Unassociated Document


    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

    


    NEWFIELD
EXPLORATION COMPANY

    


    AS
PURCHASER

    


    


    EXECUTED
ON NOVEMBER 6, 2009


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    TABLE
OF CONTENTS

     

    Page

     

    
      
        
          	
                  ARTICLE
      1 PURCHASE AND SALE

                	
                  2

                
	
                  Section
      1.1

                	
                  Purchase
      and Sale

                	
                  2

                
	
                  Section
      1.2

                	
                  Assets

                	
                  2

                
	
                  Section
      1.3

                	
                  Excluded
      Assets

                	
                  4

                
	
                  Section
      1.4

                	
                  Effective
      Time; Proration of Costs and Revenues

                	
                  5

                
	
                  Section
      1.5

                	
                  Delivery
      and Maintenance of Records

                	
                  6

                
	 
      	 
      
	
                  ARTICLE
      2 PURCHASE PRICE

                	
                  7

                
	
                  Section
      2.1

                	
                  Purchase
      Price

                	
                  7

                
	
                  Section
      2.2

                	
                  Deposit

                	
                  7

                
	
                  Section
      2.3

                	
                  Adjustments
      to Purchase Price

                	
                  7

                
	
                  Section
      2.4

                	
                  Allocation
      of Purchase Price

                	
                  9

                
	 
      	 
      
	
                  ARTICLE
      3 TITLE AND ENVIRONMENTAL MATTERS

                	
                  9

                
	
                  Section
      3.1

                	
                  Notice
      of Title Defects; Defect Adjustments

                	
                  9

                
	
                  Section
      3.2

                	
                  Consents
      to Assignment and Preferential Rights to Purchase

                	
                  11

                
	
                  Section
      3.3

                	
                  Casualty
      or Condemnation Loss

                	
                  12

                
	
                  Section
      3.4

                	
                  Environmental.

                	
                  13

                
	 
      	 
      
	
                  ARTICLE
      4 REPRESENTATIONS AND WARRANTIES OF SELLER

                	
                  15

                
	
                  Section
      4.1

                	
                  Disclaimers

                	
                  15

                
	
                  Section
      4.2

                	
                  Existence
      and Qualification

                	
                  16

                
	
                  Section
      4.3

                	
                  Power

                	
                  16

                
	
                  Section
      4.4

                	
                  Authorization
      and Enforceability

                	
                  16

                
	
                  Section
      4.5

                	
                  No
      Conflicts

                	
                  17

                
	
                  Section
      4.6

                	
                  Liability
      for Brokers' Fees

                	
                  17

                
	
                  Section
      4.7

                	
                  Litigation
      and Claims

                	
                  17

                
	
                  Section
      4.8

                	
                  Taxes
      and Assessments

                	
                  17

                
	
                  Section
      4.9

                	
                  Preferential
      Rights

                	
                  18

                
	
                  Section
      4.10

                	
                  Consents

                	
                  18

                
	
                  Section
      4.11

                	
                  Contracts

                	
                  18

                
	
                  Section
      4.12

                	
                  Wells;
      Facilities

                	
                  19

                
	
                  Section
      4.13

                	
                  Marketing;
      Calls on Production

                	
                  19

                
	
                  Section
      4.14

                	
                  Imbalances

                	
                  20

                
	
                  Section
      4.15

                	
                  AFEs

                	
                  20

                
	
                  Section
      4.16

                	
                  Suspense
      Account.

                	
                  20

                
	
                  Section
      4.17

                	
                  Capital
      Expenditures

                	
                  20

                
	
                  Section
      4.18

                	
                  Equipment

                	
                  20

                
	 
      	 
      
	
                  ARTICLE
      5 REPRESENTATIONS AND WARRANTIES OF PURCHASER

                	
                  20

                
	
                  Section
      5.1

                	
                  Existence
      and Qualification

                	
                  20

                


        

      

    

     

    
      
         


      

      
        -i-

        
          

        

      

      
         


      

    

    


    
      
        
          	
                  Section
      5.2

                	
                  Power

                	
                  21

                
	
                  Section
      5.3

                	
                  Authorization
      and Enforceability

                	
                  21

                
	
                  Section
      5.4

                	
                  No
      Conflicts

                	
                  21

                
	
                  Section
      5.5

                	
                  Liability
      for Brokers' Fees

                	
                  21

                
	
                  Section
      5.6

                	
                  Litigation

                	
                  21

                
	
                  Section
      5.7

                	
                  Financing

                	
                  22

                
	
                  Section
      5.8

                	
                  Independent
      Investigation

                	
                  22

                
	
                  Section
      5.9

                	
                  Consents,
      Approvals or Waivers

                	
                  22

                
	 
      	 
      
	
                  ARTICLE
      6 COVENANTS OF THE PARTIES

                	
                  22

                
	
                  Section
      6.1

                	
                  Access

                	
                  22

                
	
                  Section
      6.2

                	
                  Government
      Reviews

                	
                  22

                
	
                  Section
      6.3

                	
                  Notification
      of Breaches

                	
                  23

                
	
                  Section
      6.4

                	
                  Public
      Announcements

                	
                  23

                
	
                  Section
      6.5

                	
                  Operation
      of Business

                	
                  24

                
	
                  Section
      6.6

                	
                  Indemnity
      Regarding Access

                	
                  25

                
	
                  Section
      6.7

                	
                  Assumption
      of Obligations

                	
                  25

                
	
                  Section
      6.8

                	
                  Solicitation
      Provisions; Back-Up Bid Option.

