Exhibit 10d(1)


                               PURCHASE AGREEMENT

                                 BY AND BETWEEN

                       WINCHESTER PRODUCTION COMPANY, LTD.

                               TGG PIPELINE, LTD.

                           PROGRESS FUELS CORPORATION

                                       AND

                          ENCANA OIL & GAS (USA), INC.













                                November 18, 2004

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                                TABLE OF CONTENTS

                                                                           Page


ARTICLE I  DEFINITIONS.......................................................1

     1.1.     Action.........................................................1
     1.2.     Agreement......................................................1
     1.3.     Allocated Value................................................1
     1.4.     Assignment.....................................................1
     1.5.     Assumption Agreement...........................................2
     1.6.     Assets.........................................................2
     1.7.     Assumed Liabilities............................................2
     1.8.     Base Purchase Price............................................2
     1.9.     Basket.........................................................3
     1.10.    Beck Lease.....................................................3
     1.11.    Books and Records..............................................3
     1.12.    Burdened Leases................................................3
     1.13.    Business Day...................................................3
     1.14.    Buyer..........................................................3
     1.15.    Buyer Claim....................................................3
     1.16.    Buyer Indemnified Party........................................3
     1.17.    Buyer's Schedule of Allocated Values...........................3
     1.18.    Closing........................................................3
     1.19.    Closing Date...................................................3
     1.20.    Code...........................................................3
     1.21.    Easements......................................................4
     1.22.    Effective Time.................................................4
     1.23.    Environmental Laws.............................................4
     1.24.    Ewing Lease....................................................4
     1.25.    Excluded Assets................................................4
     1.26.    Governmental Authority.........................................4
     1.27.    Hazardous Substances...........................................4
     1.28.    Knowledge of Seller............................................5
     1.29.    Laws...........................................................5
     1.30.    Lease..........................................................5
     1.31.    Lease Burdens..................................................5
     1.32.    Losses.........................................................5
     1.33.    Material Adverse Effect........................................5
     1.34.    Maximum Indemnity Amount.......................................5
     1.35.    Net Revenue Interest...........................................5
     1.36.    Office Leases..................................................5
     1.37.    Permits........................................................5
     1.38.    Permitted Encumbrances.........................................6
     1.39.    Personal Property..............................................6
     1.40.    PFC............................................................6
     1.41.    Prime Rate.....................................................6

                                      (i)
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     1.42.    Production.....................................................6
     1.43.    Production Payment.............................................7
     1.44.    Production Payment Liquidation Amount..........................7
     1.45.    Properties.....................................................7
     1.46.    Property Agreements............................................7
     1.47.    Purchase Price.................................................7
     1.48.    Referral Firm..................................................7
     1.49.    REI............................................................7
     1.50.    Retained Liabilities...........................................7
     1.51.    Seller.........................................................7
     1.52.    Seller Claim...................................................7
     1.53.    Seller Indemnified Party.......................................7
     1.54.    Taxes..........................................................7
     1.55.    Tax Returns....................................................8
     1.56.    TGG Assets.....................................................8
     1.57.    Title Defect...................................................8
     1.58.    Title Defect Mechanism.........................................8
     1.59.    Wells..........................................................8
     1.60.    Working Interest...............................................8

ARTICLE II  PURCHASE AND SALE................................................8

     2.1.     Purchase and Sale..............................................8
     2.2.     Purchase Price.................................................9
     2.3.     Adjustments to Base Purchase Price.............................9
     2.4.     Determination of Purchase Price...............................11
     2.5.     Allocation of Purchase Price..................................12
     2.6.     No Assumption of Retained Liabilities.........................12
     2.7.     Effective Time................................................12

ARTICLE III  REPRESENTATIONS AND WARRANTIES OF SELLER.......................13

     3.1.     Organization..................................................13
     3.2.     Due Authorization.............................................13
     3.3.     No Violation or Conflict; Consents; Preferential Rights.......13
     3.4.     Title.........................................................13
     3.5.     Contracts.....................................................14
     3.6.     Lease Provisions..............................................15
     3.7.     Compliance with Law...........................................15
     3.8.     Litigation....................................................15
     3.9.     Taxes.........................................................15
     3.10.    Environmental Matters.........................................15

ARTICLE IV  REPRESENTATIONS AND WARRANTIES OF THE BUYER.....................16

     4.1.     Organization..................................................16
     4.2.     Authorization.................................................16

                                      (ii)
<PAGE>

     4.3.     Noncontravention..............................................16
     4.4.     No Reliance...................................................16
     4.5.     Purchase for Investment.......................................17
     4.6.     Financing.....................................................17

ARTICLE V  COVENANTS........................................................17

     5.1.     Conduct of Business...........................................17
     5.2.     Access to Information.........................................17
     5.3.     Further Assurances; Consents; Waiver of Notices...............17
     5.4.     Publicity.....................................................18
     5.5.     Environmental Investigation...................................18
     5.6.     Buyer's Schedule of Allocated Values..........................19
     5.7.     Amendment of Schedules........................................20

ARTICLE VI  CONDITIONS PRECEDENT TO CONSUMMATION OF THE CLOSING; CLOSING....20

     6.1.     Conditions Precedent to Each Party's Obligations to Close.....20
     6.2.     Conditions Precedent to Obligations of the Buyer..............21
     6.3.     Conditions Precedent to Obligations of Seller.................21
     6.4.     The Closing...................................................22

ARTICLE VII  ADDITIONAL COVENANTS...........................................23

     7.1.     Access to Books and Records...................................23
     7.2.     Tax Matters...................................................23
     7.3.     Surety Bonds..................................................24
     7.4.     Casualty......................................................24
     7.5.     Consents and Preferential Rights..............................24
     7.6.     Employee Matters..............................................25
     7.7.     Non-Solicitation..............................................25
     7.8.     Transition Services Agreement.................................25
     7.9.     Leased Equipment and Licensed Software........................25
     7.10.    Beck Lease....................................................25
     7.11.    Ewing Lease...................................................25

ARTICLE VIII  SURVIVAL; INDEMNIFICATION.....................................26

     8.1.     Limitation on and Survival of Representations and Warranties..26
     8.2.     Indemnification by Seller.....................................26
     8.3.     Indemnification by Buyer......................................27
     8.4.     Limitation of Liability.......................................29
     8.5.     Exclusive Remedy..............................................29
     8.6.     Title Defects.................................................29
     8.7.     Disclaimer of Other Warranties................................29

                                     (iii)
<PAGE>

ARTICLE IX  TERMINATION.....................................................30

     9.1.     Termination...................................................30
     9.2.     Effect of Termination.........................................31
     9.3.     Amendment.....................................................31
     9.4.     Extension; Waiver.............................................31

ARTICLE X  MISCELLANEOUS....................................................31

     10.1.    Entire Agreement..............................................31
     10.2.    Expenses......................................................31
     10.3.    Governing Law.................................................32
     10.4.    Assignment....................................................32
     10.5.    Notices.......................................................32
     10.6.    Counterparts; Headings........................................33
     10.7.    Specific Performance..........................................33
     10.8.    Interpretation................................................33
     10.9.    Severability..................................................33
     10.10.   No Third-Party Reliance.......................................33


SCHEDULES

     Exhibit A                Procedure for Claiming Title Defects and Adjusting
                              the Base Purchase Price
     Exhibit B                Form of Assignment, Conveyance and Bill of Sale
     Exhibit C                Form of Assumption Agreement
     Exhibit D                Form of FIRPTA Affidavit
     Exhibit E                TGG Asset Assignment
     Exhibit F                Buyer's Initial Schedule of Allocated Values
     Schedule 1.25            Excluded Leases
     Schedule 2.1             TGG Assets
     Schedule 2.3(a)(v)       Condensate in Stock as of October 31, 2004
     Schedule 2.3(b)          Accrued Suspense Funds
     Schedule 2.5             Allocation of Purchase Price (Tax)
     Schedule 3.3             Conflicts
     Schedule 3.4(a)          Personal Property
     Schedule 3.4(b)          Leases
     Schedule 3.4(c)          Rights of Way and Surface Damage Agreements
     Schedule 3.5(a)          Property Agreements
     Schedule 3.5(b)          Exceptions to Contracts
     Schedule 3.6             Exceptions to Lease Provisions
     Schedule 3.7             Exceptions to Compliance with Law
     Schedule 3.8             Litigation

                                      (iv)
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     Schedule 3.9             Tax Partnerships
     Schedule 3.10            Environmental Matters
     Schedule 5.1             Expected Capital Expenditures
     Schedule 5.5             Environmental Investigation
     Schedule 5.6             Buyer's Schedule of Allocated Values
     Schedule 7.3             Surety Bonds
     Schedule 7.5             Consents and Preferential Rights
     Schedule 7.6             Employees


                                      (v)
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                               PURCHASE AGREEMENT

     This Purchase  Agreement  ("Agreement") is made as of November 18, 2004, by
and between WINCHESTER  PRODUCTION  COMPANY,  LTD., a Texas limited  partnership
("Winchester"  or,  alternatively  the  "Seller"),  TGG  PIPELINE  LTD., a Texas
limited partnership ("TGG"),  solely for the purposes set forth below,  Progress
Fuels Corporation, a Florida corporation solely for the purposes set forth below
("PFC") and ENCANA OIL & GAS (USA), INC. a Delaware corporation (the "Buyer").

                                    RECITALS

     A. Seller is the owner of certain  oil and gas leases and wells  located in
the  Denton,  Tarrant,  Wise and Hood  Counties,  Texas (all as further  defined
below, the "Assets").

