.  The
Indemnifying Party shall have 30 days from receipt of the above notice from the
Indemnified Party (in this Section 11.5, the "Notice Period") to notify the
Indemnified Party whether or not the Indemnifying Party desires, at the
Indemnifying Party's sole cost and expense, to defend the Indemnified Party
against such claim or demand; provided, that the Indemnified Party is hereby
authorized prior to and during the Notice Period to file any motion, answer or
other pleading that it shall deem necessary or appropriate to protect its
interests or those of the Indemnifying Party and not prejudicial to the
Indemnifying Party.  If the Indemnifying Party elects to assume the defense of
any such claim or demand, the Indemnified Party shall have the right to employ
separate counsel at its own expense and to participate in the defense
thereof.  If the Indemnifying Party elects not to assume the defense of such
claim or demand (or fails to give notice to the Indemnified Party during the
Notice Period), the Indemnified Party shall be entitled to assume the defense of
such claim or demand with counsel of its own choice, at the expense of the
Indemnifying Party.  If the claim or demand is asserted against both the
Indemnifying Party and the Indemnified Party and based on the advice of counsel
reasonably satisfactory to the Indemnifying Party it is determined that there is
a conflict of interest which renders it inappropriate for the same counsel to
represent both the Indemnifying Party and the Indemnified Party, the
Indemnifying Party shall be responsible for paying separate counsel for the
Indemnified Party; provided, however, that the Indemnifying Party shall not be
responsible for paying for more than one separate firm of attorneys to represent
all of the Indemnified Parties, regardless of the number of Indemnified
Parties.  If the Indemnifying Party elects to assume the defense of such claim
or demand, (i) no compromise or settlement thereof may be effected by the
Indemnifying Party without the Indemnified Party's written consent (which shall
not be unreasonably withheld) unless the sole relief provided is monetary
damages that are paid in full by the Indemnifying Party and (ii) the
Indemnifying Party shall have no liability with respect to any compromise or
settlement thereof effected without its written consent (which shall not be
unreasonably withheld).
 
Section 11.6.                                Indemnification Exclusive
Remedy.     Indemnification pursuant to the provisions of this Article XI shall
be the exclusive remedy of the parties hereto for any misrepresentation or
breach of any warranty, covenant or agreement contained in this Agreement or in
any closing document executed and delivered pursuant to the provisions hereof or
thereof, or any other claim arising out of the transactions contemplated by this
Agreement.
 
Section 11.7.                                Limited to Actual Damages.     The
indemnification obligations of the parties pursuant to this Article XI shall be
limited to actual Buyer's Losses or Seller's Losses, as the case may be, and
shall not include incidental, consequential, indirect, punitive, or exemplary
damages, provided that any incidental, consequential, indirect, punitive, or
exemplary damages recovered by a third party (including a Governmental Entity,
but excluding any Affiliate of any party) against a party entitled to indemnity
pursuant to this Article XI shall be included in the damages recoverable under
such indemnity.
 
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    Section 11.8.            Indemnification Despite Negligence.     It is the
express intention of the parties hereto that each party to be indemnified
pursuant to this Article XI shall be indemnified and held harmless from and
against all Buyer's Losses or Seller's Losses, as the case may be, as to which
indemnity is provided for under this Article XI, notwithstanding that any such
damages arise out of or result from the ordinary, strict, sole, or contributory
negligence of such party and regardless of whether any other party (including
the other parties to this Agreement) is or is not also negligent.  The parties
hereto acknowledge that the foregoing complies with the express negligence rule
and is conspicuous.
 
Section 11.9.                                Limits on Liability.
 
(a)           Notwithstanding anything herein to the contrary, Seller shall have
no obligation or liability to indemnify Buyer under Section 11.2(a) unless and
until the aggregate amount of Buyer's Losses under such Section exceed
$1,000,000; provided, however, that once the amount of Buyer's Losses exceeds
$1,000,000, Seller shall be obligated to indemnify Buyer to the full extent of
such Buyer's Losses.
 