                	
                  26

                
	
                  Section
      6.9

                	
                  Tax
      Matters

                	
                  29

                
	
                  Section
      6.10

                	
                  [Intentionally
      Omitted]

                	
                  29

                
	
                  Section
      6.11

                	
                  Further
      Assurances

                	
                  29

                
	
                  Section
      6.12

                	
                  Recording

                	
                  29

                
	
                  Section
      6.13

                	
                  Transition
      Services Agreement

                	
                  29

                
	
                  Section
      6.14

                	
                  Schedule
      Updates

                	
                  30

                
	
                  Section
      6.15

                	
                  Peregrine
      Claims

                	
                  30

                
	
                  Section
      6.16

                	
                  Plan
      of Reorganization

                	
                  30

                
	 
      	 
      
	
                  ARTICLE
      7 CONDITIONS TO CLOSING

                	
                  31

                
	
                  Section
      7.1

                	
                  Conditions
      of Sellers to Closing

                	
                  31

                
	
                  Section
      7.2

                	
                  Conditions
      of Purchaser to Closing

                	
                  32

                
	
                   
      

                	 
      	 
      
	
                  ARTICLE
      8 CLOSING

                	 
      	
                  33

                
	
                  Section
      8.1

                	
                  Time
      and Place of Closing

                	
                  33

                
	
                  Section
      8.2

                	
                  Obligations
      of Sellers at Closing

                	
                  33

                
	
                  Section
      8.3

                	
                  Obligations
      of Purchaser at Closing

                	
                  34

                
	
                  Section
      8.4

                	
                  Closing
      Payment and Post-Closing Purchase Price Adjustments

                	
                  34

                
	 
      	 
      
	
                  ARTICLE
      9 TERMINATION AND AMENDMENT

                	
                  36

                
	
                  Section
      9.1

                	
                  Termination

                	
                  36

                
	
                  Section
      9.2

                	
                  Effect
      of Termination

                	
                  37

                
	
                   
      

                	 
      
	
                  ARTICLE
      10 INDEMNIFICATION; LIMITATIONS

                	
                  38

                
	
                  Section
      10.1

                	
                  Indemnification

                	
                  38

                
	
                  Section
      10.2

                	
                  Indemnification
      Actions

                	
                  40

                
	
                  Section
      10.3

                	
                  Limitation
      on Actions.

                	
                  42

                


        

      

    

     

    
      
         


      

      
        -ii-

        
          

        

      

      
         


      

    

    


    
      
        
          	
                  ARTICLE
      11 MISCELLANEOUS

                	
                  43

                
	
                  Section
      11.1

                	
                  Receipts

                	
                  43

                
	
                  Section
      11.2

                	
                  Expenses

                	
                  43

                
	
                  Section
      11.3

                	
                  Counterparts

                	
                  44

                
	
                  Section
      11.4

                	
                  Notice

                	
                  44

                
	
                  Section
      11.5

                	
                  Sales
      or Use Tax, Recording Fees and Similar Taxes and Fees

                	
                  45

                
	
                  Section
      11.6

                	
                  Expenses

                	
                  45

                
	
                  Section
      11.7

                	
                  Change
      of Name

                	
                  45

                
	
                  Section
      11.8

                	
                  Replacement
      of Bonds, Letters of Credit and Guarantees

                	
                  45

                
	
                  Section
      11.9

                	
                  Governing
      Law; Submission to Jurisdiction

                	
                  46

                
	
                  Section
      11.10

                	
                  Captions

                	
                  46

                
	
                  Section
      11.11

                	
                  Waivers

                	
                  46

                
	
                  Section
      11.12

                	
                  Assignment

                	
                  46

                
	
                  Section
      11.13

                	
                  Entire
      Agreement

                	
                  46

                
	
                  Section
      11.14

                	
                  Amendment

                	
                  47

                
	
                  Section
      11.15

                	
                  No
      Third Party Beneficiaries

                	
                  47

                
	
                  Section
      11.16

                	
                  References

                	
                  47

                
	
                  Section
      11.17

                	
                  Construction

                	
                  47

                
	
                  Section
      11.18

                	
                  Limitation
      on Damages

                	
                  47

                
	 
      	 
      
	
                  ARTICLE
      12 DEFINITIONS

                	
                  48

                


        

      

    

     

    
      
         


      

      
        -iii-

        
          

        

      

      
         


      

    

    


    
      
        	
                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
      2.4

              	
                -     Allocated
      Values

              
	
                Schedule
      3.4

              	
                -     Sellers
      Identified Environmental Conditions

              
	
                Schedule
      4.7

              	
                -     Litigation

              
	
                Schedule
      4.8

              	
                -     Taxes

              
	
                Schedule
      4.9

              	
                -     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

              


      

    

     

    
      
         


      

      
        -iv-

        
          

        

      

      
         


      

    


    PURCHASE
AND SALE AGREEMENT

     

    This
Purchase and Sale Agreement (the “Agreement”),
is executed on November 6, 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 NEWFIELD EXPLORATION
COMPANY, a Delaware corporation (“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 intend to file with the Bankruptcy Court (i) a plan of reorganization
for the Sellers on or before November 25, 2009, and (ii) a motion seeking
approval of the Newfield Bid Protection Order to be filed with the Bankruptcy
Court; 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).