     B.  Seller  desires to sell and Buyer  desires to acquire the Assets on the
terms and under the conditions set forth in this Agreement.

     C. TGG is joining  this  Agreement  solely for the  purposes  of  conveying
certain gathering lines and related easements.

     D. PFC is  joining  this  Agreement  solely for the  purpose of  supporting
Seller's Indemnity Obligations set forth in Article VIII.

                                    AGREEMENT

     The  parties,   in   consideration  of  the  premises  and  of  the  mutual
representations,  warranties,  covenants,  conditions  and  agreements set forth
herein and intending to be bound, agree as set forth below:

                                    ARTICLE I
                                   DEFINITIONS

     When used in this  Agreement,  the following  terms shall have the meanings
specified:

     1.1.  Action.   "Action"  means  any  action,   claim,  suit,   litigation,
arbitration or governmental investigation.

     1.2.  Agreement.  "Agreement"  means  this  Agreement,  together  with  the
Exhibits and Schedules  attached hereto, as the same may be amended from time to
time in accordance with the terms hereof.

     1.3. Allocated Value. "Allocated Value" means the monetary amount, for each
Lease,  set forth on Exhibit F, as mutually  agreed,  for  purposes of the Title
Defect Mechanism set forth on Exhibit A.

     1.4. Assignment. The term "Assignment" means the Assignment, Conveyance and
Bill of Sale in the form of Exhibit B attached  hereto.  The  Assignment  may be
executed in multiple  counterparts  for  recording in the various  jurisdictions

                                       1
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wherein the Assets are located. Interests in Leases that are federal leases will
also be transferred by means of federal government forms 3000-3 and 3000-3a,  as
appropriate.

     1.5.  Assumption  Agreement.  The term  "Assumption  Agreement"  means  the
Assumption Agreement concerning the Assumed Liabilities,  in the form of Exhibit
C attached hereto.

          1.6. Assets. The term "Assets" means the following:

          (a)  The  Property  Agreements,  including,  without  limitation,  the
Leases;

          (b) The Personal Property;

          (c) The Production; and

          (d) The Books and Records.

     1.7. Assumed Liabilities. "Assumed Liabilities" means:

          (a) any  liability  or  obligation  arising out of or  resulting  from
performance  due on or after the  Effective  Time under any Property  Agreement,
including but not limited to the Leases;

          (b) any liability or obligation for Taxes due after the Effective Time
or assessed on the Assets from and after the Effective Time;

          (c) any liability or obligation  for properly  plugging and abandoning
all of the Wells and restoring the surface  areas  associated  with the Wells in
accordance  and  compliance  with the  rules  and  regulations  of  Governmental
Authorities having jurisdiction and the terms of the Leases;

          (d) any liability or obligation relating to the accrued suspense funds
set forth on Schedule 2.3(b);

          (e) any liability or losses  attributable  to a Title Defect for which
the Base Purchase Price is decreased pursuant to Section 2.3(b)(iv);

          (f) if transferred subject to Section 7.5, the Production Payment;

          (g)  except as it may arise  from a breach of the  representation  set
forth in Section 3.10, any matter relating to the environmental condition of the
Properties  including,  without limitation,  any Environmental Defects for which
the Base Purchase Price is adjusted at Closing; and

          (h) the Office Leases.

     1.8. Base Purchase Price. "Base Purchase Price" has the meaning it is given
in Section 2.2.

                                       2
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1.9.     Basket.  "Basket" has the meaning given in Section 8.4.

     1.10.  Beck Lease.  "Beck  Lease"  means that  certain oil, gas and mineral
lease covering  approximately  1000.30 acres in Denton County, Texas, dated June
30, 2003, by and between B Oil Investments,  Ltd., as lessor,  and Star of Texas
Energy  Services,  Inc.,  as  lessee,  as the  same  may have  been  amended  or
supplemented  from time to time, and a memorandum of which is recorded at Volume
365, Page 7465, of the Real Property Records of Denton County, Texas.

     1.11.  Books and Records.  The term "Books and Records"  means, in whatever
form or media  expressed,  all  books,  records,  files or  copies  thereof,  in
Seller's  possession  relating  directly  to  the  Assets,  including,   without
limitation,   geological,  plats,  surveys,  maps,  cross-sections,   production
records,  electric logs, cuttings,  cores, core data, pressure data, decline and
production  curves,  well files and all  related  matters,  division of interest
records,  division  orders,  lease  files,  title  opinions,   abstracts,  lease
operating  statements and all other accounting  information,  marketing reports,
statements,  gas balancing information and all other marketing information,  all
geophysical  and seismic  records except to the extent that the transfer of such
geophysical  or  seismic  records  would  violate  existing  licensing  or other
contractual restrictions on such transfer, but excluding all Tax Returns.

     1.12.  Burdened  Leases.  "Burdened  Leases"  means  those  Leases that are
subject to the Production  Payment,  as set forth on Exhibit A to the Production
Payment.

     1.13.  Business Day. "Business Day" means any day other than (i) a Saturday
or  Sunday;  or (ii) a day on which  commercial  banks in New York,  New York or
Dallas, Texas, are closed.

     1.14. Buyer. "Buyer" is defined in the opening paragraph.

     1.15. Buyer Claim. "Buyer Claim" means a claim for indemnification by Buyer
pursuant to Section 8.2.

     1.16. Buyer  Indemnified  Party.  "Buyer  Indemnified  Party" is defined in
Section 8.2(a).

     1.17. Buyer's Schedule of Allocated Values.  "Buyer's Schedule of Allocated
Values" is defined in Section 5.6.

     1.18.  Closing.  "Closing" means the conference  held at 10:00 a.m.,  local
time,  on the  Closing  Date,  at the offices of Hunton & Williams  LLP,  Energy
Plaza, 30th Floor, 1601 Bryan Street, Dallas, Texas 75201-3402.

     1.19.  Closing Date.  "Closing  Date" means the latter of: (i) December 17,
2004,  or (ii) the first  Business Day  following  the date that the last of the
conditions  to Closing set forth in Section 6.1, 6.2 and 6.3 are  fulfilled;  or
(iii) such other date as the parties may mutually agree in writing.

     1.20. Code. "Code" means the Internal Revenue Code of 1986, as amended.

                                       3
<PAGE>

     1.21.  Easements.  "Easements" means all rights of way, easements,  surface
leases and other rights of surface use held by Seller.

     1.22. Effective Time. "Effective Time" is defined in Section 2.7.

     1.23.  Environmental  Laws.  "Environmental  Laws"  means any and all Laws,
regulations,  guidance,  or other requirements  relating to public health, or to
pollution or  protection  of the  environment  (including,  without  limitation,
ambient air,  surface  water,  groundwater,  land surface or subsurface  strata)
including,   without   limitation,   the  Clean  Air  Act,   the   Comprehensive
Environmental  Response Compensation and Liability Act ("CERCLA"),  the Resource
Conservation and Recovery Act of 1976 ("RCRA"), the Toxic Substances Control Act
("TSCA"),  the Clean  Water Act,  the Safe  Drinking  Water Act,  the  Hazardous
Materials  Transportation  Act ("HMTA"),  the Oil Pollution Act of 1990,  all as
amended,  and any state laws  implementing or analogous to the foregoing federal
laws,  and all other  laws  relating  to or  regulating  emissions,  discharges,
releases,  or cleanup of pollutants,  contaminants,  chemicals,  polychlorinated
biphenyls ("PCBs"),  oil and gas exploration and production wastes, brine, solid
wastes, or toxic or Hazardous Substances or wastes.

     1.24.  Ewing Lease.  "Ewing  Lease" means that certain oil, gas and mineral
lease, dated August 1, 2002, by and between Ewing Enterprises LP, as lessor, and
Republic  Energy,  Inc.,  as lessee,  as amended and extended from time to time,
recorded  at Volume  4935,  Page 2741,  of the Real  Property  Records of Denton
County, Texas.

     1.25. Excluded Assets. "Excluded Assets" means:

          (a) the oil and gas leases  excluded due to title or other issues,  as
set forth on Schedule 1.25;

          (b) a copy of the Books and Records; and

          (c) any production hedges or other derivatives related to the Assets.

     1.26. Governmental Authority.  "Governmental  Authority" means any federal,
state,   provincial,   municipal,   local  or  other  governmental   department,
commission, board, bureau, agency or instrumentality, or any court, in each case
whether of the United States,  any of its possessions or territories,  or of any
foreign nation.

     1.27. Hazardous Substances.  "Hazardous  Substances" means any substance or
material  which,  if present in the  environment  would,  under  applicable law,
require  assessment,   remediation,  or  corrective  action  including,  without
limitation,  chemicals,  pollutants,  contaminants,  wastes,  toxic  substances,
petroleum  and petroleum  products  which are  classified  as hazardous,  toxic,
radioactive,  dangerous,  or  otherwise  regulated  by,  or form the  basis  for
liability  under,  any  Environmental  Laws  including  but not  limited  to any
Polluting  Substances,  hazardous wastes under RCRA,  hazardous substances under
CERCLA,  toxic  substances  under  TSCA,  hazardous  materials  under  HMTA,  or
comparable  materials  or  classification  under any other of the  Environmental
Laws.

                                       4
<PAGE>

     1.28. Knowledge of Seller. "Knowledge of Seller" means the actual knowledge
of the  following  officers  of  Seller:  (i) the  Senior  Vice  President,  Gas
Operation;  (ii) the Vice President of the North Texas business unit;  (iii) the
Operations  Manager,  Engineering  Manager  and Land  Manager of the North Texas
business unit.

