Exhibit 10.3

 

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

 

MORTGAGE, DEED OF TRUST, SECURITY AGREEMENT,

FIXTURE FILING AND FINANCING STATEMENT

(Oil and Gas Properties)

 

FROM

REEF OIL & GAS DRILLING AND INCOME FUND, L.P., Mortgagor

(Charter/File No. 801651588)

TO

BRAD KRAUS, Trustee

 

AND

 

TEXAS CAPITAL BANK, N.A., in its capacity as contractual representative, as
Mortgagee

 

Dated as of October 14, 2014

 

A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE

MAY ALLOW THE MORTGAGEE TO TAKE THE MORTGAGED PROPERTY AND SELL

IT WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY

THE MORTGAGOR UNDER THIS MORTGAGE.

 

THIS INSTRUMENT IS A MORTGAGE OF BOTH REAL AND PERSONAL PROPERTY AND IS, AMONG
OTHER THINGS, A MORTGAGE OF CHATTELS, A SECURITY AGREEMENT, A FIXTURE FILING AND
A FINANCING STATEMENT.

 

“THIS INSTRUMENT CONTAINS AFTER ACQUIRED PROPERTY PROVISIONS.”

 

“THIS INSTRUMENT SECURES PAYMENT OF FUTURE ADVANCES.”

 

THIS INSTRUMENT WAS PREPARED BY, AND RECORDED COUNTERPARTS SHOULD BE RETURNED
TO:

 

JACKSON WALKER L.L.P.

901 Main Street, Suite 6000

Dallas, Texas 75202-3797

Attention: Frank P. McEachern, Esq.

 

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MORTGAGE, DEED OF TRUST, SECURITY AGREEMENT,

FIXTURE FILING AND FINANCING STATEMENT

 

THIS MORTGAGE, DEED OF TRUST, SECURITY AGREEMENT, FIXTURE FILING AND FINANCING
STATEMENT (the “Mortgage” or “Deed of Trust”) is from Reef Oil & Gas Drilling
and Income Fund, L.P., a Texas limited partnership, as mortgagor, (the
“Mortgagor” or “Grantor”), to Brad Kraus of Dallas, Texas, as trustee,
(“Trustee”), for the benefit of the Mortgagee (defined below) (or, if the
provisions of Section 9.5 are applicable, to the Mortgagee). The addresses of
the Mortgagor and the Mortgagee are set forth in Section 9.14 hereof. This
Mortgage is dated October 14, 2014.

 

ARTICLE I

 

DEFINITIONS

 

1.1.                            For all purposes of this Mortgage, unless the
context otherwise requires:

 

“Accounts and Contract Rights” means all accounts (including accounts in the
form of joint interest billings), contract rights and general intangibles of the
Mortgagor now or hereafter existing, or hereafter acquired by, or on behalf of,
the Mortgagor or the Mortgagor’s successors in interest, relating to the sale,
purchase, exchange, transportation or processing of Hydrocarbons produced or to
be produced from the Mortgaged Property, together with all accounts and proceeds
accruing to the Mortgagor attributable to the sale of Hydrocarbons produced from
the Mortgaged Property.

 

“As-Extracted Collateral” means Hydrocarbons which may be extracted from the
Mortgaged Property, and the accounts relating thereto, which will be financed at
the wellheads of the wells located on the Mortgaged Property and accounts
arising out of the sale thereof.

 

“Borrower” means the Mortgagor.

 

“Business Day” means any day that is not a Saturday, Sunday or other day on
which commercial banks in Dallas, Texas, are authorized or required by law to
remain closed.

 

“Certificates of Ownership Interests” means the Certificates of Ownership
Interests, if any, delivered by the Mortgagor in connection with the Credit
Agreement.

 

“Code” means the Uniform Commercial Code as in effect in each of the
jurisdictions where the Mortgaged Property is situated.

 

“Credit Agreement” means the Credit Agreement between the Borrower and TCB
pursuant to which one or more of the Notes were issued, as the Credit Agreement
may be amended from time to time.

 

“Credit Parties” means each of TCB and, for so long as an Intercreditor
Agreement remains in effect and one or more Approved Swap Counterparties remain
a party thereto and entitled to the benefits conferred thereby, such Approved
Swap Counterparty or Counterparties, and “Credit Party” means any of them.

 

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“Effective Date” means the date on which this Mortgage is executed.

 

“Event of Default” has the meaning stated in Article VII of this Mortgage.

 

“Exhibit A” means, unless specifically indicated otherwise, Exhibit A attached
hereto.

 

“Governmental Authority” means any nation, country, commonwealth, territory,
government, state, county, parish, municipality, or other political subdivision
and any entity exercising executive, legislative, judicial, regulatory, or
administrative functions of or pertaining to government.

 

“Hydrocarbons” means oil, gas, casinghead gas, drip gasoline, natural gasoline
and condensate and all other liquid or gaseous hydrocarbons.

 

“Intercreditor Agreement” means each intercreditor agreement among the
Mortgagor, one or more Approved Swap Counterparties, and TCB, for itself and in
acceptance of the role of Collateral Agent for itself and such Approved Swap
Counterparties, whether executed prior to, contemporaneously with, or following
the execution of this Mortgage, as such agreement may be amended from time to
time.

 

“Lands” means the lands described in Exhibit A and includes any lands, the
description of which is contained in Exhibit A or incorporated in or referred to
in Exhibit A by reference to another instrument or document, including, without
limitation, all lands described in the Oil and Gas Leases, and also includes any
lands now or hereafter unitized, pooled, spaced, or otherwise combined, whether
by statute, order, agreement, declaration or otherwise, with lands the
description of which is contained in Exhibit A or is incorporated in Exhibit A
by reference.

 

“Law” means at any time with respect to any Person or its Property, any statute,
law, executive order, treaty, ordinance, order, writ, injunction, judgment,
ruling, decree, regulation, or determination of an arbitrator, court or other
Governmental Authority, existing at such time which are applicable to or binding
upon such Person or such Property or to which such Person or such Property is
subject.

 

“Loan Obligations” means the “Obligations,” as such term is defined in the
Credit Agreement.

 

“Loan Papers” or “Loan Documents” means the Notes, this Mortgage, the Credit
Agreement, and all other documents, instruments and loan or credit agreements
delivered to TCB at any time in connection with the Secured Indebtedness, as any
of the foregoing are amended, restated, supplemented, renewed or extended from
time to time, but excluding the Intercreditor Agreement.

 

“Mortgaged Property” has the meaning stated in Article II of this Mortgage.

 

“Mortgagee” means TCB, as contractual representative for itself and the other
Credit Parties.

 

“Net Revenue Interest” means Mortgagor’s share of the total production of oil,
gas and other Hydrocarbons produced from the Lands, after deducting Mortgagor’s
share of all lessors’

 

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royalties, overriding royalties, production payments and other payments out of,
or measured by, production.

 

“Notes” means the promissory note or notes identified in Section 3.1.1 of this
Mortgage, and all renewals, extensions, replacements and modifications thereof.

 

“Oil and Gas Leases” means, collectively, oil, gas and mineral leases, oil and
gas leases, oil leases, gas leases, other mineral leases, subleases and
assignments of operating rights pertaining to any of the foregoing, and all
other interests pertaining to any of the foregoing, including, without
limitation, all royalty and overriding royalty interests, production payments
and net profit interests, mineral fee interests, and all contingent reversionary
and carried interests relating to any of the foregoing and all other rights
therein, which are described and/or to which reference may be made on Exhibit A
and/or in any document or instrument referred to in Exhibit A and/or which cover
or relate to any of the Lands.

 

“Operating Equipment” means all personal property and fixtures pertaining,
affixed or incidental to, situated upon or used or useful in connection with all
or any part of the Mortgaged Property, including, without limitation, all
surface or subsurface machinery, equipment, facilities, or other personal
property of whatsoever kind or nature (excluding drilling rigs, trucks,
automotive equipment or other personal property taken to the premises to drill a
well or for other similar temporary uses) now or hereafter located on any of the
Lands which are useful for the production, treatment, storage, transportation or
sale of oil or gas, including, but not by way of limitation, all oil wells, gas
wells, water wells, injection wells, casing, tubing, rods, pumping units and
engines, Christmas trees, derricks, separators, gun barrels, flow lines, tanks,
gas systems, (for gathering, treating and compression), water systems (for
treating, disposal and injection), power plants, poles, lines, transformers,
starters and controllers, machine shops, tools, storage yards and equipment
stored therein, buildings and camps, telegraph, telephone and other
communication systems, roads, loading racks and shipping facilities.

 

“Person” means a natural person, a corporation, a partnership, a limited
partnership, a limited liability company, an association, a joint venture, a
trust or any other entity or organization including a government or political
subdivision or any governmental agency or instrumentality thereof.

 

“Property” means any interest in any kind of property or asset, whether real,
personal or mixed, tangible or intangible.

 

“Section” and “Article” mean and refer to a section or article of this Mortgage,
unless specifically indicated otherwise.

 

“Secured Indebtedness” means all the indebtedness, obligations, and liabilities
described or referred to in Section 3.1 of this Mortgage.

 

“Subject Interests” has the meaning stated in Article II of this Mortgage.

 

“Swap Obligations” has the meaning given such term in the Intercreditor
Agreement.

 

“TCB” means Texas Capital Bank, N.A., a national banking association.

 

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“Trustee” means the Trustee identified in the first paragraph of this Mortgage
and any other person who may from time to time be serving as duly appointed
substitute trustee hereunder.

 

“Well Data” means all logs, drilling reports, division orders, transfer orders,
operating agreements, abstracts, title opinions, files, records, memoranda and
other written or electronic information in the possession or control of the
Mortgagor relating to any wells located on any of the Lands described in
Exhibit A.

