Exhibit 10.1
 
Purchase And Sale Agreement
 
BETWEEN
 
TXCO Resources Inc.,
 
TXCO Energy Corp.,
 
Texas Tar Sands Inc.,
 
Output Acquisition Corp.,
 
OPEX Energy, LLC,
 
Charro Energy, Inc.,
 
TXCO Drilling Corp.,
 
Eagle Pass Well Service, L.L.C.,
 
PPL Operating, Inc.,
 
Maverick Gas Marketing, Ltd., and
 
Maverick-Dimmit Pipeline, Ltd.
 
As Sellers
 
and
 
Anadarko E&P Company LP
 
As Purchaser
 
Executed On December 31, 2009

 
 

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TABLE OF CONTENTS
 

   
Page
     
ARTICLE 1
PURCHASE AND SALE
1
     
Section 1.1
Purchase and Sale
1
     
Section 1.2
Assets
2
     
Section 1.3
Excluded Assets
4
     
Section 1.4
Effective Time; Proration of Costs and Revenues
4
     
Section 1.5
Delivery and Maintenance of Records
6
     
ARTICLE 2
PURCHASE PRICE
6
     
Section 2.1
Purchase Price
6
     
Section 2.2
Deposit
7
     
Section 2.3
Adjustments to Purchase Price
7
     
Section 2.4
Allocation of Purchase Price
8
     
ARTICLE 3
CONSENT TO ASSIGNMENT; PREFERENTIAL RIGHTS TO PURCHASE; CASUALTY AND
CONDEMNATION LOSS
9
     
Section 3.1
Consents to Assignment; Preferential Rights to Purchase
9
     
Section 3.2
Casualty and Condemnation Loss
10
     
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
10
     
Section 4.1
Disclaimers
10
     
Section 4.2
Existence and Qualification
11
     
Section 4.3
Power
11
     
Section 4.4
Authorization and Enforceability
11
     
Section 4.5
No Conflicts
11
     
Section 4.6
Liability for Brokers' Fees
12
     
Section 4.7
Litigation and Claims
12
     
Section 4.8
Taxes and Assessments
12
     
Section 4.9
Preferential Rights; Consents
12
     
Section 4.10
Consents
12
     
Section 4.11
Contracts
13
     
Section 4.12
Wells; Facilities
14
     
Section 4.13
Marketing; Calls on Production
14

 
 

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Section 4.14
Imbalances
15
     
Section 4.15
AFEs
15
     
Section 4.16
Suspense Account
15
     
Section 4.17
Capital Expenditures
15
     
Section 4.18
Equipment
15
     
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PURCHASER
15
     
Section 5.1
Existence and Qualification
15
     
Section 5.2
Power
16
     
Section 5.3
Authorization and Enforceability
16
     
Section 5.4
No Conflicts
16
     
Section 5.5
Liability for Brokers' Fees
16
     
Section 5.6
Litigation
16
     
Section 5.7
Financing
16
     
Section 5.8
Independent Investigation
17
     
Section 5.9
Consents, Approvals or Waivers
17
     
ARTICLE 6
COVENANTS OF THE PARTIES
17
     
Section 6.1
Access
17
     
Section 6.2
Government Reviews
17
     
Section 6.3
Notification of Breaches
17
     
Section 6.4
Public Announcements
18
     
Section 6.5
Operation of Business
18
     
Section 6.6
Indemnity Regarding Access
20
     
Section 6.7
Assumption of Obligations
20
     
Section 6.8
Solicitation Provisions; Back-Up Bid Option
20
     
Section 6.9
Tax Matters
23
     
Section 6.10
[Intentionally Omitted]
23
 
 
 
Section 6.11
Further Assurances
23
     
Section 6.12
Recording
23
     
Section 6.13
Transition Services Agreement
23
 
 
 
Section 6.14
Schedule Updates
23
     
Section 6.15
Peregrine Claims
24
     
Section 6.16
Sale Order
24

 
 
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ARTICLE 7
CONDITIONS TO CLOSING
24
     
Section 7.1
Conditions of Sellers to Closing
24
     
Section 7.2
Conditions of Purchaser to Closing
25
     
ARTICLE 8
CLOSING
26
     
Section 8.1
Time and Place of Closing
26
     
Section 8.2
Obligations of Sellers at Closing
26
     
Section 8.3
Obligations of Purchaser at Closing
27
     
Section 8.4
Closing Payment and Post-Closing Purchase Price Adjustments
28
     
Section 8.5
Further Assurances
29
     
ARTICLE 9
TERMINATION AND AMENDMENT
29
     
Section 9.1
Termination
29
     
Section 9.2
Effect of Termination
30
     
ARTICLE 10
INDEMNIFICATION; LIMITATIONS
30
     
Section 10.1
Indemnification
30
 
   
Section 10.2
Indemnification Actions
33
     
Section 10.3
Limitation on Actions
34
     
ARTICLE 11
MISCELLANEOUS
35
     
Section 11.1
Receipts
35
     
Section 11.2
Expenses
36
     
Section 11.3
Counterparts
36
     
Section 11.4
Notice
36
     
Section 11.5
Sales or Use Tax, Recording Fees and Similar Taxes and Fees
37
     
Section 11.6
Expenses
37
     
Section 11.7
Change of Name
37
     
Section 11.8
Replacement of Bonds, Letters of Credit and Guarantees
37
     
Section 11.9
Governing Law; Submission to Jurisdiction
38
     
Section 11.10
Captions
38
     
Section 11.11
Waivers
38
     
Section 11.12
Assignment
38
     
Section 11.13
Entire Agreement
38
     
Section 11.14
Amendment
38
     
Section 11.15
No Third Party Beneficiaries
38

 
 
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Section 11.16
References
38
     
Section 11.17
Construction
39
     
Section 11.18
Limitation on Damages
39
     
ARTICLE 12
DEFINITIONS
39

 
 
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EXHIBITS:
         
Exhibit A
-
Leases and Lands
Exhibit A-1
-
Interests in Wells
Exhibit A-2
-
Gathering Systems
Exhibit A-3
-
Contracts
Exhibit A-4
-
Equipment
Exhibit A-5
-
Inventory
Exhibit A-6
-
Surface Rights
Exhibit A-7
-
Seismic Data
Exhibit A-8
-
Capital Expenditure Budget
Exhibit B
-
Form of Escrow Agreement
     
SCHEDULES:
         
Schedule 4.7
-
Litigation
Schedule 4.8
-
Taxes
Schedule 4.9
-
Consents to Assignment; Preferential Rights
Schedule 4.10
-
Consents
Schedule 4.11
-
Material Contracts
Schedule 4.12
-
Plugged and Abandoned Wells
Schedule 4.14
-
Imbalances
Schedule 4.15
-
AFEs
Schedule 4.16
-
Suspense Revenues
Schedule 4.17
-
Unbudgeted Capital Expenditures
Schedule 5.9
-
Consents, Approvals and Waivers
Schedule 6.10
-
Employees

 
 
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PURCHASE AND SALE AGREEMENT
 
This Purchase and Sale Agreement (the “Agreement”), is executed on December 31,
2009, by and between TXCO Resources Inc., a Delaware corporation, TXCO Energy
Corp., a Texas corporation, Texas Tar Sands Inc., a Texas corporation, Output
Acquisition Corp., a Texas corporation, OPEX Energy, LLC, a Texas limited
liability company, Charro Energy, Inc., a Texas corporation, TXCO Drilling
Corp., a Texas corporation, Eagle Pass Well Service, L.L.C., a Texas limited
liability company, PPL Operating, Inc., a Texas corporation, Maverick Gas
Marketing, Ltd., a Texas limited partnership, and Maverick-Dimmit Pipeline,
Ltd., a Texas limited partnership, (collectively, the “Sellers”), and Anadarko
E&P Company LP, a Delaware limited partnership (“Purchaser”).  Each Seller and
Purchaser is sometimes referred to individually as a “Party” and collectively as
the “Parties.”
 
RECITALS:
 
WHEREAS, Sellers are debtors in possession under the protection of Chapter 11 of
the United States Bankruptcy Code pursuant to jointly administered cases under
Case Number 09-51807 filed with the United States Bankruptcy Court for the
Western District of Texas (San Antonio Division) (the “Bankruptcy Court”); and
 
WHEREAS, Sellers own certain interests in oil and gas properties, rights and
related assets that are defined and described herein; and
 
WHEREAS, Sellers filed with the Bankruptcy Court a First Amended Plan of
Reorganization on December 18, 2009; and
 
WHEREAS, subject to the Bankruptcy Court’s entry of an Order of the Court
authorizing the transactions contemplated herein containing terms in form and
substance reasonably satisfactory to Sellers and Purchaser and providing among
other things, for the purchase and sale of Sellers’ Assets (hereinafter defined)
pursuant to the terms of this Agreement (the “Sale Order”), Sellers desire to
sell to Purchaser and Purchaser desires to purchase from Sellers the Assets, in
the manner and upon the terms and conditions hereafter set forth; and
 
WHEREAS, capitalized terms used herein shall have the meanings ascribed to them
in this Agreement as such terms are defined in Article 12 hereof.
 
NOW, THEREFORE, in consideration of the premises and of the mutual promises,
representations, warranties, covenants, conditions and agreements contained
herein, and for other valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the Parties hereto, intending to be legally bound
by the terms hereof, agree as follows:
 
ARTICLE 1
PURCHASE AND SALE
 
Section 1.1       Purchase and Sale.   At the Closing, and upon the terms and
subject to the conditions of this Agreement, Sellers agree to sell and convey to
Purchaser and Purchaser agrees to purchase, accept and pay for the Assets (as
defined in Section 1.2).
 
 
 

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Section 1.2       Assets.  As used herein, the term “Assets” means all of
Sellers’ right, title, and interest in and to the following:
 
(a)         The oil, gas and mineral leases, subleases and other leaseholds,
royalties, overriding royalties, net profits interests, mineral fee interests,
carried interests, Contractual Prospects, and other properties and interests
described on Exhibit A (collectively, the “Leases and Lands”), and any and all
oil, gas, water, CO2 or injection wells thereon, including the working interests
and net revenue interests in Leases and the wells located thereon shown on
Exhibit A-1 attached hereto (the “Wells”);
 
(b)         All pooled, communitized or unitized acreage which includes all or a
part of any Lease or includes any Well (the “Units”), and all tenements,
hereditaments and appurtenances belonging to the Leases and Lands and Units;
 
(c)         All gathering and transportation pipelines, compressors,
stabilizers, processing facilities, disposal facilities, treatment facilities,
interconnects, and other systems, facilities and plants used solely in
connection with the Units, Leases and Lands and Wells, including the gas
gathering and transportation pipelines, processing facilities, treatment
facilities, interconnects, and other systems and facilities described on
Exhibit A-2 (the “Gathering Systems”);
 
(d)         All surface fee interests (including the Mula Creek Ranch),
easements, permits, licenses, servitudes, rights-of-way, surface leases and
other surface rights and water rights appurtenant to, and used or held for use
solely in connection with, the Properties, but excluding any permits and other
appurtenances to the extent transfer is restricted by third-party agreement or
applicable law (the “Surface Rights” and, together with the Units, Leases,
Lands, Wells and Gathering Systems, the “Properties”);
 
(e)         To the extent transferable pursuant to Applicable Law, all
governmental (whether federal, state or local) Permits, licenses, Orders,
authorizations, franchises and related instruments or rights required of Sellers
under applicable Law for the ownership, operation or use of the Leases, Lands,
Wells, Gathering Systems, Surface Rights (the “Permits”), including
Environmental Permits
 
(f)         All Hydrocarbons (or the proceeds from the sale of Hydrocarbons) in
storage on the Properties or in the Gathering Systems at the Effective Time and
all Hydrocarbons produced and saved attributable to the Properties after the
Effective Time and all Imbalances owed to Sellers by a Third Party as of the
Effective Time;
 
 
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(g)         All rights attributable to the period of time after the Effective
Time under all presently existing contracts, agreements and instruments by which
the Assets are bound, to the extent applicable to the Properties (the
“Contracts”), including operating agreements, unitization, pooling and
communitization agreements, declarations and orders, area of mutual interest
agreements, joint venture agreements, farmin and farmout agreements, exchange
agreements, transportation agreements, agreements for the sale and purchase of
Hydrocarbons and processing agreements, to the extent applicable to the
Properties or the production of Hydrocarbons from the Properties, and
confidentiality agreements, to the extent applicable to the Properties or the
production of Hydrocarbons from the Properties, including those described on
Exhibit A-3, but excluding any contracts, agreements and instruments to the
extent transfer is restricted by third-party agreement or applicable law;
 
(h)         All equipment, machinery, fixtures and other tangible personal
property and improvements located on the Properties or used or held for use in
connection with the operation of the Properties including the Equipment
described on Exhibit A-4 (the “Equipment”);
 
(i)         All surplus equipment, materials and inventory owned, leased or held
for use by Sellers, in connection with operations on the Properties including
such surplus equipment, materials and inventory, if any, described on
Exhibit A-5;
 
(j)         All surface leases for real property used by Sellers in connection
with the operation of the Properties (including leases for field office, supply
yards, warehouses or buildings, if any, described on Exhibit A-6);
 
(k)         All geophysical and geological data, engineering and consulting
reports, computer data, seismic data (including raw data and any interpretative
data or information relating so such geologic, geophysical and seismic data) and
other proprietary data (in each case whether in written or electronic format)
owned by Sellers, together with any rights of Sellers to such types of
intellectual property owned or prepared by third parties and not subject to
licensing arrangements requiring purchase of a proprietary license by each
successor-user, in each case to the extent relating to the operation of the
Leases, Lands, Wells, Gathering System, Units, and Surface Rights, including the
seismic data described on Exhibit A-7;
 
(l)         All operating revenues and accounts receivable relating to the
period after the Effective Time, in each case associated with the Properties or
the production of Hydrocarbons attributable thereto; and
 
(m)                   The records of Sellers relating solely to the Properties
or other Assets, excluding however, (A) any records to the extent disclosure or
transfer is restricted by any third-party license agreement, other third-party
agreement or applicable law; (B) non-transferable computer software; (C) all
legal records and legal files of Sellers and all other work product of and
attorney-client communications with any of Sellers’ legal counsel (other than
(w) environmental assessments and compliance reports (x) title opinions,
(y) Contracts and (z) records and files with respect to the matters described on
Schedule 4.7); and (D) any other records to the extent constituting Excluded
Assets (as defined in Section 1.3) (clauses (A) through (D) shall hereinafter be
referred to as the “Excluded Records” and subject to such exclusions, the
records described in this Subsection 1.2(m) shall hereinafter be referred to as
the “Records”).
 
 
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Section 1.3       Excluded Assets.  Notwithstanding the foregoing, the Assets
shall not include, and there is excepted, reserved and excluded from the
purchase and sale contemplated hereby (collectively, the “Excluded Assets”):
 
(a)         all corporate, financial, income and franchise tax and legal records
of Sellers that relate to Sellers’ business generally (whether or not relating
to the Assets), all Excluded Records and all books, records and files that
relate to the Excluded Assets;
 
(b)         all of Sellers’ other mineral fee interests, royalties and/or
overriding royalty interests to the extent not specifically described in
Section 1.2;
 
(c)         all of Sellers’ other (i) equipment, machinery, fixtures and other
tangible personal property and improvements to the extent not described on
Exhibit A-4, including all drilling rigs, and (ii) any computers and related
peripheral equipment and any inventory to the extent not described on
Exhibit A-5;
 
(d)         all rights to any refund of Taxes or other costs or expenses borne
by Sellers or Sellers’ predecessors in interest and title attributable to
periods prior to the Effective Time;
 
(e)         all rights attributable to the period of time prior to the Effective
Time relating to claims, causes of action, choses in action, rights of recovery,
rights of set off, and rights of recoupment (other than claims or causes of
action for proceeds to which Purchaser is entitled under Section 1.4(b));
 
(f)         Sellers’ area-wide bonds, permits and licenses or other permits,
licenses or authorizations used in the conduct of Sellers’ business generally
and not specifically limited to the Assets;
 
(g)         Subject to Section 6.15, all Sellers’ interests in, and all assets
of any and all of Sellers’ Benefit Plans; and
 
(h)         all rights and interests of the Sellers in and to the
confidentiality agreement between TXCO Resources Inc. and Peregrine Oil & Gas
and all rights relating to claims, causes of action, choses in action, rights of
recovery, rights of set off, and rights of recoupment in connection with such
confidentiality agreement, whether arising or relating to any period prior to or
after the Effective Time.
 