     1.29.  Laws.  "Laws"  means  any  federal,  state,  local or  other  law or
governmental  requirement  of any kind,  and the rules,  regulations  and orders
promulgated thereunder, all of the foregoing as in effect on the date hereof.

     1.30. Lease. "Lease"  (individually) and "Leases"  (collectively) means the
oil, gas, and/or mineral leases  (including  federal leases) owned by Winchester
in Denton, Tarrant, Wise and Hood Counties, Texas, including, but not limited to
leaseholds,  record title and operating  rights,  royalty or overriding  royalty
interests owned by Winchester in such leases.  Schedule 3.4(b) sets forth a list
of the Leases,  together with a description of Winchester's Net Revenue Interest
and Working Interest therein and the Allocated Value associated therewith, and a
list of the Wells associated with such Leases.

     1.31.  Lease  Burdens.  "Lease  Burdens"  means the  royalties,  overriding
royalties,  production payments (other than the Production Payment),  net profit
interests,  and  all  similar  interests  burdening  the  Leases  or  production
therefrom, that are legally binding and enforceable at law or in equity.

     1.32. Losses. "Losses" is defined in Section 8.2(a).

     1.33.  Material  Adverse  Effect.  "Material  Adverse  Effect" or "Material
Adverse  Change"  means  a  material  adverse  effect  on or  change  in (or any
development that, insofar as reasonably can be foreseen, is reasonably likely to
have a  material  adverse  effect on or change  in) the  Assets,  other than any
change, circumstance or effect (i) relating to the economy or securities markets
in general, (ii) affecting the oil and gas or energy industry generally, such as
fluctuations  in the price of oil or gas, or (iii)  resulting from the execution
or performance of this Agreement or the announcement thereof.

     1.34.  Maximum Indemnity Amount.  "Maximum  Indemnity Amount" is defined in
Section 8.4.

     1.35.  Net  Revenue  Interest.  "Net  Revenue  Interest"  means the decimal
ownership  of the  lessee  in  production  from a  Lease,  after  deducting  all
applicable Lease Burdens.

     1.36.  Office  Leases.  "Office  Leases"  means:  (i)  that  certain  lease
agreement between PFC, as tenant, and TIAA Realty, Inc., as landlord,  dated May
23, 2003, regarding the lease of Winchester's office space in Irving, Texas; and
(ii) that certain lease agreement  between Progress Fuels North Texas Gas, L.P.,
as tenant,  and the Larry M. Grace Non-Exempt Trust, as successor in interest to
the Estate of L.E.  Grace, as landlord,  dated September 1, 2003,  regarding the
lease of Winchester's office space in Bridgeport, Texas.

     1.37.   Permits.   "Permits"  means  all  written  permits,   licenses  and
governmental  authorizations,  registrations and approvals  required,  as of the
date hereof, for the conduct of Seller's business.

                                       5
<PAGE>

     1.38. Permitted  Encumbrances.  "Permitted  Encumbrances" means: (A) liens,
charges, encumbrances,  contracts, agreements, instruments, obligations, defects
and  irregularities of title and restrictions of right or interest of any nature
affecting any Lease that will be discharged at Closing;  (B) lessors' royalties,
overriding royalties,  and similar burdens that do not operate to reduce the Net
Revenue  Interest of  Winchester  in any Lease;  (C)  division  orders and sales
contracts  relating  to  hydrocarbons  that  are  terminable,  without  material
penalty,  upon no more than 90 days notice to the purchaser  under such division
orders or sales contract (subject to applicable governmental  regulations);  (D)
all rights to consent by, required notices to, and filings with or other actions
by governmental authorities,  if any, in connection with the change of ownership
or control of an interest in any Lease; (E) any required  third-party consent to
change of  ownership  or  control  of the  Leases  or  similar  agreements;  (F)
materialmen's,  mechanics', repairmen's, employees',  contractors',  operators',
tax and other similar liens or charges arising  pursuant to operations or in the
ordinary  course  of  business  incidental  to  construction,   maintenance,  or
operation of the Leases (i) if they have not been filed pursuant to law, or (ii)
if filed,  payment  is being  withheld  as  provided  by law,  or (iii) if their
validity is being contested in good faith by appropriate  action; or (iv) if due
and payable, now or in the future, provision has been made by Winchester for the
payment thereof; (G) easements in respect of surface operations,  pipelines,  or
the like and easements on, over or in respect of the Leases that are not such as
to interfere  materially with the operation or use of the Leases;  (H) all other
inchoate  liens,  charges,  encumbrances,  contracts,  agreements,  instruments,
obligations, defects and irregularities,  including Title Defects, affecting any
of the  Leases  that  individually  or in the  aggregate  are  customary  in the
industry and are not such as to interfere  materially with the operation,  value
or use of any of the Leases, and which do not reduce the Net Revenue Interest of
the  Leases  to less  than the  applicable  Net  Revenue  Interest  set forth in
Schedule  3.4(b)  and do not  obligate  Winchester  to bear  costs and  expenses
relating to the  maintenance,  development and operation of any of the Leases in
an amount  greater than the  applicable  Working  Interest set forth in Schedule
3.4(b); (I) all applicable Laws, rules and orders of any governmental authority;
and (J) inchoate liens for Taxes not due and payable before the Closing Date.

     1.39. Personal Property. The term "Personal Property" means all of Seller's
interest in all of the tangible personal property, fixtures and improvements now
and as of the  Effective  Time on,  appurtenant  to or used solely in connection
with the Assets or with the production,  treatment, storage, sale or disposal of
hydrocarbons,  water or other  minerals or substances  produced from the Leases,
including,  without limitation, all Wells, wellhead equipment,  fixtures, casing
and  tubing,  all  production,  storage,  treating,  compression,   dehydration,
delivering,  salt water disposal and pipeline fixtures,  and other facilities of
every kind, character and description,  used or usable solely in connection with
the production,  treatment, storage, delivery, sale or disposal of hydrocarbons,
water or other  minerals or substances  produced from the Assets,  including but
not limited to those identified on Schedule 3.4(a).

     1.40. PFC. The term "PFC" is defined in the introductory paragraph.

     1.41. Prime Rate.  "Prime Rate" means the prime rate as published from time
to time in the Wall Street Journal.

                                       6
<PAGE>

     1.42. Production.  The term "Production" means all of Seller's right, title
and interest in the oil, gas, casinghead gas,  condensate,  distillate and other
liquid and gaseous hydrocarbons  produced from the Leases,  products refined and
manufactured  therefrom  and the accounts and proceeds  from the sale thereof to
the extent the  Production  has been  produced,  or  accrued,  or is held on the
Leases or in the tanks from and after the Effective Time.

     1.43.  Production  Payment.  "Production  Payment"  means the  interest  in
production from the Burdened Leases that is attributable to the interest of REI,
as set forth in that certain  Memorandum of Production  Payment between Progress
Fuels North Texas Gas, L.P. and REI, dated February 24, 2003 and recorded in the
Official Records of Denton, Tarrant and Wise Counties, Texas.

     1.44.   Production  Payment   Liquidation   Amount.   "Production   Payment
Liquidation Amount is defined in Section 7.5(b).

     1.45. Properties.  "Properties" means the lands associated with and subject
to the Leases, to the extent,  and only to the extent,  that Seller has made use
of such lands in connection  with the exploration or drilling for, or production
of, hydrocarbons under the terms of the Leases.

     1.46. Property Agreements. The term "Property Agreements" means the Leases,
pooling and  unitization  agreements,  hydrocarbon  purchase and sale contracts,
leases,  permits,  rights-of-way,  easements,  servitudes,  licenses,  farmouts,
options,  surface leases,  surface fee interests,  orders and other contracts or
agreements:  (i) to the extent  relating to any Well or to the other Assets;  or
(ii)  to  the  extent   relating   to  the   production,   storage,   treatment,
transportation,  processing,  sale or disposal of  hydrocarbons,  water or other
minerals or substances produced therefrom or attributable thereto, including but
not limited to those identified on Schedule 3.5(a).

     1.47.  Purchase  Price.  "Purchase  Price"  means the amount  specified  in
Section 2.2 hereof.

     1.48. Referral Firm. "Referral Firm" is defined in Section 2.4(d)(ii).

     1.49. REI. "REI" means Republic Energy, Inc.

     1.50. Retained  Liabilities.  "Retained  Liabilities" means all liabilities
and obligations of the Seller, whether such liabilities or obligations relate to
payment, performance or otherwise, other than the Assumed Liabilities.

     1.51. Seller.  "Seller" means Winchester Production,  Company, Ltd, a Texas
limited partnership.

     1.52.  Seller Claim.  "Seller  Claim" means a claim to  indemnification  by
Seller pursuant to Section 8.3.

     1.53. Seller  Indemnified Party.  "Seller  Indemnified Party" is defined in
Section 8.3.

     1.54.  Taxes.  "Taxes" means any and all taxes,  levies,  imposts,  duties,
assessments,  charges and withholdings imposed or required to be collected by or
paid over to any  Governmental  Authority,  including any  interest,  penalties,
fines, assessments or additions imposed with respect to the foregoing.

                                       7
<PAGE>

     1.55.  Tax Returns.  "Tax Returns"  means any report,  return,  information
statement,  payee statement or other information  required to be provided to any
Governmental  Authority,  with  respect  to Taxes,  including  any  return of an
affiliated,  combined or unitary group,  and any and all work papers relating to
any Tax Return.