(b)           Notwithstanding anything herein to the contrary, Seller shall have
no obligation or liability to indemnify Buyer under Section 11.2(b) unless and
until the sum of (i) the aggregate amount of Buyer's Losses under such Section
plus (ii) the aggregate Environmental Defect Values attributable to the
Pre-Closing Deductible Subject Environmental Defects exceed $1,000,000, and then
only to the extent the amount of such Buyer's Losses and Pre-Closing Deductible
Subject Environmental Defects exceed $1,000,000.
 
(c)           Notwithstanding anything herein to the contrary, Seller's
obligation to indemnify Buyer under Section 11.2(a), (b) or (c) shall terminate
and be of no further force and effect at such time as Seller has indemnified
Buyer for Buyer's Losses under Sections 11.2(a), (b) and (c) in an aggregate
amount equal to $5,000,000.
 
ARTICLE XII
Miscellaneous Matters
 
Section 12.1.                                Notices.     All notices, requests,
demands, and other communications required or permitted to be given or made
hereunder by any party hereto shall be in writing and shall be deemed to have
been duly given or made if (i) delivered personally, (ii) transmitted by first
class registered or certified mail, postage prepaid, return receipt requested,
(iii) sent by a recognized prepaid overnight courier service (which provides a
receipt), or (iv) sent by facsimile transmission, with receipt acknowledged, to
the parties at the following addresses (or at such other addresses as shall be
specified by the parties by like notice):
 
 
If to Seller:

 
 
Escondido Resources LP

 
526 Kingwood Drive, #353

 
Kingwood, Texas  77339-4473

 
Attention:  William E. Deupree

 
Fax No.:  281-359-6780

 
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With , prior to Closing, a copy to (which shall not constitute notice to
Seller):

 
 
Thompson & Knight LLP

 
333 Clay Street, Suite 3300

 
Houston, Texas  77002

 
Attention:  Michael K. Pierce and Sarah E. McLean

 
Fax No.:  Pierce—832-397-8049 and McLean—832-397-8062

 
 
If to Buyer:

 
 
Swift Energy Operating, LLC

 
16825 Northchase Drive, Suite 400

 
Houston, Texas 77060

 
Attention:  James P. Mitchell

 
Fax No.:  281-874-2808

 
 
With, prior to Closing, a copy to (which shall not constitute notice to Buyer):

 
 
Swift Energy Operating, LLC

 
16825 Northchase Drive, Suite 400

 
Houston, Texas 77060

 
Attention:  Larry Baillargeon

 
Fax No.:  281-874-2808

 
Such notices, requests, demands, and other communications shall be effective
upon receipt.
 
Section 12.2.                                Entire Agreement.     This
Agreement, the Seller's Disclosure Schedule, together with the Exhibits, and
other writings referred to herein or delivered pursuant hereto, constitute the
entire agreement between the parties hereto with respect to the subject matter
hereof and supersede all prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter hereof.
 
Section 12.3.                                Injunctive Relief.     The parties
hereto acknowledge and agree that irreparable damage would occur in the event
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached.  It is accordingly agreed that
the parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement, and shall be entitled to enforce
specifically the provisions of this Agreement, in any court of the United States
or any state thereof having jurisdiction, in addition to any other remedy to
which the parties may be entitled under this Agreement or at law or in equity.
 
Section 12.4.                                Binding Effect; Assignment; No
Third Party Benefit.     This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, legal representatives,
successors, and permitted assigns.  Except as otherwise expressly provided in
this Agreement, neither this Agreement nor any of the rights, interests, or
obligations hereunder shall be assigned by any of the parties hereto without the
prior written consent of the other parties.  Except as provided in Section 8.5
and Article XI, nothing in this Agreement, express or implied, is intended to or
shall confer upon any Person other than the parties hereto,
 
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and their respective heirs, legal representatives, successors, and permitted
assigns, any rights, benefits, or remedies of any nature whatsoever under or by
reason of this Agreement.
 
Section 12.5.                                Severability.     If any provision
of this Agreement is held to be unenforceable, this Agreement shall be
considered divisible and such provision shall be deemed inoperative to the
extent it is deemed unenforceable, and in all other respects this Agreement
shall remain in full force and effect; provided, however, that if any such
provision may be made enforceable by limitation thereof, then such provision
shall be deemed to be so limited and shall be enforceable to the maximum extent
permitted by Applicable Law.
 
Section 12.6.                                GOVERNING LAW.     THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL
LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF
LAWS THEREOF.
 