 

1.2.                            Other Defined Terms. The capitalized terms used
herein have the meanings assigned to them in the Credit Agreement, unless they
are otherwise defined herein or the context otherwise requires.

 

ARTICLE II

 

 GRANTING CLAUSE - MORTGAGED PROPERTY

 

2.1.                            The Mortgagor, for and in consideration of the
premises and of the Secured Indebtedness hereinafter defined, has GRANTED,
BARGAINED, SOLD, WARRANTED, MORTGAGED, PLEDGED, ASSIGNED, TRANSFERRED and
CONVEYED, and by these presents does GRANT, BARGAIN, SELL, WARRANT, MORTGAGE,
PLEDGE, ASSIGN, TRANSFER and CONVEY, unto the Trustee and to the Trustee’s
substitutes and successors in this trust, with power of sale, for the benefit of
the Mortgagee, or, if the provisions of Section 9.5 hereof are applicable, unto
the Mortgagee with power of sale, all the Mortgagor’s right, title and interest,
whether now owned or hereafter acquired, in all of the hereinafter described
properties, rights and interests; and, insofar as such properties, rights and
interests consist of equipment, general intangibles, accounts, contract rights,
inventory, fixtures, proceeds and products of collateral or any other personal
property of a kind or character defined in or subject to the applicable
provisions of the Code, the Mortgagor hereby grants to the Mortgagee a security
interest therein, whether now owned or hereafter acquired, namely:

 

2.1.1.                  All of those certain Oil and Gas Leases, Lands,
minerals, interests, and other properties (all such Oil and Gas Leases, Lands,
interests and other properties being herein called the “Subject Interests”, as
hereinafter further defined) which are described on Exhibit A and/or to which
reference may be made on Exhibit A and/or which cover any of the Lands described
on Exhibit A and/or which are located in or under any of the Lands described on
Exhibit A and/or which are covered by any of the leases, assignments or
documents described on or referred to in any document or instrument referred to
in Exhibit A, which Exhibit A is made a part of this Mortgage for all purposes,
and is incorporated herein by reference as fully as if copied at length in the
body of this Mortgage at this point;

 

2.1.2.                  All rights, titles, interests, and estates now owned or
hereafter acquired by the Mortgagor in and to (i) any and all properties now or
hereafter pooled or unitized with any of the Subject Interests, and (ii) all
presently existing or future unitization, communitization, and pooling
agreements and the units created thereby which include all or any part of the
Subject Interests, including, without limitation, all units formed under or
pursuant to any Law. The rights, titles, interests, and estates described in
this Section 2.1.2 shall also be included within the term “Subject Interests” as
used herein.

 

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2.1.3.                  All presently existing and future agreements hereafter
entered into between the Mortgagor and any third party that provide for
acquisition by the Mortgagor of any interest in any of the properties or
interests specifically described in Exhibit A or which relate to any of the
properties and interests specifically described in Exhibit A;

 

2.1.4.                  The Hydrocarbons (including inventory) which are in,
under, upon, produced or to be produced from or attributable to the Lands and/or
the Subject Interests;

 

2.1.5.                  The Accounts and Contract Rights;

 

2.1.6.                  The As-Extracted Collateral;

 

2.1.7.                  The Operating Equipment;

 

2.1.8.                  The Well Data;

 

2.1.9.                  The rights and security interests of the Mortgagor held
by the Mortgagor to secure the obligation of the first purchaser to pay the
purchase price of the Hydrocarbons, including, without limitation, those
accruing to the Mortgagor pursuant to Section 9.343 of the Code as enacted in
Texas as the Business and Commerce Code together with any and all accounts,
proceeds, substitutions, replacements, corrections or amendments to, or
renewals, extensions or ratifications of, any of the foregoing, or of any
instrument relating thereto;

 

2.1.10.           All surface leases, rights-of-way, franchises, easements,
servitudes, licenses, privileges, tenements, hereditaments and appurtenances now
existing or in the future obtained in connection with any of the aforesaid, and
all other things of value and incident thereto which the Mortgagor may at any
time have or be entitled to; and

 

2.1.11.           All and any different and additional rights of any nature, of
value or convenience in the enjoyment, development, operation or production, in
any wise, of any Property or interest included in any of the foregoing clauses,
and in all revenues, income, rents, issues, profits and other benefits arising
therefrom or from any contract now in existence or hereafter entered into
pertaining thereto, and in all rights and claims accrued or to accrue for the
removal by anyone of oil and gas from, or other act causing damage to, any of
such properties or interests;

 

all the aforesaid properties, rights and interests, together with any additions
thereto which may be subjected to the lien of this Mortgage by means of
supplements hereto, being hereinafter called the “Mortgaged Property”; subject,
however, to (i) the restrictions, exceptions, reservations, conditions,
limitations, interests and other matters, if any, set forth or referred to in
the specific descriptions of such properties and interests in Exhibit A
(including all presently existing royalties, overriding royalties, payments out
of production and other burdens which are referred to in Exhibit A and which are
taken into consideration in computing the decimal or fractional interest as set
forth in the Certificates of Ownership Interests); (ii) any operator’s lien
arising by operation of applicable Law (or pursuant to the provisions of an
operating agreement designating a Person other than the Mortgagor as operator)
which has been perfected under applicable Law prior to the date of this Mortgage
or of which the Mortgagee has constructive or actual notice as of the date
hereof; (iii) the assignment of production contained in Article V hereof; and
(iv) the condition that neither the Trustee nor the Mortgagee shall be liable in
any respect for the performance of any covenant or

 

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obligation of the Mortgagor with respect to the Mortgaged Property; and provided
further, that this Mortgage does not grant a lien against, and the defined term
“Mortgaged Property” shall exclude, any mobile home;

 

TO HAVE AND TO HOLD the Mortgaged Property unto the Trustee, his successors and
substitutes in this trust, forever, for the benefit of the Mortgagee, or, if the
provisions of Section 9.5 hereof are applicable, unto Mortgagee, its successors
and assigns, forever, to secure the payment of the Secured Indebtedness and to
secure the performance of the obligations of the Mortgagor contained herein.

 

ARTICLE III

 

INDEBTEDNESS SECURED

 

3.1.                            Notes and Secured Indebtedness. This Mortgage is
given to secure the following indebtedness, obligations and liabilities:

 

3.1.1.                  The Loan Obligations, as evidenced in part by that
certain promissory note (together with all renewals, extensions, and
modifications thereof) executed by the Borrower and payable to the order of TCB
in connection with the Credit Agreement in the original principal amount of up
to $100,000,000, which note bears interest as provided therein and requires
payment of attorneys’ fees;

 

3.1.2.                  The Swap Obligations, including all obligations, whether
now existing or hereafter created, of the Mortgagor to an Approved Swap
Counterparty for Acceptable Commodity Hedging Transactions for so long as the
Intercreditor Agreement remains in effect and such Approved Swap Counterparty
remains a party thereto and entitled to the benefits conferred thereby;

 

3.1.3.                  Any sums advanced as expenses or costs incurred by, or
on behalf of, the Mortgagee (or any receiver appointed hereunder) which are made
or incurred pursuant to, or permitted by, the terms of this Mortgage or the
other Loan Papers, plus interest thereon at the rate herein specified or
otherwise agreed upon, from the date of advance or expenditure until reimbursed;
and

 

3.1.4.                  All other and additional debts, obligations and
liabilities of every kind and character of the Mortgagor now or hereafter owed
to TCB, regardless of whether such debts, obligations and liabilities are
specifically listed and described above or are direct or indirect, primary or
secondary, joint, several, or joint and several, fixed or contingent, and
whether incurred by the Mortgagor as a maker, endorser, guarantor, surety or
otherwise, and regardless of whether such present or future debts, obligations
and liabilities may, prior to their acquisition by TCB, be or have been payable
to, or be or have been in favor of, some other Person or have been acquired by
TCB in a transaction with one other than the Mortgagor, together with any and
all renewals and extensions of such debts, obligations and liabilities, or any
part thereof (it being contemplated that TCB may in the future lend additional
sums of money to the Mortgagor, from time to time, but shall not be obligated to
do so, and that all such additional sums and loans shall be part of the Secured
Indebtedness.

 

3.2.                            Final Maturity. Unless earlier payment is
required by the terms of instruments secured by this Mortgage (including earlier
payment as a result of the acceleration of payment of obligations secured by
this Mortgage), the obligations secured by this Mortgage shall mature ten years
following

 

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the date of this Mortgage or, if such due date can be extended under applicable
law without filing an amendment to this Mortgage, such later date as is
specified (by amendment or otherwise) in such instruments.

 

ARTICLE IV

 

COVENANTS, REPRESENTATIONS, WARRANTIES

AND AGREEMENTS OF MORTGAGOR

 

The Mortgagor covenants, represents, warrants, and agrees that:

 

4.1.                            Payment of Secured Indebtedness. The Mortgagor
will duly and punctually pay or cause to be paid all of the Secured
Indebtedness.