     1.56. TGG Assets. "TGG Assets" is defined in Section 2.1(d).

     1.57.  Title  Defect.  "Title  Defects"  means any  condition  other than a
Permitted  Encumbrance  that now or in the  future:  (A)  reduces  Seller's  Net
Revenue  Interest  in any of the  Leases  to less  than the  amount  as shown on
Schedule 3.4(b) for each Lease;  (B) increases  Seller's Working Interest as set
forth on Schedule  3.4(b) for each Lease (other than increases that would result
in the  Net  Revenue  Interest  in such  Lease  or  Well  being  proportionately
increased); or (C) imposes, on any of the Leases any lien, charge,  encumbrance,
claim,  easement,  servitude,  right,  burden or defect  that is not a Permitted
Encumbrance  hereunder.  It is expressly understood that Permitted  Encumbrances
and the Production Payment do not constitute Title Defects.

     1.58. Title Defect Mechanism.  "Title Defect Mechanism" means the procedure
whereby the  Purchase  Price is adjusted to  compensate  for  variations  in the
Allocated  Values  caused by Title  Defects.  The Title Defect  Mechanism is set
forth in Exhibit A.

     1.59.  Wells.  "Wells"  means  any of the  oil  or gas  wells  specifically
identified on Schedules 3.4(b).

     1.60. Working Interest.  "Working Interest" means that interest which bears
a  share  of  all  costs  and  expenses  proportionate  to the  interest  owned,
associated  with the  exploration,  development and operation of a Lease and the
Wells  associated  therewith,  that the owner of a Lease is required to bear and
pay by reason of such ownership, expressed as a decimal.

                                   ARTICLE II
                                PURCHASE AND SALE

2.1.     Purchase and Sale.

          (a) At the Closing,  Seller shall sell, assign,  convey,  transfer and
deliver to the Buyer,  and Buyer shall  purchase and accept from Seller,  all of
Seller's right, title and interest in and to the Assets; provided,  however, the
Excluded  Assets  will  not be  conveyed  or  purchased  hereunder,  but will be
excluded from this transaction.

          (b) At the Closing,  Buyer shall  assume and become  obligated to pay,
perform, or otherwise discharge the Assumed Liabilities.

          (c) Notwithstanding  anything herein to the contrary,  Buyer shall not
acquire any right or interest in any  properties of Seller other than the Assets
or in any proceeds of production  produced and sold from the Assets prior to the
Effective  Time or in any  payments  due Seller for  production  from the Assets
prior to the Effective Time.

                                       8
<PAGE>

          (d) At Closing, TGG shall sell, assign,  convey,  transfer and deliver
to Buyer,  and Buyer shall  purchase  and accept from TGG,  all of TGG's  right,
title and  interest in and to the  gathering  lines and  easements  set forth in
Schedule  2.1(d) (the "TGG  Assets").  At the  Closing,  Buyer shall  assume and
become  obligated to pay,  perform,  or otherwise  discharge any  liabilities or
obligation arising from or related to the TGG Assets.

     2.2.  Purchase Price. The purchase price for the Assets,  including the TGG
assets,   will  be  Two  Hundred   Fifty-Five   Million  United  States  Dollars
($255,000,000.00  US)(the "Base Purchase  Price"),  adjusted as provided in this
Article II (the Base  Purchase  Price as so adjusted,  being  herein  called the
"Purchase Price"). At the Closing,  Buyer shall pay Seller the Purchase Price in
immediately available funds.

     2.3. Adjustments to Base Purchase Price.

          (a) To determine the Purchase Price,  the Base Purchase Price shall be
increased by the following amounts:

               (i) the amount of all (1) ad valorem,  property or similar  Taxes
     paid by Seller and  relating to the Assets for  periods  from and after the
     Effective  Time,  calculated  in a similar  fashion as set forth in Section
     2.3(b)(i),  and (2) any other  expenses  paid by Seller and relating to the
     Assets for periods from and after the Effective Time;

               (ii) the aggregate  amount of any and all operating costs paid by
     Seller that relate to the Assets for periods  from and after the  Effective
     Time  (excluding  amounts for which the Base  Purchase  Price is  increased
     pursuant to Section 2.3(a)(i) above),  including, but not limited to, lease
     operating expenses,  transportation and marketing expenses, lease payments,
     severance taxes and producing overhead rates;

               (iii) the  aggregate  amount of any and all capital  expenditures
     actually made by Seller or on Seller's behalf that relate to the Assets for
     periods from and after the Effective Time;

               (iv) an amount of money equal to the sum of the daily salaries of
     all   Winchester   personnel   directly   employed  in  the  operation  and
     administration  of the Wells,  multiplied by the number of days between the
     Effective Time and the Closing Date, but not to exceed $200,000;

               (v) an  amount of money  equal to the value of oil or  condensate
     held on the  Leases  in the tanks  above the load  line,  as  measured  and
     recorded  by Seller in the  ordinary  course of  business as of October 31,
     2004, (as set forth on Schedule  2.3(a)(v)) at a price per barrel of oil or
     condensate as established in that certain crude purchase  contract  between
     Seller and Sunoco for the month of October,  2004  (decreased by the amount
     of severance taxes attributable to such oil or condensate);

               (vi) an amount  equal to interest on the  Purchase  Price paid at
     Closing from the date of execution of this Agreement until the Closing Date
     at the  Prime  Rate  plus 2% (but  in no  event  will  this  amount  exceed
     $500,000); and

                                       9
<PAGE>

               (vii) the value of any  imbalances  of natural gas owed by Seller
     to third parties and  attributable  to the Assets as of the Effective Time,
     such value to be $4.50 per MMBtu, less applicable royalties and taxes; and.

               (viii) any other amount agreed upon by the parties in writing.

          (b) To determine the Purchase Price,  the Base Purchase Price shall be
decreased by the following amounts:

               (i) the amount of all of Seller's unpaid ad valorem,  production,
     severance,  property or similar Taxes relating to the Assets, to the extent
     that such unpaid Taxes relate to periods of time before the Effective  Time
     (to the extent  that any such  amount has not been  finally  determined  by
     Closing or any other date of  determination,  such amount will be estimated
     based  upon the  amount  paid for the  previous  year for the same asset or
     assets).  Such Taxes  with  respect to a period  which the  Effective  Time
     splits  shall be prorated  based on the number of days in such period which
     fall on each side of the Effective Time;  provided  however,  to the extent
     that such Taxes are computed based on the production from the Assets,  such
     Taxes  shall be prorated  between the parties  based on the period in which
     such production which is the basis for such calculation occurs, in the same
     manner as the  parties are  entitled to receive (or be credited  with) such
     production pursuant to the terms hereof;

               (ii) amounts  equal to all revenues  (net of royalty,  overriding
     royalty  payments and similar such  payments)  collected by Seller that are
     attributable  to  production  of oil or gas from the Assets (but not taking
     into account any hedges) and relating to periods of time from and after the
     Effective Time;

               (iii) an amount equal to the amount of accrued suspense funds set
     forth on Schedule 2.3(b);

               (iv) an amount,  calculated in accordance  with the procedures of
     Exhibit A for Title Defects,  equal to the agreed value of any Title Defect
     that is asserted prior to Closing, agreed to by Seller, and remains uncured
     by Seller at  Closing;  provided  that Title  Defects for which there is no
     agreement prior to Closing shall be addressed in accordance with procedures
     of Exhibit A;

               (v)  an  amount   calculated   pursuant   to   Section   5.5  for
     Environmental Defects;

               (vi) if the Production Payment is transferred pursuant to Section
     7.5, the Production Payment Liquidation Amount;

               (vii) the value of any  imbalances  of natural  gas owed by third
     parties to Seller and  attributable to the Assets as of the Effective Time,
     such value to be $4.50 per MMBtu, less applicable royalties and taxes;

               (viii) any other  amount  agreed  upon by the parties in writing;
     and

                                       10
<PAGE>

               (ix) an  amount  of  money  equal to the  Allocated  Value of any
     Leases set forth on Schedule  7.5 that are removed  from the  purchase  and
     sale under this Agreement by reason of the exercise of a preferential right
     to purchase by the holder of such right prior to Closing.

2.4.     Determination of Purchase Price.

          (a)  The  amount  to  be  paid  by  Buyer  to  Seller  at  Closing  in
consideration of the sale and delivery of the Assets to Buyer in accordance with
this  Agreement  shall be determined by adding to or  subtracting  from the Base
Purchase Price,  as applicable,  each adjustment to be made to the Base Purchase
Price at Closing  pursuant to Sections 2.3(a) and (b), as proposed by Seller and
not disputed by Buyer in accordance with this Section 2.4.

          (b)  Seller  shall  prepare  and  deliver  to Buyer at least  five (5)
Business Days before the Closing Date a statement (the  "Preliminary  Settlement
Statement")  setting forth Seller's good faith estimate of each adjustment to be
made in accordance with Sections 2.3(a) and (b). Buyer may dispute in good faith
Seller's  estimate  of the amount of such  adjustments  by delivery to Seller by
written  notice  thereof  within three (3) Business  Days after  receipt of such
estimate.  Buyer and Seller shall use commercially reasonable efforts to resolve
any such  dispute  prior to  Closing;  provided,  that  any and all  amounts  so
disputed  or other  adjustments  claimed  by Seller and not  resolved  by mutual
agreement of Buyer and Seller prior to Closing  shall be resolved in  accordance
with  Section  2.4(d)  and the  Closing  shall  occur  with  payment of the Base
Purchase Price less the amount of the disputed items,  notwithstanding  any such
dispute;  provided,  however  Title Defects and  Environmental  Defects shall be
addressed as set forth in Sections 2.3(b)(iv) and 2.3(b)(v).