Section 1.4       Effective Time; Proration of Costs and Revenues.  
 
(a)         Possession and ownership of the Assets shall be transferred from
Sellers to Purchaser at the Closing, but, subject to consummation of the
Closing, certain financial benefits and burdens of the Assets shall be
transferred effective as of 7:00 a.m., local time, where the respective Assets
are located, on January 1, 2010 (the “Effective Time”), as described below.
 
 
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(b)         Purchaser shall be entitled to all production of Hydrocarbons from
or attributable to the Leases and Lands, Units and Wells at and after the
Effective Time (and all products and proceeds attributable thereto), and to all
other income, proceeds, receipts and credits earned with respect to the Assets
at or after the Effective Time, and shall be responsible for (and entitled to
any refunds with respect to) all Property Costs incurred at and after the
Effective Time.  Sellers shall be entitled to all production of Hydrocarbons
from or attributable to Leases and Lands, Units and Wells prior to the Effective
Time (and all products and proceeds attributable thereto), and to all other
income, proceeds, receipts and credits earned with respect to the Assets prior
to the Effective Time, and shall be responsible for (and entitled to any refunds
with respect to) all Property Costs incurred prior to the Effective
Time.  “Earned” and “incurred”, as used in this Agreement, shall be interpreted
in accordance with generally accepted accounting principles and Council of
Petroleum Accountants Society (“COPAS”) standards, and expenditures which are
cash-called or advanced pursuant to a joint operating agreement, unit agreement
or similar agreement shall be deemed incurred when expended by the operator of
the applicable Leases and Lands, Unit or Well, in accordance with Sellers’
current practice.
 
(c)         “Property Costs” means all operating expenses (including costs of
insurance, rentals, shut-in payments, title examination and curative actions,
and ad valorem, property, severance, production and similar Taxes based upon or
measured by the ownership or operation of the Assets or the production of
Hydrocarbons therefrom, but excluding any other Taxes) and capital expenditures
(including bonuses, broker's fees, and other lease acquisition costs, costs of
drilling and completing wells and costs of acquiring equipment) incurred in the
ownership and operation of the Assets in the ordinary course of business, and
overhead costs charged to the Assets under the applicable operating agreement or
if none, charged to the Assets on the same basis as charged on the date of this
Agreement (excluding any such costs and expenses to be paid which are excused,
rejected or otherwise no longer payable by Sellers pursuant to an Order of the
Bankruptcy Court).
 
(d)         For purposes of allocating production (and accounts receivable with
respect thereto), under this Section 1.4, (i) liquid hydrocarbons shall be
deemed to be “from or attributable to” the Leases and Lands, Units and Wells
when they pass through the pipeline connecting into the storage facilities into
which they are run or, if there are no such storage facilities, when they pass
through the meters at the point of entry into the pipelines through which they
are transported from the field, and (ii) gaseous hydrocarbons shall be deemed to
be “from or attributable to” the Leases and Lands, Units and Wells when they
pass through the delivery point sales meters on the pipelines through which they
are transported. Sellers shall utilize reasonable interpolative procedures to
arrive at an allocation of production when exact meter readings or gauging and
strapping data is not available.  Sellers shall provide to Purchaser, no later
than ten (10) Business Days prior to Closing, evidence of all meter readings and
all gauging and strapping procedures conducted on or about the Effective Time in
connection with the Assets, together with all data necessary to support any
estimated allocation, for purposes of establishing the adjustment to the
Purchase Price pursuant to Section 2.3 hereof.  Taxes that are included in
Property Costs, right-of-way fees, insurance premiums and other Property Costs
that are paid periodically shall be prorated based on the number of days in the
applicable period falling before and the number of days in the applicable period
falling at or after the Effective Time, except that production, severance and
similar Taxes measured by the quantity of or the value of production shall be
prorated based on the number of units or value of production actually produced
and sold, as applicable, before, and at or after, the Effective Time.  In each
case, Purchaser shall be responsible for the portion allocated to the period at
and after the Effective Time and Sellers shall be responsible for the portion
allocated to the period before the Effective Time.
 
 
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(e)         For the avoidance of doubt, all of Sellers’ costs and expenses
relating to the filing, administration, pendency or consummation of the
Bankruptcy Case shall be the responsibility of Sellers and shall not be
chargeable to Purchaser nor be an upward adjustment to the Purchase Price.
 
Section 1.5       Delivery and Maintenance of Records.  Sellers, at Purchaser’s
cost, shall deliver the Records to Purchaser within ten (10) days following
Closing.  Sellers may retain the copies of such Records at their
discretion.  With respect to originals or last remaining copies of any Records
provided by Sellers to Purchaser, Purchaser, for a period of seven (7) years
following Closing, will (i) retain the Records, (ii) provide Sellers with access
to the Records following reasonable advance notice and during normal business
hours for review and copying at Sellers’ expense in connection with any tax
audit or investigation related to Sellers,  and (iii) provide Sellers with
access, following reasonable notice and during normal business hours, to
(A) materials received or produced after Closing relating to any claim for
indemnification made under Section 10.1 of this Agreement (excluding, however,
attorney work product and attorney-client communications with respect to any
such claim being brought by Purchaser under this Agreement) for review and
copying at Sellers’ expense and (B) Purchaser’s and its Affiliates’ officers,
employees and representatives for the purpose of discussing any such claim,
provided that Purchaser shall have the right to have its own representatives
present during any such meeting.  In addition, for a period of two (2) years
following the Closing, Purchaser will provide Sellers with access to the Records
following reasonable advance notice and during normal business hours for review
and copying at Sellers’ expense in connection with matters related to the
ownership or operation of the Excluded Assets.
 
ARTICLE 2
PURCHASE PRICE
 
Section 2.1       Purchase Price.  The purchase price for the Assets (the
“Purchase Price”) shall be the sum of (i) an amount sufficient to (A) repay the
Sellers’ bank lenders (including the Sellers' debtor-in-possession financing and
revolver and/or term loan credit facilities) in full, (B) pay all other
creditors in full, including interest thereon, as permitted by applicable law,
and (C) pay any cure amounts of executory contracts assumed upon effectiveness
of the Sellers’ Plan of Reorganization (except the amount to cure the Claim of
Anadarko Petroleum Corporation for breach of the Confidentiality Agreement which
shall be waived at Closing) as allowed by the Bankruptcy Court and (ii)
$1,000,000; provided, however, that such amount in total shall not exceed $
310,000,000.  The Purchase Price shall be adjusted as provided in Section 2.3.
 
 
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Section 2.2            Deposit.  Within two (2) Business Days following the
execution of this Agreement, Purchaser shall deposit with Escrow Agent an
earnest money deposit (“Deposit”) in the amount of $20,000,000.  The Deposit
shall be held by the Escrow Agent pursuant to the Escrow Agreement. In the event
that the Closing does not occur, the Deposit shall be paid over by Escrow Agent
to Purchaser with interest accrued thereon promptly upon termination of this
Agreement, unless such Closing fails to occur as a result of Purchaser’s breach
of this Agreement, in which case the Deposit shall be paid over by Escrow Agent
to Sellers with interest accrued thereon promptly upon termination of this
Agreement.  Otherwise, the Deposit shall be paid over by Escrow Agent to Sellers
and credited against the Purchase Price at Closing.
 
Section 2.3            Adjustments to Purchase Price.  The Purchase Price for
the Assets shall be adjusted as follows with all such amounts being determined
in accordance with generally accepted accounting principles, consistently
applied, and COPAS standards:
 
(a)         Reduced by the aggregate amount of the following proceeds received
by Sellers between the Effective Time and the Closing Date, as defined below
(with the period between the Effective Time and the Closing Date referred to as
the “Adjustment Period”):  (i) proceeds from the sale of Hydrocarbons (net of
any (A) royalties, overriding royalties or other burdens on or payable out of
production, (B) gathering, processing and transportation costs not included in
Property Costs and any (C) production, severance, sales or excise Taxes not
reimbursed to Sellers by the purchaser of production) produced from or
attributable to the Properties during the Adjustment Period, and (ii) other
proceeds earned with respect to the Assets during the Adjustment Period
(provided that for purposes of this adjustment, “proceeds” shall not be
considered to include funds received by Sellers for the account of third
Persons);
 
(b)         Reduced as a result of casualty or condemnation loss by the amount
determined under Section 3.2;
 
(c)         Reduced or increased by the amount of any positive or negative
imbalance of  as set forth on Schedule 4.14 based on a price determined based on
the applicable basis differential offered to Sellers off the current prompt
month futures price for natural gas as reported on the NYMEX for the next month
succeeding the Closing;
 
(d)         Increased by the amount of all Property Costs and other costs
attributable to the ownership and operation of the Assets which are paid by
Sellers and incurred at or after the Effective Time, except any Property Costs
and other such costs already deducted in the determination of proceeds in
Section 2.3(a)(i);
 
(e)         Increased by the amount of capital expenditures incurred after
December 11, 2009, up to the Effective Time in connection with fracturing
operations on the O’Meara-Webb 687 Unit 1-H Well, Dimmit County, Texas, to the
extent required to maintain Seller’s contractual rights under the Joint
Exploration Agreement dated September 28, 2007, by and between EnCana Oil & Gas
(USA), Inc. and TXCO Energy Corp. to the extent Sellers are unable to negotiate
an extension for such operation with EnCana Oil & Gas (USA), Inc. after the
Effective Time; and
 
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(f)         Increased by the value (determined by the price most recently paid
prior to the Effective Time for such oil less all applicable deductions) of all
oil and other liquid hydrocarbons in storage or existing in stock tanks above
the pipeline connection as of the Effective Time which is credited to the
Properties, less applicable production taxes, royalty and other burdens on the
production payable on such oil, the amount of oil in storage as of the Effective
Time to be based on gauge reports to the extent available or on alternative
methods to be agreed by the Parties.
 
The adjustment described in Section 2.3(a) shall serve to satisfy, up to the
amount of the adjustment, Purchaser's entitlement under Section 1.4 to
Hydrocarbon production from or attributable to the Leases and Lands, Units and
Wells during the Adjustment Period, and to the value of other income, proceeds,
receipts and credits earned with respect to the Assets during the Adjustment
Period, and Purchaser shall not have any separate rights to receive any
production or income, proceeds, receipts and credits with respect to which an
adjustment has been made.  Similarly, the adjustment described in Section 2.3(f)
shall serve to satisfy, up to the amount of the adjustment, Purchaser's
obligation under Section 1.4 to pay Property Costs and other costs attributable
to the ownership and operation of the Assets which are incurred during the
Adjustment Period, and Purchaser shall not be separately obligated to pay for
any Property Costs or other such costs with respect to which an adjustment has
been made.
 
Each adjustment to the Purchase Price described in Sections 2.3(a) through (f)
shall be applied to the portion of the Purchase Price payable to the Sellers
which owns the affected Asset.
 
Section 2.4            Allocation of Purchase Price.  Except as provided in
Section 3.1(a), twenty (20) days prior to the Closing, Purchaser shall prepare
and deliver to Sellers an allocation of the unadjusted Purchase Price among each
of the Assets (the “Allocated Values”).  Any adjustments to the Purchase Price
pursuant to Sections 2.3(a) through (f) shall be applied to the Allocated Values
for the particular affected Assets.  Sellers and Purchaser will accept such
Allocated Values for purposes of this Agreement only and the transactions
contemplated hereby, but will otherwise make no representation or warranty as to
the accuracy of such values.  Sellers and Purchaser agree that (i) the purchase
and sale described herein is not a transaction subject to the provisions of
section 1060 of the Internal Revenue Code of 1986, as amended (the “Code”), and
(ii) the Allocated Values agreed for purposes of this Section 2.4 are not
necessarily those that would be determined in accordance with the principles of
section 1060 of the Code and the Treasury Regulations thereunder. Further, if
either Party later determines that it is required to file Internal Revenue
Service Form 8594 as a result of this purchase and sale transaction, such Party
will notify the other Party prior to filing said form with the Internal Revenue
Service.
 
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ARTICLE 3
CONSENT TO ASSIGNMENT; PREFERENTIAL RIGHTS TO PURCHASE;
CASUALTY AND CONDEMNATION LOSS
 
Section 3.1             Consents to Assignment and Preferential Rights to
Purchase.
 
(a)         Promptly after the date hereof, Sellers shall prepare and send (i)
notices to those third parties from whom any required consents to assignment
requesting consents to the Conveyances must be obtained, and (ii) notices to the
holders of any applicable preferential rights to purchase or similar rights in
compliance with the terms of such rights and requesting waivers of such rights.
Any preferential purchase right must be exercised subject to all terms and
conditions set forth in this Agreement, including the successful Closing of this
Agreement pursuant to Article 8.  The consideration payable under this Agreement
for any particular Asset for purposes of preferential purchase right notices
shall be the Allocated Value for such Asset.  Upon notice to Sellers from a
holder of any preferential rights to purchase that such holder desires to
exercise such preferential rights to purchase, Purchaser shall within five (5)
business days provide to Sellers the Allocated Value for the Assets subject to
such preferential rights.  Sellers shall use commercially reasonable efforts to
cause such consents to assignment and waivers of preferential rights to purchase
or similar rights (or the exercise thereof) to be obtained and delivered prior
to Closing, provided that Sellers shall not be required to make payments or
undertake obligations to or for the benefit of the holders of such rights in
order to obtain the required consents and waivers.  Alternatively, Sellers may
seek an order of the Bankruptcy Court to permit the Conveyances over the
objections of third parties.  Purchaser shall use commercially reasonable
efforts to cooperate with Sellers in seeking to obtain such consents to
assignment, waivers of preferential rights, or orders of the Bankruptcy
Court.   
 
(b)        If any preferential right to purchase any Assets is exercised prior
to Closing, then, for the purposes of this Agreement, such Assets shall not be
included in the transaction at Closing as Assets purchased by Purchaser and
Sellers shall either (i) pay Purchaser at Closing the Allocated Value for such
Assets paid by such holder or (ii) reduce the Purchase Price due Sellers at
Closing by the amount of the Allocated Value for such Assets.
 
(c)         Should a third Person fail to exercise its preferential right to
purchase as to any portion of the Assets prior to Closing and the time for
exercise or waiver has not yet expired, or, should a third Person holding a
consent right fail to give its consent to the transfer of any portion of the
Assets prior to Closing, then subject to the remaining provisions of this
Section 3.1, such Assets shall be included in the transaction at Closing, and
there shall be no adjustment to the Purchase Price at Closing with respect to
such preferential right to purchase or consent requirement; provided that should
the holder of a preferential purchase right later validly exercise same,
Purchaser agrees to transfer the affected Asset to the holder of the
preferential purchase right on the terms and provisions set out herein and in
the applicable preferential purchase right provision, and Purchaser shall be
entitled to the consideration paid by such holder.
 
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Section 3.2            Casualty and Condemnation Loss.  If, after the date of
this Agreement but prior to the Closing Date, any portion of the Assets is
damaged or destroyed by fire or other casualty or is taken in condemnation or
under right of eminent domain, Purchaser shall nevertheless be required to close
and Purchaser shall elect by written notice to Sellers prior to Closing either
(i) to cause the Assets affected by any casualty to be repaired or restored, at
Sellers’ sole cost, as promptly as reasonably practicable (which work may extend
after the Closing Date), or (ii) to accept an assignment of Sellers’ insurance
proceeds and other claims against third parties with respect to the casualty or
taking.  Notwithstanding the preceding, (i) if the aggregate losses caused by
such casualties and takings exceed ten percent (10%) of the Purchase Price,
either Party may, by notice to the other at least one Business Day prior to
Closing, elect to terminate this Agreement under Section 9.1 or if the losses
caused by such casualties and takings exceed ten percent (10%) of the Allocated
Value of any Lease, Purchaser may by notice to Sellers at least one Business Day
prior to Closing elect to accept an assignment of Sellers’ insurance proceeds
and other claims against third parties with respect to such casualty and
takings.
 
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
 
Section 4.1             Disclaimers.  
 