 

4.2.                            Warranties. (a) The Oil and Gas Leases are
valid, subsisting leases, superior and paramount to all other oil and gas leases
respecting the properties to which they pertain; (b) the Mortgagor owns an
interest in the oil and gas leases and properties described in Exhibit A hereto
and, to the extent of the interest specified in the Certificates of Ownership
Interests, has valid and defensible title to each property right or interest
constituting the Mortgaged Property and has a good and legal right to make the
grant and conveyance made in this Mortgage, it being understood that the
Mortgagor’s interest in each Oil and Gas Lease or Operating Equipment shall
exceed Mortgagor’s Net Revenue Interest in production from such Oil and Gas
Lease to the extent of the Mortgagor’s proportionate share of all royalties,
overriding royalties, and other such payments out of production burdening the
Mortgagor’s interest in each such Oil and Gas Lease; (c) the Mortgagor’s present
Net Revenue Interest in the Mortgaged Property is not less than that specified
in the Certificates of Ownership Interests; (d) the Mortgaged Property is free
from all encumbrances or liens whatsoever, except as may be specifically set
forth in Exhibit A or as permitted by the provisions of Section 4.5.6; and
(e) the Mortgagor is not obligated, by virtue of any deficiency presently
existing under any contract providing for the sale by the Mortgagor of
Hydrocarbons which contains a “take or pay” clause or under any similar
arrangement, to deliver Hydrocarbons at some future time without then or
thereafter receiving full payment therefor. The Mortgagor will warrant and
forever defend the Mortgaged Property unto the Trustee and the Trustee’s
successors or substitutes hereunder, for the benefit of the Mortgagee (or, if
the provisions of Section 9.5 hereof are applicable, unto the Mortgagee, its
successors and assigns) against every Person whomsoever lawfully claiming the
same or any part thereof, and the Mortgagor will maintain and preserve the lien
and security interest hereby created so long as any of the Secured Indebtedness
remains unpaid.

 

4.3.                            Further Assurances. The Mortgagor will execute
and deliver such other and further instruments and will do such other and
further acts as in the opinion of the Trustee or the Mortgagee may be necessary
or desirable to carry out more effectively the purposes of this Mortgage,
including, without limiting the generality of the foregoing, (a) prompt
correction of any defect which may hereafter be discovered in the title to the
Mortgaged Property or in the execution and acknowledgment of this Mortgage, any
Notes, or any other document used in connection herewith or at any time
delivered to the Mortgagee in connection with any Secured Indebtedness, and
(b) prompt execution and delivery of all division or transfer orders that in the
opinion of the Mortgagee are needed to transfer effectively the assigned
proceeds of production from the Mortgaged Property to the Mortgagee.

 

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4.4.                            Taxes. Subject to the Mortgagor’s right to
contest the same in good faith and by appropriate proceedings, the Mortgagor
will promptly pay all taxes, assessments and governmental charges legally
imposed upon this Mortgage or upon the Mortgaged Property or upon the interest
of the Trustee or the Mortgagee therein, or upon the income, profits, proceeds
and other revenues thereof; provided that, in the alternative, the Mortgagor
may, in the event of the enactment of such a Law, and must, if it is unlawful
for the Mortgagor to pay such taxes, prepay that portion of the Secured
Indebtedness which the Mortgagee in good faith determines is secured by Property
covered by such Law within 60 days after demand therefor by the Mortgagee.

 

4.5.                            Operation of the Mortgaged Property. So long as
the Secured Indebtedness or any part thereof remains unpaid, and whether or not
the Mortgagor is the operator of the Mortgaged Property, the Mortgagor shall, at
the Mortgagor’s own expense and subject to the terms of the Loan Papers:

 

4.5.1.                  Maintain, develop and operate the Subject Interests in a
good and workmanlike manner and will observe and comply with all of the terms
and provisions, express or implied, of the Oil and Gas Leases in order to keep
the Oil and Gas Leases in full force and effect so long as the Oil and Gas
Leases are capable of producing Hydrocarbons in commercial quantities;

 

4.5.2.                  Comply in all material respects with all contracts and
agreements applicable to or relating to the Mortgaged Property or the production
and sale of Hydrocarbons therefrom and all applicable proration and conservation
Law of the jurisdictions in which the Mortgaged Property is located, and all
applicable Law, rules and regulations of every agency and authority from time to
time constituted to regulate the development and operation of the Mortgaged
Property and the production and sale of Hydrocarbons therefrom;

 

4.5.3.                  Commence such development as may be reasonably necessary
to the prudent and economical operation of the Mortgaged Property, including
such work as may be appropriate to protect the Mortgaged Property from
diminution in the production capacity thereof and against drainage of
Hydrocarbons thereunder by reason of production on other Property;

 

4.5.4.                  At all times, maintain, preserve and keep all Operating
Equipment in proper repair, working order and condition, and make all necessary
or appropriate repairs, renewals, replacements, additions and improvements
thereto, so that the efficiency of such Operating Equipment shall at all times
be properly preserved and maintained, provided that no item of Operating
Equipment need be so repaired, renewed, replaced, added to or improved, if the
Mortgagor shall in good faith determine that such action is not necessary or
desirable for the continued efficient and profitable operation of the business
of the Mortgagor, and that the failure to take such action will not prejudice
the interests of the Mortgagee;

 

4.5.5.                  Not abandon or cease developing, maintaining, operating
and producing Hydrocarbons from, or cause or permit its agent to abandon, cease
developing, maintaining, operating, and producing Hydrocarbons from, any
producing Mortgaged Property without first having undertaken and completed all
reasonably prudent measures under the circumstances to restore such producing
Mortgaged Property to economic production, and then only if the aggregate
projected future ad valorem and severance taxes and operating expenses with
respect to said Mortgaged Property exceed the projected future gross revenues
attributable thereto;

 

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4.5.6.                  Cause the Mortgaged Property to be kept free and clear
of all liens, security interests, charges and encumbrances of every character,
other than (i) Permitted Liens and (ii) those hereafter consented to in writing
by the Mortgagee; provided, that no intention to subordinate the first priority
liens, security interests, and encumbrances granted in favor of the Mortgagee is
hereby implied or expressed or is to be inferred by the permitted existence of
the liens, security interests and encumbrances referred to in this Section 4.5.6
or elsewhere herein;

 

4.5.7.                  Maintain or cause to be maintained insurance with such
insurers, in such amounts and covering such risks as is required by the Credit
Agreement; and

 

4.5.8.                  Not sell, convey, trade, exchange, pool or unitize any
portion of the Mortgaged Property or any of Mortgagor’s rights, titles, or
interests therein or thereto, except as specifically provided otherwise herein;

 

provided, however, that with respect to Mortgaged Property which is operated by
operators other than the Mortgagor, the Mortgagor shall not be obligated itself
to perform any undertakings contemplated by the covenants and agreements
contained herein which are performable only by such operators and are beyond the
control of the Mortgagor; and provided further, that the Mortgagor agrees to
promptly take all actions available to the Mortgagor under any operating
agreement or otherwise to bring about the performance of any such undertaking
required to be performed by such operators.

 

4.6.                            Recording. The Mortgagor will promptly and at
the Mortgagor’s expense, record, register, deposit and file this Mortgage and
every other instrument in addition or supplemental hereto in such offices and
places and at such times and as often as may be necessary to preserve, protect
and renew the lien and security interest hereof as a first lien and security
interest on real or personal property, as the case may be, and the rights and
remedies of the Trustee and of the Mortgagee, and otherwise will do and perform
all matters or things necessary or expedient to be done or observed by reason of
any Law of any state or of the United States or of any other competent
authority, for the purpose of effectively creating, maintaining and preserving
the lien and security interest hereof on the Mortgaged Property. In this
connection and at the option of the Mortgagee but at the Mortgagor’s expense,
the Mortgagee may record, register, deposit and file this Mortgage and
supplements hereto.

 

4.7.                            Records, Statements and Reports. The Mortgagor
will keep proper books of record and account in which complete correct entries
will be made of the Mortgagor’s transactions in accordance with sound accounting
principles consistently applied and will furnish or cause to be furnished to the
Mortgagee (a) all reports required under the Loan Papers and (b) such other
information concerning the business and affairs and financial condition of the
Mortgagor as the Mortgagee may from time to time reasonably request.

 

4.8.                            No Governmental Approvals. The Mortgagor
warrants that no approval or consent of any regulatory or administrative
commission or authority, or of any other governmental body, is necessary to
authorize the execution and delivery of this instrument, or any of the other
Loan Papers or the Notes, or to authorize the observance or performance by the
Mortgagor of the covenants herein or therein contained.

 

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4.9.                            Right of Entry. The Mortgagor will permit the
Trustee or the Mortgagee, or the agents or designated representatives of either
of them, to enter upon the Mortgaged Property, and all parts thereof, for the
purpose of investigating and inspecting the condition and operation thereof.

 

4.10.                     Flood Insurance Regulation. Notwithstanding any
provision in this Mortgage to the contrary, in no event is any Building (as
defined in the applicable Flood Insurance Regulation) or Manufactured (Mobile)
Home (as defined in the applicable Flood Insurance Regulation) located on the
Mortgaged Property within an area having special flood hazards and in which
flood insurance is available under the National Flood Insurance Act of 1968
included in the definition of “Mortgaged Property” and no Building or
Manufactured (Mobile) Home is hereby encumbered by this Mortgage. As used
herein, “Flood Insurance Regulations” shall mean (i) the National Flood
Insurance Act of 1968 as now or hereafter in effect or any successor statute
thereto, (ii) the Flood Disaster Protection Act of 1973 as now or hereafter in
effect or any successor statue thereto, (iii) the National Flood Insurance
Reform Act of 1994 (amending 42 USC 4001, et seq.), as the same may be amended
or recodified from time to time, and (iv) the Flood Insurance Reform Act of 2004
and any regulations promulgated thereunder.