          (c) After the Closing,  the Purchase Price shall be subject to further
adjustment  pursuant to Section 2.4(d) of this Agreement,  and neither  Seller's
delivery  of an estimate  of  adjustments  pursuant  to this  Section  2.4,  the
delivery of a dispute  notice by Buyer  pursuant to this  Section  2.4,  nor the
failure  to  deliver  any  such  dispute  notice  shall  bar  any  such  further
adjustments.

          (d) (i) On or before  the  ninetieth  (90th)  day  after the  Closing,
Seller shall prepare and deliver to Buyer in accordance with this  Agreement,  a
statement (the "Final Settlement  Statement") setting forth Seller's calculation
of the final adjustments and showing the calculation of such adjustments. Within
thirty (30) days after receipt of the Final  Settlement  Statement,  Buyer shall
deliver to Seller a written report containing any changes that Buyer proposes be
made to the Final  Settlement  Statement and the reasons for those changes.  The
parties shall attempt to agree to the amounts due pursuant to such  adjustments,
including any amounts  disputed under Section 2.4(b),  no later than ninety (90)
days after  Buyer's  receipt of the Final  Settlement  Statement.  The date upon
which such  agreement is reached  shall be herein  called the "Final  Settlement
Date".  Within five (5) Business Days from the Final  Settlement Date, the party
owing  any  amount  for  additional   adjustments  shall  pay  such  amount,  in
immediately available funds.

                                       11
<PAGE>

              (ii) If  Seller  and  Buyer  are  unable  to agree  upon the Final
Settlement  Statement by the ninetieth (90th) day after Buyer's receipt of same,
KPMG LLP (or, if such firm is unable or unwilling to act, such other  nationally
recognized  independent  public accounting firm as shall be agreed upon by Buyer
and Seller in  writing)  (the  "Referral  Firm")  shall  review  Seller's  Final
Settlement  Statement  and the records  relating to the Leases and determine the
final  adjustments,  other  then  adjustments  determined  under  the  mechanism
regarding  Title  Defects  set forth in Exhibit A. With  respect to any  matters
under this Agreement to be resolved by the Referral  Firm,  neither the Referral
Firm nor any person  employed by the Referral Firm will interpret the provisions
of this Agreement unless  otherwise agreed by Seller and Buyer.  With respect to
any matters for which  interpretation  of this  Agreement is  required,  and for
which Buyer and Seller cannot agree on such interpretation, such matter shall be
submitted  to  arbitration  in a  similar  manner  as set  forth in  Exhibit  A,
paragraph 6 regarding  Title Defect  disputes and the Referral Firm shall decide
all other  matters  specified  in this Section  2.4(d)(ii).  The decision of the
Referral Firm shall be binding on Buyer and Seller, and the fees and expenses of
the Referral Firm shall be borne one-half each by Buyer and Seller. The Referral
Firm shall  deliver its final  calculation  of the Purchase  Price in writing to
Buyer  and  Seller  as soon as is  practicable,  and the  parties  shall pay and
receive the final adjustment  amount, no later than the fifth (5th) business day
following  the  paying  person's  receipt  from the  Referral  Firm of the final
Purchase Price determination.

          (e) The  parties  will,  and  will  cause  their  representatives  to,
cooperate and assist in the  preparation of the Final  Settlement  Statement and
the conduct of the reviews and audits referred to in this Section 2.4, including
but not limited to making available books, records and personnel as required.

     2.5.  Allocation of Purchase  Price.  The Purchase Price shall be allocated
among the Assets as provided in Schedule  2.5,  which shall be prepared by Buyer
prior to Closing, and in a form that is acceptable to Seller.  Schedule 2.5 will
make an initial  allocation based upon the Allocated Values and will provide for
adjusting  the  allocation  as  necessary  to  reflect  adjustments  to the Base
Purchase Price. Such allocation is intended to comply with the allocation method
required by Section  1060 of the Code and the  regulations  thereunder,  and the
parties shall  cooperate to comply with all procedural  requirements  of Section
1060 and such  regulations.  Buyer and Seller  agree that they will not take nor
will they permit any  affiliated  person to take any tax  position  inconsistent
with the allocation made pursuant to Schedule 2.5; provided,  however,  that (i)
Buyer's  cost  for the  Assets  may  differ  from  the  total  amount  allocated
thereunder to reflect Buyer's capitalized  transaction costs not included in the
amount  allocated,  and (ii) Seller's  amount realized on the sale of the Assets
may differ from the total amount so allocated  to reflect  Seller's  transaction
costs that reduce the amount realized.

     2.6. No  Assumption of Retained  Liabilities.  Except as  specifically  set
forth  herein with  respect to the Assumed  Liabilities,  the Buyer does not and
will not  assume any  liability  or  obligation  of  Seller,  or any  obligation
relating to the business or the use of the Assets or the  performance  under the
Property  Agreements  whether  absolute or  contingent,  asserted or unasserted,
known or unknown,  disclosed pursuant to this Agreement or otherwise. All of the
Retained  Liabilities  shall  remain  the sole  responsibility  of and  shall be
retained, paid, performed and discharged solely by the Seller.

                                       12
<PAGE>

     2.7.  Effective  Time. For all purposes of this  Agreement,  the "Effective
Time" shall mean 12:01 a.m. Central Standard Time on November 1, 2004.

                                  ARTICLE III
                    REPRESENTATIONS AND WARRANTIES OF SELLER

     Seller hereby represents and warrants to Buyer that:

     3.1. Organization.  Seller is duly organized,  validly existing and in good
standing  under  the laws of the  State of  Texas.  Seller  has full  power  and
authority  to conduct its business as it is now being  conducted  and to own the
Assets (or to lease those Assets leased by it).  Seller is duly  qualified to do
business as a limited  partnership and is in good standing in each  jurisdiction
in which such qualification is necessary under applicable law as a result of the
conduct of its business or the ownership of the Assets.

     3.2. Due  Authorization.  The execution,  delivery and  performance of this
Agreement  have been  authorized by all necessary  action on the part of Seller,
and no further  actions on the part of Seller are  necessary  to  authorize  the
execution, delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby. This Agreement, and all of the other documents
or  instruments  required to be executed and delivered by Seller at Closing have
been, or at Closing will be, duly executed and delivered by Seller and (assuming
the due  authorization,  execution and delivery hereof and thereof by Buyer) are
valid  and  binding  obligations  of  Seller,   enforceable  against  Seller  in
accordance  with  their  terms  (except to the extent  that  enforcement  may be
affected by applicable bankruptcy,  reorganization,  insolvency and similar laws
affecting  creditors' rights and remedies generally and by general principles of
equity (regardless of whether enforcement is sought at law or in equity)).

     3.3. No Violation or Conflict; Consents; Preferential Rights. Except as set
forth on Schedule 3.3, the execution, delivery and performance of this Agreement
and all of the other  documents  and  instruments  contemplated  hereby to which
Seller is a party does not and will not (a) conflict with, violate or breach any
Laws, judgment,  order or decree binding on Seller, the articles of organization
or operating  agreement of Seller, or any material contract to which Seller is a
party or by  which it is  bound,  or (b) give any  party to any of the  Property
Agreements  to which  Seller is a party or by which  they are bound any right of
termination, breach, cancellation, acceleration or modification thereunder.

     3.4. Title.

          (a) To the Knowledge of Seller, Schedule 3.4(a) contains a list of all
the material items of Personal  Property.  Subject to ordinary wear and tear and
to  scheduled  or necessary  repairs in the  ordinary  course of  business,  all
material  items of Personal  Property  are in  reasonably  good and  serviceable
condition and repair and there are no necessary material repairs,  improvements,
restoration  or  other  service  work  necessary  to  make  any of  such  assets
serviceable,  except as specifically  identified on Schedule 3.4(a).  All leases
covering any and all Personal Property are identified on Schedule 3.4(a). Except
as set forth on Schedule  3.4(a),  Seller owns the  Personal  Property  free and
clear  of  any  claim,  lien,  right,  or  encumbrance,   except  for  Permitted
Encumbrances.

                                       13
<PAGE>

          (b) Set forth on  Schedule  3.4(b)  is a true,  correct  and  complete
description  of each of the Leases,  together with a description of the Seller's
Net Revenue  Interest and Working  Interest  therein,  and the  Allocated  Value
associated  therewith,  and a list of the Wells located on the lands  associated
with and subject to the Leases.

          (c) Schedule  3.4(c)  contains a list of all rights of way and surface
damage agreements associated therewith that are held by Seller.

          (d)  Exhibit A sets forth the  procedure  for  adjustment  of the Base
Purchase Price to account for Title Defects.

     3.5. Contracts.

          (a) Schedule 3.5(a) lists the material Property  Agreements.  Prior to
the date  hereof,  Seller has  provided  Buyer with  access to true and  correct
copies of all Property  Agreements.  Except as set forth on Schedule 3.5(b): (i)
each Property Agreement is a valid and binding agreement of Seller,  enforceable
in  accordance  with  its  terms,  except  as  may  be  limited  by  bankruptcy,
insolvency,  reorganization, or other laws affecting creditors' rights generally
or equitable  principles;  (ii) Seller has  performed,  and to the  Knowledge of
Seller  every  other party has  performed,  each  material  term,  covenant  and
condition of each of the Property  Agreements to which Seller is a party that is
to be  performed  by Seller or such other  party at or before  the date  hereof;
(iii) to the  Knowledge  of Seller no event has  occurred  that would,  with the
passage of time or compliance with any applicable  notice  requirements or both,
constitute  a default by Seller or any other  party,  under any of the  Property
Agreements  to  which  Seller  is  a  party,   except  for  such  defaults  that
individually or in the aggregate are not reasonably  expected to have a Material
Adverse  Effect on any of the  Property  Agreements;  and (iv)  Seller  does not
intend,  and Seller has not  received  notice that any other party to a Property
Agreement intends,  to cancel or terminate any of such Property Agreements on or
before the Closing Date.