Section 12.7.                                Counterparts.     This instrument
may be executed in any number of identical counterparts, each of which for all
purposes shall be deemed an original, and all of which shall constitute
collectively, one instrument.  It is not necessary that each party hereto
execute the same counterpart so long as identical counterparts are executed by
each such party hereto.  This instrument may be validly executed and delivered
by facsimile or other electronic transmission.
 
Section 12.8.                                WAIVER OF CONSUMER RIGHTS.   
 BUYER HEREBY WAIVES ITS RIGHTS UNDER THE TEXAS DECEPTIVE TRADE
PRACTICES-CONSUMER PROTECTION ACT, SECTION 17.41 ET SEQ., BUSINESS AND COMMERCE
CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND PROTECTIONS, AND ANY SIMILAR
LAW IN ANY OTHER STATE TO THE EXTENT SUCH ACT OR SIMILAR LAW WOULD OTHERWISE
APPLY.  AFTER CONSULTATION WITH AN ATTORNEY OF BUYER'S OWN SELECTION, BUYER
VOLUNTARILY CONSENTS TO THIS WAIVER.
 
Section 12.9.                                Competition.     Seller, William E.
Deupree, Mark Semmelbeck, J. David Wrather, and Kurt von Plonski (each, a
"Restricted Person") each agree that it will not, directly or indirectly, for a
period of eighteen months from the Closing Date (the "Restricted Period"),
purchase or otherwise acquire any Lease within one mile of the boundary of any
of the Properties being acquired and listed on Exhibit I.  In the event a
Restricted Person does acquire, directly or indirectly, such a Lease during the
Restricted Period, such Restricted Person hereby grants to Buyer the irrevocable
option to purchase for cash all of Seller's rights, title, and interest in such
Lease for an amount equal to the actual price paid by Seller to purchase or
acquire such Lease, plus the reasonable out-of-pocket costs and expenses
incurred by such Restricted Person to purchase such Lease.
 
ARTICLE XIII
Definitions and References
 
Section 13.1.                                Certain Defined Terms.     When
used in this Agreement, the following terms shall have the respective meanings
assigned to them in this Section 13.1:
 
"AAA" means the American Arbitration Association.
 
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"Affiliate" means any Person directly or indirectly controlling, controlled by
or under common control with a Person.
 
"Agreement" means this Asset Purchase and Sale Agreement, as hereafter amended
or modified in accordance with the terms hereof.
 
"Applicable Law" means any statute, law, principle of common law, rule,
regulation, judgment, order, ordinance, requirement, code, writ, injunction, or
decree of any Governmental Entity, exclusive of Environmental Laws.
 
"Assumed Obligations" means (i) the obligation to (x) plug and abandon or remove
and dispose of all wells, platforms, structures, flow lines, pipelines and other
equipment, hits and holding ponds now or hereafter located on the Oil and Gas
Properties (but only where such action is required by Applicable Law,
Environmental Law, or third party agreements), (y) cap and bury all flow lines
and other pipelines now or hereafter located on the Oil and Gas Properties (but
only where such action is required by Applicable Law, Environmental Law, or
third party agreements), and (z) remedy all Environmental Liabilities with
respect to the Properties, including any actual or potential NORM contamination
or chloride or other contamination of groundwater; (ii) all obligations and
liabilities arising from or in connection with any Imbalances, whether before,
on or after the Effective Date; and (iii) without limiting the foregoing, all
costs, obligations, and liabilities that arise under or otherwise relate to the
Properties, whether before, on or after the Effective Date; provided, that
Assumed Obligations does not mean or include Seller's obligations and
liabilities (x) under the Senior Credit Facility or any amounts that may be due
and owing Seller's officers, employees or owners or (y) with respect to the
Excluded Assets.
 
"Authorized Buyer Representative" means any of (i) James Mitchell, (ii) Adrian
Shelley, or (iii) any other individual designated in a writing from Buyer to the
Joint Account Holder and Seller.
 
"Authorized Seller Representative" means any of (i) William E. Deupree, (ii) J.
David Wrather, or (iii) any other individual designated in a writing from Seller
to the Joint Account Holder and Buyer
 
"Business Day" means a day other than a Saturday, Sunday or day on which
commercial banks in the State of Texas are authorized or required to be closed
for business.
 