(a)         EXCEPT AS EXPRESSLY REPRESENTED OTHERWISE IN THIS ARTICLE 4, SELLERS
EXPRESSLY DISCLAIM ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, ORAL OR
WRITTEN, INCLUDING ANY REPRESENTATION OR WARRANTY AS TO (I) TITLE TO ANY OF THE
ASSETS, (II) THE CONTENTS, CHARACTER OR NATURE OF ANY DESCRIPTIVE MEMORANDUM, OR
ANY REPORT OF ANY PETROLEUM ENGINEERING CONSULTANT, OR ANY GEOLOGICAL OR SEISMIC
DATA OR INTERPRETATION, RELATING TO THE ASSETS, (III) THE QUANTITY, QUALITY OR
RECOVERABILITY OF HYDROCARBONS IN OR FROM THE ASSETS, (IV) ANY ESTIMATES OF THE
VALUE OF THE ASSETS OR FUTURE REVENUES GENERATED BY THE ASSETS, (V) THE
PRODUCTION OF PETROLEUM SUBSTANCES FROM THE ASSETS, OR WHETHER PRODUCTION HAS
BEEN CONTINUOUS, OR IN PAYING QUANTITIES, (VI) THE MAINTENANCE, REPAIR,
CONDITION, QUALITY, SUITABILITY, DESIGN OR MARKETABILITY OF THE ASSETS, OR
(VII) ANY OTHER MATERIALS OR INFORMATION THAT MAY HAVE BEEN MADE AVAILABLE OR
COMMUNICATED TO PURCHASER OR ITS AFFILIATES, OR ITS OR THEIR EMPLOYEES, AGENTS,
CONSULTANTS, REPRESENTATIVES OR ADVISORS IN CONNECTION WITH THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT OR ANY DISCUSSION OR PRESENTATION RELATING
THERETO, AND FURTHER DISCLAIM ANY REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE  OR CONFORMITY TO
MODELS OR SAMPLES OF MATERIALS OF ANY EQUIPMENT, IT BEING EXPRESSLY UNDERSTOOD
AND AGREED BY THE PARTIES HERETO THAT PURCHASER SHALL BE DEEMED TO BE OBTAINING
EQUIPMENT AND OTHER TANGIBLE PROPERTY IN ITS PRESENT STATUS, CONDITION AND STATE
OF REPAIR, “AS IS” AND “WHERE IS” WITH ALL FAULTS AND THAT PURCHASER HAS MADE OR
CAUSED TO BE MADE SUCH INSPECTIONS AS PURCHASER DEEMS APPROPRIATE.
 
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(b)         Inclusion of a matter on a Schedule attached hereto with respect to
a representation or warranty which addresses matters having a Material Adverse
Effect shall not be deemed an indication that such matter does, or may, have a
Material Adverse Effect.  Matters may be disclosed on a Schedule to this
Agreement for purposes of information only.
 
(c)         Subject to the foregoing provisions of this Section 4.1, and the
other terms and conditions of this Agreement, Sellers represent and warrant to
Purchaser the matters set out in Sections 4.2 through 4.18.
 
Section 4.2            Existence and Qualification.  Each Seller is an entity
duly created, formed, or organized and validly existing under the laws of its
state of organization and is duly authorized to conduct its business and is in
good standing in each jurisdiction where such qualification is required, except
where the failure to so qualify would not, individually or in the aggregate,
have a Material Adverse Effect.
 
Section 4.3            Power.  Subject to Bankruptcy Court approval, each Seller
has the requisite entity power to enter into and perform this Agreement (and all
documents required to be executed and delivered by Sellers at Closing) and
consummate the transactions contemplated by this Agreement (and such documents).
 
Section 4.4            Authorization and Enforceability.  The execution,
delivery and performance of this Agreement (and all documents required to be
executed and delivered by Sellers at Closing), and the performance of the
transactions contemplated hereby and thereby, have been duly and validly
authorized by all necessary corporate or entity action on the part of each
Seller.  This Agreement has been duly executed and delivered by each Seller (and
all documents required hereunder to be executed and delivered by such Seller at
Closing will be duly executed and delivered by such Seller) and subject to the
approval of the Bankruptcy Court, this Agreement constitutes, and at the Closing
such documents will constitute, the valid and binding obligations of each
Seller, enforceable in accordance with their terms except as such enforceability
may be limited by applicable bankruptcy or other similar laws affecting the
rights and remedies of creditors generally as well as by general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law).
 
Section 4.5            No Conflicts.  Subject to Bankruptcy Court approval, and
any applicable preferential rights to purchase and consents to assignment, the
execution, delivery and performance of this Agreement by each Seller, and the
transactions contemplated by this Agreement will not (a) violate any provision
of such Seller’s Organizational Documents, (b) result in default (with due
notice or lapse of time or both) or the creation of any lien or encumbrance
other than Permitted Encumbrances or give rise to any right of termination,
cancellation or acceleration under any note, bond, mortgage, indenture, license
or agreement to which any of the Sellers is a party or which affects the Assets,
(c) violate any judgment, order, ruling, or decree applicable to such Seller as
a party in interest, or (d) violate any Laws applicable to Sellers or any of the
Assets, except any matters described in clauses (b), (c) or (d) above which
would not have a Material Adverse Effect.
 
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Section 4.6            Liability for Brokers' Fees.  Purchaser shall not
directly or indirectly have any responsibility, liability or expense, as a
result of undertakings or agreements of Sellers, for brokerage fees, finder's
fees, agent's commissions or other similar forms of compensation in connection
with this Agreement or any agreement or transaction contemplated hereby.
 
Section 4.7             Litigation and Claims.  Except as set forth in
Schedule 4.7, there is no claim by any Person or Governmental Body (including
expropriation or forfeiture proceedings), joint venture audits, and no legal,
administrative, or arbitration proceeding pending or, to any Sellers’ Knowledge,
threatened against any Seller or the Assets, or to which any Seller is a party,
that reasonably may be expected to (a) impair such Sellers’ title to any of the
Assets, (b)  hinder or impede the operation of all or any portion of the Assets,
(c) subject the owner or operator of the Assets to liability in favor of any
Governmental Body or other Person as the result of the alleged violation of, or
non-compliance with, any Environmental Law by any Seller or any Affiliate of any
Seller with respect to the Assets or require the owner or operator of the Assets
to remediate, remove, or respond to an Environmental Condition, or a threatened
Environmental Condition, on or affecting the Assets, or (d) otherwise adversely
affect the Assets or the ability of Sellers to consummate the transactions
contemplated in this Agreement.  Further, except as otherwise reflected in
Schedule 4.7, to each Seller’s Knowledge there has been no Release or Threatened
Release of Environmental Contaminants at, to, from or about the Assets that
requires remediation under Applicable Law.  
 
Section 4.8            Taxes and Assessments.  To each Seller’s Knowledge, each
Seller has filed all material Tax returns required to be filed by such Seller
with respect to the Assets.  Except as disclosed on Schedule 4.8, to Sellers’
Knowledge, Sellers have paid or caused to be paid all ad valorem, property,
production, severance and similar Taxes that are currently due and payable based
upon or measured by the ownership of or the production of Hydrocarbons from the
Assets required to be shown on such returns, except those being contested in
good faith.  Except as disclosed on Schedule 4.8, no Seller has received written
notice of any pending claim against any Seller from any applicable taxing
authority for assessment of Taxes with respect to the Assets.
 
Section 4.9            Preferential Rights; Consents.  Except as otherwise
reflected in Schedule 4.9, none of the Properties is subject to a preferential
right to purchase, third Person consent to assignment requirement, right of
first refusal, right of first offer, or similar right or restriction.
 
Section 4.10          Consents.  Except for Bankruptcy Court approval and
approvals by Governmental Bodies customarily obtained after the Closing and as
otherwise reflected on Schedule 4.10, no authorization, consent, approval,
exemption, franchise, permit, or license of, or filing with, any Governmental
Body is required to authorize, or is otherwise required by any Governmental Body
in connection with, the valid execution and delivery by Sellers of this
Agreement, the transfer of the Assets to Purchaser, or the performance by
Sellers of their other obligations hereunder.
 
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Section 4.11          Contracts.  Schedule 4.11 describes, with respect to each
Contract to which any Seller is a party that directly relates to or affects the
Properties including:
 
(a)        all existing area of mutual interests agreements and agreements that
include non-competition restrictions or other similar restrictions on doing
business, all existing purchase or sale agreements (other than with respect to
production of Hydrocarbons and the disposition of field equipment in the
ordinary course), partnership (other than tax partnerships), joint venture
and/or exploration or development program agreements;
 
(b)        all of the existing production sales, transportation, marketing and
processing agreements, other than such agreements which are terminable by
Sellers without penalty on sixty or fewer days’ notice;
 
(c)         any Contracts or agreements burdening the Properties which could
reasonably be expected to obligate any Sellers to expend in excess of $100,000
in any calendar year;
 
(d)         all insurance Contracts maintained by Seller and in force upon the
execution date of this Agreement;
 
(e)         any Contract to sell, lease (other than the Leases) or otherwise
dispose of any of Sellers’ interest in any of the Properties;
 
(f)         any existing tax partnership or tax sharing agreement;
 
(g)        any material operating agreement that is in effect as of the date
hereof and to which any of the Sellers interest in any of the Properties is
subject;
 
(h)        any existing Contract to which any Seller is a party providing for
forced or voluntary pooling, forced or voluntary unitization, a carry, a
backing, earnout, reversionary Working Interest in favor of third parties, or
other contingent payment or obligation;
 
(i)         any Contract to which any Seller is a party for drilling or well
workover services or other well services that is in effect as of the date hereof
or the Closing Date;
 
(j)         any Contract providing for the use, processing and/or analysis of
seismic or geophysical data or similar Contract relating to the Properties that
is in effect as of the date hereof or the Closing Date;
 
(k)         any Contract to which any Seller is a party relating to indebtedness
for borrowed money, letter of credit or guarantee of the indebtedness of for
borrowed money of Persons that is in effect as of the date hereof or the Closing
Date for which any of the Assets have been pledged or mortgaged as collateral
therefor;
 
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(l)         any lease (other than the Leases) under which any Seller is the
lessor or lessee of real or personal property, which lease (i) cannot be
terminated by such Seller without penalty with less than 180 days notice, and
(ii) involves an annual base rental in excess of $100,000;
 
(m)       any firm transportation Contract for the transportation of
Hydrocarbons or disposal of produced waters or other oilfield waste, which
requires in accordance with its terms, payments by such Seller in excess of
$100,000 within the twelve month period ending December 31, 2009, and any
interruptible transportation Contract that any Seller reasonably anticipates
will, in accordance with its terms, involve payments by such Seller in excess of
$100,000 within the twelve month period ending December 31, 2009 (collectively
“Transportation Contracts”); and
 
(n)        any partnership or joint venture Contract between Sellers and any
other person related to the Assets containing a commitment to fund, loan or pay
amounts in excess of $100,000; ((a)-(n) collectively, the “Material Contracts”).
 
Sellers have furnished to Purchaser true and correct copies of all of the
Material Contracts.
 
Section 4.12          Wells; Facilities.  Except as set forth in Schedule 4.12,
as of the date of this Agreement, to each Seller’s Knowledge, the Wells
described on Exhibit A-1 are the only wells for the production of Hydrocarbons
currently located on the Leases.  All of such Wells have been drilled,
completed, and operated within the boundaries of the Leases or within the limits
otherwise permitted by the applicable Contracts and all Applicable Laws.  The
production of Hydrocarbons from such Wells has not been in excess of the
allowable production established for each Well.  Except as set forth on
Schedule 4.12, all Hydrocarbon wells located on the Leases that have permanently
ceased the production of Hydrocarbons in paying quantities, as well as all
plants, pipelines, personal property, pits, equipment, materials, appurtenances,
and facilities located on or used in connection with the Properties and that any
Seller has abandoned or otherwise permanently ceased to use, have been plugged
and/or abandoned, and all related salvage, site clearance, and surface
restoration operations have been completed, in accordance with applicable Laws
(including Environmental Laws) and in accordance with the terms of the Leases,
and all costs and expenses incurred in connection therewith have been paid in
full.  Except as otherwise provided in Schedule 4.12, none of the Wells have
been plugged or abandoned.
 
Section 4.13          Marketing; Calls on Production.  All proceeds from the
sale of Hydrocarbons attributable to the interests of Sellers in the Assets have
been and are being disbursed to Sellers under appropriate division orders,
transfer orders, or similar documents signed by or otherwise binding on Sellers,
and no portion of any such proceeds is being held in suspense, subject to a
claim for refund by the purchaser of production, used as an offset or as
collateral for other obligations (whether disputed or undisputed), or otherwise
not being paid to Sellers as it becomes due in the ordinary course of
business.  There are no calls on production, options to purchase, or similar
rights in effect with respect to any portion of Sellers’ shares of the
Hydrocarbons, and all Contracts for the sale of Hydrocarbons are terminable
without penalty on no more than thirty (30) days’ prior notice.  Sellers are
currently receiving the prices provided for under such sales Contracts with
respect to the Hydrocarbons.  
 
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Section 4.14          Imbalances.  Except as shown in Schedule 4.14, as of the
date of execution of this Agreement, no Seller has a claim constituting an
Asset, or is subject to any obligation, with respect to any Imbalance that
relates to any of the Assets.  Except for the Imbalances (if any) shown in
Schedule 4.14, no Seller is, on the date of execution of this Agreement, nor
will be after the Effective Time, obligated by virtue of any prepayment made
under any sales contract or other contract containing a “take-or-pay” clause, or
under any production payment, forward sale, balancing, deferred production, or
similar arrangement, to deliver Hydrocarbons produced from or allocable to any
Asset at some future time without receiving full payment therefor at or after
the time of delivery.  
 
Section 4.15          AFEs.  Except as shown on Schedule 4.15, as of the date of
execution of this Agreement, there are no unfunded AFE’s owing by Sellers or any
other working interest owners with respect to any of the Assets.
 
Section 4.16          Suspense Account.  Set forth on Schedule 4.16 is a true
and correct description, as of the date of execution of this Agreement, of all
amounts held by Sellers attributable to third-parties with respect to proceeds
from production attributable to the Wells (as used in Schedule 4.16, the
“Suspended Revenues”).
 
Section 4.17          Capital Expenditures.  Except as shown on Sellers’ budget
for Fourth Quarter 2009 and First Quarter 2010 attached hereto as Exhibit A-8 or
as set forth on Schedule 4.17, Sellers do not anticipate and have not budgeted
for any capital expenditures from the date of this Agreement until the end of
the first quarter 2010, in excess of $100,000 with respect to any Well, any
Lease or with respect to any Gathering System.
 
Section 4.18          Equipment.  Set forth on Exhibit A-4 is a true and correct
description of the Equipment.
 
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PURCHASER
 
Purchaser represents and warrants to Sellers the following:
 
Section 5.1            Existence and Qualification.  Purchaser is a limited
partnership duly organized and validly existing under the laws of the state of
Delaware; and Purchaser is duly authorized to conduct its business and is in
good standing in each jurisdiction where such qualification is required, except
where the failure to so qualify would not, individually or in the aggregate,
have a Material Adverse Effect; and Purchaser is duly authorized to do business
and is in good standing in each jurisdiction where the Assets to be transferred
to it hereunder are located.
 
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Section 5.2            Power.  Purchaser has the corporate power to enter into
and perform this Agreement (and all documents required to be executed and
delivered by Purchaser at Closing) and consummate the transactions contemplated
by this Agreement (and such documents).
 
Section 5.3            Authorization and Enforceability.  The execution,
delivery and performance of this Agreement (and all documents required to be
executed and delivered by Purchaser at Closing), and the performance of the
transactions contemplated hereby and thereby, have been duly and validly
authorized by all necessary corporate action on the part of Purchaser.  This
Agreement has been duly executed and delivered by Purchaser (and all documents
required hereunder to be executed and delivered by Purchaser at Closing will be
duly executed and delivered by Purchaser) and this Agreement constitutes, and at
the Closing such documents will constitute, the valid and binding obligations of
Purchaser, enforceable in accordance with their terms except as such
enforceability may be limited by applicable bankruptcy or other similar laws
affecting the rights and remedies of creditors generally as well as by general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
 
Section 5.4            No Conflicts.  The execution, delivery and performance of
this Agreement by Purchaser, and the transactions contemplated by this Agreement
will not (a) violate any provision of Purchaser’s Organizational Document,
(b) result in a material default (with due notice or lapse of time or both) or
the creation of any lien or encumbrance or give rise to any right of
termination, cancellation or acceleration under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license or agreement to which
Purchaser is a party, (c) violate any judgment, order, ruling, or regulation
applicable to Purchaser as a party in interest, or (d) violate any Laws
applicable to Purchaser or any of its assets, except any matters described in
clauses (b), (c), or (d) above which would not have a Material Adverse Effect on
Purchaser.
 