     

    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

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (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;

     

    (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

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (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(n) shall hereinafter be referred to as the “Records”).

     

    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

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (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.

     

    (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).

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    (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.

     

    (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.

     

    (a)         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.

     

    
      
        
        

      

      
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    ARTICLE
2

    PURCHASE
PRICE

     

    Section
2.1            Purchase
Price.

     

    The
purchase price for the Assets (the “Purchase
Price”) shall be $223,000,000.00.  The Purchase Price shall be
adjusted as provided in Section 2.3.

     

    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 Title Defects by the amount determined under Section 3.1;

     

    
      
        
        

      

      
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    (c)         Reduced
as a result of the exercise of any Preferential Rights by the amount determined
under Section 3.2;

     

    (d)         Reduced
as a result of casualty or condemnation loss by the amount determined under
Section 3.3;

     

    (e)         Reduced
as a result of any Total Environmental Adjustment Amount determined under Section
3.4(d);

     

    (f)         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;

     

    (g)         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);
and

     

    (h)         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(h)
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 (i) shall
be applied to the portion of the Purchase Price payable to the Sellers which
owns the affected Asset.

     

    
      
        
        

      

      
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    Section
2.4            Allocation of Purchase
Price.

     

    Schedule 2.4
sets forth the agreed allocation of the unadjusted Purchase Price among
each of the Assets.  The “Allocated
Value” for any Asset equals the portion of the unadjusted Purchase Price
allocated to such Asset on Schedule 2.4,
increased or decreased as described in this Section
2.4.  Any adjustments to the Purchase Price pursuant to Sections 2.3(a)
through (f) shall
be applied to the amounts set forth in Schedule 2.4
for the particular affected Assets.  Sellers and Purchaser have
accepted such Allocated Values for purposes of this Agreement only and the
transactions contemplated hereby, but 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.

     

    ARTICLE
3

    TITLE
AND ENVIRONMENTAL MATTERS

     

    Section
3.1            Notice of Title Defects;
Defect Adjustments.

     

    (a)         To
assert a Title Defect, Purchaser must deliver a claim notice to Sellers promptly
after becoming aware of a Title Defect but in any event on or before December
11, 2009 (the “Title Claim
Date”).  Such notice shall be in writing and shall include
(i) a specific description of the alleged Title Defect(s), (ii) the
Leases and/or Wells affected, (iii) the Allocated Values of the Leases
and/or Wells subject to the alleged Title Defect(s), and (iv) the amount by
which Purchaser believes the Allocated Values of those Leases and/or Wells are
reduced by the alleged Title Defect(s); provided, however, that Purchaser will
use reasonable efforts to determine by December 4, 2009, whether such potential
reductions to such Allocated Values may result in an aggregate Allocated Value
of the Properties that are subject to the liens in favor of the Bank of
Montreal, as agent or former agent, that is less than
$156,000,000.00.

     

    (b)         Within
five days after the Title Claim Date, Sellers shall notify Purchaser whether
Sellers agree with Purchaser’s claimed Title Defects and/or the proposed Title
Defect Values therefor and, if Sellers agree that a Title Defect exists,
how  the Sellers propose to cure such Title Defect (“Sellers’ Title
Response”).  If Sellers do not agree with any claimed Title
Defect and/or the proposed Title Defect Value therefor, then the Parties shall
enter into good faith negotiations and shall attempt to agree on such
matters.  Sellers shall have the right, but not the obligation, to
attempt, at their sole cost, to cure or remove on or before the Closing Date any
Title Defects of which they have been advised by Purchaser.

     

    (c)         With
respect to each Lease affected by Title Defects reported under Section 3.1(a)
and not cured during the period permitted under Section 3.1(b),
Sellers’ interest in the Lease shall be assigned at Closing subject to such
uncured Title Defect and the Purchase Price shall be reduced by an amount equal
to the reduction in the Allocated Value for such Lease caused by such Title
Defects, as determined pursuant to Section 3.1(e).

     

    
      
        
        

      

      
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    (d)      The
Title Defect Amount resulting from a Title Defect shall be determined as
follows:

     

    (i)           if
Purchaser and Sellers agree on the Title Defect Amount, that amount shall be the
Title Defect Amount;

     

    (ii)          if
the Title Defect represents a discrepancy between (A) the net revenue
interest for any Lease and (B) the net revenue interest stated on Exhibit A,
then the Purchaser and Sellers shall negotiate in good faith to reach an
agreement regarding the value of any Title Defect not heretofore
addressed;

     

    (iii)         if
the Title Defect represents an Encumbrance of a type not described in
subsections (i) or (ii) above, the Title Defect Amount shall be determined by
taking into account the Allocated Value of the Lease so affected, the portion of
Sellers’ interest in the Lease affected by the Title Defect, the legal effect of
the Title Defect, the potential economic effect of the Title Defect over the
life of the affected Lease, the values placed upon the Title Defect by Purchaser
and Sellers and such other factors as are necessary to make a proper evaluation;
and

     