          (b)  Except  as set forth on  Schedule  3.5(b)  there are no  on-going
renegotiations  of, or attempts to  renegotiate,  any amounts paid or payable to
Seller under any of the Property Agreements and no party has made written demand
for such  renegotiations.  Except as set forth on Schedule 3.5(b),  there are no
commissions  due (or to become  due) to any broker or other party as a result of
the  purchase  or sale of  hydrocarbons  under any of the  Property  Agreements.
Except as set forth on  Schedule  3.5(b),  Seller has not,  with  respect to the
Property  Agreements:  (i)  received  any  quantity  of natural  gas or liquids,
condensate or crude oil to be paid for thereafter other than in the normal cycle
of billing; or (ii) received  prepayments,  advance payments or loans which will
require the  performance  of services  or  provision  of natural gas or liquids,
condensate or crude oil under such Property Agreements on or after the Effective
Time without being  currently paid  therefore  other than in the normal cycle of
billing.  Except as set forth on Schedule  3.5(b),  Seller is not obligated,  by
virtue of prepayment arrangement,  make up right under production sales contract
containing  a "take  or pay" or  similar  provision,  gas  balancing  agreement,
production payment or any other arrangement to deliver hydrocarbons, or proceeds
from the sale  thereof,  attributable  to the Leases at some future time without
then or thereafter  receiving the full contract price  therefore.  Except as set
forth on Schedule  3.5(b) or in any Property  Agreement,  there is no call upon,
option to purchase or similar  right to obtain  hydrocarbons  from the Leases in
favor of any person or entity other than pursuant to renewal rights or automatic
renewal   provisions   contained  in  existing   contracts   for  the  sale  for
hydrocarbons.

                                       14
<PAGE>

     3.6.  Lease  Provisions.  All  Leases  are in  force  and  effect  and  are
maintained  by their terms.  Accurate and timely  payment of delay  rentals have
been made to maintain in force and effect all Leases  within the primary term on
which  drilling  operations  were not  timely  commenced.  All other  Leases are
validly  preserved beyond the primary term by production in paying quantities or
the accurate and timely payment of shut-in royalty payments or otherwise. Except
as set  forth on  Schedule  3.6,  all  rentals,  royalties,  overriding  royalty
interests  and other  payments due under each of the Leases have been timely and
accurately  paid,  except amounts that are being held in suspense as a result of
title  issues in  circumstances  that do not  provide any third party a right to
terminate any such Lease.  Schedule  2.3(b) lists the accrued  suspense funds by
Well.

     3.7. Compliance with Law. Except as set forth on Schedule 3.7:

          (a) All material  filings and notices  relating to the Leases,  or the
ownership  or  operation  thereof,  required  to be  made  by  Seller  with  all
applicable  state and federal agencies have been made by or on behalf of Seller.
Seller is not in  violation  of any Law with  respect to the Assets,  except for
such  violations  as  are  not,  individually  or in the  aggregate,  reasonably
expected to have a Material Adverse Effect on the Leases as a whole.

          (b) Seller  holds all of the Permits  necessary  for the  operation of
Seller's  business  as  currently  conducted,  other than  Permits for which the
failure to hold is not, individually or in the aggregate, reasonably expected to
have a Material Adverse Effect on Seller.  There are no proceedings  pending or,
to the Knowledge of Seller, threatened that are reasonably expected to result in
the revocation,  cancellation,  suspension or modification of the Permits. There
are no proceedings  pending or, to the Knowledge of Seller,  threatened (x) with
respect to any alleged  failure to have all Permits  required in connection with
the operation of Seller's business as currently  conducted,  or (y) with respect
to any valid  requirement  to plug or abandon  any Well in which  Seller owns an
interest or that is located on any of the Leases.

     3.8.  Litigation.  Except as set forth on Schedule  3.8 or  Schedule  3.10,
there is no claim,  legal  action,  suit,  litigation,  arbitration,  dispute or
investigation,  judicial,  administrative or otherwise,  or any order, decree or
judgment,  now pending or in effect, or, to the Knowledge of Seller,  threatened
or contemplated,  that, if adversely  determined,  would have a Material Adverse
Effect on the Assets or the transactions contemplated by this Agreement.

     3.9.  Taxes.  There are no liens for Taxes on the Assets,  except for Taxes
not yet due, and (subject to Section  7.2(a))  there is no unpaid Tax payable by
Seller for which Buyer would become  liable by reason of  purchasing  the Assets
hereunder. Seller has filed or will file all federal, state, local and other tax
reports  and  returns  required  to be filed by  Seller in  connection  with its
ownership or  operation  of the Assets.  Schedule 3.9 sets forth a list of joint
operating agreements to which Seller is a party and for which there has not been
made a valid  election out of  Subchapter K of the Code.  Except as set forth on
Schedule 3.9, to the  Knowledge of Seller,  none of the Assets is subject to any
tax partnership as defined in Section 761 of the Code.

     3.10.  Environmental Matters. The Seller represents and warrants that as to
the Properties,  there are no pending or, to the Knowledge of Seller, threatened
(1) lawsuits,  (2) notices of violation or notices of  deficiency,  (3) civil or
criminal  penalties,  or (4) other unresolved  orders based on any noncompliance

                                       15
<PAGE>

with  Environmental  Laws.  The Seller also  represents  and warrants that as to
Seller's  Knowledge,  there are no  material  adverse  environmental  conditions
existing on any of the Properties, except as disclosed in Schedule 3.10. SECTION
3.10  CONSTITUTES  SELLER'S  SOLE  REPRESENTATION  AND WARRANTY  WITH RESPECT TO
ENVIRONMENTAL LAWS.

                                   ARTICLE IV
                         REPRESENTATIONS AND WARRANTIES
                                  OF THE BUYER

     The Buyer hereby represents and warrants to Seller:

     4.1.  Organization.  The  Buyer  is a  corporation,  duly  formed,  validly
existing  and in good  standing  under the laws of  Delaware.  The Buyer is duly
qualified as a foreign  corporation  in good  standing in each  jurisdiction  in
which the conduct of its business requires such qualification,  except where the
failure  to be so  qualified  would  not  prevent,  materially  delay or  affect
consummation of the transactions contemplated hereby.

     4.2.  Authorization.  The Buyer has full power and  authority  to  execute,
deliver and perform this Agreement and each agreement or instrument (to which it
is a party) executed in connection  herewith or delivered pursuant hereto and to
consummate the transactions contemplated hereby. The Buyer's execution, delivery
and performance of this Agreement and all agreements and instruments executed in
connection   herewith  or  delivered   pursuant  hereto  and  the   transactions
contemplated  hereby have been duly  authorized  by all requisite  action.  This
Agreement and all agreements or instruments  executed by the Buyer in connection
herewith or  delivered  by the Buyer  pursuant  hereto have been or will be duly
executed and delivered by the Buyer,  and this  Agreement and all agreements and
instruments  executed by the Buyer in  connection  herewith or  delivered by the
Buyer  pursuant  hereto  constitute  and will  constitute  the legal,  valid and
binding  obligations  of  the  Buyer,   enforceable  in  accordance  with  their
respective terms.

     4.3. Noncontravention. The execution, delivery and performance by the Buyer
of this  Agreement  and each  agreement  or  instrument  executed in  connection
herewith or delivered  pursuant hereto and the  consummation of the transactions
contemplated  herein  will  not,  with or  without  the  giving of notice or the
passage of time, or both,  (i) conflict with, or result in a violation or breach
of, or a default,  right to accelerate or loss of rights under, or result in the
creation of any Lien under or pursuant to, any provision of the Buyer's articles
of incorporation or bylaws or any Laws, or any finding,  order, judgment,  writ,
injunction  or decree to which the Buyer is a party or by which the Buyer or its
assets  may be bound or  affected;  or (ii)  require  the  approval,  consent or
authorization  of, or prior notice to,  filing with or  registration  with,  any
Governmental Authority, or any other person or entity.

     4.4. No Reliance.  With respect to the  transactions  contemplated  herein,
Buyer  acknowledges  that it (i) has been  granted  access  to all the Books and
Records and materials to conduct all necessary due diligence,  and (ii) has been
afforded the opportunity to ask questions of, and receive answers from,  Seller.
Buyer  acknowledges  that it has not relied on any oral or  written  statements,

                                       16
<PAGE>

representations,   warranties,  or  assurances  from  Seller  or  its  officers,
directors,  employees,  agents,  or  consultants,  except  those in Article  III
hereof.  Buyer is  sophisticated  in the  evaluation,  purchase,  ownership  and
operation  of oil and gas  properties  and  related  facilities.  In making  its
decision  to  enter  into  this  Agreement  and to  consummate  the  transaction
contemplated herein, subject to the express  representations of Seller set forth
in this  Agreement,  Buyer  (a) has  relied  or  shall  rely  solely  on its own
independent   investigation  and  evaluation  of  the  assets  and  the  express
provisions of this Agreement and (b) has satisfied or shall satisfy itself as to
the  environmental  and  physical  condition  of  and  contractual  arrangements
affecting  the assets.  Buyer has no  knowledge  of any fact that results in the
breach of any representation, warranty or covenant of Seller given hereunder.

     4.5. Purchase for Investment. The Buyer is acquiring the Assets for its own
account  for the  purpose  of  investment  and not with a view to or for sale in
connection with any distribution thereof.