Section 5.5            Liability for Brokers' Fees.  Sellers shall not directly
or indirectly have any responsibility, liability or expense, as a result of
undertakings or agreements of Purchaser, for brokerage fees, finder's fees,
agent's commissions or other similar forms of compensation in connection with
this Agreement or any agreement or transaction contemplated hereby.
 
Section 5.6             Litigation.  There are no actions, suits or proceedings
pending, or to Purchaser's Knowledge, threatened in writing before any
Governmental Body against Purchaser which are reasonably likely to impair
materially Purchaser's ability to perform its obligations under this Agreement
or any document required to be executed and delivered by Purchaser at Closing.
 
Section 5.7             Financing.  Purchaser has sufficient cash, available
lines of credit or other sources of immediately available funds (in United
States dollars) to enable it to pay the Closing Payment to Sellers at the
Closing.
 
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Section 5.8            Independent Investigation.  Except for the
representations and warranties expressly made by Sellers in Articles 3 and 4 of
this Agreement, or in any certificate furnished or to be furnished to Purchaser
pursuant to this Agreement, Purchaser acknowledges that there are no
representations or warranties, express or implied, as to the Assets or prospects
thereof, and that in making its decision to enter into this Agreement and to
consummate the transactions contemplated hereby, Purchaser has relied solely
upon its own independent investigation, verification, analysis and evaluation.
 
Section 5.9            Consents, Approvals or Waivers.  Purchaser's execution,
delivery and performance of this Agreement (and any document required to be
executed and delivered by Purchaser at Closing) is not and will not be subject
to any consent, approval, or waiver from any Governmental Body or other third
Person, except (i) consents and approvals of assignments by Governmental Bodies
that are customarily obtained after Closing and (ii) as set forth on
Schedule 5.9.
 
ARTICLE 6
COVENANTS OF THE PARTIES
 
Section 6.1            Access.  Between the date of execution of this Agreement
and the Closing Date, each Seller will give Purchaser and its representatives
access to the Assets and access to and the right to copy, at Purchaser's
expense, the Records in such Seller’s possession, for the purpose of conducting
an investigation of the Assets, but only to the extent that Sellers may do so
without violating any obligations to any third party and to the extent that such
Seller has authority to grant such access without breaching any restriction
binding on such Seller.  Such access by Purchaser shall be limited to such
Seller’s normal business hours, and Purchaser's investigation shall be conducted
in a manner that minimizes interference with the operation of the Assets.  All
information obtained by Purchaser and its representatives under this Section 6.1
shall be subject to the terms of that certain confidentiality agreement between
TXCO Resources Inc. and Purchaser, as may be amended from time to time (the
“Confidentiality Agreement”).
 
Section 6.2            Government Reviews.  Sellers and Purchaser shall in a
timely manner (a) make all required filings, if any, with and prepare
applications to and conduct negotiations with, each governmental agency as to
which such filings, applications or negotiations are necessary or appropriate in
the consummation of the transactions contemplated hereby, and (b) provide such
information as each may reasonably request to make such filings, prepare such
applications and conduct such negotiations.  Each Party shall cooperate with and
use all reasonable efforts to assist the other with respect to such filings,
applications and negotiations.
 
Section 6.3             Notification of Breaches.  Until the Closing:
 
(a)         Purchaser shall notify Sellers promptly after Purchaser obtains
actual Knowledge that any representation or warranty of Sellers contained in
this Agreement is untrue in any material respect or will be untrue in any
material respect as of the Closing Date or that any covenant or agreement to be
performed or observed by Sellers prior to or on the Closing Date has not been so
performed or observed in any material respect.
 
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(b)      Sellers shall notify Purchaser promptly after Sellers obtain actual
Knowledge that any representation or warranty of Purchaser contained in this
Agreement is untrue in any material respect or will be untrue in any material
respect as of the Closing Date or that any covenant or agreement to be performed
or observed by Purchaser prior to or on the Closing Date has not been so
performed or observed in a material respect.
 
If any of Purchaser's or Sellers’ representations or warranties is untrue or
shall become untrue in any material respect between the date of execution of
this Agreement and the Closing Date, or if any of Purchaser's or Sellers’
covenants or agreements to be performed or observed prior to or on the Closing
Date shall not have been so performed or observed in any material respect, but
if such breach of representation, warranty, covenant or agreement shall (if
curable) be cured by the Closing (or, if the Closing does not occur, by the date
set forth in Section 8.1), then such breach shall be considered not to have
occurred for all purposes of this Agreement.
 
Section 6.4         Public Announcements.  No Party shall make any press release
or other public announcement regarding the existence of this Agreement, the
contents hereof or the transactions contemplated hereby without the prior
written consent of the other; provided, however, the foregoing shall not
restrict disclosures by Purchaser or any Seller (i) that are required by
applicable securities or other laws or regulations or the applicable rules of
any stock exchange having jurisdiction over the disclosing Party or its
Affiliates, or (ii) to Governmental Bodies and third Persons holding
preferential rights to purchase or rights of consent that may be applicable to
the transactions contemplated by this Agreement, as reasonably necessary to
obtain waivers of such right or such consents. The Parties acknowledge and
understand that this Agreement will be filed with the Bankruptcy Court and will
be made available to third parties.  The Parties agree that such disclosure
shall not be deemed to violate any confidentiality obligations owing to a Party,
whether pursuant to this Agreement, the Confidentiality Agreement, or
otherwise.  Notwithstanding anything to the contrary in the Confidentiality
Agreement, to the extent of any conflict between the provisions of the
Confidentiality Agreement and the terms hereof, the terms hereof shall prevail.
 
Section 6.5          Operation of Business.
 
(a)      Until the Closing, each Seller (i) will continue to conduct its
business related to the Assets in the ordinary course consistent with its past
practices, including incurring expenditures associated with lease acquisitions,
renewals and extensions, landmen, independent contractors, vendors, title
opinions, curative material, road, drillsite and pipeline construction,
acquisition of road and pipeline right-of-ways, drilling, and completing wells,
construction of gathering, compression and treating facilities, and marketing
costs, (ii) will furnish Purchaser with copies of all third-party and any
Seller-generated drilling, completion and workover AFEs in excess of $100,000
within five (5) Business Days of receipt of third-party AFEs or the approval of
any Seller generated AFE, (iii) will furnish Purchaser, on the 15th day of each
month, with a schedule setting forth the actual expenditures incurred during the
previous calendar month and an estimate of the expenditures that Sellers
believes that it will incur during the following reporting period, (iv) will not
after the Effective Time, without prior written approval of Purchaser (which
approval will not be unreasonably withheld), make capital or workover
expenditures with respect to the Assets in excess of One Hundred Thousand
Dollars ($100,000) (net to the respective Seller’s interest), except for those
capital expenditures set forth on Exhibit A-8 and Schedule 4.17 or when required
by an emergency when there shall have been insufficient time to obtain advance
consent (provider, that such Seller will promptly notify Purchaser of any such
emergency expenditures), (v) will not enter into any Material Contract relating
to the Assets except for agreements relating to sales of inventory and purchases
of inventory from suppliers in the ordinary course of business and consistent
with past practices, (vi) will maintain insurance coverage on the Assets
presently furnished by nonaffiliated third parties in the amounts and of the
types presently in force, (vii) subject to the terms and conditions imposed by
its lenders and other contractual obligations, will use commercially reasonable
efforts to maintain in full force and effect all Leases and Lands that are
presently producing in paying quantities, (viii) will maintain all material
governmental permits and approvals affecting the Assets, (ix) will not transfer,
sell, hypothecate, encumber or otherwise dispose of any material Properties or
Equipment except for sales and dispositions of Equipment made in the ordinary
course of business consistent with past practices absent Bankruptcy Court
approval on notice and with a reasonable opportunity to object by Purchaser, or
(x) take or omit to take any action in contravention of any of the foregoing
actions.  Purchaser's approval of any action restricted by this Section 6.5
shall be considered granted within ten (10) days (unless a shorter time is
reasonably required by the circumstances and such shorter time is properly
specified in the notice provided to Sellers by a co-working interest owner) of
the Sellers’ notice to Purchaser requesting such consent unless Purchaser
notifies Sellers to the contrary during that period.  In the event of an
emergency, Sellers may take such action as a prudent operator would take and
shall notify Purchaser of such action promptly thereafter.

 
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(b)      Prior to the Closing, Sellers will give Purchaser notice of all AFEs
proposed by third parties (each a “Third Party AFE”).  If Sellers elect not to
pay or otherwise timely satisfy a Third Party AFE, Purchaser shall have the
right (but not the obligation) to fund the Third Party AFE.  In such event, the
parties agree to seek an emergency hearing with the Bankruptcy Court authorizing
Purchaser to advance the amount of the Third Party AFE as an administrative
expense (an “AFE Advance”).  If the Closing does not occur and this Agreement is
terminated, Purchaser shall be reimbursed the amount of all such AFE Advances on
the earlier of the consummation of a Superior Proposal or the effective date of
a plan of reorganization for Sellers in the Bankruptcy Court.  If the Closing
occurs, (x) there will be no adjustment to the Purchase Price by reason of
either (i) any AFE Advance(s) or any amounts funded by such AFE Advance in
respect of such Third Party AFE(s) or (ii) any other damages or amounts in
respect of any proposed Third Party AFE that Sellers shall have elected not to
pay or otherwise satisfy and that Purchaser shall not have funded in accordance
with this paragraph (b), (y) Sellers shall have no obligations to repay to
Purchaser, or otherwise in respect of, any AFE Advance made in respect of a
Third Party AFE due at any time after the Effective Time, and (z) if any AFE
Advance has been made in respect of a Third Party AFE due at any time prior to
the Effective Time, the Purchase Price shall be reduced by the lesser of (i) the
amount of such AFE Advance or (ii) the Allocated Value of any undeveloped,
non-producing acreage that would have been lost or forfeited if the subject
Third Party AFE was not timely paid.

 
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(c)      Pursuant to Agreed Order Granting Motion to Approve Lease Participation
Proposal with St. Mary Land & Exploration Company and Agreement with Newfield
Exploration Company for Purchase of Leasehold Interests Acquired Pursuant to
Participation Under Anadarko JEA, Sellers have the right to make certain
elections with respect to the St. Mary Proposal (as defined in such
order).  Sellers hereby beneficially assign to Purchaser Sellers’ rights under
the order to make such elections and to receive any reimbursements for the
Election Amount (as defined in the order).  Sellers shall promptly communicate
any notices required under the order to be delivered to St. Mary as may be
directed by Purchaser.
 
Section 6.6          Indemnity Regarding Access.  Purchaser agrees to indemnify,
defend and hold harmless each Seller, its Affiliates, the other owners of
interests in the Properties, and all such Persons' directors, officers,
employees, agents and representatives from and against any and all claims,
liabilities, losses, costs and expenses (including court costs and reasonable
attorneys' fees), including claims, liabilities, losses, costs and expenses
attributable to personal injury, death, or property damage, arising out of or
relating to  access to the Assets and to the Records and other related
information prior to the Closing by Purchaser, its Affiliates, or its or their
directors, officers, employees, agents or representatives, even if caused in
whole or in part by the negligence (whether sole, joint or concurrent), strict
liability or other legal fault of any indemnified Person.
 
Section 6.7         Assumption of Obligations.  By the consummation of the
transactions contemplated by this Agreement at Closing, and without limiting the
indemnification obligations of any Party under Article 10, Purchaser assumes and
agrees to pay, perform and discharge all obligations of Sellers to the extent
accruing after the Effective Time under the Leases and Lands, Contracts and
applicable Law with respect to the Assets (the “Assumed Obligations”), including
(i) obligations to furnish makeup Hydrocarbons according to the terms of
applicable sales, gathering, processing, or Transportation Contracts or in
response to Hydrocarbon production imbalances, (ii) obligations to pay revenues,
royalties or other amounts payable to third Persons with respect to the
Properties, and (iii) obligations to plug wells, dismantle facilities, close
pits and restore the surface around such wells, facilities and pits.  Other than
the Assumed Obligations, Sellers shall remain responsible, liable and obligated
to pay, perform and discharge all other obligations with respect to the Assets
and the Excluded Assets (the “Retained Obligations”), irrespective of whether
such Retained Obligations have been disclosed to Purchaser at any time prior to
the Closing.
 
Section 6.8          Solicitation Provisions; Back-Up Bid Option.
 
(a)      Following the date hereof, Sellers agree that neither they nor any of
their wholly-owned Subsidiaries shall, and that they shall direct any of their
directors, officers, employees, investment bankers, financial advisors,
attorneys, accountants or other advisors, agents or representatives
(collectively “Representatives”) and their wholly-owned Subsidiaries’
Representatives not to, directly or indirectly, solicit any Acquisition
Proposal; provided, however, that nothing shall prevent the Sellers, their
respective Boards of Directors or any of their Representatives from taking any
of the following actions:

 
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(i)           complying with its obligations under Applicable Law with regard to
an Acquisition Proposal; or
 
(ii)          (A) engaging in any negotiations or discussions with any Person
who has made an unsolicited Acquisition Proposal or (B) recommending an
unsolicited Acquisition Proposal to the Committee, if in the case of each of
clause (A) and (B) above, each Seller determines in good faith (after
consultation with its legal and financial advisors) that (1) such action would
be reasonably likely to be required in order to comply with its fiduciary duties
under Applicable Law and (2) such Acquisition Proposal is a Superior Proposal or
is reasonably likely to lead to a Superior Proposal; or
 
(iii)         communicating or engaging in discussions with the Committee or its
respective advisors or Representatives regarding any matter, whether Acquisition
Proposal, proposal relating to an Alternative  Plan or otherwise.
 
(b)      Sellers and their Representatives may respond to any inquiries from and
provide access to the Seller Data Room and access to other non-public
information for due diligence purposes to Persons that Sellers reasonably
determine in good faith may submit a Superior Proposal (without a financing
condition) and that have executed a confidentiality agreement with Sellers,
provided that (i) in all events the Sellers shall provide such of Sellers’
respective qualified personnel as reasonably necessary to resolve issues arising
under this Agreement, without limitation, including such matters arising under
Section 3.2, and (ii) Sellers shall provide notice to Purchaser in the event
they provide access to the Data Room or other non-public information to any
Person(s), such notice to be provided as soon as reasonably practicable and in
any event within three (3) Business Days.  No Seller, nor any of its Affiliates
shall have any liability to Purchaser, either under or relating to this
Agreement, or any Applicable Law, by virtue of entering into or seeking
Bankruptcy Court approval of a Superior Proposal or the definitive agreement for
such Superior Proposal, in each case, in accordance to the terms of this
Section 6.8, following the receipt of any Superior Proposal.
 
(c)      Sellers shall provide Purchaser with a copy of any Acquisition Proposal
as soon as reasonably practicable and in any event within three (3) Business
Days following receipt of such Acquisition Proposal.  In addition, upon
Purchaser’s written request, Seller shall promptly provide Purchaser with a
report showing the identity of all Persons who have accessed the Seller Data
Room and the dates of such access.
 
(d)      The last time for any Person to submit a Superior Proposal shall be
5:00 p.m., San Antonio, Texas time on January 6, 2010.  Sellers shall give
notice to Purchaser as to whether it intends to pursue a Superior Proposal or
Alternative Plan, if any, by no later than January 13, 2010.

 
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(e)      No Seller, nor any of its Representatives, shall have any liability to
Purchaser, either under or relating to this Agreement, or any Applicable Law, by
virtue of entering into or seeking Bankruptcy Court approval of a Superior
Proposal or an Alternative Plan or the definitive agreement for any such
Superior Proposal or Alternative Plan in accordance with the terms of this
Section 6.8.  Any Seller may in its sole discretion enter into a definitive
agreement with respect to such Superior Proposal or Alternative Plan and Sellers
may terminate this Agreement prior to or after entry into such a definitive
agreement in accordance with the terms of this Section 6.8.
 