    (iv)        notwithstanding
anything to the contrary in this Article 3,
(A) an individual claim for a Title Defect for which a claim notice is
given prior to the Title Claim Date shall only be subject for adjustment under
this Article 3
(except for adjustments required by Section 3.2
or Section 3.3)
and count against the Title Defect Deductible (as defined below) if the Title
Defect Amount with respect thereto exceeds One Hundred Thousand Dollars
($100,000.00), (B) the Title Defect Amounts (hereafter, the “Title Defect
Amounts,” being the aggregate amount attributable to the effects of all
Title Defects upon any given Lease or Well) shall not exceed the Allocated Value
of such Lease or Well, and (C) there shall be no adjustment to the Purchase
Price pursuant to Section 2.3 unless the aggregate amount of all Title Defect
Amounts on all of the Leases and/or Wells exceeds one and one-half percent
(1.5%) of the unadjusted Purchase Price (the “Title Defect
Deductible”), and then such adjustment shall be in an amount equal to the
amount by which such aggregate Title Defect Amounts exceeds the Title Defect
Deductible.  Sellers and Purchaser shall attempt to agree on all Title
Defect Amounts by ten (10) Business Days prior to the Closing Date.

     

    (e)         If
Sellers and Purchaser are unable to agree by that date concerning (y) Sellers’
proposed cure of a Title Defect, or (z) a Title Defect Amount within three days
after Purchaser’s receipt of Sellers’ Title Response, then upon either Party’s
request, the Parties may, upon the request of either, employ Calhoun Bobbit, of
San Antonio, Texas (the “Title
Consultant”) to resolve all points of disagreement relating to Title
Defects, proposed cures and Title Defect Amounts applying standards customarily
applied by reasonable and prudent operators of oil and gas properties in the
areas where the Assets are located.


    
      
         


      

      
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    (i)           The
cost of employing the Title Consultant shall be paid one-half by Sellers and
one-half by Purchaser.

     

    (ii)         If
at any time the Title Consultant so chosen fails or refuses to perform
hereunder, a new Title Consultant shall be chosen by the Parties.

     

    (iii)        Within
two days of his retention, each Party shall present to the Title Consultant a
written statement of its position on the Title Defect, proposed cure and/or
Title Defect Value in question.  The Title Consultant shall within
five Business Days thereafter make a determination of all points of disagreement
in accordance with the terms and conditions of this Agreement.  The
determination by the Title Consultant shall be conclusive and binding on the
Parties with respect solely to disputes between the Parties, and shall be
enforceable against either Party in any court of competent
jurisdiction.

     

    (f)         Sellers
may at their option and sole cost continue after Closing but prior to the date
of the final adjustment to the Purchase Price under Section
8.4(b) to attempt to cure or remove any Title Defects.  If any
Title Defect for which a Purchase Price adjustment is made is cured or removed
by Sellers prior to the date of the final adjustment to the Purchase Price under
Section
8.4(b), Sellers shall be reimbursed in that final adjustment for the
amount of any previous deduction from the Purchase Price with respect to such
Title Defect.

     

    Section
3.2           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.  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.


    
      
         


      

      
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    (b)         If
any preferential right to purchase any Assets is exercised prior to Closing, the
Purchase Price shall be decreased by the Allocated Value for such Assets, and
the affected Assets shall be deemed to be deleted from Exhibit A
(and Exhibits A-1,
A-2,
and A-3, as
applicable) to this Agreement for all purposes.  Sellers shall retain
the consideration paid by the third Person.

     

    (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 3.5,
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 (i) should the holder of
a preferential purchase right later validly exercise same, Purchaser agrees to
transfer the affected Asset or 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.

     

    (d)         Notwithstanding
the foregoing, the Parties agree that the claim (the “CMR Pref Right
Claim”) of preferential right by CMR Energy, L.P. et al (“CMR”) with
respect to the Comanche Ranch Lease, Maverick County, Texas (the “Subject Pref
Right Asset”), as contemplated by that certain complaint filed by Sellers
against CMR in the Bankruptcy Court on November 2, 2009 shall be resolved by the
Bankruptcy Court. After the Effective Time, Purchaser shall promptly pay as
incurred all costs incurred by Sellers in adjudicating or settling the CMR Pref
Right Claim (including costs and expenses of legal counsel).  Legal
counsel for Sellers with respect to the CMR Pref Right Claim shall be as agreed
between Seller and Purchaser.  If the CMR Pref Right Claim is not
finally adjudicated prior to the Closing, then the Subject Pref Right Asset
shall be included in the Assets at the Closing, and there shall be no adjustment
to the Purchase Price at the Closing with respect to the claimed preferential
right of CMR.  If the Bankruptcy Court subsequently determines that
CMR is entitled to exercise a preferential right to purchase the Subject Pref
Right Assets, Purchaser shall convey the Subject Pref Right Asset to CMR, and
Purchaser shall be entitled to the consideration paid by CMR in respect
thereof.

     

    Section
3.3            Casualty or 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
treat such casualty or taking as a Title Defect with respect to the affected
Property or Properties under Section 3.1.  In
either case, Sellers shall retain all rights to insurance and other claims
against third parties with respect to the casualty or taking except to the
extent the Parties otherwise agree in writing.  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 treat the loss as a total title
failure as to that Lease.

     

    
      
         


      

      
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    Section
3.4             Environmental.