 

ARTICLE V

 

ASSIGNMENT OF PRODUCTION

 

5.1.                            Assignment. As further security for the payment
of the Secured Indebtedness and performance of the obligations contained herein,
the Mortgagor hereby transfers, assigns, warrants and conveys to the Mortgagee
all Hydrocarbons, and the proceeds and products obtained or processed therefrom
(such proceeds and products being in this Article V called “Proceeds”), produced
and to be produced from, or which accrue by pooling, unitization or otherwise,
to the Mortgaged Property, in order to provide a source of future payment of the
Loan Obligations and the other Secured Indebtedness. All parties producing,
purchasing or receiving any such Hydrocarbons, or having such, or Proceeds
therefrom, in their possession for which they or others are accountable to the
Mortgagee by virtue of the provisions of this Article V, are authorized and
directed to treat and regard the Mortgagee as the assignee and transferee of the
Mortgagor and entitled in the Mortgagor’s place and stead to receive such
Hydrocarbons and all Proceeds therefrom; and such parties and each of them shall
be fully protected in so treating and regarding the Mortgagee, and shall be
under no obligation to see to the application by the Mortgagee of any such
proceeds or payments received by the Mortgagee.

 

5.2.                            Payments. This Article V constitutes a present
assignment effective as of the Effective Date, but in the event that the
Mortgagee should elect not to exercise immediately its right to receive
Hydrocarbons or Proceeds, then the purchasers or other persons obligated to make
such payment may continue to make payment to Mortgagor until such time as
written demand has been made upon them by the Mortgagee that payment be made
directly to the Mortgagee. Such failure to notify shall not in any way waive the
right of the Mortgagee to receive any payments not theretofore paid out to the
Mortgagor before the giving of written notice. In the event payments are made
directly to the Mortgagee, and then, at the request of the Mortgagee, payments
are for a period or periods of time paid to the Mortgagor, the Mortgagee shall
nevertheless have the continuing right, effective upon written notice, to
require that future payments be again made to the Mortgagee. The Mortgagor and
the Mortgagee agree, and it is the intention of the Mortgagor and the Mortgagee,
that

 

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in no event will any reduction in the Loan Obligations or the other Secured
Indebtedness be measured by the fair market value of the Hydrocarbons, other
minerals, proceeds, or other rents, profits, or income assigned to the Mortgagee
under this instrument.

 

5.3.                            No Restriction on the Rights. Nothing herein
contained shall detract from or limit the absolute obligation of the Mortgagor
to make payment of the Secured Indebtedness regardless of whether the
Hydrocarbons and Proceeds assigned by this Article V are sufficient to pay the
same, and the rights under this Article V shall be in addition to all other
security now or hereafter existing to secure the payment of the Secured
Indebtedness.

 

5.4.                            Use of Proceeds. The Mortgagee or any receiver
appointed in judicial proceedings for the enforcement of this Mortgage shall
have the right to receive all of the Hydrocarbons herein assigned and the
Proceeds therefrom and may, in the sole discretion of the Mortgagee (but subject
to the terms of the Intercreditor Agreement), apply all of such Proceeds as
follows or in such other order of priority as the Mortgagee may determine:

 

First: To the payment and satisfaction of all costs and expenses incurred in
connection with the collection of such Proceeds;

 

Second: To the payment and satisfaction of (i) the Loan Obligations that
constitute “Loan Obligations” as defined in the Intercreditor Agreement and
(ii) the Swap Obligations, all in accordance with the Intercreditor Agreement,
or if at the time of application there is no Intercreditor Agreement then in
effect, then to the payment and satisfaction of the Loan Obligations (as defined
herein);

 

Third: To the payment of any other amounts owed to TCB; and

 

Fourth: Any surplus thereafter remaining shall be paid to the Mortgagor or the
Mortgagor’s successors or assigns, as their interests may appear of record, or
otherwise as required by law.

 

Upon any sale of the Mortgaged Property or any part thereof pursuant to
Article VIII, the Hydrocarbons thereafter produced from the Mortgaged Property
so sold, and the Proceeds therefrom, shall be included in such sale and shall
pass to the purchaser free and clear of the assignment contained in this
Article V.

 

5.5.                            Mortgagee as Agent and Attorney-in-Fact. The
Mortgagor hereby irrevocably designates and appoints the Mortgagee as the
Mortgagor’s true and lawful agent and attorney-in-fact (with full power of
substitution, either generally or for such limited periods or purposes as the
Mortgagee may from time to time prescribe), with full power and authority, for
and on behalf and in the name of the Mortgagor, to execute, acknowledge and
deliver all such division orders, transfer orders, certificates and other
documents of every nature, with such covenants, warranties, indemnities and
other provisions as may from time to time, in the opinion of the Mortgagee, be
necessary or proper to effectuate the intent and purpose of the assignment
contained in Section 5.1 hereof. The Mortgagor shall be bound thereby as fully
and effectively as if the Mortgagor had personally executed, acknowledged and
delivered any such division order, transfer order, certificate and other
documents. The powers and authorities herein conferred on the Mortgagee may be

 

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exercised by the Mortgagee through any person who, at the time of the execution
of a particular instrument, is an officer of the Mortgagee. The power of
attorney conferred by this Section 5.5 is granted for a valuable consideration
and hence is coupled with an interest and is irrevocable so long as the Secured
Indebtedness, or any part thereof, shall remain unpaid. All Persons dealing with
the Mortgagee, or any officer thereof above designated, or any substitute, shall
be fully protected in treating the powers and authorities conferred by this
Section 5.5 as continuing in full force and effect until advised in writing by
the Mortgagee that all the Secured Indebtedness is fully and finally paid.

 

5.6.                            Indemnity. The Mortgagor agrees to indemnify the
Mortgagee and the Trustee and the Credit Parties on a current basis against all
claims, actions, liabilities, judgments, costs, attorneys’ fees or other charges
of whatsoever kind or nature INCLUDING, WITHOUT LIMITATION, ANY OF THE FOREGOING
IN THIS SECTION ARISING FROM THE SOLE, COMPARATIVE, CONCURRENT OR CONTRIBUTORY
NEGLIGENCE OF THE MORTGAGEE OR THE TRUSTEE OR ANY CREDIT PARTY (all hereinafter
in this Section 5.6 called “claims”) made against or incurred by the Mortgagee
or Trustee or any Credit Party as a consequence of the assertion, either before
or after the payment in full of the Secured Indebtedness, that the Mortgagee or
Trustee or any Credit Party received Hydrocarbons herein assigned or the
proceeds thereof claimed by third persons, and each of the Mortgagee and Trustee
shall have the right to defend against any such claims, employing attorneys
therefor, and unless furnished with reasonable indemnity, the Mortgagee or
Trustee, as applicable, shall have the right to pay or compromise and adjust all
such claims against it, but the Trustee shall not have the power or authority,
and shall not, compromise the rights of the Mortgagee. The Mortgagor will
indemnify and pay to the Mortgagee or Trustee or any Credit Party any and all
such amounts as may be paid in respect thereof or as may be successfully
adjudged against the Mortgagee or Trustee or any Credit Party. The obligations
of the Mortgagor as hereinabove set forth in this Section 5.6 shall survive the
release of this instrument.

 

ARTICLE VI

 

ADDITIONS TO MORTGAGED PROPERTY; SUBROGATION

 

6.1.                            Additions to Mortgaged Property. It is
understood and agreed that the Mortgagor may periodically subject additional
properties to the lien and security interest of this Mortgage. In the event that
additional properties are to be subjected to the lien and security interest
hereof, the parties hereto agree to execute a supplemental mortgage,
satisfactory in form and substance to the Mortgagee, together with any security
agreement, financing statement or other security instrument required by the
Mortgagee, all in form and substance satisfactory to the Mortgagee and in a
sufficient number of executed (and, where necessary or appropriate,
acknowledged) counterparts for recording purposes. Upon execution of such
supplemental mortgage, all additional properties thereby subjected to the lien
and security interest of this Mortgage shall become part of the Mortgaged
Property for all purposes.

 

6.2.                            Subrogation. To the extent that the proceeds of
any Secured Indebtedness was or is used to pay any indebtedness or obligations
secured by any lien, security interest, charge or prior encumbrance against the
Mortgaged Properties and such proceeds have been or will be advanced by the
Mortgagee or any Credit Party to the Mortgagor or to any other Person or taxing
authority, then the Mortgagee shall be subrogated to any and all of such liens,
security interests, charges or prior

 

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encumbrances, irrespective of whether such liens, security interests, charges or
prior encumbrances are released (unless such release is executed by the
Mortgagee).

 

ARTICLE VII

 

EVENTS OF DEFAULT

 

7.1.                            Events of Default. In case any one or more of
the following “Events of Default” has occurred and has not been waived by the
Mortgagee:

 

7.1.1.                  Any event of default or default specified in the Loan
Papers or other agreement or contract existing at the date hereof or hereinafter
entered into between the Mortgagor and the Mortgagee shall have occurred and the
cure period, if any, with respect thereto shall have elapsed; or

 

7.1.2.                  The failure of the Notes to be paid at the maturity
thereof, whether stated or by acceleration; or

 

7.1.3.                  The occurrence of a “Triggering Event” (as defined in
the Intercreditor Agreement) shall have occurred which has not been waived;

 

then and in any such event TCB, at its sole option and discretion, may declare
all or any portion of the unpaid principal of and the interest accrued on the
Notes and all other Secured Indebtedness secured hereby to be immediately due
and payable, without any notice or demand of any kind, all of which are hereby
expressly waived.