"Code" means the Internal Revenue Code of 1986, or any comparable successor
statute thereto, as amended.
 
"Confidentiality Agreement" means that certain Confidentiality Agreement by and
between Seller and Buyer dated July 20, 2007.
 
"Dollars" or "$" means U.S. Dollars.
 
"Effective Date" means 7:00 a.m., local time at the location of the Properties,
on July 1, 2007.
 
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"Environmental Laws" means all national, state, municipal or local laws, rules,
regulations, statutes, ordinances or orders of any Governmental Entity
pertaining to the protection of human health or the environment, including the
Comprehensive Environmental Response, Compensation and Liability Act, as amended
by the Superfund Amendments and Reauthorization Act, 42 U.S.C. § 9601 et seq.
("CERCLA"), the Solid Waste Disposal Act, as amended by the Resource
Conservation and Recovery Act, 42 U.S.C. § 6901 et seq., the Federal Water
Pollution Control Act, as amended by the Clean Water Act, 33 U.S.C. § 1251 et
seq., the Clean Air Act, 42 U.S.C. §7401 et seq., the Toxic Substances Control
Act, 15 U.S.C. § 2601 et seq., and any similar state or local statutes.
 
"Environmental Liabilities" means any and all damages whether accrued or
unaccrued, whether currently claimed or yet to be claimed (including any
remedial, removal, response, abatement, clean-up, investigation and/or
monitoring costs and associated legal costs) incurred or imposed (a) pursuant to
any agreement order, notice of responsibility, directive (including directives
embodied in Environmental Laws), injunctions, judgment or similar documents
(including settlements) arising out of, in connection with, or under
Environmental Laws, or (b) pursuant to any claim by a Governmental Entity or any
other Person for personal injury, property damage, damage to natural resources,
remediation, or payment or reimbursement of response costs incurred or expended
by such Governmental Entity or other Person pursuant to common law or statute
and related to the use or release of Hazardous Materials.
 
"Existing Hedges" mean any Hedges affecting the Properties on the date hereof or
the Closing Date.
 
"Governing Documents" means, when used with respect to an entity, the documents
governing the formation and operation of such entity, including (i) in the
instance of a corporation, the articles or incorporation and bylaws of such
corporation, (ii) in the instance of a partnership, the partnership agreement,
and (iii) in the instance of a limited liability company, the certificate of
formation and limited liability company agreement.
 
"Governmental Entity" means any court or tribunal in any jurisdiction (domestic
or foreign) or any federal, state, county, municipal or other governmental or
quasi-governmental body, agency, authority, department, board, commission,
bureau or instrumentality.
 
"Hazardous Materials" means (i) any substance or material that is listed,
defined or otherwise designated as a "hazardous substance" under Section 101(14)
of CERCLA, (ii) any petroleum or petroleum products, (iii) radioactive
materials, urea formaldehyde, asbestos and PCBs and (iv) any other chemical
substance or waste that is regulated by any Governmental Entity under any
Environmental Law.
 
"Hedge" means any future derivative, swap, collar, put, call, cap, option or
other contract that is intended to benefit from, relate to, or reduce or
eliminate the risk of fluctuations in interest rates, basis risk or the price of
commodities, including Hydrocarbons.
 
"Hydrocarbons" means oil, gas, other liquid or gaseous hydrocarbons, or any of
them or any combination thereof, and all products and substances extracted,
separated, processed and produced therefrom.
 
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"Imbalances" means gas production, pipeline, storage, processing or other
imbalance attributable to substances produced from the Oil and Gas Properties.
 
"Joint Account" means one or more (as determined by Buyer and Seller) interest
bearing accounts to be established and maintained with the Joint Account Holder,
which account shall require the signatures of both (i) an Authorized Buyer
Representative and (ii) an Authorized Seller Representative in order to transfer
therefrom any of the funds held therein.
 
"Joint Account Holder" means (i) Wells Fargo Bank, N.A., Houston, Texas, (ii)
such other bank as shall be mutually agreed upon by Buyer and Seller in writing
or (iii) any successor to the bank referenced in either clause (i) or clause
(ii).
 