     

    (a)         Between
the date of execution of this Agreement and the Closing Date, Purchaser may
conduct an environmental site assessment of any or all of the Assets in scope
and detail reasonably sufficient to assess the extent to which an environmental
defect exists with respect to any of the Assets (an “Environmental
Defect”) and the estimated cost and expense as determined to remediate
such Environmental Defect (“Environmental
Remediation Amount”). Notwithstanding Purchaser’s right to inspect all of
the Assets as to Environmental Defects, there shall be no adjustment to the
Purchase Price for Environmental Defects that have been identified by Sellers on
Schedule
3.4 (as used in Schedule
3.4, the “Sellers
Identified Environmental Conditions”).

     

    (b)         To
assert a claim for an Environmental Defect, Purchaser must deliver a claim
notice to Sellers promptly after becoming aware of an Environmental Defect but
in any event on or before December 11, 2009 (the “Environmental
Claim Date”).  Such notice shall be in writing and shall
include (i) a specific description of the alleged Environmental Defect(s),
(ii) the Leases and/or Gathering Systems affected, (iii) the Allocated
Values of the Leases or Gathering Systems and associated sites subject to the
alleged Environmental Defect(s), and (iv) the Environmental Remediation
Amount.

     

    (c)         Within
five days after the Environmental Claim Date, Sellers shall notify Purchaser
whether Sellers agree with Purchaser’s claimed Environmental Defects and/or the
proposed Environmental Remediation Amounts therefor and, if Sellers agree that
an Environmental Defect exists, how they propose to cure such Environmental
Defect (“Sellers’
Environmental Response”).  Sellers shall have the right, but
not the obligation, to attempt, at their sole cost, to cure or remediate on or
before the Closing Date any Environmental Defect of which they have been advised
by Purchaser.

     

    (d)         With
respect to each Lease and Gathering System and associated sites affected by
Environmental Defects reported under Section 3.4(a)
and not cured during the period permitted under Section 3.4(c),
at Purchaser’s election either:

     

    (i)           Sellers’
interest in the Lease or Gathering System shall be an Excluded Asset and the
Purchase Price may be subject to reduction as set forth below,
or


    
      
         


      

      
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    (ii)           Sellers’
interest in the Lease or Gathering System shall be assigned at Closing subject
to all such uncured Environmental Defects and the Purchase Price may be subject
to reduction as set forth below.

     

    As used
herein, the term “Environmental
Defect Amount” means with respect to any Lease or Gathering System as to
which Purchaser has asserted an Environmental Defect: (x) in the case of any
Lease or Gathering System that becomes an Excluded Asset pursuant to clause (i)
above, the Allocated Value attributable to such Asset, and (y) in the case of
any Lease or Gathering System as to which Sellers’ interest is assigned at
Closing pursuant to clause (ii) above, an amount equal to the lesser of: (i) the
aggregate Environmental Remediation Amount for all Environmental Defects
affecting such Lease or Gathering System, or (ii) the Allocated Value
attributable to such Lease or Gathering System.

     

    The
Purchase Price shall be reduced by the amount (the “Total
Environmental Adjustment Amount”), if any, by which the aggregate amount
of all Environmental Defect Amounts for all Leases and Gathering Systems exceeds
one and one-half percent (1.5%) of the unadjusted Purchase Price.

     

    (e)         Section 3.4(d)
shall, to the fullest extent permitted by applicable law, be the exclusive right
and remedy of Purchaser with respect to the Environmental Condition of the
Assets.

     

    (f)         Sellers
and Purchaser shall attempt to agree on all Environmental Remediation Amounts by
ten (10) Business Days prior to the Closing Date. If Sellers and Purchaser are
unable to agree by that date concerning (i) Sellers’ proposed cure of a
Environmental Defect, or (ii) a Environmental Remediation Amount within three
days after Purchaser’s receipt of Sellers’ Environmental Response, then upon
either Party’s request, the Parties may, upon the request of either, employ
C&K Associates, of Austin, Texas (the “Environmental
Consultant”) to resolve all points of disagreement relating to
Environmental Defects, proposed cures and Environmental Remediation Amounts
applying standards customarily applied by reasonable and prudent operators of
oil and gas properties in the areas where the Assets are located.

     

    (i)           The
cost of employing the Environmental Consultant shall be paid one-half by Sellers
and one-half by Purchaser.

     

    (ii)          If
at any time the Environmental Consultant fails or refuses to perform hereunder,
a new Environmental Consultant shall be chosen by the Parties.

     

    (iii)         Within
two days of his retention, each Party shall present to the Environmental
Consultant a written statement of its position on the Environmental Defect,
proposed cure and/or Environmental Remediation Amount in
question.  The Environmental Consultant shall within five (5) Business
Days thereafter make a determination of all points of disagreement in accordance
with the terms and conditions of this Agreement.  The determination by
the Environmental Consultant shall be conclusive and binding on the Parties with
respect solely to disputes between the Parties, and shall be enforceable against
either Party in any court of competent jurisdiction.

     

    
      
         


      

      
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    (g)         Sellers
may at their option and sole cost continue after Closing but prior to the date
of the final adjustment to the Purchase Price under Section
8.4(b) to attempt to cure or remove any Environmental
Defects.  If any Environmental Defect for which a Purchase Price
adjustment is made is cured or removed by Sellers prior to the date of the final
adjustment to the Purchase Price under Section
8.4(b), Sellers shall be reimbursed in that final adjustment for the
amount of any previous deduction from the Purchase Price with respect to such
Environmental Defect.

     

    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).


    
      
         


      

      
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    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
material 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.

     

    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.

     

    
      
         


      

      
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    Section
4.9            Preferential
Rights.