 

ARTICLE VIII

 

ENFORCEMENT OF THE SECURITY

 

8.1.                            General Remedies. Upon the occurrence and during
the continuance of an Event of Default, the Mortgagee may, at its sole option
and discretion, subject to any mandatory requirements or limitations of Law then
in force and applicable thereto:

 

8.1.1.                  Exercise all of the rights, remedies, powers and
privileges of the Mortgagor with respect to the Mortgaged Property or any part
thereof, give or withhold all consents required therein which the Mortgagor
would otherwise be entitled to give or withhold, and perform or attempt to
perform any covenants in this Mortgage which the Mortgagor is obligated to
perform; provided that, no payment or performance by the Mortgagee shall
constitute a waiver of any Event of Default, and the Mortgagee shall be
subrogated to all rights and liens securing the payment of any debt, claim, tax,
or assessment for the payment of which the Mortgagee may make an advance or pay;

 

8.1.2.                  Appoint as a matter of right, or seek the appointment
of, a receiver or receivers to serve without bond for all or any part of the
Mortgaged Property, whether such receivership be incident to a proposed sale
thereof or otherwise, and the Mortgagor does hereby consent to the appointment
of such receiver or receivers to serve without bond and does hereby agree not to
oppose any application therefor by the Mortgagee and does hereby agree that
there shall be no necessity of showing fraud, insolvency or mismanagement by the
Mortgagor for the appointment of a receiver or receivers of the Mortgaged
Properties;

 

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8.1.3.                  Execute and deliver to such person or persons as may be
designated by the Mortgagee appropriate powers of attorney to act for and on
behalf of the Mortgagor in all transactions with any federal, state or local
agency relating to any of the Mortgaged Property; and

 

8.1.4.                  Exercise any and all other rights or remedies granted to
the Mortgagee pursuant to the provisions of any of the Loan Papers or by Law;

 

provided, that the Mortgagee shall have no obligation to do or refrain from
doing any of the acts, or to make or refrain from making any payment, referred
to in this Section 8.1. Any receiver or receivers of the Mortgaged Property, or
any portion thereof, shall serve without bond.

 

8.2.                            Power of Sale; Abandonment of Sale. The
Mortgagee may, where permitted by Law, request the Trustee to proceed with
foreclosure, and in such event the Trustee is hereby authorized and empowered,
and it shall be his special duty, upon such request of the Mortgagee, to sell
the Mortgaged Property, or any part thereof, at public auction to the highest
bidder or bidders for cash, at the courthouse door of the county (or judicial
district thereof) in the State wherein the Lands then subject to the lien and
security interest hereof are situated; provided that if the Lands are situated
in more than one county (or judicial district thereof), and if permitted by
applicable Law, such sale of the Mortgaged Property, or part thereof, may be
made in any county in the State wherein any part of the Lands then subject to
the lien and security interest hereof are situated. Any such sale shall be made
at public outcry, on the day of any month, during the hours of such day, and
after written notices thereof have been publicly posted in such places and for
such time periods and all persons and entities entitled to notice thereof have
received such notice, all as required by applicable Law. The affidavit of any
person having knowledge of the facts to the effect that such service of notice
was completed shall be prima facie evidence of the facts of service of notice.
If the applicable Law in force as of the date hereof should hereafter be amended
to require a different notice of sale applicable to sales of Property of the
nature of the Mortgaged Property under power of sales conferred by mortgages or
deeds of trust, the Trustee may, in his sole discretion, and to the extent
permitted by applicable Law, either give the notice of sale required by
applicable Law in effect on the date hereof or the notice of sale required by
the amended Law; and nothing herein shall be deemed to require the Mortgagee or
Trustee to perform, and the Mortgagee and Trustee shall not be required to do,
any act other than as required by applicable Law in effect at the time of any
such sale. After such sale, the Trustee shall make to the purchaser or
purchasers thereunder good and sufficient deeds and assignments, in the name of
the Mortgagor, conveying the Mortgaged Property, or any part thereof, so sold to
the purchaser or purchasers with appropriate warranties of title on behalf of
the Mortgagor. Sale of a part of the Mortgaged Property shall not exhaust the
power of sale, and sales may be made from time to time until the Secured
Indebtedness is paid and performed in full. It shall not be necessary to have
present or to exhibit at any such sale any of the personal property. In addition
to the rights and powers of sale granted under the preceding provisions of this
Section 8.2, if default is made in the payment of any installment of, or
performance of, the Secured Indebtedness, the Mortgagee, at its option, at once,
or at any time thereafter while any matured installment remains unpaid, without
declaring the entire Secured Indebtedness to be due and payable, may orally or
in writing direct the Trustee to enforce this trust and to sell the Mortgaged
Property subject to such unmatured Secured Indebtedness and the liens and
security interests securing its payment, in the same manner, on the same terms,
at the same place and time, and after having given notice in the same manner,
all as provided in the preceding provisions of this Section 8.2. After such
sale, the Trustee shall make due conveyance to the purchaser or purchasers.
Sales made without maturing the

 

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Secured Indebtedness may be made hereunder whenever there is a default in the
payment of any installment of the Secured Indebtedness without exhausting the
power of sale granted hereby, and without affecting in any way the power of sale
granted under this Section 8.2 or the unmatured balance of the Secured
Indebtedness (except as to any proceeds of any sale which the Mortgagee may
apply as a prepayment on the Secured Indebtedness) or the liens and security
interests securing payment of the Secured Indebtedness. It is intended by each
of the foregoing provisions of this Section 8.2 that the Trustee may, where
permitted by Law, after any request or direction by the Mortgagee, sell not only
the Subject Interests but also all items constituting a part of the Mortgaged
Property, or any part thereof, together with the Lands, or any part thereof, all
as a unit and as a part of the single sale, or may sell any part of the
Mortgaged Property separately from the remainder of the Mortgaged Property. It
is agreed that in any deed or deeds given by the Trustee any and all statements
of fact or other recitals therein made as to the identity of the Mortgagee, or
as to the occurrence or existence of any Event of Default, or as to the
acceleration of the maturity of the Secured Indebtedness, or as to the request
to sell, notice of sale, time, place, terms, and manner of sale and receipt,
distribution, and application of the money realized therefrom, or as to the due
and proper appointment of a substitute Trustee, and, without being limited by
the foregoing, as to any other act or thing having been duly done by the
Mortgagee or by the Trustee, shall be taken by all courts of Law and equity as
prima facie evidence that such statements or recitals are for all purposes
correct statements of the facts and are without further question to be so
accepted, and the Mortgagor does hereby ratify and confirm any and all acts that
the Trustee may lawfully perform by virtue hereof. In the event of the
resignation or death of the Trustee, or his failure, refusal, or inability, for
any reason, to make any such sale or to perform any of the trusts herein
declared, or, at the option of the Mortgagee, without cause, Mortgagee may
appoint, in writing, a substitute Trustee, who shall thereupon succeed to all
the estates, titles, rights, powers, and trusts herein granted to and vested in
the Trustee. Such appointment may be made on behalf of the Mortgagee by any
person who is then the president, or a vice president, or the cashier or
secretary, or any other duly authorized officer or agent, of the Mortgagee. In
the event of the resignation or death of any such substitute Trustee, or his
failure, refusal, or inability to make any such sale or perform such trusts, or,
at the option of the Mortgagee, without cause, successive substitute Trustees
may thereafter, from time to time, be appointed in the same manner. In the event
a foreclosure hereunder should be commenced by the Trustee in accordance with
this Section, Mortgagee may at any time before the sale direct the Trustee to
abandon the sale, and may then institute suit for the collection of the Secured
Indebtedness, and/or for the foreclosure of the liens hereof.

 

8.3.                            Judicial Proceedings; Receiver. This Mortgage
shall be effective as a mortgage as well as a deed of trust and may be
foreclosed as to any of the Property covered hereby in any manner permitted by
the Law of any state in which the affected Mortgaged Property is situated, and
any foreclosure suit may be brought, to the extent permitted by Law, by the
Trustee or by the Mortgagee. Upon occurrence of an Event of Default which has
not been waived by the Mortgagee, the Trustee or the Mortgagee, in lieu of or in
addition to exercising the power of sale hereinabove given, may proceed, where
permitted by Law, by a suit or suits in equity or at Law, whether for a
foreclosure hereunder, or for the sale of the Mortgaged Property, or for the
specific performance of any covenant or agreement herein contained or in aid of
the execution of any power herein granted, or without any showing of fraud,
insolvency or mismanagement by the Mortgagor, for the appointment of a receiver
or receivers of the Mortgaged Property and of the income, rents issues,
products, profits and proceeds thereof (any such receiver or receivers to serve
without bond) pending any foreclosure hereunder or the sale of the Mortgaged
Property, or for the enforcement of any other appropriate

 

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legal or equitable remedy. The appointment of a receiver shall in no manner
affect the rights of the Mortgagee under Article V hereof. If Mortgagee should
institute a suit for the collection of the Secured Indebtedness and/or for a
foreclosure of the liens hereof, it may at any time before the entry of a final
judgment in said suit dismiss the same, and, where permitted by Law, (a) require
the Trustee to sell the Mortgaged Property, or any part thereof, in accordance
with the provisions of this Mortgage or (b) commence to sell the Mortgaged
Property under the power of sale granted hereunder in accordance with the terms
of this Mortgage.

 

8.4.                            Certain Aspects of a Sale. The Mortgagee shall
have the right to become the purchaser at any sale of the Mortgaged Property to
the extent not prohibited by Law, and the Mortgagee shall have the right to
credit upon the amount of the bid made therefor, the amount payable out of the
net proceeds of such sale to it. Recitals contained in any conveyance made to
any purchaser at any sale made hereunder shall conclusively establish the truth
and accuracy of the matters therein stated, including, without limiting the
generality of the foregoing, nonpayment of the unpaid principal sum of, interest
accrued on, and fees payable in respect of, the Secured Indebtedness after the
same have become due and payable, and advertisement and conduct of such sale in
the manner provided herein or appointment of any successor Trustee hereunder.