     4.6. Financing.

          (a)  Buyer  has,  or  will  have  by  Closing,  unencumbered  cash  or
marketable  securities  sufficient to fully satisfy its  obligations  to pay the
Purchase Price to Seller, as and when due.

          (b) Buyer has  sufficient  financial  resources  to fulfill the surety
bonding  requirements of the State of Texas and/or the United States  Government
in connection with the Leases.

                                    ARTICLE V
                                    COVENANTS

     5.1. Conduct of Business.  Except as provided in this Agreement,  until the
earlier of Closing or the  termination of this Agreement in accordance  with its
terms,  Seller will use commercially  reasonable efforts to operate and maintain
the Assets consistent with past practices.  Other than capital  expenditures for
the various  projects set forth on Schedule  5.1,  Seller will not undertake any
capital  expenditures in excess of $20,000.00 or any  contractual  commitment in
excess of thirty (30) days without the approval of the Buyer, except in cases of
emergency  which could,  in the opinion of Seller,  result in material damage or
injury to persons, property or any of the Assets.

     5.2. Access to Information. At Buyer's sole cost and expense, the Buyer and
its authorized agents, officers and representatives shall have reasonable access
to the  Assets,  including  the  Books and  Records,  in order to  conduct  such
examinations  and  investigations  of the Assets as the Buyer  deems  necessary;
provided,  however,  that such  examinations  and  investigations:  (a) shall be
conducted during the normal business hours of Seller, (b) shall not unreasonably
interfere with the operations and activities of Seller, and (c) shall be subject
to the prior approval of Seller.

     5.3. Further Assurances;  Consents;  Waiver of Notices. Each of the parties
hereto hereby agrees to use commercially  reasonable  efforts (a) to obtain, any
and  all  approvals  of  Governmental  Authorities  and  third  party  consents,
approvals,   notations  and  authorizations  required  in  connection  with  the
consummation of the transactions  contemplated by this Agreement,  (b) to comply

                                       17
<PAGE>

with all conditions and covenants applicable or related to it as contemplated by
this Agreement,  and (c) to take all such other commercially  reasonable actions
as are  necessary  or  advisable  in  order  to cause  the  consummation  of the
transactions contemplated hereby.

     5.4.   Publicity.   All   general   notices,   releases,   statements   and
communications  to suppliers,  distributors and customers of Seller or Buyer and
to the general public and the press relating to the transactions contemplated by
this  Agreement  shall be made only at such  times and in such  manner as may be
agreed upon in advance by Seller and Buyer;  provided,  however,  that any party
hereto or its affiliates shall be entitled to make a public  announcement of the
foregoing if, in the opinion of its legal counsel, such announcement is required
to comply  with  Laws or any  listing  agreement  with any  national  securities
exchange or  inter-dealer  quotation  system and if it first gives prior written
notice  to the  other  parties  hereto  of its  intention  to make  such  public
announcement  and  provides  the  opportunity  to  review  the  content  of such
disclosure.

     5.5. Environmental Investigation.

          (a) Upon  execution  of and  pursuant to the terms of this  Agreement,
Buyer shall have the right, at reasonable times during normal business hours, to
conduct its  investigation  into the status of the  physical  and  environmental
condition of the Properties. If, in the course of conducting such investigation,
Buyer  discovers  that:  (i) any  Property  or the  ownership,  record  keeping,
construction,  maintenance,  repair or operation thereof or with respect thereto
is in violation of any statute,  rule,  regulation or order of any  governmental
agency having  jurisdiction  over the Assets or Seller and pertaining to health,
safety or the  environment  such that the Asset  could be  subject to a Material
Environmental  Obligation  or Liability;  or (ii) any condition or  circumstance
exists  with  respect  to  any  Property  or  the  ownership,   record  keeping,
construction,  maintenance,  repair or operation thereof or with respect thereto
which has  resulted in or given rise to, or could  (with  notice or the lapse of
time or both) result in or give rise to, any Material Environmental  Obligations
or Liabilities,  Buyer may raise such violation, condition or circumstance as an
Environmental  Defect in the manner set forth  hereafter.  For  purposes of this
Section 5.5 only, the term "Material  Environmental  Obligations or Liabilities"
shall mean  that,  with  respect to any  individual  Lease or pooled  unit,  the
Environmental   Obligations   or   Liabilities   with   respect  to  any  single
Environmental  Defect  exceeds  $10,000  or  that  the  aggregate  Environmental
Obligations or  Liabilities  with respect to all claimed  Environmental  Defects
with respect to any individual Lease or pooled unit which have a value,  cost or
loss of less than  $10,000  each,  is $50,000.  A series of related  violations,
conditions or circumstances arising out of similar facts and circumstances shall
be  considered  a single  Environmental  Defect for  purposes of  applying  this
Section.  No later  than  noon  central  standard  time on  December  13th  (the
"Environmental  Defect  Notice  Date"),  Buyer  shall  notify  Seller in writing
specifying  such  Environmental  Defects,  if any,  the  Lease or unit  affected
thereby,  and Buyer's good faith  estimate of the net  reduction in value of the
Lease or unit affected by such Environmental Defects.

          (b) If Buyer fails to notify  Seller prior to or on the  Environmental
Defect Notice Date, of any Environmental  Defect, such Environmental Defect will
be  deemed  waived,  Seller  shall  be  released  from  any  liability  to Buyer
therefore,  the Parties shall proceed with Closing, and Seller shall be under no

                                       18
<PAGE>

obligation to Buyer to correct such Environmental Defects or to indemnify Seller
with respect  thereto.  Seller may, but shall be under no obligation to, correct
at its own cost  and  expense  such  waived  Environmental  Defects  to  Buyer's
reasonable satisfaction on or before the Closing Date.

          (c)  In  the  event  that  Buyer   provides   Seller   with  a  timely
Environmental  Defect  Notice with respect to an  Environmental  Defect,  Seller
shall  either:  (i) cure or  remediate  such  Environmental  Defect  to  Buyer's
reasonable satisfaction;  or (ii) the Base Purchase Price shall be reduced by an
amount equal to the net reduction in value of the Assets affected by any uncured
or  unremediated  Environmental  Defects  (the  "Environmental  Defect  Value"),
subject to Buyer's and Seller's right to terminate this Agreement as provided in
Section 9.1 or elsewhere in this  Agreement;  or (iii)  dispute the existence of
the Environmental  Defect or the Environmental Defect Value. If Buyer and Seller
have  not  agreed  upon  the  Environmental  Defect  Value  attributable  to any
Environmental  Defect by the  Closing  Date,  then for  purposes  of Closing and
determining  any  adjustment to the Base Purchase  Price under this Section 5.5,
the  Environmental  Defect Value shall be the amount  identified by Buyer in its
notice given pursuant to this Section 5.5. Any disputed reduction(s) in the Base
Purchase  Price  pursuant  to this  Section  5.5  shall be paid by Buyer  into a
mutually acceptable escrow account at a national banking  institution,  and such
escrowed  amount  shall be  subsequently  paid by the  escrow  agent to Buyer or
Seller upon resolution of the dispute.

          (d) Buyer acknowledges that it has received the environmental  reports
listed in Schedule 5.5, has had full  opportunity  to examine the Assets and the
information  contained in those reports, and, as further stated in Article VIII,
accepts the Assets with those conditions.

     5.6. Buyer's Schedule of Allocated Values.

          (a) Buyer must prepare,  and forward Schedule 5.6 "Buyer's Schedule of
Allocated  Values" to Seller not later than 16  Business  Days prior to Closing.
Buyer will use its best efforts to forward  Schedule 5.6 to Seller no later than
November 22, 2004.

          (b) Buyer's Schedule of Allocated Values must set forth:

               (i) a complete listing of the Burdened Leases; and

               (ii) the value allocated by Buyer to each Burdened Lease:

                    1. taking into account the effect of the Production Payment,
               but  reduced by the amount of money  attributable  to  production
               from the Burdened Leases after December 31, 2024; and

                    2. assuming  that the Burdened  Leases are acquired by Buyer
               free and clear of the  Production  Payment,  but  reduced  by the
               amount of money  attributable  to  production  from the  Burdened
               Leases after December 31, 2024.

          (c)  Notwithstanding  any other  provisions of this Agreement,  Seller
shall  fully  indemnify  and hold  harmless  Buyer from and  against any and all
Losses that may occur related to i) any dispute by the holders of the Production

                                       19
<PAGE>

Payment  of the  Allocated  Values  determined  by Buyer  for  purposes  of this
Agreement;  ii) any  payment  made by Seller to the  holders  of the  Production
Payment;  or, iii) any other matter  related to the Production  Payment  arising
prior to the assumption of the Burdened Leases by Buyer.

     5.7. Amendment of Schedules.  Buyer and Seller will, promptly upon becoming
aware  of  any  fact,  matter,   circumstance  or  event,  which  fact,  matter,
circumstance  or event  arose  either (i) on or prior to the date hereof or (ii)
after  the  date  hereof  but  prior  to the  Closing,  in any  case,  requiring
supplementation  or amendment of the schedules  provided by the parties attached
hereto,  supplement  or amend such  schedules  to this  Agreement to reflect any
fact, matter,  circumstance or event, which, if existing,  occurring or known on
the  date of this  Agreement,  would  have  been  required  to be set  forth  or
described in such schedules which were or have been rendered inaccurate thereby.
If Closing occurs,  all supplements and amendments to the schedules  provided by
the parties are effective for all purposes, including to (i) amend or supplement
the representations and warranties (and corresponding  schedules) made as of the
date hereof,  and (ii) for the purpose of determining  (A)  satisfaction  of the
conditions  set forth in Sections 6.1, 6.2 or 6.3 hereof,  and (B) compliance by
the parties with their  respective  covenants and  agreements  set forth herein.
Notwithstanding  the above, in the opinion of the  non-amending or supplementing
party,  should any such  supplement  or amendment  result in a Material  Adverse
Change,  then the parties  shall agree to a reasonable  extension of the Closing
Date (which  shall not be later than  December  30,  2004) to  investigate  such
Material  Adverse Change or otherwise agree to an appropriate  adjustment in the
Purchase Price.