     

    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.

     

    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 agreement
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; (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.

     

    
      
         


      

      
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    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 corporation 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.

     

    
      
         


      

      
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    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.

     

    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.

     


    
      
         


      

      
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    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.

     

    (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.

     

    
      
         


      

      
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    Section
6.5             Operation of
Business.

     

    (a)         Until
the Closing, each Seller (a) 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, (b) 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, (c) 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, (d) 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), (e) 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, (f) will maintain insurance
coverage on the Assets presently furnished by nonaffiliated third parties in the
amounts and of the types presently in force, (g) 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, (h) will
maintain all material governmental permits and approvals affecting the Assets,
(i) 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 (j) 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 Title Defect Amounts or 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.

     

    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.

     

    
      
         


      

      
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    Section
6.8           Solicitation Provisions;
Back-Up Bid Option.

     

    (a)       Prior
to entry of the Newfield Bid Protection Order by the Bankruptcy
Court:

     

    (i)           Purchaser
and Sellers acknowledge that Sellers may take any action deemed necessary by any
Seller to demonstrate that (A) they have sought to obtain the highest and best
value for the Assets and that (B) consummation of the transactions contemplated
by this Agreement will in fact yield the highest and best value for the Assets,
including giving notice thereof to Sellers’ creditors, other bidders for the
Assets and other interested parties, providing information about the business to
prospective bidders, entertaining and negotiating offers from such prospective
bidders, and, if necessary, conducting and auction.

     

    (ii)          Without
limiting the generality of Section
6.8(a)(i), each Seller and any director, officers, employee, investment
banker, financial advisor, attorney, accountant or other advisor, agent or
representative (collectively “Representatives”)
of any Seller shall have the right (but not the obligation), acting under the
direction of the Board of Directors of each Seller or any committee thereof, to,
directly or indirectly: (A) solicit, initiate, facilitate or encourage any
Acquisition Proposal or proposal for Alternative Plan, including by way of providing
access to third parties to non-public information pursuant to one or more
confidentiality agreements; and (B) enter into and maintain discussions or
negotiations with respect to one of more Acquisition Proposals or any Alternative Plan proposal or
otherwise cooperate with or assist or participate in, or facilitate, any such
discussions or negotiations.

     

    (iii)         Purchaser
agrees that it shall not nor shall it permit any of its Affiliates or
Subsidiaries to, and that each of them shall use reasonable efforts to cause
each of their respective Representatives not to, directly or indirectly,
discourage or interfere with any Acquisition Proposal or Alternative Plan, or
contact or participate in discussions with any Person regarding an Acquisition
Proposal or proposal for an Alternative Plan that, to Purchaser’s Knowledge, has
made, or is considering or participating in discussions or negotiations with any
Seller or any Representative of any Seller regarding an Acquisition Proposal or
proposal for an Alternative Plan.

     

    (iv)         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 an Acquisition Proposal or
an Alternative Plan or the definitive agreement for any such Acquisition
Proposal or Alternative Plan.  Any Seller may in its sole discretion
enter into a definitive agreement with respect to such Acquisition Proposal or
Alternative Plan and Sellers may terminate this Agreement prior to or after
entry into such a definitive agreement.

     

    
      
        
        

      

      
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    (v)          Any
action taken by any Seller or any Representative of any Seller in accordance
with the provisions of this Section
6.8(a) are expressly acknowledged and agreed to be not in breach or
violation of any covenant contained in this Agreement or that could be implied
in this Agreement (including a covenant of good faith and/or fair
dealing).

     

    (b)       Following
the entry of the Newfield Bid Protection Order by the Bankruptcy Court, Sellers
agree that neither they nor any of their wholly-owned Subsidiaries shall, and
that they shall direct their 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:

     

    (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.

     

    (c)       Notwithstanding
anything herein to the contrary, Sellers and their Subsidiaries and their
respective officers, directors, employees, attorneys, investment bankers,
accountants and other agents and Representatives shall be permitted to (i)
maintain and continue to provide access to the Seller Data Room and access to
other non-public information for due diligence purposes to Persons that have
executed a confidentiality agreement with Sellers prior to the entry of the
Newfield Bid Protection Order and (ii) 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 (x) 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 Article 3,
and (y) 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)
contemplated by the foregoing clause (ii), 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, except as provided
in Section
9.2(b) upon termination of this Agreement.

     

    
      
        
        

      

      
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    (d)       After
the entry of the Newfield Bid Protection Order by the Bankruptcy Court, 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.

     

    (e)       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.

     

    (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

     

    
      
        
        

      

      
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    (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.

     

    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.

     

    
      
        
        

      

      
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    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.

     

    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         Plan of
Reorganization.

     

    Sellers
shall use reasonable efforts to file a plan of reorganization on or before
November 25, 2009, seeking approval of this Agreement.

     

    
      
        
        

      

      
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    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;

     

    (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)        Environmental and Title
Defects.  The aggregate sum of all Title Defect Amounts for
Title Defects properly reported under Section 3.1,
plus the
Allocated Value for any Asset for which any applicable preferential purchase
right has not been waived or consent has not been obtained, plus all
Environmental Defect Amounts for Environmental Defects properly reported under
Section 3.4
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.