 

8.5.                            Receipt to Purchaser. Upon any sale, whether
made under the power of sale herein granted and conferred or by virtue of
judicial proceedings, the receipt of the Trustee, the Mortgagee, or of the
officer making such sale under judicial proceedings, shall be sufficient
discharge to the purchaser or purchasers at any sale for his or their purchase
money, and such purchaser or purchasers, or his or their assigns or personal
representatives, shall not, after paying such purchase money and receiving such
receipt of the Trustee, the Mortgagee or of such officer therefor, be obligated
to see to the application of such purchase money, or be in anywise answerable
for any loss, misapplication or nonapplication thereof.

 

8.6.                            Effect of Sale. Any sale or sales of the
Mortgaged Property, whether under the power of sale herein granted and conferred
or by virtue of judicial proceedings, where permitted by Law, shall operate to
divest all right, title, interest, claim and demand whatsoever either at Law or
in equity, of the Mortgagor of, in, and to the premises and the Property sold,
and shall be a perpetual bar, both at Law and in equity, against the Mortgagor,
and the Mortgagor’s successors or assigns, and against any and all persons
claiming or who shall thereafter claim all or any of the Property sold from,
through, or under the Mortgagor, or the Mortgagor’s successors or assigns.
Nevertheless, the Mortgagor, if requested by the Trustee or the Mortgagee to do
so, shall join in the execution and delivery of all proper conveyances,
assignments and transfers of the properties so sold.

 

8.7.                            Application of Proceeds. The proceeds of any
sale of the Mortgaged Property, or any part thereof, whether under the power of
sale herein granted and conferred or by virtue of judicial proceedings, shall be
applied as follows (as appropriately modified to comply with any mandatory
provisions of Law):

 

First: To the payment of all expenses incurred by the Trustee or the Mortgagee
in the performance of his or its duties including, without limiting the
generality of the foregoing, all expenses of any entry, or taking of possession,
of any sale, of advertisement thereof, and of conveyances, and, as well, court
costs, compensation of agents and employees and legal fees;

 

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Second: To the payment and satisfaction of (i) the Loan Obligations that
constitute “Loan Obligations” as defined in the Intercreditor Agreement and
(ii) the Swap Obligations, all in accordance with the Intercreditor Agreement,
or, if at the time of application there is no Intercreditor Agreement then in
effect, then to the payment and satisfaction of the Loan Obligations (as defined
herein);

 

Third: To the payment of any other amounts owed to TCB; and

 

Fourth: Any surplus thereafter remaining shall be paid to the Mortgagor or the
Mortgagor’s successors or assigns, as their interests shall appear of record, or
as otherwise required by law.

 

8.8.                            Mortgagor’s Waiver of Appraisement,
Marshaling, etc. Rights. The Mortgagor agrees, to the full extent that the
Mortgagor may lawfully so agree, that the Mortgagor will not at any time insist
upon or plead or in any manner whatever claim the benefit of any appraisement,
valuation, stay, extension or redemption Law now or hereafter in force, in order
to prevent or hinder the enforcement or foreclosure of this Mortgage or the
absolute sale of the Mortgaged Property or the possession thereof by any
purchaser at any sale made pursuant to any provision hereof, or pursuant to the
decree of any court of competent jurisdiction; but the Mortgagor, for the
Mortgagor and all who may claim through or under the Mortgagor, so far as the
Mortgagor or those claiming through or under the Mortgagor now or hereafter
lawfully may, hereby waives the benefit of all such Law. The Mortgagor, for the
Mortgagor and all who may claim through or under the Mortgagor, waives, to the
extent that the Mortgagor may lawfully do so, any and all right to have the
Mortgaged Property marshaled upon any foreclosure of the lien hereof, or sold in
inverse order of alienation, and agrees that the Mortgagee or the Trustee or any
court having jurisdiction to foreclose such lien may sell the Mortgaged Property
as an entirety. If any Law in this Section 8.8 referred to and now in force, of
which the Mortgagor or the Mortgagor’s successor or successors might take
advantage despite the provisions hereof, shall hereafter be repealed or cease to
be in force, such Law shall not thereafter be deemed to constitute any part of
the contract herein contained or to preclude the operation or application of the
provisions of this Section 8.8.

 

8.9.                            Waiver of Deficiency Statute.

 

(a)                 In the event an interest in any of the Mortgaged Property is
foreclosed upon pursuant to a judicial or non-judicial foreclosure sale, the
Mortgagor agrees as follows: notwithstanding the provisions of Sections 51.003,
51.004, and 51.005 of the Property Code (as in effect in the state of Texas and
herein so called and as the same may be amended from time to time), and to the
extent permitted by law, the Mortgagor agrees that the Mortgagee shall be
entitled to seek a deficiency judgment from the Mortgagor and any/or other party
obligated on the Indebtedness equal to the difference between the amount owing
on the Secured Indebtedness and the amount for which the Mortgaged Property was
sold pursuant to judicial or non-judicial foreclosure sale. The Mortgagor
expressly recognizes that this Section 8.9(a) constitutes a waiver of the
above-cited provisions of the Property Code which would otherwise permit the
Mortgagor and other persons against whom recovery of deficiencies is sought or
any Guarantor independently (even absent the initiation of deficiency
proceedings against them) to present competent evidence of the fair market value
of the Mortgaged Property as of the date of the foreclosure sale and offset
against any deficiency the amount by which the foreclosure sale price is
determined to be less than such fair market value. The

 

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Mortgagor further recognizes and agrees that this waiver creates an irrebuttable
presumption that the foreclosure sale price is equal to the fair market value of
the Mortgaged Property for purposes of calculating deficiencies owed by the
Mortgagor and/or others against whom recovery of a deficiency is sought.

 

(b)                 Alternatively, in the event the waiver provided for in
clause (a) above is determined by a court of competent jurisdiction to be
unenforceable, the following shall be the basis for the finder of fact’s
determination of the fair market value of the Mortgaged Property as of the date
of the foreclosure sale in proceedings governed by Sections 51.003, 51.004 and
51.005 of the Property Code (as amended from time to time): (i) the Mortgaged
Property shall be valued in an “as is” condition as of the date of the
foreclosure sale, without any assumption or expectation that the Mortgaged
Property will be repaired or improved in any manner (including, without
limitation, the re-working of existing wells or the drilling of any new wells)
before a resale of the Mortgaged Property after foreclosure; (ii) the valuation
shall be based upon an assumption that the foreclosure purchaser desires a
resale of the Mortgaged Property for cash promptly (but not later than 12
months) following the foreclosure sale; (iii) all reasonable closing costs
customarily borne by the seller in oil and gas transactions should be deducted
from the gross fair market value of the Mortgaged Property, including, without
limitation, brokerage commissions, title opinions, engineering evaluations of
the Mortgaged Property, tax prorations, attorneys’ fees, and marketing costs;
(iv) the gross fair market value of the Mortgaged Property shall be further
discounted to account for any estimated holding costs associated with
maintaining the Mortgaged Property pending sale, including, without limitation,
utilities expenses, management fees, taxes and assessments (to the extent not
accounted for in (iii) above), and other maintenance, operational and ownership
expenses; and (v) any expert opinion testimony given or considered in connection
with a determination of the fair market value of the Mortgaged Property must be
given by persons having at least five (5) years experience in appraising
property similar to the Mortgaged Property and who have conducted and prepared a
complete written engineering appraisal of the Mortgaged Property taking into
consideration the factors set forth above.

 

8.10.                     Special Provisions Applicable in Texas; Other
Miscellaneous State Provisions. Notwithstanding any contrary provisions
contained elsewhere in this Mortgage:

 

8.10.1.           Texas. With respect to that portion of the Mortgaged Property
located in the State of Texas:

 

(a)                                 It is the intention of the parties to comply
strictly with the provisions of Section 51.0074 of the Property Code as enacted
in Texas, and any duty assigned to the Trustee in contravention thereof with
respect to that portion of the Mortgaged Property located in Texas shall be
deemed assigned to the Mortgagee, its successors and assigns, and shall be
enforceable by the Mortgagee with respect to such Mortgaged Property to the
extent not prohibited by the Law of Texas.

 

(b)                                 The Trustee or any substitute trustee and
the Mortgagee shall be entitled to the benefits of, and shall be subject to any
mandatory provisions of, those provisions of Section 51.0075 of the Property
Code as enacted in Texas which are applicable to it.

 

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8.11.                     Power of Attorney to Mortgagee. Mortgagor does hereby
designate Mortgagee as the agent of Mortgagor to act in the name, place, and
stead of Mortgagor in the exercise of each and every remedy set forth herein and
in conducting any and all operations and taking any and all action reasonably
necessary to do so, recognizing such agency in favor of Mortgagee to be coupled
with the interests of Mortgagee under this Mortgage and, thus, irrevocable so
long as this Mortgage is in force and effect.

 

8.12.                     Costs and Expenses. All costs, expenses (including
attorneys’ fees), and payments incurred or made by the Trustee or the Mortgagee
in protecting and enforcing its rights hereunder, shall constitute a demand
obligation owing by the Mortgagor to the party incurring such or making costs,
expenses, or payments and shall bear interest at a rate per annum equal to the
maximum rate of interest permitted by applicable Law, all of which shall
constitute a portion of the Secured Indebtedness.