(f)       If Sellers elect to pursue a Superior Proposal or Alternative Plan, as
applicable, and such Superior Proposal or Alternative Plan, as applicable, is
definitively terminated prior to consummation thereof, then Sellers shall offer
Purchaser the right (the “Back-Up Bid Option”) to consummate the purchase and
sale of the purchased assets and the assumption of any assumed liabilities in a
transaction on substantially the same terms and conditions as this Agreement;
provided, however, the Back-Up Bid Option will expire with no further obligation
to Purchaser at 5:00 p.m. (Central time) on the tenth Business Day following the
date on which the Back-Up Bid Option was offered to Purchaser unless prior to
such time Sellers receive a definitive purchase and sale agreement executed by
Purchaser in the form of this Agreement with only such modifications as are
described in this Section 6.8(f) (the “Back-Up Bid Agreement”).  The Back-Up Bid
Agreement shall contain the following modifications to this Agreement:
 
(i)           all dates and deadlines shall be extended to such dates following
execution of the Back-Up Bid Agreement as are consistent with the respective
time periods between the Effective Date and the dates or deadlines contained in
this Agreement;
 
(ii)          the covenants contained in the subsections of Section 6.5 shall be
reasonably revised as appropriate to reflect Sellers’ operations at such time;
provided, however, that Purchaser and Sellers, each acting reasonably, are able
to agree in writing on such revisions prior to expiration of the Back-Up Bid
Option; and
 
(iii)         such other non-substantive changes as may be reasonably required
under the circumstances and as may be agreed in writing among Purchaser, and
Sellers, each acting reasonably, prior to expiration of the Back-Up Bid Option.
 
Purchaser shall be entitled to seek specific performance to enforce its right to
receive the offer of the Back-Up Bid Option from Sellers in accordance with this
Section 6.8(f) without the necessity of proving actual damages or of posting any
bond.  Notwithstanding anything to the contrary contained in this Section
6.8(f), Purchaser’s Back-Up Bid Option shall be subordinated to any back-up bid
option right granted to Newfield Exploration Company under that certain Purchase
and Sale Agreement, dated November 6, 2009, by and among Sellers and Newfield
Exploration Company.

 
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Section 6.9          Tax Matters.  Subject to the provisions of Section 11.6,
Sellers shall be responsible for all Taxes (other than ad valorem, property,
severance, production and similar Taxes based upon or measured by the ownership
or operation of the Assets or the production of Hydrocarbons therefrom, which
are addressed in Section 1.4) attributable to any period of time at or prior to
the Effective Time, including income Taxes arising as a result of the gain
recognized on the transfer of the Assets, and Purchaser shall be responsible for
all such Taxes attributable to any period of time after the Effective
Time.  Regardless of which Party is responsible, Sellers shall handle payment to
the appropriate Governmental Body of all Taxes with respect to the Assets which
are required to be paid prior to Closing (and shall file all returns with
respect to such Taxes).
 
Section 6.10        [Intentionally Omitted].
 
Section 6.11       Further Assurances.  At and after Closing, Sellers and
Purchaser agree to take such further actions and to execute, acknowledge and
deliver all such further documents as are reasonably requested by the other
Party for carrying out the purposes of this Agreement or of any document
delivered pursuant to this Agreement.
 
Section 6.12       Recording.  As soon as practicable after Closing, Purchaser
shall record the Conveyances and other assignments delivered at Closing in the
appropriate counties as well as with the appropriate governmental agencies and
provide Sellers with copies of all recorded or approved instruments.
 
Section 6.13       Transition Services Agreement.  Prior to the Closing, at
Purchaser’s option, the Parties shall use their reasonable efforts to negotiate
and enter into a Transition Services Agreement on terms and conditions mutually
acceptable to the Parties providing for Sellers’ provision to Purchaser of
certain services in connection with the operations, land and accounting related
to the Properties, including, among other terms, reimbursement to Sellers of all
direct and indirect costs associated with providing such services, including all
general and administrative overhead.
 
Section 6.14       Schedule Updates.  Sellers may, from time to time prior to
the Closing, by written notice to Purchaser, supplement or amend any Schedule
delivered by Sellers hereunder.  For purposes of determining whether Purchaser’s
conditions set forth in Section 7.2(a) have been fulfilled, Sellers’ Schedules
shall be deemed to include only that information contained therein on the date
of this Agreement and shall be deemed to exclude all information contained in
any supplement or amendment thereto, but if the Closing shall occur, then any
matters disclosed to Purchaser pursuant to any such supplement or amendment
after the date of this Agreement and prior to the Closing shall be deemed
incorporated into such Schedules for purposes of Article 10.
 
 
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Section 6.15       Peregrine Claims.  Sellers are currently considering the
pursuit of certain claims and causes of action relating to certain potential
breaches of one or more confidentiality agreements between one or more Sellers
and one or more third parties, such potential claims and causes of action
relating to certain oil and gas leases and/or other Assets located in Maverick
County, Texas, and Dimmit County, Texas (the “Peregrine Claims”).  After the
Closing, Purchaser shall promptly pay as incurred all costs incurred by Sellers
in pursuing the Peregrine Claims (including costs and expenses of legal
counsel); provided, however, that either Sellers, on the one hand, or Purchaser,
on the other hand, may upon at least 30 days’ advance written notice to the
other terminate such obligations (a “Termination Notice”), whereupon Purchaser
shall pay all such remaining unpaid costs and expenses incurred in prosecution
of the Peregrine Claims and, if such Termination Notice was given by Sellers,
Sellers shall promptly assign, without recourse, their rights under and in
respect of the Peregrine Claims to Purchaser.  Any recoveries by Sellers in
respect of the Peregrine Claims shall be for the account of Sellers.  If in
connection with the Peregrine Claims Sellers acquire any oil and gas leases
and/or other real property interests in Maverick County, Texas, or Dimmit
County, Texas, from the counterparties in such claims, then Seller shall give
Purchaser written notice thereof, whereupon Purchaser shall have an option,
exercisable by written notice to Sellers for a period of sixty (60) days after
Sellers’ notice to Purchaser, to acquire all of Sellers’ right, title and
interest in and to such oil and gas leases and/or other real property interests
in consideration of Purchaser’s payment to Sellers of cash in an amount equal to
one hundred ten percent (110%) of the aggregate consideration, if any, paid by
Sellers for same together with any remaining unpaid costs and expenses incurred
by Seller in pursuing the Peregrine Claims; provided, however, that if Purchaser
shall give a Termination Notice prior to the date on which Sellers acquire such
oil and gas leases and/or other real property interests then such option shall
terminate upon the giving of such Termination Notice.
 
Section 6.16        Sale Order.  Sellers shall use their reasonable best efforts
to secure approval of the Sale Order in a form reasonably acceptable to
Purchaser on or prior to January 31, 2010.
 
ARTICLE 7
CONDITIONS TO CLOSING
 
Section 7.1          Conditions of Sellers to Closing.  The obligations of
Sellers to consummate the transactions contemplated by this Agreement are
subject, at the option of Sellers, to the satisfaction on or prior to Closing of
each of the following conditions:
 
(a)      Representations.   The representations and warranties of Purchaser set
forth in Article 5 shall be true and correct in all material respects as of the
date of this Agreement and as of the Closing Date as though made on and as of
the Closing Date;
 
(b)      Performance.  Purchaser shall have performed and observed, in all
material respects, all covenants and agreements to be performed or observed by
it under this Agreement prior to or on the Closing Date;
 
(c)      Bankruptcy Court Approval. The Bankruptcy Court shall have issued a
Final Order confirming Sellers’ Plan of Reorganization in a form reasonably
acceptable to the Sellers.
 
(d)      Pending Litigation.  On the Closing Date, no suit, action or other
proceeding by a third-party (including any Governmental Body) seeking to
restrain, enjoin or otherwise prohibit the consummation of the transactions
contemplated by this Agreement, or seeking substantial damages in connection
therewith, shall be pending before any Governmental Body;

 
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(e)      Deliveries.  Purchaser shall have delivered to Sellers duly executed
counterparts of the Conveyances and the other documents and certificates to be
delivered by Purchaser under Section 8.3;
 
(f)       Casualty and Condemnation Losses.  The aggregate sum of all casualty
and condemnation losses under Section 3.2 shall not be more than ten percent
(10%) of the unadjusted Purchase Price;
 
(g)      Payment.  Purchaser shall have paid the Closing Payment; and
 
(h)      Plan.      All conditions precedent to the occurrence of the
effectiveness of the Plan shall have been satisfied or waived in writing in
accordance with the Plan.
 
Section 7.2          Conditions of Purchaser to Closing.  The obligations of
Purchaser to consummate the transactions contemplated by this Agreement are
subject, at the option of Purchaser, to the satisfaction on or prior to Closing
of each of the following conditions:
 
(a)      Representations.  The representations and warranties of Sellers set
forth in Article 4 shall be true and correct as of the date of this Agreement
and as of the Closing Date as though made on and as of the Closing Date (other
than representations and warranties that refer to a specified date which need
only be true and correct on and as of such specified date), except for such
breaches, if any, as would not have a Material Adverse Effect;
 
(b)     Performance.  Sellers shall have performed and observed, in all material
respects, all covenants and agreements to be performed or observed by it under
this Agreement prior to or on the Closing Date;
 
(c)      Bankruptcy Court Approval. The Bankruptcy Court shall have issued a
Final Order confirming Sellers’ Plan of Reorganization in a form reasonably
acceptable to Purchaser;
 
(d)     Pending Litigation.  On the Closing Date, no suit, action or other
proceeding by a third-party (including any Governmental Body) seeking to
restrain, enjoin or otherwise prohibit the consummation of the transactions
contemplated by this Agreement, or seeking substantial damages in connection
therewith, shall be pending before any Governmental Body;
 
(e)      Deliveries.  Sellers shall have delivered to Purchaser duly executed
counterparts of the Conveyances and the other documents and certificates to be
delivered by Sellers under Section 8.2;

 
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(f)      Casualty and Condemnation Losses.  The aggregate sum of all casualty
and condemnation losses under Section 3.2 shall not be more than ten percent
(10%) of the unadjusted Purchase Price;
 
(g)     Plan.       All conditions precedent to the occurrence of the
effectiveness of the Plan shall have been satisfied or waived in writing in
accordance with the Plan; and
 
(h)     Assignment of Contractual Prospects.  Purchaser shall receive an
assignment of each of the Material Contracts covering the Contractual Prospects
in form and substance reasonably satisfactory to Purchaser.
 
ARTICLE 8
 
CLOSING
 
Section 8.1          Time and Place of Closing.
 
(a)      Consummation of the purchase and sale transaction as contemplated by
this Agreement (the “Closing”), shall be governed by the Sale Order and any
other applicable orders entered by the Bankruptcy Court.
 
(b)     Unless otherwise agreed to in writing by Purchaser and Sellers, Closing
shall take place at the offices of Sellers, located at 777 Sonterra Blvd., Suite
350, San Antonio, Texas 78258, at 10:00 a.m., local time, on January 29, 2010,
or if all conditions in Article 7 to be satisfied prior to Closing have not yet
been satisfied or waived, as soon thereafter as such conditions have been
satisfied or waived, subject to the rights of the Parties under Article 9.
 
(c)      The date on which the Closing occurs is herein referred to as the
“Closing Date.”
 
Section 8.2          Obligations of Sellers at Closing.  At the Closing, upon
the terms and subject to the conditions of this Agreement, and subject to the
simultaneous performance by Purchaser of its obligations pursuant to
Section 8.3, Sellers shall deliver or cause to be delivered to Purchaser, among
other things, the following:
 
(a)      Conveyances of the Assets, in sufficient duplicate originals to allow
recording in all appropriate jurisdictions and offices, duly executed and
acknowledged by Sellers;
 
(b)      assignments, on appropriate forms, of state and of federal leases
comprising portions of the Assets, where applicable, duly executed and
acknowledged by Sellers;
 
(c)      letters-in-lieu of transfer orders covering the Assets;

 
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(d)     a certificate duly executed by an authorized officer of each Seller,
dated as of Closing, certifying on behalf of such Seller that the conditions set
forth in Sections 7.2(a) and 7.2(b) have been fulfilled;
 
(e)      a certificate duly executed by the secretary or any assistant secretary
of each Seller, dated as of the Closing, (i) attaching and certifying on behalf
of such Seller complete and correct copies of (A) the Organizational Documents
of such Seller, each as in effect as of the Closing, (B) the resolutions of the
Board of Directors of such Seller authorizing the execution, delivery, and
performance by such Seller of this Agreement and the transactions contemplated
hereby, and (C) any required approval by the stockholders of such Seller of this
Agreement and the transactions contemplated hereby and (ii) certifying on behalf
of such Seller the incumbency of each officer of Sellers executing this
Agreement or any document delivered in connection with the Closing;
 
(f)      an executed statement described in Treasury Regulation § 1.1445-2(b)(2)
certifying that no Seller is a foreign person within the meaning of the Code;
and
 
(g)     executed change-of-operator forms for each Lease and Land, Unit or Well
operated by any Seller that Purchaser intends to operate after Closing, which
Sellers shall file; provided, however, that if the operator of a Lease and Land,
Unit or Well must be elected or designated after Closing, the applicable
instruments will be not be filed until after the election or designation, as
applicable, and the Purchaser provides Sellers with notice of such election or
designation.
 
Section 8.3         Obligations of Purchaser at Closing.  At the Closing, upon
the terms and subject to the conditions of this Agreement, and subject to the
simultaneous performance by each Seller of its obligations pursuant to
Section 8.2, Purchaser shall deliver or cause to be delivered to Sellers, among
other things, the following:
 
(a)      a wire transfer of the Closing Payment in same-day funds;
 
(b)      Conveyances of the Assets, duly executed by Purchaser;
 
(c)      letters-in-lieu of transfer orders covering the Assets, duly executed
by Purchaser and such change of operator forms as may be required to reflect the
change of operatorship with respect to the Properties duly executed by
Purchaser;
 
(d)      a certificate by an authorized corporate officer of Purchaser, dated as
of Closing, certifying on behalf of Purchaser that  the conditions set forth in
Sections 7.1(a) and 7.1(b) have been fulfilled; and
 
(e)      a certificate duly executed by the secretary or any assistant secretary
of Purchaser, dated as of the Closing, (i) attaching, and certifying on behalf
of Purchaser as complete and correct, copies of the Purchaser’s Organizational
Documents, each as in effect as of the Closing, and (ii) certifying on behalf of
Purchaser: (A) that the Board of Directors of Purchaser has authorized the
execution, delivery and performance by Purchaser of this Agreement and the
transactions contemplated hereby, (B) that no approvals are required by the
stockholders of Purchaser with respect to this Agreement and the transactions
contemplated hereby, and (C) the incumbency of each officer of Purchaser
executing this Agreement or any document delivered in connection with the
Closing.

 
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Section 8.4          Closing Payment and Post-Closing Purchase Price
Adjustments.
 
(a)      Not later than five (5) Business Days prior to the Closing Date,
Sellers shall prepare and deliver to Purchaser, using and based upon the best
information available to Sellers, a preliminary settlement statement estimating
the adjusted Purchase Price after giving effect to all Purchase Price
adjustments set forth in Section 2.3.  The estimate delivered in accordance with
this Section 8.4(a) shall constitute the dollar amount to be paid by Purchaser
to Sellers at the Closing (the “Closing Payment”).
 
(b)      As soon as reasonably practicable after the Closing but not later than
the 90th day following the Closing Date, Sellers shall prepare and deliver to
Purchaser a statement setting forth the final calculation of the adjusted
Purchase Price and showing the calculation of each adjustment, based, to the
extent possible on actual credits, charges, receipts and other items before and
after the Effective Time.  Sellers shall at Purchaser's request supply
reasonable documentation available to support any credit, charge, receipt or
other item.  As soon as reasonably practicable but not later than the 30th day
following receipt of Sellers’ statement hereunder, Purchaser shall deliver to
Sellers a written report containing any changes that Purchaser proposes be made
to such Statement.  The Parties shall undertake to agree on the final statement
of the adjusted Purchase Price no later than 120 days after the Closing
Date.  In the event that the Parties cannot reach agreement within such period
of time, either Party may refer the remaining matters in dispute to the
Bankruptcy Court.  Upon final determination by the Bankruptcy Court (x)
Purchaser shall pay to Sellers the amount by which the adjusted Purchase Price
exceeds the Closing Payment or (y) Sellers shall pay to Purchaser the amount by
which the Closing Payment exceeds the adjusted Purchase Price, as applicable.
Any post-closing payment pursuant to this Section 8.4 shall bear interest from
the Effective Time to the date of payment at the Agreed Interest Rate.
 