     

    
      
        
        

      

      
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    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;

     

    (f)        Environmental and Title
Defects.  The aggregate sum of all Title Defect Amounts for
Title Defects properly reported under Section 3.1,
plus the
Allocated Value for any Asset for which any applicable preferential purchase
right has not been waived or consent has not been obtained, plus all
Environmental Defect Amounts for Environmental Defects properly reported under
Section 3.4
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.

     

    
      
        
        

      

      
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    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;

     

    (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;

     

    
      
        
        

      

      
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    (f)        an
executed statement described in Treasury Regulation § 1.1445-2(b)(2)
certifying that no Seller is not 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.

     

    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”).

     

    
      
        
        

      

      
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    (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.

     

    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.

     

    
      
        
        

      

      
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    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 3.3;

     

    (c)       Purchaser
after November 18, 2009, if the Bankruptcy Court has not approved the Newfield
Bid Protection Order as of the date Purchaser gives notice of such
termination;

     

    (d)       either
Sellers or Purchaser if the aggregate sum of all Title Defect Amounts for Title
Defects properly reported under Section 3.1,
plus the
Allocated Value for any Asset for which any applicable preferential purchase
right has not been waived or consent has not been obtained, plus all
Environmental Defect Amounts for Environmental Defects properly reported under
Section 3.4
exceeds ten percent (10%) of the unadjusted Purchase Price;

     

    (e)       Purchaser
on or after January 14, 2010, if Sellers have not, as of the time Purchaser
gives notice of such termination, notified Purchaser that Sellers do not intend
to pursue a Superior Proposal or Alternative Plan;

     

    (f)        Purchaser
if the Bankruptcy Court does not enter the Sale Order in form reasonably
acceptable to the parties on or before January 31, 2010;

     

    (g)       Purchaser
or Sellers if the Bankruptcy Court approves (ii) a Superior Proposal between
Sellers and a Person other than Purchaser or any of its Affiliates or (ii) an
Alternative Plan approved by the Board of Directors of Sellers and supported by
Sellers;

     

    (h)       Purchaser,
if the Sale Order is not a Final Order by February 15, 2010; or

     

    (i)        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.

     

    (a)       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, 9.2(b),
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(h)
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(h)
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.

     

    (b)       In
the event of termination of this Agreement by either or both of the parties
pursuant to Section
9.1, this Agreement shall terminate and the transactions contemplated
hereby shall be abandoned, without further action by any of the parties
hereto.  If, following the entry of the Newfield Bid Protection Order
by the Bankruptcy Court, this Agreement is deemed terminated pursuant to (i)
Section
9.1 due to the Bankruptcy Court’s approval of a Superior Proposal and
such Superior Proposal is consummated between Sellers and a Person other than
Purchaser or any of its Affiliates or (ii) Section
9.1 due to the Bankruptcy Court’s approval of an Alternative Plan
approved by the Board of Directors of Sellers and supported by Sellers and such
Alternative Plan is consummated, then Sellers shall pay to Purchaser as soon as
practicable (but no later than three (3) Business Days) following the
consummation of such Superior Proposal or Alternative Plan, as applicable, a fee
in the amount of 3% of the unadjusted Purchase Price and reimbursement for
actual and documented expenses of Purchaser not to exceed
$500,000.00.  For the avoidance of doubt, such amounts will not be
payable to Purchaser if Purchaser terminates this Agreement pursuant to Sections 9.1(b),
9.1(c), 9.1(d), 9.1(e), 9.1(f), 9.1(h) or 9.1(i), but in any event such
amounts shall be payable only upon consummation of a Superior Proposal or
Alternative Plan (notwithstanding any termination pursuant to Section
9.1(g)).  Such payment shall be made by wire transfer of
immediately available funds to an account designated by
Purchaser.  Purchaser’s claim in connection with the amounts due
hereunder shall constitute a first priority administrative expense claim under
section 507(a)(1) of the Bankruptcy Code.

     

    
      
        
        

      

      
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    ARTICLE
10

    INDEMNIFICATION;
LIMITATIONS

     

    Section
10.1         Indemnification.

     

    (a)       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 any Environmental Defects asserted by Purchaser
under Section
3.4, 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,

     

    (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;

     

    
      
        
        

      

      
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    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 83(d), as
applicable.  Except for the remedies contained in this Section 10.1
and Article
3, 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.

     

    (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.

     

    
      
        
        

      

      
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    (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.

     

    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.

     

    
      
        
        

      

      
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       (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).

       

      
        
          
          

        

        
          41

          
            

          

        

        
          
          

        

      

       

      (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.

       

      (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).

       

      
        
          
          

        

        
          42

          
            

          

        

        
          
          

        

      

       

      (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.

       

      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.

       

      
        
          
          

        

        
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      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:

      

      


      
         
Newfield
Exploration Company

      

      
         
363 N.
Sam Houston Pkwy. E., Suite 2020

      

      
         
Houston,
Texas 77060

      

      
         
Attn: W.
Mark Blumenshine,

      

      
         
Vice
President – Land

      

      
         
Facsimile:  (281)
405-4242

      

      


      
        
          
          

        

        
          44

          
            

          

        

        
          
          

        

      

      
         

         
With a
copy to:

      

      


      
         
Newfield
Exploration Company

      

      
         
363 N.
Sam Houston Pkwy. E., Suite 2020

      

      
         
Houston,
Texas 77060

      

      
         
Attn:  Darrell
R. Jones

      

      
         
Legal
Counsel

      

      
         
Facsimile:
(281) 405-4228

      

      


      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.