"Knowledge" means, with respect to Seller, the actual knowledge of any of the
officers of Seller and, with respect to Buyer, the actual knowledge of any of
the officers of Buyer.
 
"Lease" means an oil, gas or mineral lease, a leasehold estate, operating rights
and other rights authorizing the owner thereof to explore or drill for and
produce Hydrocarbons and other minerals, contractual rights to acquire any such
of the foregoing interest, which have been earned by performance.
 
"Lien" means any claim, lien, mortgage, security interest, pledge, charge,
option, right-of-way, easement, encroachment, or encumbrance of any kind.
 
"Material Adverse Effect" means any change, development, or effect (individually
or in the aggregate) which is, or is reasonably likely to be, materially adverse
(i) to the business, assets, results of operations or condition (financial or
otherwise) of a party, or (ii) to the ability of a party to perform on a timely
basis any material obligation under this Agreement or any agreement, instrument,
or document entered into or delivered in connection herewith; provided, however,
that changes, developments or effects relating to (x) the economy in general
(including any effects on the economy arising as a result of acts of terrorism),
(y) changes in Hydrocarbon commodity prices or other changes affecting the U.S.
oil and gas industry generally, or (z) the announcement of the transactions
contemplated hereby, shall not be deemed to constitute a Material Adverse Effect
with respect to Seller and shall not be considered in determining whether a
Material Adverse Effect has occurred with respect to Seller.
 
"Net Revenue Interest" means an interest (expressed as a percentage or decimal
fraction) in and to all Hydrocarbons produced and saved from or attributable to
an Oil and Gas Property.
 
"Permits" means licenses, permits, franchises, consents, approvals, variances,
exemptions, and other authorizations of or from Governmental Entities.
 
"Person" means any individual, corporation, partnership, limited liability
company (or similar entity), joint venture, association, joint-stock company,
trust, enterprise, unincorporated organization, or Governmental Entity.
 
"Pre-Closing Deductible Subject Environmental Defect" means an Environmental
Defect that was asserted by Buyer pursuant to Section 8.3(c) but for which no
adjustment to the Purchase Price was made as a result of the provisions of
Section 8.4(b).
 
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"Proceedings" means all proceedings, actions, claims, suits, investigations, and
inquiries by or before any arbitrator or Governmental Entity.
 
"Reasonable Best Efforts" means a party's reasonable best efforts in accordance
with reasonable commercial practice.
 
"Securities Act" shall mean the Securities Act of 1933, as amended, and all
rules and regulations under such Act.
 
"Seller's Disclosure Schedule" shall mean a schedule delivered by Seller to
Buyer on the date hereof which sets forth additional information regarding the
representations and warranties of Seller contained herein and information called
for hereby.
 
"Senior Credit Facility" means Seller's Credit Agreement as listed in Section
4.7 of the Seller's Disclosure Schedule.
 
"Senior Lender" means the lenders party to the Senior Credit Facility.
 
"Tax Returns" mean any return, report, statement, form or similar statement
required to be filed with respect to any Taxes (including any attached
schedules), including  any information return, claim for refund, amended return
or declaration of estimated Taxes.
 
"Taxes" means any income taxes or similar assessments or any sales, excise,
occupation, use, ad valorem, property, production, severance, transportation,
employment, payroll, franchise, or other tax imposed by any United States
federal, state, or local (or any foreign or provincial) taxing authority,
including any interest, penalties, or additions attributable thereto.
 
"Working Interest" means the percentage of costs and expenses attributable to
the maintenance, development and operation of an Oil and Gas Property.
 
Section 13.2.                                Certain Additional Defined Terms.
 
  In addition to such terms as are defined in the preamble to this Agreement and
in Section 13.1, the following terms are used in this Agreement as defined in
the Articles or Sections set forth opposite such terms:
 
Defined Term
Reference
Accounting Dispute
Section 2.3(c)
Accounting Referee
Section 2.3(c)
Adjusted Purchase Price
Section 2.1
Allocated Value
Section 8.1(c)(i)
Assignment
Section 9.1(f)
Basic Documents
Section 4.7
Buyer's Environmental Consultant
Section 8.2(a)
Buyer's Environmental Review
Section 8.2(a)
Buyer's Losses
Section 11.2
Buyer's Title Review
Section 8.1(a)
Closing
Article III
Closing Date
Article III
Cure Period
Section 8.4(c)
Defect Dispute
Section 8.3