(c)      All payments made or to be made under this Agreement to Sellers as may
be specified by Sellers in writing; provided, however, that $1,100,000 of the
Closing Payment shall be deposited with the Escrow Agent to be held pursuant to
the Escrow Agreement until both Royalty Appeals are either dismissed or resolved
through the entry of a Final Order, after which time such $1,100,000  amount
shall be paid over by the Escrow Agent to Sellers with interest.  “Royalty
Appeals” shall mean the appeals styled Weatherford International v. TXCO
Resources Inc., Case No. 5:09-cv-00569-FB, which is currently pending in the
United States District Court for the Western District of Texas and the appeal
styled, Halliburton Energy Services, Inc. et al v. TXCO Resources Inc. et al,
Case No. 5:09-cv-00580-FB, which is currently pending in the United States
District Court for the Western District of Texas, both of which involve the
Bankruptcy Courts entry of the Order on Motion for Authority to Pay or Honor
Prepetition Royalty Obligations and Other Obligations under Oil & Gas Leases,
whereby the Bankruptcy Court approved the Seller’s request to pay all
prepetition royalty obligations in the ordinary course of their business. All
payments made or to be made hereunder to Purchaser shall be by electronic
transfer of immediately available funds to a bank and account specified by
Purchaser in writing to Sellers.

 
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Section 8.5           Further Assurances.  At the Closing and thereafter as may
be necessary, each Seller and Purchaser shall execute and deliver such other
instruments and documents and take such other actions as may be reasonably
necessary to evidence and effectuate the transactions contemplated by this
Agreement.
 
ARTICLE 9
TERMINATION AND AMENDMENT
 
Section 9.1            Termination.  This Agreement may be terminated at any
time prior to Closing by:
 
(a)         the mutual prior written consent of the Sellers and Purchaser;
 
(b)         either Sellers or Purchaser pursuant to Section 3.2;
 
(c)         Purchaser if the Bankruptcy Court does not enter the Sale Order in
form reasonably acceptable to the parties on or before January 31, 2010;
 
(d)         Purchaser or Sellers if Sellers enter into or seek Bankruptcy Court
approval of a Superior Proposal or an Alternative Plan;
 
(e)         Purchaser, if the Sale Order is not a Final Order by February 15,
2010; or
 
(f)         either Purchaser or any Seller, if Closing has not occurred on or
before February 28, 2010,
 
provided, however, that no Party shall be entitled to terminate this Agreement
under this Section 9.1 if the Closing has failed to occur because such Party
negligently or willfully failed to perform or observe in any material respect
its covenants and agreements hereunder.  This Agreement shall be deemed
terminated upon consummation of any Superior Proposal or Alternative Plan.

 
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Section 9.2           Effect of Termination.  If this Agreement is terminated
pursuant to Section 9.1, this Agreement shall become void and of no further
force or effect (except for the provisions of Sections 6.4, 6.6, 11.6, 11.9,
11.17 and 11.18 and of the Confidentiality Agreement which shall continue in
full force and effect) and Sellers shall be free immediately to enjoy all rights
of ownership of the Assets and to sell, transfer, encumber or otherwise dispose
of the Assets to any party without any restriction under this
Agreement.  Notwithstanding anything to the contrary in this Agreement, the
termination of this Agreement under Section 9.1(e) shall not relieve any Party
from liability for any willful or negligent failure to perform or observe in any
material respect any of its agreements or covenants contained herein which are
to be performed or observed at or prior to Closing. In the event this Agreement
terminates under Section 9.1(e) and any Party has willfully or negligently
failed to perform or observe in any material respect any of its agreements or
covenants contained herein which are to be performed at or prior to Closing,
then the other Party shall be entitled to all remedies available at law or in
equity and shall be entitled to recover court costs and attorneys' fees in
addition to any other relief to which such Party maybe entitled; provided,
however, if Purchaser fails to close and such failure constitutes a breach of
this Agreement, Sellers’ sole remedy and recourse shall be the retention of the
Deposit as liquidated damages, and in this regard, the Parties agree that in
such event Sellers’ damages are uncertain and speculative and the amount of the
Deposit is calculated by reference to Sellers’ anticipated damages and not
established as a penalty.
 
ARTICLE 10
INDEMNIFICATION; LIMITATIONS
 
Section 10.1         Indemnification.  From and after Closing, Purchaser shall
indemnify, defend and hold harmless Sellers from and against all Damages
incurred or suffered by Seller:
 
(i)           caused by or arising out of or resulting from the ownership, use
or operation of the Assets at any time to the extent such Damages are related
solely to Environmental Conditions of the Assets designated on Sellers’
Identified Environmental Conditions, and as to any other Damages at any time
after the Effective Time, including the Assumed Obligations,
 
(ii)          caused by or arising out of or resulting from Purchaser's breach
of any of Purchaser's covenants or agreements contained in Article 6, or
 
(iii)          caused by or arising out of or resulting from any breach of any
representation or warranty made by Purchaser contained in Article 5 of this
Agreement or in the certificate delivered by Purchaser at Closing pursuant to
Section 8.3(d),
 
even if such Damages are caused in whole or in part by the negligence (whether
sole, joint or concurrent but not gross negligence or willful misconduct),
strict liability or other legal fault of any Indemnified Person, but excepting
in each case Damages against which Sellers would be required to indemnify
Purchaser under Section 10.1(b) at the time the claim notice is presented by
Purchaser.
 
(b)       For a period of one hundred eighty (180) days after Closing, Sellers
shall indemnify, defend and hold harmless Purchaser against and from all Damages
incurred or suffered by Purchaser:
 
(i)          caused by or arising out of or resulting from the ownership, use or
operation of the Assets before the Effective Time, including the Retained
Obligations,

 
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(ii)         caused by or arising out of or resulting from Sellers’ breach of
any of Sellers’ covenants or agreements contained in Article 6, or
 
(iii)        caused by or arising out of or resulting from any breach of any
representation or warranty made by Sellers contained in Article 4 of this
Agreement (other than Sellers’ representations under Sections 4.7 and 4.12 with
respect to Environmental Condition of the Assets), or in the certificate
delivered by Sellers at Closing pursuant to Section 8.2(d); provided, however,
that Purchaser shall be deemed to have waived in full any breach of any Seller’s
representations and warranties contained in Article 4 of which any Purchaser has
Knowledge at the date of this Agreement or, if the Closing occurs, at the
Closing and Purchaser hereby waives any right to indemnification under this
Article 10 with respect to any such breaches;
 
even if such Damages are caused in whole or in part by the negligence (whether
sole, joint or concurrent but not gross negligence or willful misconduct),
strict liability or other legal fault of any Indemnified Person.
 
(c)        Notwithstanding anything to the contrary contained in this Agreement,
this Section 10.1 contains the Parties' exclusive remedy against each other
after the Closing with respect to breaches of the representations, warranties,
covenants and agreements of the Parties contained in this Agreement and the
certificate delivered by each Party at Closing pursuant to Sections 8.2(d) or
8.3(d), as applicable.  Except for the remedies contained in this Section 10.1
and Section 3.2, effective as of the Closing, Sellers and Purchaser each
release, remise and forever discharge the other and its Affiliates and all such
Parties' stockholders, officers, directors, employees, agents, advisors and
representatives from any and all suits, legal or administrative proceedings,
claims, demands, damages, losses, costs, liabilities, interest, or causes of
action whatsoever, in law or in equity, known or unknown, which such Parties
might now or subsequently may have, based on, relating to or arising out of this
Agreement, Sellers’ ownership, use or operation of the Assets, or the condition,
quality, status or nature of the Assets, including, without limitation, rights
to contribution under the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended, or any other Environmental Law, breaches
of statutory or implied warranties, nuisance or other tort actions, rights to
punitive damages and common law rights of contribution, rights under agreements
between Sellers and any Persons who are Affiliates of Sellers, and rights under
insurance maintained by Sellers or any Person who is an Affiliate of Sellers,
even if caused in whole or in part by the negligence (whether sole, joint or
concurrent), strict liability or other legal fault of any released Person,
excluding, however, any existing contractual rights between (i) Purchaser or any
of Purchaser's Affiliates and (ii) Sellers or any of Sellers’ Affiliates under
contracts between them relating to the Assets.
 
(d)        Claims for Property Costs shall be exclusively handled pursuant to
the Purchase Price adjustments in Section 2.3, and pursuant to Section 11.2, and
shall not be subject to indemnification under this Section 10.1.

 
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(e)         “Damages”, for purposes of this Article 10, shall mean the amount of
any actual liability, loss, cost, expense, claim, award or judgment incurred or
suffered by any Indemnified Person arising out of or resulting from the
indemnified matter, whether attributable to personal injury or death, property
damage, contract claims, torts, or otherwise, including reasonable fees and
expenses of attorneys, consultants, accountants or other agents and experts
reasonably incident to matters indemnified against, and the costs of
investigation and/or monitoring of such matters, and the costs of enforcement of
the indemnity; provided, however, that Purchaser and Sellers shall not be
entitled to indemnification under this Section 10.1 for, and “Damages” shall not
include, (i) loss of profits or other consequential damages suffered by the
Party claiming indemnification, or any punitive damages, (ii) any liability,
loss, cost, expense, claim, award or judgment that does not individually exceed
one hundred thousand dollars ($100,000), except that such limitation shall not
apply with respect to any failure on the part of Purchaser to satisfy any
liability or obligation assumed pursuant hereto, and (iii) any liability, loss,
cost, expense, claim, award or judgment to the extent resulting from or
increased by the actions or omissions of any Indemnified Person after the
Closing Date.
 
(f)         The indemnity of each Party provided in this Section 10.1 shall be
for the benefit of and extend to such Party's present and former Affiliates, and
its and their directors, officers, employees, and agents.  Any claim for
indemnity under this Section 10.1 by any such Affiliate, director, officer,
employee, or agent must be brought and administered by the applicable Party to
this Agreement.  No Indemnified Person other than Sellers and Purchaser shall
have any rights against either Sellers or Purchaser under the terms of this
Section 10.1 except as may be exercised on its behalf by Purchaser or Sellers,
as applicable, pursuant to this Section 10.1(f).  Sellers and Purchaser may
elect to exercise or not exercise indemnification rights under this
Section 10.1(f) on behalf of the other parties affiliated with it in its sole
discretion and shall have no liability to any such other Indemnified Party for
any action or inaction under this Section 10.1(f).
 
(g)         Purchaser shall not conduct (or have conducted on its behalf) any
material remediation operations with respect to any claimed Damages relating to
a breach of Sellers’ representation or warranty regarding compliance with
Environmental Laws or any Claim relating to the subject matter of such
representation or warranty without first giving Sellers notice of the
remediation with reasonable detail at least 30 days prior thereto (or such
shorter period of time as shall be required by any Governmental
Authority).  Sellers shall have the option (in its sole discretion) to conduct
(or have conducted on its behalf) such remediation operations.  If Sellers shall
not have notified Purchaser of its agreement to conduct such remediation
operations within such specified period, then Purchaser may conduct (or have
conducted on its behalf) such operations.  Purchaser and Sellers agree that any
remediation activities undertaken with respect to the Assets, whether conducted
by Purchaser or Sellers, shall be reasonable in extent and cost effective and
shall not be designed or implemented in such a manner as to exceed what is
required to cause a condition to be brought into compliance with Environmental
Laws.  All remediation activities conducted by Sellers under this Agreement
shall be conducted to the extent reasonably possible so as not to interfere
substantially with Purchaser's operation of the Assets.

 
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Section 10.2          Indemnification Actions.  All claims for indemnification
under Section 10.1 shall be asserted and resolved as follows:
 
(a)         For purposes of this Article 10, the term “Indemnifying Person” when
used in connection with particular Damages shall mean the Person or Persons
having an obligation to indemnify another Person or Persons with respect to such
Damages pursuant to this Article 10, and the term “Indemnified Person” when used
in connection with particular Damages shall mean the Person or Persons having
the right to be indemnified with respect to such Damages by another Person or
Persons pursuant to this Article 10.
 
(b)         To make claim for indemnification under Section 10.1, an Indemnified
Person shall notify the Indemnifying Person of its claim under this
Section 10.2, including the specific details of and specific basis under this
Agreement for its claim (the “Claim Notice”).  In the event that the claim for
indemnification is based upon a claim by a third party against the Indemnified
Person (a “Claim”), the Indemnified Person shall provide its Claim Notice
promptly after the Indemnified Person has actual knowledge of the Claim and
shall enclose a copy of all papers (if any) served with respect to the Claim;
provided that the failure of any Indemnified Person to give notice of a Claim as
provided in this Section 10.2 shall not relieve the Indemnifying Person of its
obligations under Section 10.1 except to the extent such failure results in
insufficient time being available to permit the Indemnifying Person to
effectively defend against the Claim or otherwise prejudices the Indemnifying
Person's ability to defend against the Claim.  In the event that the claim for
indemnification is based upon an inaccuracy or breach of a representation,
warranty, covenant or agreement, the Claim Notice shall specify the
representation, warranty, covenant or agreement which was inaccurate or
breached.
 
(c)         If the Indemnifying Person admits its obligation to indemnify the
Indemnified Person, it shall have the right and obligation to diligently defend,
at its sole cost and expense, the Claim.  The Indemnifying Person shall have
full control of such defense and proceedings, including any compromise or
settlement thereof.  If requested by the Indemnifying Person, the Indemnified
Person agrees to cooperate in contesting any Claim which the Indemnifying Person
elects to contest (provided, however, that the Indemnified Person shall not be
required to bring any counterclaim or cross-complaint against any Person).  The
Indemnified Person may at its own expense participate in, but not control, any
defense or settlement of any Claim controlled by the Indemnifying Person
pursuant to this Section 10.2(d).  An Indemnifying Person shall not, without the
written consent of the Indemnified Person, settle any Claim or consent to the
entry of any judgment with respect thereto which (i) does not result in a final
resolution of the Indemnified Person's liability with respect to the Claim
(including, in the case of a settlement, an unconditional written release of the
Indemnified Person) or (ii) may materially and adversely affect the Indemnified
Person (other than as a result of money damages covered by the indemnity).

 
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(d)        If the Indemnifying Person does not admit its obligation or admits
its obligation but fails to diligently defend or settle the Claim, then the
Indemnified Person shall have the right to defend against the Claim (at the sole
cost and expense of the Indemnifying Person, if the Indemnified Person is
entitled to indemnification hereunder), with counsel of the Indemnified Person's
choosing, subject to the right of the Indemnifying Person to admit its
obligation and assume the defense of the Claim at any time prior to settlement
or final determination thereof.  If the Indemnifying Person has not yet admitted
its obligation to provide indemnification with respect to a Claim, the
Indemnified Person shall send written notice to the Indemnifying Person of any
proposed settlement and the Indemnifying Person shall have the option for 10
days following receipt of such notice to (i) admit in writing its obligation to
provide indemnification with respect to the Claim and (ii) if its obligation is
so admitted, reject, in its reasonable judgment, the proposed settlement.  If
the Indemnified Person settles any Claim over the objection of the Indemnifying
Person after the Indemnifying Person has timely admitted its obligation in
writing and assumed the defense of the Claim, the Indemnified Person shall be
deemed to have waived any right to indemnity therefor.
 
Section 10.3          Limitation on Actions.  Notwithstanding the remaining
provisions hereof, the provisions of this Article 10 are subject to the
following:
 
(a)         The representations and warranties of the Parties set forth in this
Agreement or any certificate or other instrument delivered pursuant hereto, as
well as the covenants and agreements set forth herein or therein that are
contemplated to be performed prior to the Closing, shall survive the Closing for
a period of one hundred eighty (180) days after the Closing (unless a shorter
period is expressly provided within the applicable section).  The covenants and
agreements set forth herein or therein that are contemplated to be performed
after the Closing, shall survive the Closing without time limit except as may
otherwise be expressly provided herein or therein.  Representations, warranties,
covenants and agreements shall be of no further force and effect after the date
of their expiration, provided that there shall be no termination of any bona
fide claim asserted pursuant to this Agreement with respect to such a
representation, warranty, covenant or agreement prior to its expiration date.
 
(b)         The indemnities in Sections 10.1(a)(ii), 10.1(a)(iii) and 10.1(b)
shall terminate as of the date that is one hundred eighty (180) days after the
Closing, except in each case as to matters for which a specific written claim
for indemnity has been delivered to the Indemnifying Person on or before such
termination date.  The indemnities in Section 10.1(a)(i) shall continue without
time limit.