 

8.13.                     Operation of the Mortgaged Property by the Mortgagee.
Upon the occurrence of an Event of Default which has not been waived by the
Mortgagee, and in addition to all other rights herein conferred on the Trustee
or the Mortgagee, the Trustee or the Mortgagee (or any Person designated by the
Trustee or the Mortgagee) shall have the right and power, but shall not be
obligated, to enter upon and take possession of any of the Mortgaged Property
without the necessity of posting bond, and to exclude the Mortgagor, and the
Mortgagor’s agents or servants, wholly therefrom, and to hold, use, administer,
manage and operate the same to the extent that the Mortgagor shall be at the
time entitled to do any of such things and in the Mortgagor’s place and stead.
The Trustee or the Mortgagee (or any Person designated by the Trustee or the
Mortgagee) may, but shall not be obligated to, operate the same without any
liability or duty to the Mortgagor in connection with such operations, except to
use ordinary care in the operation of such Mortgaged Property, and the Trustee
or the Mortgagee or any Person designated by the Trustee or the Mortgagee, shall
have the right to collect and receive all Hydrocarbons produced and sold from
the Mortgaged Property, to make repairs, purchase machinery and equipment,
conduct work-over operations, drill additional wells and to exercise every
power, right and privilege of the Mortgagor with respect to the Mortgaged
Property. When and if the expenses of such operation and development (including
costs of unsuccessful work-over operations or additional wells) have been paid
and the Secured Indebtedness paid, such Mortgaged Property shall, if there has
been no sale or foreclosure thereof, be returned to the Mortgagor.

 

8.14.                     No Additional Duties Created; Interpretation of
Actions. Notwithstanding any provision of this Article VIII or any other
provision of this Mortgage, with respect to that portion of the Mortgaged
Property located in any jurisdiction, the Trustee or Mortgagee, as applicable,
shall be entitled to enforce the rights and remedies described herein with
respect to such portion of the Mortgaged Property in such jurisdiction in
accordance with the Law in effect in such jurisdiction at the time such
enforcement action is taken, and the Mortgagor hereby waives its right to
require the Trustee or Mortgagee, as applicable, to comply with any contrary
terms and provisions of this Mortgage in such circumstance, it being the
intention of the Mortgagor and Mortgagee that the waivers of Mortgagor herein
and the powers granted to the Trustee and Mortgagee herein are for the sole
benefit of the Mortgagee and are neither intended to limit the rights and powers
of the Trustee or the Mortgagee, as applicable, as are permissible under
applicable Law to enforce the Liens granted herein, nor intended to establish a
standard or duty of performance by the Trustee or the Mortgagee, as applicable,
in excess of or in addition to that required by the Law of such jurisdiction

 

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as in effect at the time the particular right or remedy is sought to be
enforced. In furtherance thereof, with respect to that portion of the Mortgaged
Property located in any jurisdiction, any actions by the Trustee or Mortgagee,
as applicable, to enforce the Liens granted herein which are not prohibited by
the Law of such jurisdiction wherein the affected Mortgaged Property is located,
shall be deemed to be in compliance with, and not prohibited by or in violation
of, the terms of this Mortgage.

 

ARTICLE IX

 

MISCELLANEOUS

 

9.1.                            Advances by the Mortgagee. Each and every
covenant herein contained shall be performed and kept by the Mortgagor solely at
the Mortgagor’s expense. If the Mortgagor shall fail to perform or keep any of
the covenants of whatsoever kind or nature contained in this Mortgage, the
Mortgagee or any receiver appointed hereunder, may, but shall not be obligated
to, make advances to perform the same in the Mortgagor’s behalf, and the
Mortgagor hereby agrees to repay such sums upon demand plus interest at a rate
per annum equal to the maximum rate of interest permitted by applicable Law. No
such advance shall be deemed to relieve the Mortgagor from any Event of Default
hereunder.

 

9.2.                            Defense of Claims. The Mortgagor will notify the
Mortgagee, in writing, promptly of the commencement of any legal proceedings
affecting or which could adversely affect the lien and security interest hereof
or the status of or title to the Mortgaged Property, or any part thereof, and
will take such action, employing attorneys agreeable to the Mortgagee, as may be
necessary to preserve the Mortgagor’s and the Trustee’s or Mortgagee’s rights
affected thereby; and should the Mortgagor fail or refuse to take any such
action, the Trustee or the Mortgagee may, but shall not be obligated to, take
such action on behalf and in the name of the Mortgagor and at the Mortgagor’s
expense. Moreover, the Trustee or the Mortgagee may, but shall not be obligated
to, take such independent action in connection therewith as it may in its
discretion deem proper without any liability or duty to the Mortgagor except to
use ordinary care, the Mortgagor hereby agreeing that all sums advanced or all
expenses incurred in such actions plus interest at the maximum rate of interest
permitted by applicable Law, will, on demand, be reimbursed to the Trustee, the
Mortgagee or any receiver appointed hereunder.

 

9.3.                            Defeasance. If the Secured Indebtedness shall be
paid and discharged in full, no Credit Party has any further obligation to
advance amounts to or for the benefit of the Mortgagor, the Hedging Agreements
governing any Swap Obligations and all related transactions and confirmations
thereunder have expired or been terminated, as applicable, and the Mortgagee has
no commitment to permit or intention to allow the creation of additional Secured
Indebtedness, the Mortgagee will, upon request of the Mortgagor and at the
Mortgagor’s expense, execute and deliver to the Mortgagor all releases and other
instruments reasonably requested by the Mortgagor for the purpose of releasing
and discharging the lien and security interest created hereunder. Otherwise this
Mortgage shall remain and continue in full force and effect.

 

9.4.                            Other Security. The Trustee or the Mortgagee may
take or may hold other security from Persons other than the Mortgagor for the
Secured Indebtedness and may release or modify the same without notice to or
consent of the Mortgagor. The Trustee or the Mortgagee may resort first to such
other security or any part thereof or first to the security herein given or any
part thereof, or from

 

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time to time to either or both, even to the partial or complete abandonment of
either security, and such action shall not be a waiver of any rights conferred
by this Mortgage, which shall continue as a first lien and security interest
upon the Mortgaged Property not expressly released until all Secured
Indebtedness secured hereby is fully paid and no Credit Party has any commitment
to advance amounts or extend credit to or for the benefit of the Mortgagor or
any other payor of Secured Indebtedness.

 

9.5.                            Instrument an Assignment, Etc.; Grant to
Mortgagee. This Mortgage shall be deemed to be and may be enforced from time to
time as an assignment, chattel mortgage, contract, deed of trust, financing
statement, real estate mortgage, pledge, or security agreement, and from time to
time as any one or more thereof; and to the extent that any particular
jurisdiction wherein a portion of the Mortgaged Property is situated does not
recognize or permit the Mortgagor to grant, bargain, sell, warrant, mortgage,
pledge, assign, transfer, or convey the Mortgagor’s rights, titles, and
interests to the Trustee for the benefit of the Mortgagee in the manner herein
adopted (or if the attempt of the Mortgagor to grant, bargain, sell, warrant,
mortgage, pledge, assign, transfer or convey the Mortgaged Property to the
Trustee herein is otherwise ineffective), then, with respect to the Mortgaged
Property located in such jurisdiction (or ineffectively granted to the Trustee),
the Mortgagor does hereby grant, bargain, sell, warrant, mortgage, pledge,
assign, transfer, and convey unto the Mortgagee, with power of sale (if
permitted by applicable Law), the Mortgaged Property to secure the Secured
Indebtedness and the obligations of the Mortgagor contained herein and the
references herein to the rights and powers of or rights and powers granted by
the Mortgagor to the Trustee shall be deemed to be rights and powers of, or
rights and powers granted by the Mortgagor to, the Mortgagee.

 

9.6.                            Limitation on Interest. No provision of this
Mortgage or of the other Loan Papers, shall require the payment or permit the
collection of interest in excess of the maximum permitted by Law or which is
otherwise contrary to Law. If any excess of interest in such respect is herein
or in the other Loan Papers provided for, or shall be adjudicated to be so
provided for herein or in the other Loan Papers, the Mortgagor shall not be
obligated to pay such excess.

 

9.7.                            Unenforceable or Inapplicable Provisions. The
parties hereto have negotiated the terms of this Mortgage for its use or
possible future use in more than one jurisdiction. Thus, if any provision of
this Mortgage is invalid or unenforceable in any jurisdiction, the other
provisions hereof shall remain in full force and effect in such jurisdiction,
and the remaining provisions hereof shall be liberally construed in favor of the
Trustee and the Mortgagee in order to effectuate the provisions hereof, and the
invalidity of any provision hereof in any jurisdiction shall not affect the
validity or enforceability of any such provision in any other jurisdiction. In
furtherance of the foregoing and not in limitation thereof, if, for any
jurisdiction wherein any of the Mortgaged Property is located, any duty, power
or authority is assigned, granted or delegated to the Trustee hereunder which is
impermissible to be so assigned, granted or delegated to such Trustee under the
Laws of such jurisdiction (including, with respect to the State of Texas,
Section 51.0074 of the Property Code as enacted in Texas), such assignment,
grant or delegation shall be deemed to be an assignment, grant or delegation
exclusively to the Mortgagee, its successors and assigns, and may be enforced by
the Mortgagee if not prohibited by the Law of such jurisdiction. With respect to
any jurisdiction wherein a portion of the Mortgaged Property is situated, any
reference herein to a statute or the Law of another jurisdiction shall be deemed
inapplicable to, and not used in, the interpretation of the duties, powers or
authority of the Trustee and Mortgagee under this Mortgage.

 

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9.8.                            Rights Cumulative. Each and every right, power
and remedy herein given to the Trustee or the Mortgagee shall be cumulative and
not exclusive; and each and every right, power and remedy whether specifically
herein given or otherwise existing may be exercised from time to time and so
often and in such order as may be deemed expedient by the Trustee or the
Mortgagee, as the case may be, and the exercise, or the beginning of the
exercise, of any such right, power or remedy shall not be deemed a waiver of the
right to exercise, at the same time or thereafter, any other right, power or
remedy. No delay or omission by the Trustee or the Mortgagee in the exercise of
any right, power or remedy shall impair any such right, power or remedy or
operate as a waiver thereof or of any other right, power or remedy then or
thereafter existing.