       

      
        
          
          

        

        
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      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;

       

      (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.

       

      
        
          
          

        

        
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      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 Purchased Assets 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.

       

      “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(f).

       

      “Back-Up Bid
Option” shall have the meaning set forth in Section
6.8(f).

       

      
        
          
          

        

        
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      “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).

       

      “CMR” has
the meaning set forth in Section
3.2(d).

       

      “CMR Pref Right
Claim” has the meaning set forth in Section
3.2(d).

       

      “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.

       

      
        
          
          

        

        
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      “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;

              


      

       

      
        	
                 
      

              	
                (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).

       

      
        
          
          

        

        
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      “Environmental
Claim Date” has the meaning set forth in Section
3.4(b).

       

      “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.

       

      “Environmental
Consultant” has the meaning set forth in Section
3.4(f).

       

      “Environmental
Defect” has the meaning set forth in Section
3.4(a).

       

      “Environmental
Defect Amount” has the meaning set forth in Section
3.4(d).

       

      “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.

       

      
        
          
          

        

        
          51

          
            

          

        

        
          
          

        

      

       

      “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.

       

      “Environmental
Remediation Amount” has the meaning set forth in Section
3.4(a).

       

      “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.

       

      “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).

       

      
        
          
          

        

        
          52

          
            

          

        

        
          
          

        

      

       

      “Indemnifying
Person” has the meaning set forth in Section 10.2(a).

       

      “Indemnity
Deductible” has the meaning set forth in Section
10.3(c).

       

      “Junior Creditor
Classes” means all non-subordinated unsecured creditors, and those
creditors, that Sellers assert have mineral liens on the Properties that are
subject to the liens in favor of the Bank of Montreal, as agent or former
agent.

       

      “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.

       

      “Maximum
Environmental
Defect Adjustment Amount” has the meaning set forth in Section
3.4(d).

       

      “Newfield Bid
Protection Order” means an agreed order of the Bankruptcy Court in form
and substance mutually agreeable to the Parties.

       

      “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.

       

      
        
          
          

        

        
          53

          
            

          

        

        
          
          

        

      

       

      “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)     Subject
to compliance with Section 3.5,
preferential rights to purchase the Assets;

       

      (c)     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;

       

      (d)     Liens
for current Taxes or assessments not yet delinquent;

       

      (e)     
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);

       

      (f)      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;

       

      (g)     Rights
of reassignment arising upon final intention to abandon or release the Assets,
or any of them;

       

      (h)     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);

       

      (i)       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;

       

      (j)      Any
Encumbrance on or affecting the Assets which is discharged at or prior to
Closing;

       

      
        
          
          

        

        
          54

          
            

          

        

        
          
          

        

      

       

      (k)         The
litigation matters described in Schedule 4.7;
or

       

      (l)         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.

       

      “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.

       

      “Seller Data
Room” means the online virtual data room set up by Sellers.

       

      “Sellers’
Environmental Response” has the meaning set forth in Section
3.4(c).

       

      
        
          
          

        

        
          55

          
            

          

        

        
          
          

        

      

    

     

     “Seller Identified
Environmental Conditions” has the meaning set forth in Section
3.4(a).

     

    “Sellers’ Title
Response” has the meaning set forth in Section
3.1(b).

     

    “Subject Pref
Right Asset” has the meaning set forth in Section
3.2(d).

     

    “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
(including the amounts that would be owed to Purchaser under Section
9.2(b) (if any) and if, and only to the extent, this Agreement has not be
terminated prior to the execution of a Definitive Agreement in respect of such
Acquisition Proposal, the costs reasonably likely to be incurred in connection
with the negotiation of an Acquisition Proposal), 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, by
at least the Superior Proposal Threshold, the Deemed Value of this Agreement and
the transactions contemplated hereby.

     

    “Superior Proposal
Threshold” means recovery to Junior Creditor Classes equal or greater
than $2,810,000 net of, inter
alia, payment of the amounts payable to the Purchaser under Section
9.2(b).

     

    “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, 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).

     

    “Title Claim
Date” has the meaning set forth in Section 3.1(a).


    
      
         


      

      
        56

        
          

        

      

      
         


      

    


    “Title
Consultant” has the meaning set forth in Section 3.1(e).

     

    “Title
Defect” means any Encumbrance, other than a Permitted Encumbrance, that
causes title to be less than Defensible Title.

     

    “Title Defect
Amounts” has the meaning set forth in Section 3.1(d)(iv).

     

    “Title Defect
Deductible” has the meaning set forth in Section 3.1(d)(iv).

     

    “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]


    
      
         


      

      
        57

        
          

        

      

      
         


      

    


    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



    
      
         


      

      
         


        
          

        

      

      
         


      

    

    


    
      
        
          	 
      	
                  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



    
      
         


      

      
         


        
          

        

      

      
         


      

    

    


    
      
        	 
      	
                PURCHASER:

              
	 
      	 
      
	 
      	
                NEWFIELD
      EXPLORATION COMPANY

              
	 
      	 
      	 
      
	 
      	
                By:

              	
                /s/ William D. Schneider

              
	 
      	 
      	
                Name:
      William D. Schneider

              
	 
      	 
      	
                Title:
      Vice President – Onshore 

                         
      Gulf Coast &
International

              


      

    

    


    Signature
Page – Purchaser

    Purchase
and Sale Agreement