 
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(c)         Sellers shall not have any liability for any indemnification under
Section 10.1 until and unless the aggregate amount of the liability for all
Damages for which claim notices are delivered by such Party exceeds Two Million
Five Hundred Thousand Dollars ($2,500,000) (the “Indemnity Deductible”), and
then only to the extent such damages exceed the Indemnity Deductible.  The
adjustments to the Purchase Price under Section 2.3, any further adjustments
with respect to production, income, proceeds, receipts and credits under
Section 11.1, any further adjustments with respect to Property Costs under
Section 11.2 and any payments in respect of any of the preceding shall not be
limited by this Section 10.3(c).
 
(d)         The maximum aggregate amount for which Sellers may be liable for
indemnification under Section 10.1 shall be limited to Two Million Dollars
($2,000,000).
 
(e)         The amount of any Damages for which an Indemnified Person is
entitled to indemnity under this Article 10 shall be reduced by the amount of
insurance proceeds realized by the Indemnified Person or its Affiliates with
respect to such Damages (net of any collection costs, and excluding the proceeds
of any insurance policy issued or underwritten by the Indemnified Person or its
Affiliates).
 
(f)         In no event shall the Purchaser have any obligation hereunder to
indemnify any Seller who does not actually convey any portion of the Assets to
Purchaser under this Agreement or otherwise have any direct or indirect interest
in any portion of the Assets.  Likewise, no Seller who does not actually convey
any portion of the Assets to Purchaser under this Agreement or otherwise have
any direct or indirect interest in any portion of the Assets shall have any
obligation hereunder to indemnify the Purchaser.  Upon the request of any Party
hereto, the Parties agree to enter into any amendment to this Agreement
reasonably necessary to remove any Seller who does not actually convey any
portion of the Assets to Purchaser under this Agreement or otherwise have any
direct or indirect interest in any portion of the Assets as a Party to this
Agreement.
 
ARTICLE 11
MISCELLANEOUS
 
Section 11.1         Receipts.  Except as otherwise provided in this Agreement,
any production from or attributable to the Assets (and all products and proceeds
attributable thereto) and any other income, proceeds, receipts and credits
attributable to the Assets which are not reflected in the adjustments to the
Purchase Price following the final adjustment pursuant to Section 8.4(b) shall
be treated as follows:  (a) all production of Hydrocarbons from or attributable
to the Assets (and all products and proceeds attributable thereto) and all other
income, proceeds, receipts and credits earned with respect to the Assets to
which Purchaser is entitled under Section 1.4 shall be the sole property and
entitlement of Purchaser, and, to the extent received by Sellers, Sellers shall
fully disclose, account for and remit the same promptly to Purchaser, and
(b) all production of Hydrocarbons from or attributable to the Assets (and all
products and proceeds attributable thereto) and all other income, proceeds,
receipts and credits earned with respect to the Assets to which Sellers are
entitled under Section 1.4 shall be the sole property and entitlement of Sellers
and, to the extent received by Purchaser, Purchaser shall fully disclose,
account for and remit the same promptly to Sellers.
 

 
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Section 11.2         Expenses.  Except as otherwise provided in this Agreement,
any Property Costs which are not reflected in the adjustments to the Purchase
Price following the final adjustment pursuant to Section 8.4(b) shall be treated
as follows: (a) all Property Costs for which Sellers are responsible under
Section 1.4 shall be the sole obligation of Sellers and Sellers shall promptly
pay, or if paid by Purchaser, promptly reimburse Purchaser for and hold
Purchaser harmless from and against same; and (b) all Property Costs for which
Purchaser is responsible under Section 1.4 shall be the sole obligation of
Purchaser and Purchaser shall promptly pay, or if paid by Sellers, promptly
reimburse Sellers for and hold Sellers harmless from and against same.  Sellers
are entitled to resolve all joint interest audits and other audits of Property
Costs covering periods for which Sellers are in whole or in part responsible,
provided that Sellers shall not agree to any adjustments to previously assessed
costs for which Purchaser is liable without the prior written consent of
Purchaser, such consent not to be unreasonably withheld.  Sellers shall provide
Purchaser with a copy of all applicable audit reports and written audit
agreements received by Sellers and relating to periods for which Purchaser is
partially responsible.
 
Section 11.3          Counterparts.  This Agreement may be executed in
counterparts, each of which shall be deemed an original instrument, but all such
counterparts together shall constitute but one agreement.
 
Section 11.4          Notice.  All notices which are required or may be given
pursuant to this Agreement shall be sufficient in all respects if given in
writing and delivered personally, by telecopy or by registered or certified
mail, postage prepaid, as follows:
 
If to Seller:

TXCO Resources Inc.
777 W. Sonterra Blvd., Suite 350
San Antonio, Texas 78258
Attn:  James E. Sigmon, Chairman of the Board and CEO
Facsimile: (210) 496-3232

With a copy to:

TXCO Resources Inc.
777 W. Sonterra Blvd., Suite 350
San Antonio, Texas 78258
Attn:  M. Frank Russell, General Counsel
Facsimile: (210) 496-3232

If to Purchaser:

Anadarko E&P Company LP
1201 Lake Robbins Drive
The Woodlands, Texas  77380
Attn: R.A. Walker, President and Chief Operating Officer
Facsimile:  (832) 636-8032

 
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With a copy to:

Anadarko E&P Company LP
1201 Lake Robbins Drive
The Woodlands, Texas  77380
Attn: Robert K. Reeves, General Counsel
Facsimile:  (832) 636-3214

Either Party may change its address for notice by notice to the other in the
manner set forth above.  All notices shall be deemed to have been duly given at
the time of receipt by the Party to which such notice is addressed.
 
Section 11.5         Sales or Use Tax, Recording Fees and Similar Taxes and
Fees.  Purchaser shall bear any sales, use, excise, real property transfer or
gain, gross receipts, goods and services, registration, capital, documentary,
stamp or transfer Taxes, recording fees and similar Taxes and fees incurred and
imposed upon, or with respect to, the property transfers or other transactions
contemplated hereby.  If such transfers or transactions are exempt from any such
taxes or fees upon the filing of an appropriate certificate or other evidence of
exemption, Purchaser will timely furnish to Sellers such certificate or
evidence.
 
Section 11.6         Expenses.  All expenses incurred by Sellers in connection
with or related to the authorization, preparation or execution of this
Agreement, the conveyances delivered hereunder and the Exhibits and Schedules
hereto and thereto, and all other matters related to the Closing, including all
fees and expenses of counsel, accountants and financial advisers employed by
Sellers, shall be borne solely and entirely by Sellers, and all such expenses
incurred by Purchaser shall be borne solely and entirely by Purchaser.
 
Section 11.7         Change of Name.  As promptly as practicable, but in any
case within thirty (30) days after the Closing Date, Purchaser shall eliminate,
at Purchaser’s cost, the names of “TXCO Resources Inc.”, or any Affiliates of
Sellers and any variants thereof from the Assets acquired pursuant to this
Agreement, including the removal of any signs on the Assets that include such
names, and except with respect to such grace period for eliminating existing
usage, shall have no right to use any logos, trademarks or trade names belonging
to Sellers or any of their Affiliates.
 
Section 11.8         Replacement of Bonds, Letters of Credit and
Guarantees.  The Parties understand that none of the bonds, letters of credit
and guarantees, if any, posted by Sellers with Governmental Bodies and relating
to the Assets will be transferred to Purchaser.  Promptly following Closing,
Purchaser shall obtain, or cause to be obtained in the name of Purchaser,
replacements for such bonds, letters of credit and guarantees, to the extent
such replacements are necessary to permit the cancellation of the bonds, letters
of credit and guarantees posted by Sellers or to consummate the transactions
contemplated by this Agreement.

 
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Section 11.9          Governing Law; Submission to Jurisdiction.  This Agreement
and the legal relations between the Parties shall be governed by and construed
in accordance with the laws of the State of Texas without regard to principles
of conflicts of laws otherwise applicable to such determinations except that the
conveyances delivered hereunder shall be governed by the laws of the state in
which the transferred Assets are located.  To the extent the Bankruptcy Court
does not have jurisdiction over any controversy arising hereunder, each Party
submits to the exclusive jurisdiction of the state and federal courts located in
Bexar County of the State of Texas for purposes of resolving any dispute, claim
or controversy arising out of, in relation to or in connection with this
Agreement.
 
Section 11.10        Captions.  The captions in this Agreement are for
convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of this Agreement.
 
Section 11.11       Waivers.  Any failure by any Party or Parties to comply with
any of its or their obligations, agreements or conditions herein contained may
be waived by the Party or Parties to whom such compliance is owed by an
instrument signed by such Party or Parties and expressly identified as a waiver,
but not in any other manner.  No waiver of, or consent to a change in, any of
the provisions of this Agreement shall be deemed or shall constitute a waiver
of, or consent to a change in, other provisions hereof (whether or not similar),
nor shall such waiver constitute a continuing waiver unless otherwise expressly
provided.
 
Section 11.12       Assignment.  No party hereto shall assign all or any part of
this Agreement, nor shall any party assign or delegate any of its rights or
duties hereunder, without the prior written consent of the other
parties.  Subject to the foregoing, this Agreement shall be binding upon and
inure to the benefit of the Parties and their respective successors and assigns.
 
Section 11.13       Entire Agreement.  The Confidentiality Agreement, this
Agreement and the documents to be executed hereunder and the Exhibits and
Schedules attached hereto constitute the entire agreement between the Parties
pertaining to the subject matter hereof, and supersede all prior agreements,
understandings, negotiations and discussions, whether oral or written, of the
Parties pertaining to the subject matter hereof.
 
Section 11.14        Amendment.  This Agreement may be amended or modified only
by an agreement in writing executed by all Parties and expressly identified as
an amendment or modification.
 
Section 11.15       No Third Party Beneficiaries.  Nothing in this Agreement
shall entitle any Person other than Purchaser and Sellers to any claims, cause
of action, remedy or right of any kind, except the rights expressly provided to
the Persons described in Section 10.1(f).
 
Section 11.16        References.  In this Agreement:
 
(a)         References to any gender includes a reference to all other genders;
 
(b)         References to the singular includes the plural, and vice versa;

 
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(c)         Reference to any Article or Section means an Article or Section of
this Agreement;
 
(d)         Reference to any Exhibit or Schedule means an Exhibit or Schedule to
this Agreement, all of which are incorporated into and made a part of this
Agreement;
 
(e)         Unless expressly provided to the contrary, “hereunder”, “hereof”,
“herein” and words of similar import are references to this Agreement as a whole
and not any particular Section or other provision of this Agreement; and
 
(f)         “Include” and “including” shall mean include or including without
limiting the generality of the description preceding such term.
 
Section 11.17       Construction.  Purchaser is a Party capable of making such
investigation, inspection, review and evaluation of the Assets as a prudent
purchaser would deem appropriate under the circumstances including with respect
to all matters relating to the Assets, their value, operation and
suitability.  Each of Sellers and Purchaser has had the opportunity to exercise
business discretion in relation to the negotiation of the details of the
transaction contemplated hereby.  This Agreement is the result of arm's-length
negotiations from equal bargaining positions.
 
Section 11.18       Limitation on Damages.  Notwithstanding anything to the
contrary contained herein, none of Purchaser, Sellers or any of their respective
Affiliates shall be entitled to punitive damages in connection with this
Agreement and the transactions contemplated hereby and Purchaser and Sellers,
for itself and on behalf of its Affiliates, hereby expressly waives any right to
punitive damages in connection with this Agreement and the transactions
contemplated hereby.
 
ARTICLE 12
DEFINITIONS
 
“Acquisition Proposal” means any proposal or offer for a merger,
recapitalization, share exchange, debt-for-equity exchange, distribution of
securities for the benefit of stakeholders of Sellers, consolidation or similar
transaction involving a sale or purchase (directly or through a proposed
investment in equity securities, debt securities or claims of creditors) of all
or substantially all of the assets of Sellers or all or substantially all of the
equity securities of Sellers, other than the transactions contemplated by the
terms of this Agreement.  For the avoidance of doubt, an Acquisition Proposal
does not include a proposal or offer for an Alternative Plan.
 
“Adjustment Period” has the meaning set forth in Section 2.3(a).
 
“AFE Advance” has the meaning set forth in Section 6.5(b).
 
“Affiliate” with respect to any Person, means any person that directly or
indirectly controls, is controlled by or is under common control with such
Person, with control in such context meaning the ability to direct the
management and policies of a Person through ownership of voting shares or other
equity rights, pursuant to a written agreement, or otherwise.

 
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“Agreed Interest Rate” shall be three percent (3%) per annum.
 
“Agreement” has the meaning set forth in the first paragraph of this Agreement.
 
“Allocated Value” has the meaning set forth in Section 2.4.
 
“Alternative Plan” means a plan of reorganization covering a transaction other
than with Purchaser or any of its Affiliates which the Board of Directors of
Sellers determine (after consultation with their legal and financial advisors
and the Committee) in good faith would, if consummated and taking into account
all factors deemed relevant by the Board of Directors of each Seller, be more
favorable to Sellers and their stakeholders than the transactions contemplated
by this Agreement.
 
“Applicable Law” means any Law to which a specified Person, or the Assets is
subject.
 
“Assets” has the meaning set forth in Section 1.2.
 
“Assumed Obligations” has the meaning set forth in Section 6.7.
 
“Back-Up Bid Agreement” shall have the meaning set forth in Section 6.8(e).
 
“Back-Up Bid Option” shall have the meaning set forth in Section 6.8(e).
 
“Bankruptcy Cases” means the chapter 11 cases commenced by Sellers on or after
May 17, 2009 (including any case commenced after the date of this Agreement),
jointly administered under Case No. 09-51807, in the Western District of Texas,
San Antonio Division.
 
“Bankruptcy Code” means title 11 of the United States Code.
 
“Bankruptcy Court” means the United States Bankruptcy Court for the Western
District of Texas (San Antonio Division).
 
“Business Day” means each calendar day except Saturdays, Sundays, and Federal
holidays.
 
“Claim” has the meaning set forth in Section 10.2(b).
 
“Claim Notice” has the meaning set forth in Section 10.2(b).
 
“Closing” has the meaning set forth in Section 8.1(a).
 
“Closing Date” has the meaning set forth in Section 8.1(c).
 
“Closing Payment” has the meaning set forth in Section 8.4(a). 
 
 
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“Code” has the meaning set forth in Section 2.4.
 
“Committee” shall mean the official committee of unsecured creditors of Sellers
appointed in connection with the Bankruptcy Cases.
 
“Confidentiality Agreement” has the meaning set forth in Section 6.1.
 
“Contracts” has the meaning set forth in Section 1.2(g).
 
“Contractual Prospects” means such Lands and Leases pursuant to which Sellers
hold the right to acquire or earn title thereto under the Material Contracts
listed under Schedule 4.11.
 
“Conveyance” means the conveyance to be delivered by Sellers to Purchaser in
form and substance mutually agreeable to the Parties.
 
“COPAS” means the Council of Petroleum Accountants Society.
 
“Damages” has the meaning set forth in Section 10.1(e).
 
“Deemed Value” means, in respect of the Purchase Price or a Superior Proposal,
the aggregate dollar value to Sellers of all cash and non-cash (as applicable)
consideration comprising the Purchase Price or Superior Proposal, as applicable,
as determined by the Board of Directors of each Seller after consultation with
its financial and legal advisors, the Committee and such other advisors as the
Board of Directors of each Seller chooses, in its sole discretion, to consult.
 
“Defensible Title” means that title of Sellers which, subject to Permitted
Encumbrances:
 
 
(a)
Entitles Sellers to receive throughout the duration of any Lease or the
productive life of any Well (in each case after satisfaction of all royalties,
overriding royalties, nonparticipating royalties, net profits interests or other
similar burdens on or measured by production of Hydrocarbons), not less than the
“net revenue interest” share shown in Exhibit A of all Hydrocarbons produced,
saved and marketed from such Lease or Well, except decreases in connection with
those operations in which Sellers may be a nonconsenting co-owner, decreases
resulting from the establishment or amendment of pools or units, and decreases
required to allow co-owners to make up past underproduction or pipelines to make
up past under deliveries and except as stated in such Exhibit A-1;

 
 
(b)
Obligates Sellers to bear a percentage of the costs and expenses for the
maintenance and development of, and operations relating to, any Lease or Well
not greater than the “working interest” shown in Exhibit A without increase
throughout the duration of such Lease or Well, except as stated in Exhibit A and
except increases resulting from contribution requirements with respect to
defaulting co-owners under applicable operating agreements or applicable Law and
increases that are accompanied by at least a proportionate increase in Sellers’
net revenue interest;

 
 
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(c)
Is free and clear of all Encumbrances other than Permitted Encumbrances; and

 
 
(d)
Notwithstanding (a) and (b) above, for the Lands, Leases and Wells within the
Contractual Prospects, Defensible Title shall mean (i) such title as Sellers
have the right to acquire in the Contractual Prospects in accordance with the
terms of the Material Contracts related to such Contractual Prospects and (ii)
Sellers are not in breach of any of the Material Contracts related thereto.