 

9.9.                            Waiver of Covenants by Mortgagee. Any and all
covenants in this Mortgage may from time to time by instrument in writing signed
by the Mortgagee be waived to such extent and in such manner as the Mortgagee
may desire, but no such waiver shall ever affect or impair the Mortgagee’s
rights and remedies or liens and security interests hereunder, except to the
extent specifically stated in such written instrument.

 

9.10.                     Successors and Assigns.

 

9.10.1.           This instrument is binding upon the Mortgagor, and the
Mortgagor’s heirs, successors and assigns, and shall inure to the benefit of the
Trustee and the Mortgagee, and their respective successors and assigns, and the
provisions hereof shall likewise be covenants running with the Lands.

 

9.10.2.           The parties hereto agree that the Notes may be transferred
without the necessity for a notarial act of transfer thereof, and that any such
transfer shall carry with it into the hands of any future holder or holders of
the Notes full and entire subrogation of title in and to the Notes and to any
and all rights and privileges under this instrument herein granted to the
Mortgagee, as holder of the Notes. This Mortgage is for the benefit of the
Mortgagee and for such other Person or Persons as may from time to time become
or be the holders of any of the Secured Indebtedness, and this Mortgage shall be
transferable and negotiable, with the same force and effect and to the same
extent as the Secured Indebtedness may be transferable.

 

9.11.                     Article and Section Headings. The article and section
headings in this instrument are inserted for convenience and shall not be
considered a part of this Mortgage or used in its interpretation.

 

9.12.                     Counterpart. This Mortgage may be executed in any
number of counterparts, each of which shall for all purposes be deemed to be an
original, and all of which are identical except that, to facilitate recordation
in any particular county or parish, counterpart portions of Exhibit A which
describe properties situated in parishes or counties other than the county or
parish in which such counterpart is to be recorded may be omitted. Exhibit A
might not be paginated and any pagination might not be consecutive. Exhibit A
may also contain language indicating that it is attached to a document other
than this Mortgage or that a particular page is the end of Exhibit A, when
neither is applicable. Such language shall be ignored for the purposes of
interpreting this Mortgage.

 

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9.13.                     Special Filing as Financing Statement.

 

9.13.1.           This Mortgage shall likewise be a Security Agreement and a
Financing Statement, and Mortgagor, as debtor (the “Debtor”), hereby grants to
the Mortgagee, its successors and assigns, as Secured Party, a security interest
in all personal property, fixtures, accounts, equipment, inventory, contract
rights and general intangibles described or referred to in Article II hereof and
all proceeds and products from the sale, lease or other disposition of the
Mortgaged Property or any part thereof. The addresses shown in this Article are
the addresses of the Debtor and Secured Party and information concerning the
security interest may be obtained from the Secured Party at its address. Without
in any manner limiting the generality of any of the foregoing provisions hereof:
(a) some portion of the goods described or to which reference is made herein are
or are to become fixtures on the Lands described or to which reference is made
herein; (b) the minerals and the like (including oil and gas) included in the
Mortgaged Property and the accounts resulting from the sale thereof will be
financed at the wellhead(s) or minehead(s) of the well(s) or mine(s) located on
the Lands described or to which reference is made herein; and (c) this Mortgage
is to be filed of record, among other places, in the real estate records of each
county in which the Lands, or any part thereof, are situated, as a financing
statement, but the failure to do so will not otherwise affect the validity or
enforceability of this instrument.

 

9.13.2.           The charter/file number of the Mortgagor is as set forth on
the cover page hereof.

 

9.13.3.           The Mortgagee is authorized to complete and file financing
statements covering the security interests granted in this Mortgage. Any such
financing statements may identify the property or collateral subject thereto as
“all assets,” “all property” or words of similar import.

 

9.14.                     Notices. Whenever this Mortgage requires or permits
any consent, approval, notice, request, or demand from one party to another, the
consent, approval, notice, or demand must be in writing to be effective and
shall be personally delivered or sent to the party to be notified at the address
or facsimile number stated below (or such other address as may have been
designated by written notice by the party pursuant to this Section):

 

MORTGAGOR-DEBTOR

MORTGAGEE-SECURED PARTY

 

 

Reef Oil & Gas Drilling and Income Fund, L.P.

Texas Capital Bank, N.A.

1901 N. Central Expressway, Suite 300

2000 McKinney Avenue, Suite 1800

Richardson, Texas 75080

Dallas, Texas 75201

Attn: Michael Mauceli

Attn: Energy Banking Group

 

Each such notice, request or other communication shall be effective (i) if given
by facsimile transmission, when transmitted to the facsimile number specified in
this Section and confirmation of receipt is received (the receipt thereof shall
be deemed to have been acknowledged upon the sending Person’s receipt of its
facsimile machine’s confirmation of successful transmission; provided that if
the day on which such facsimile is received is not a Business Day or is after
4:00 p.m. on a Business Day, then the receipt of such facsimile shall be deemed
to have been acknowledged on the next following Business Day), (ii) if given by
mail, three (3) Business Days after such communication is deposited in the mail
with first class postage prepaid, addressed as aforesaid, or (iii) if given by
any

 

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other means, when delivered (or, in the case of electronic transmission,
received) at the address specified in this Section.

 

9.15.                     No Waiver by Mortgagee. No course of dealing on the
part of Mortgagee, its officers or employees, nor any failure or delay by
Mortgagee with respect to exercising any of its rights or remedies hereunder
shall operate as a waiver thereof nor shall the exercise or partial exercise of
any such right or remedy preclude the subsequent exercise thereof or the
exercise of any other right or remedy.

 

9.16.                     Governing Agreement. This Mortgage is made pursuant
and subject to the terms and provisions of the Credit Agreement. In the event of
a direct conflict between the terms and provisions of this Mortgage and those of
the Credit Agreement, the terms and provisions of the Credit Agreement shall
govern and control, except that if the two documents contain different formal
definitions for the same term or terms, the formal definition of such term or
terms herein shall be applicable in construing this Mortgage. The inclusion in
this Mortgage of provisions not addressed in the Credit Agreement shall not be
deemed a conflict, and all such additional provisions contained herein shall be
given full force and effect. The indemnification and releases contained herein
are in addition to any indemnification or releases contained in the Credit
Agreement.

 

9.17.                     Drafting of Mortgage. Mortgagor declares that it has
contributed to the drafting of this Mortgage or has had the opportunity to have
it reviewed by its counsel before signing it and agrees that it has been
purposefully drawn and correctly reflects its understanding of the transaction
that it contemplates.

 

9.18.                     Execution by Mortgagee and Trustee; Corrections. The
Mortgagee and/or the Trustee may at any time without obtaining the consent of
the Mortgagor execute this Mortgage (and have such execution witnessed or
acknowledged) for any purposes which either of them deems necessary or
appropriate and, if deemed appropriate, subsequently file this Mortgage of
record. Additionally, in the event it is determined that Exhibit A contains any
errors or inaccurate or incomplete descriptions of the Oil and Gas Leases and
Lands intended to be covered hereby or referred to in any Certificates of
Ownership Interests, the Mortgagee may, without obtaining the consent of the
Mortgagor, attempt to correct any such errors or omissions and make accurate and
complete any such inaccuracies, omissions or misdescriptions and, if deemed
appropriate, subsequently file or re-file this Mortgage of record.

 

9.19.                     Governing Law. This Mortgage is intended to be
performed in the State of Texas and the substantive Law of such State and or the
United States of America shall govern the validity, construction, enforcement
and interpretation of this Mortgage, unless otherwise specified herein or unless
the Law of another state require the application of the Law of such state.

 

9.20.                     Intercreditor Agreement. This Mortgage shall be deemed
to be encompassed by the definition of “Deeds of Trust” as such term is defined
and used in any Intercreditor Agreement that may be in effect from time to time.
Thus, this Mortgage shall be one of the Security Instruments (as such term is
defined in an Intercreditor Agreement).

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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9.21.                     NOTICE: THIS DOCUMENT REPRESENTS THE FINAL AGREEMENT
BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.

 

IN WITNESS WHEREOF, the Mortgagor has executed or caused to be executed this
Mortgage as of the date first set forth above.

 

 

MORTGAGOR:

 

 

 

Reef Oil & Gas Drilling and Income Fund, L.P.

 

By:

Reef Oil & Gas Partners, L.P., its General Partner

 

By:

Reef Oil & Gas Partners, GP, LLC, its General Partner

 

 

 

 

 

 

By:

/s/ Michael J. Mauceli

 

 

 

Michael J. Mauceli, Manager

 

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ACKNOWLEDGEMENT

 

STATE OF TEXAS

§

 

§

COUNTY OF DALLAS

§

 

This instrument was acknowledged before me on October 14, 2014, by Michael J.
Mauceli, Manager of Reef Oil & Gas Partners, GP, LLC, a Texas limited liability
company that is the general partner of Reef Oil & Gas Partners, LP., a Nevada
limited partnership that is the general partner of Reef Oil & Gas Drilling and
Income Fund, L.P., a Texas limited partnership, on behalf of said partnership.

 

Before me,                      , a Notary Public, on this day personally
appeared Michael J. Mauceli, Manager of Reef Oil & Gas Partners, GP, LLC, as
general partner of Reef Oil & Gas Partners, L.P., as general partner of Reef
Oil & Gas Drilling and Income Fund, L.P.,

 

o known to me

o proved to me on the oath of                          

o proved to me through Texas Driver License
No.                     expiring                   

o proved to me through                      

 

to be the person whose name is subscribed to the foregoing instrument and
acknowledged to me that he executed the same for the purposes and consideration
therein expressed.

 

Given under my hand and seal of office this 14th day of October, A.D., 2014.

 

 

 

(Personalized Seal)

Notary Public in and for the State of Texas

 

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