 
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Defensible Title
Section 8.1(d)(i)
Deposit
Section 2.4(a)
Environmental Defect
Section 8.2(e)(i)
Environmental Defect Notice
Section 8.2(c)
Environmental Defect Value
Section 8.2(e)(ii)
Environmental Information
Section 8.2(b)
Examination Period
Section 8.1(a)
Excluded Assets
Section 1.2
Indemnified Party
Section 11.5
Indemnifying Party
Section 11.5
Independent Expert
Section 8.3
Notice Period
Section 11.5
Oil and Gas Properties
Section 1.1
Permitted Encumbrances
Section 8.1(d)(ii)
Post-Closing Defect
Section 8.4(c)
Properties
Section 1.1
Purchase Price
Section 2.1
Records
Section 1.1(f)
Remedies for Title Defects
Section 8.1(b)
Request Date
Section 2.3(c)
Required Payee
Section 7.13
Restricted Period
Section 12.9
Restricted Person
Section 12.9
Rules
Section 8.3
Scheduled Production Sales Contracts
Section 4.9
Seller's Losses
Section 11.3
Suspended Proceeds
Section 7.10
Survival Date
Section 11.2
Title Defect
Section 8.1(d)(iii)
Title Defect Amount
Section 8.1(c)
Title Defect Notice
Section 8.1(b)
Title Defect Property
Section 8.1(b)

 
Section 13.3.                                References, Titles and
Construction.
 
(a)           All references in this Agreement to articles, sections,
subsections and other subdivisions refer to corresponding articles, sections,
subsections and other subdivisions of this Agreement unless expressly provided
otherwise.
 
(b)           Titles appearing at the beginning of any of such subdivisions are
for convenience only and shall not constitute part of such subdivisions and
shall be disregarded in construing the language contained in such subdivisions.
 
(c)           The words "this Agreement", "this instrument", "herein", "hereof",
"hereby", "hereunder" and words of similar import refer to this Agreement as a
whole and not to any particular subdivision unless expressly so limited.
 
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(d)           Words in the singular form shall be construed to include the
plural and viceversa, unless the context otherwise requires.  Pronouns in
masculine, feminine and neuter genders shall be construed to include any other
gender.
 
(e)           Unless the context otherwise requires or unless otherwise provided
herein, the terms defined in this Agreement which refer to a particular
agreement, instrument or document also refer to and include all renewals,
extensions, modifications, amendments or restatements of such agreement,
instrument or document, provided that nothing contained in this subsection shall
be construed to authorize such renewal, extension, modification, amendment or
restatement.
 
(f)           Examples shall not be construed to limit, expressly or by
implication, the matter they illustrate.
 
(g)           The word "or" is not intended to be exclusive and the word
"includes" and its derivatives means "includes, but is not limited to" and
corresponding derivative expressions.
 
(h)           No consideration shall be given to the fact or presumption that
one party had a greater or lesser hand in drafting this Agreement.
 
(i)           All references herein to "$" or "dollars" shall refer to U.S.
Dollars.
 
(j)           Exhibits I, 1.2, 8.1(c), and 9.1(f) are attached hereto.  Each
such Exhibit is incorporated herein by reference for all purposes and references
to this Agreement shall also include such Exhibit unless the context in which
used shall otherwise require.
 
 
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
 
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IN WITNESS WHEREOF, this Agreement is executed by the parties hereto on the date
set forth above.
 
SELLER:
 
 
ESCONDIDO RESOURCES LP
 
 
By:           Escondido Resources GP, LLC,
                                                                                                
its General Partner
 

 
By:           
                                                                              
Name: William E. Deupree
                                                                             
Title: President
 
BUYER:
 
                                                                              
SWIFT ENERGY OPERATING, LLC
 

                                                                             
By:           
                                                                             
Name: Bruce H. Vincent
                                                                             
Title: President
 
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Joined, solely for the purpose of evidencing his agreement to the provision of
Section 12.9, by:
 

 
William E. Deupree
 

 
Mark Semmelbeck
 

 
J. David Wrather
 

 
Kurt von Plonsk
 
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