 
“Definitive Agreement” means a binding definitive written agreement, enforceable
against the parties thereto, that effects the consummation of a Superior
Proposal.  A Definitive Agreement does not include an executed letter of intent
or any other preliminary written agreement, nor does it include any oral or
written agreement in principle or acceptance of an offer or bid by any Person.
 
“Deposit” has the meaning set forth in Section 2.2.
 
“Effective Time” has the meaning set forth in Section 1.4(a).
 
“Encumbrance” means any lien, charge, encumbrance, obligation, or other defect
(including a discrepancy in net revenue interest or working interest as set
forth in Exhibit A).
 
 “Environmental Condition” means: (a) any event or condition (including any
Release or threatened release) with respect to air, land, soil, surface,
subsurface strata, surface water, ground water, or sediment that causes the
Assets to become subject to (or their owner or operator to have Liability or be
potentially liable for) any investigation, reporting, removal, remediation, or
response action under, or not be in compliance with, any Environmental Law or
any permit pursuant to any Environmental Law; (b) the existence of any written
or oral Claim pending or threatened that reasonably may be expected to subject
the Assets or the owner or the operator of the Assets to Liability under any
Environmental Law as it pertains to the Assets or the existence of any event or
condition on the Assets described in this definition; (c) the failure of the
Assets to be in compliance, or the owner or operator of the Assets to comply
with all applicable Environmental Laws with respect to the Assets; (d) the
failure of the owner or operator of the Assets to obtain or maintain in full
force and effect any Permit required under applicable Environmental Laws with
respect to the Assets; or (e) any event or condition described in the preceding
clauses (a), (b), (c), and (d) that results, or could reasonably be expected to
result, in Liability for any investigation, removal, remediation, or response
action, or any other Person for injury to or death of any Person, Persons, or
other living thing, or damage, loss, or destruction of property located on the
Assets.  An event or circumstance that results in the inaccuracy or breach of
the representations and warranties contained in Section 4.7 (insofar only as
such representation and warranty relates to environmental matters) shall
constitute an Environmental Condition.  The term “Environmental Condition”
includes any release, disposal, spilling, leaking, migration, pouring, emission,
emptying, discharge, injection, escape, transmission, leaching, or dumping
(collectively, a “Release”), or any threatened Release, of any contaminants on,
to or from, or related in any way to the use, ownership, or operation of, the
Assets that has not been remediated in accordance with all applicable
Environmental Laws.
 
 
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“Environmental Laws” means, as the same have been amended to the date hereof,
the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. § 9601 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C.
§ 6901 et seq.; the Federal Water Pollution Control Act, 33 U.S.C. § 1251 et
seq.; the Clean Air Act, 42 U.S.C. § 7401 et seq.; the Hazardous Materials
Transportation Act, 49 U.S.C. § 1471 et seq.; the Toxic Substances Control Act,
15 U.S.C. §§ 2601 through 2629; the Oil Pollution Act, 33 U.S.C. § 2701 et seq.;
the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. § 11001 et
seq.; and the Safe Drinking Water Act, 42 U.S.C. §§ 300f through 300j; and all
similar Laws as of the date hereof of any Governmental Body having jurisdiction
over the property in question addressing pollution or protection of the
environment or biological or cultural resources and all regulations implementing
the foregoing.
 
“Environmental Permits” means all permits required by the Sellers by
Environmental Laws for the occupation of the Properties and the operation of the
Leases, Lands, Wells, Units and Surface Rights.
 
 “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
 
“Equipment” has the meaning set forth in Section 1.2(h).
 
“Escrow Agent” means Wells Fargo Bank, National Association.
 
“Escrow Agreement” means the escrow agreement of even date herewith among,
Sellers, Purchaser and the Escrow Agent, the form of which is attached hereto as
Exhibit B.
 
“Excluded Assets” has the meaning set forth in Section 1.3.
 
“Excluded Records” has the meaning set forth in Section 1.2(m).
 
“Final Order” means (i) an Order of the Bankruptcy Court as to which the time to
appeal, petition for certiorari or motion for re-argument or rehearing has
expired and as to which no appeal, petition for certiorari or other proceedings
or motion for re-argument or rehearing shall then be pending or (ii) if an
appeal, writ of certiorari, motion for re-argument or rehearing thereof has been
filed or sought, such order of the Bankruptcy Court shall not have been stayed.
 
“Gathering Systems” has the meaning set forth in Section 1.2(c).
 
“Governmental Body” means any federal, state, local, municipal, or other
governments; any governmental, regulatory or administrative agency, commission,
body or other authority exercising or entitled to exercise any administrative,
executive, judicial, legislative, police, regulatory or taxing authority or
power; and any court or governmental tribunal.
 
“Hydrocarbons” means oil, gas, condensate and other gaseous and liquid
hydrocarbons or any combination thereof and sulphur extracted from hydrocarbons.
 
 
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“Imbalance” means any imbalance between (a) the quantity of Hydrocarbons
produced from any Well and allocated to a Person from time to time and the share
of such production to which such Person is actually entitled by virtue of its
ownership interest in such Well, (b) the quantity of Hydrocarbons produced from
or allocable to the Assets delivered, and the quantity of such Hydrocarbons
received, in each case for gathering, transportation, or storage for the account
of a Person, (c) the quantity of Hydrocarbons produced from or allocable to the
Assets delivered for processing or refining, and the quantity of products or
residue Hydrocarbons redelivered, in each case for the account of a Person, and
(d) other similar types of Hydrocarbon-related imbalances attributable to the
Assets.
 
“Indemnified Person” has the meaning set forth in Section 10.2(a).
 
“Indemnifying Person” has the meaning set forth in Section 10.2(a).
 
“Indemnity Deductible” has the meaning set forth in Section 10.3(c).
 
“Knowledge” means the knowledge of a Person’s officers and directors as of the
date hereof and the Closing after inquiry of such Person’s employees charged
with responsibility for a particular area of such Person’s operations.
 
“Laws” means all statutes, rules, regulations, ordinances, orders, and codes of
Governmental Bodies.
 
“Leases and Lands” has the meaning set forth in Section 1.2(a).
 
“Liabilities” means, for purposes of this Agreement, any and all losses,
judgments, damages, liabilities, injuries, costs, expenses, interest, penalties,
taxes, fines, obligations, and deficiencies.
 
“Material Adverse Effect” means any material adverse effect on the ownership,
operation or value of the Assets, as currently operated, taken as a whole,
provided, however, that  “Material Adverse Effect” shall not include material
adverse effects resulting from general changes in Hydrocarbon prices, general
changes in industry, economic or political conditions or general changes in Laws
or in regulatory policies.
 
“Material Contracts” has the meaning set forth in Section 4.11.
 
 “Order” means any writ, judgment, decree, injunction or similar order, writ,
ruling, directive or other requirement of any Governmental Authority (in each
such case whether preliminary or final).
 
“Organizational Documents” means the articles of incorporation, certificate of
incorporation, charter, bylaws, articles of formation, regulations, operating
agreement, certificate of limited partnership, partnership agreement, and all
other similar documents, instruments, or certificates executed, adopted, or
filed in connection with the creation, formation, or organization of a Person,
including any amendments thereto.
 
“Party” or “Parties” has the meaning set forth in the first paragraph of this
Agreement.
 
 
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“Peregrine Claims” has the meaning set forth in Section 6.15.
 
“Permits” has the meaning set forth in Section 1.2(e).
 
“Permitted Encumbrances” means any or all of the following:
 
(a)         Lessors' royalties and any overriding royalties, reversionary
interests and other burdens to the extent that they do not, individually or in
the aggregate, reduce Sellers’ net revenue interests below that shown in Exhibit
A-1 or increase Sellers’ working interest above that shown in Exhibit A-1
without a corresponding increase in the net revenue interest;
 
(b)         Third-party consent requirements and similar restrictions with
respect to which waivers or consents are obtained by Sellers from the
appropriate parties prior to the Closing Date or the appropriate time period for
asserting the right has expired;
 
(c)         Liens for current Taxes or assessments not yet delinquent;
 
(d)         Materialman's, mechanic's, repairman's, employee's, contractor's,
operator's and other similar liens or charges arising in the ordinary course of
business for amounts not yet delinquent (including any amounts being withheld as
provided by law);
 
(e)         All rights to consent, by required notices to, filings with, or
other actions by Governmental Bodies in connection with the sale or conveyance
of oil and gas leases or interests therein if they are customarily obtained
subsequent to the sale or conveyance;
 
(f)         Rights of reassignment arising upon final intention to abandon or
release the Assets, or any of them;
 
(g)         Easements, rights-of-way, servitudes, permits, surface leases and
other rights in respect of surface operations which do not, individually or in
the aggregate, materially detract from the value of or materially interfere with
the use or ownership of the Assets subject thereto or affected thereby (as
currently used or owned);
 
(h)         All rights reserved to or vested in any Governmental Body to control
or regulate any of the Assets in any manner and all obligations and duties under
all applicable laws, rules and orders of any such Governmental Body or under any
franchise, grant, license or permit issued by any such Governmental Body;
 
(i)         Any Encumbrance on or affecting the Assets which is discharged at or
prior to Closing;
 
(j)         The litigation matters described in Schedule 4.7; or
 
 
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(k)      Any of the following to the extent that they do not, individually or in
the aggregate, reduce Sellers’ net revenue interests below that shown in Exhibit
A-1 or increase Sellers’ working interest above that shown in Exhibit A-1
without a corresponding increase in the net revenue:
 
(i)           The occurrence of payout under any farmout agreement, joint
operating agreement or similar arrangement, or the exercise of any other back-in
right or reversionary interest held by a third Person;
 
(ii)           Any lease amendment, or any consent by any non-participating
royalty interest or non-executive mineral interest, authorizing the lessee or
executive rights holder to pool a leasehold interest, royalty interest, or
mineral interest constituting part of any Property, or to pool another leasehold
interest, royalty interest, or mineral interest with any Property.
 
“Person” means any individual, firm, corporation, partnership, limited liability
company, joint venture, association, trust, unincorporated organization,
Government Body or any other entity.
 
“Properties” has the meaning set forth in Section 1.2(d).
 
“Property Costs” has the meaning set forth in Section 1.4(c).
 
“Purchase Price” has the meaning set forth in Section 2.1.
 
“Purchaser” has the meaning set forth in the first paragraph of this Agreement.
 
“Records” has the meaning set forth in Section 1.2(m).
 
“Release” has the meaning set forth within the definition of Environmental
Condition above.
 
“Representatives” has the meaning set forth in Section 6.8(a)
 
“Retained Obligations” has the meaning set forth in Section 6.7.
 
“Sale Order” has the meaning set forth in the recitals to this Agreement.
 
“Seller” or “Sellers” has the meaning set forth in the first paragraph of this
Agreement.
 
“Sellers’ Benefit Plans” mean any employee pension benefit plans as defined in
Section 3(2) of ERISA, employee welfare benefit plans as defined in Section 3(1)
of ERISA, whether or not excluded from coverage under specific titles or
subtitles of ERISA and any employee benefit programs, payroll practices,
policies, contracts, arrangement and practices that cover or are available to
employees.
 
 
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“Subsidiary” means with respect to any Person, any corporation, limited
liability company, joint venture or partnership of which such Person (a)
beneficially owns, either directly or indirectly, more than 50% of (i) the total
combined voting power of all classes of voting securities of such entity, (ii)
the total combined equity interests, or (iii) the capital or profit interest, in
the case of a partnership; or (b) otherwise has the power to vote or to direct
the voting of sufficient securities to elect a majority of the board of
directors or similar governing body.
 
“Superior Proposal” means a bona fide written Acquisition Proposal that Sellers
determine (after consultation with its legal and financial advisors) in good
faith (i) is reasonably likely to be consummated in a timely manner, taking into
account all factors deemed relevant by Sellers (including all legal, financial
and regulatory aspects of the proposal and the person making the proposal), (ii)
if consummated would, taking into account all factors deemed relevant by Sellers
and, is reasonably likely to result in a transaction more favorable to Sellers
and their stakeholders than the transactions contemplated by this Agreement and
(iii) is reasonably likely to provide a Deemed Value to Sellers and their
bankruptcy estates that exceeds the Deemed Value of this Agreement and the
transactions contemplated hereby.
 
“Surface Rights” has the meaning set forth in Section 1.2(d).
 
“Suspended Revenues” has the meaning set forth in Section 4.16.
 
“Taxes” means all federal, state, local, and foreign income, profits, franchise,
margins, sales, use, ad valorem, property, severance, production, excise, stamp,
documentary, real property transfer or gain, gross receipts, goods and services,
registration, capital, transfer, or withholding taxes or other assessments,
duties, fees or charges imposed by any Governmental Body, including any
interest, penalties or additional amounts which may be imposed with respect
thereto.
 
“Termination Notice” has the meaning set forth in Section 6.15.
 
“Third Party AFE” has the meaning set forth in Section 6.5(b).
 
“Transition Services Agreement” means the agreement pursuant to which Sellers
agree to provide services related to the operations, land and accounting
necessary to operate the Properties during a to-be-determined period of time
following the Closing.
 
“Transportation Contract” has the meaning set forth in Section 4.11.
 
“Units” has the meaning set forth in Section 1.2(b).
 
“Wells” has the meaning set forth in Section 1.2(a).
 
[signature page follows]
 
 
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IN WITNESS WHEREOF, this Agreement has been signed by each of the Parties hereto
on the date first above written.
 
SELLERS:
 
TXCO Resources Inc.
   
By:  
/s/ James E. Sigmon
 
Name: James E. Sigmon
 
Title:  Chairman and Chief Executive Officer
   
TXCO Energy Corp.
   
By:
/s/ James E. Sigmon
 
Name: James E. Sigmon
 
Title:  Chairman and Chief Executive Officer
   
Texas Tar Sands Inc.
   
By:
/s/ James E. Sigmon
 
Name: James E. Sigmon
 
Title:  Chairman and Chief Executive Officer
   
Output Acquisition Corp.
   
By:
/s/ James E. Sigmon
 
Name: James E. Sigmon
 
Title:  Chairman and Chief Executive Officer
   
OPEX Energy, LLC
   
By:
/s/ James E. Sigmon
 
Name: James E. Sigmon
 
Title:  Chairman and Chief Executive Officer

Signature Page – Sellers
Purchase and Sale Agreement

 

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Charro Energy, Inc.
   
By:   
/s/ James E. Sigmon
 
Name:  James E. Sigmon
 
Title:  Chairman and Chief Executive Officer
   
TXCO Drilling Corp.
   
By:
/s/ James E. Sigmon
 
Name:  James E. Sigmon
 
Title:  Chairman and Chief Executive Officer
   
Eagle Pass Well Service, L.L.C.
   
By:
/s/ James E. Sigmon
 
Name:  James E. Sigmon
 
Title:  Chairman and Chief Executive Officer
   
PPL Operating, Inc.
   
By:
/s/ James E. Sigmon
 
Name: James E. Sigmon
 
Title:  Chairman and Chief Executive Officer
   
Maverick Gas Marketing, Ltd.
   
By:
/s/ James E. Sigmon
 
Name:  James E. Sigmon
 
Title:  Chairman and Chief Executive Officer
   
Maverick-Dimmit Pipeline, Ltd.
   
By:
/s/ James E. Sigmon
 
Name: James E. Sigmon
 
Title: Chairman and Chief Executive Officer

Signature Page – Sellers
Purchase and Sale Agreement
 

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PURCHASER:
 
Anadarko E&P Company LP
   
By:  
/s/ R.A. Walker
 
Name: R.A. Walker
 
Title:  President and Chief Operating Officer

Signature Page – Purchaser
Purchase and Sale Agreement

 

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