                                   ARTICLE VI
          CONDITIONS PRECEDENT TO CONSUMMATION OF THE CLOSING; CLOSING

     6.1.  Conditions  Precedent  to Each  Party's  Obligations  to  Close.  The
respective obligations of each party to consummate the transactions contemplated
by this Agreement on the Closing Date are subject to the  satisfaction or waiver
at or prior to the Closing of the following conditions precedent:

          (a) no order,  decree or injunction shall have been enacted,  entered,
promulgated or enforced by any United States court of competent  jurisdiction or
any United States governmental  authority that prohibits the consummation of the
transactions contemplated by this Agreement; provided, however, that the parties
hereto shall use their  commercially  reasonable efforts to have any such order,
decree or injunction vacated or reversed; and

          (b) all consents,  authorizations,  orders,  permits and approvals for
(or  registrations,  declarations  or filings with) any  Governmental  Authority
required in connection  with the  execution,  delivery and  performance  of this
Agreement and the transactions  contemplated  hereby shall have been obtained or
made,  and except where the failure to have  obtained or made any such  consent,
authorization,  order,  approval,  filing or registration  may not reasonably be
expected  to have a Material  Adverse  Effect on Buyer or Seller  following  the
Closing Date.

                                       20
<PAGE>

          (c) Buyer has  furnished  Buyer's  Schedule  of  Allocated  Values and
fifteen (15) Business Days have elapsed since Seller furnished  Buyer's Schedule
of Allocated Values to REI.

     6.2.  Conditions  Precedent to Obligations of the Buyer.  The obligation of
the Buyer to consummate the  transactions  contemplated by this Agreement on the
Closing Date is subject to the satisfaction or waiver at or prior to the Closing
of the following conditions precedent:

          (a) the  representations and warranties of Seller contained in Article
III shall be true and  correct  in all  material  respects  (when  read  without
exception for  materiality or Material  Adverse Effect) at and as of the Closing
Date with the same force and effect as if those  representations  and warranties
had been made at and as of such time (with such exceptions, if any, necessary to
give effect to events or transactions expressly permitted herein);

          (b)  Seller  shall  have  performed,  in all  material  respects,  all
obligations and complied with all covenants  contained herein that are necessary
to be performed or complied with by it at or before Closing;

          (c) Seller shall have delivered,  or caused to be delivered,  to Buyer
at Closing, all closing deliveries described in Section 6.4(a); and

          (d) all  actions,  corporate  or  other,  to be  taken  by  Seller  in
connection  with  the  transactions  contemplated  by  this  Agreement,  and all
documents  incident  thereto,  shall  be  reasonably  satisfactory  in form  and
substance to the Buyer and the Buyer's counsel.

     6.3.  Conditions  Precedent to  Obligations  of Seller.  The  obligation of
Seller to consummate  the  transactions  contemplated  by this  Agreement on the
Closing Date is subject to the satisfaction or waiver at or prior to the Closing
of the following conditions precedent:

          (a) the  representations  and  warranties  of the Buyer  contained  in
Article IV shall be true and correct in all material respects (when read without
exception for  materiality or Material  Adverse Effect) at and as of the Closing
Date with the same force and effect as if those  representations  and warranties
had been made at and as of such time (with such exceptions, if any, necessary to
give effect to events or transactions expressly permitted herein);

          (b) the Buyer shall have  performed,  in all  material  respects,  all
obligations  and  complied  with  all  covenants  contemplated  herein  that are
necessary to be performed or complied with by it at or before Closing;

          (c) Buyer shall have delivered,  or caused to be delivered,  to Seller
at Closing, the closing deliveries described in Section 6.4(b);

          (d) all  actions,  corporate  or  other,  to be taken by the  Buyer in
connection  with  the  transactions  contemplated  by  this  Agreement,  and all
documents  incident  thereto,  shall  be  reasonably  satisfactory  in form  and
substance to Seller and its counsel; and

                                       21
<PAGE>

     6.4. The Closing. The following provisions shall be applicable with respect
to the Closing:

          (a) At Closing,  Seller  shall,  as a condition  precedent  to Buyer's
obligations hereunder:

               (i)  execute  and  deliver  the  Assignment  and  the  Assumption
     Agreements to Buyer;

               (ii) deliver a  certificate  of Seller,  signed by an  authorized
     officer of Seller,  certifying that the conditions set forth in Section 6.2
     have been satisfied;

               (iii) execute and deliver a FIRPTA Affidavit in the form attached
     as Exhibit D;

               (iv) execute and deliver to Buyer  letters in lieu of transfer or
     division orders;

               (v) for Wells of which Seller is the designated operator, execute
     and  deliver to Buyer:  (1) a validly  executed  blanket  transfer of P-4's
     designating  Buyer  as  operator  of the  Wells  with  the  Texas  Railroad
     Commission;  and (2) any other forms or  documents  required  to  designate
     Buyer  as  operator  of  Wells  with  the  Bureau  of Land  Management,  if
     necessary;

               (vi) execute and deliver to Buyer any other forms required by any
     Governmental  Authority  relating  to  the  assignment  of the  Assets  and
     relating to the assumption of operations by Buyer;

               (vii)  execute and deliver to Buyer  Assignments  of Record Title
     and Transfers of Operating Rights on Bureau of Land Management forms 3003-3
     and 3000-3a, as applicable;

               (viii)  deliver to Buyer such of the Books and  Records as Seller
     determines to be feasible and thereafter deliver the remainder of the Books
     and Records to Buyer as soon after Closing as is reasonably possible; and

               (ix) deliver possession of the Assets to Buyer.

          (b) At Closing,  and as a condition precedent to Seller's  obligations
hereunder, Buyer shall:

               (i) pay and  deliver  to Seller  the  Purchase  Price,  as may be
     adjusted in accordance with the terms of this  Agreement,  by wire transfer
     to a bank to be  designated  by Seller at least two Business  Days prior to
     Closing;

               (ii) execute and deliver the Assumption Agreement to Seller;

                                       22
<PAGE>

               (iii)  deliver a  certificate  of Buyer,  signed by an authorized
     officer of Buyer,  certifying  that the conditions set forth in Section 6.3
     have been satisfied; and

               (iv) execute and deliver to Seller any and all other instruments,
     documents and other items  reasonably  necessary to effectuate the terms of
     this Agreement, as may be reasonably requested by Seller.

          (c) At Closing,  TGG shall execute and deliver and Buyer shall execute
and accept, an instrument of conveyance and assumption of liabilities  regarding
the TGG Assets, in the form attached hereto as Exhibit E.

                                   ARTICLE VII
                              ADDITIONAL COVENANTS

     7.1. Access to Books and Records. At its expense, Seller and its affiliates
and its and their authorized  agents,  officers and  representatives  shall have
reasonable  access  after the  Closing  Date to the Books  and  Records  for any
reasonable business purpose,  including, but not limited to, matters relating to
Taxes; provided, however, that such access by Seller and its affiliates, and its
and their authorized agents, officers and representatives (a) shall be conducted
during  the  normal  business  hours of Buyer,  and (b)  shall not  unreasonably
interfere with the operations and activities of Buyer. The Buyer shall cooperate
in all reasonable respects with Seller's review of such information,  including,
without limitation, retaining all such information until Seller has notified the
Buyer in writing that all tax years  (including any portion of a tax year) prior
to and  including  the  Closing  Date have been  closed or for seven (7)  years,
whichever is longer.

     7.2. Tax Matters.

          (a)  Buyer  shall be  responsible,  and  agrees to hold  harmless  and
indemnify  the Seller  Indemnified  Parties,  for any and all  sales,  transfer,
recordation, or similar Taxes payable by virtue of this transaction,  excluding,
however,  Seller's  income  taxes.  Buyer and Seller  shall  cooperate to timely
prepare and file all Tax Returns for such Taxes.

          (b)  Seller  shall be  responsible,  and agrees to hold  harmless  and
indemnify  the  Buyer  Indemnified  Parties,  for all  oil  and gas  production,
severance,  ad valorem and other  similar  Taxes with  respect to the Assets for
periods (or any portion  thereof) or production  prior to the Effective Time, in
each case to the extent not taken into account under Section 2.3(b). Buyer shall
be responsible, and agrees to hold harmless and indemnify the Seller Indemnified
Parties, for all oil and gas production, severance, ad valorem and other similar
Taxes with  respect  to the  Assets for  periods  (or any  portion  thereof)  or
production  after the Effective  Time, in each case to the extent not taken into
account  under  Section  2.3(a) but  including  the items  described  in Section
2.3(b).

          (c) The  parties  agree to  cooperate  with each  other as  reasonably
required after the Closing Date in connection with audits and other  proceedings
with respect to any Taxes relating to the Assets.

                                       23
<PAGE>

          (d)  Notwithstanding  any  other  provision  of  this  Agreement,  the
covenants and obligations set forth in this Section 7.2 shall survive until, and
any claim for  indemnification  with respect  thereto must be made prior to, the
expiration  of  the  applicable  statute  of  limitations  with  respect  to the
underlying Tax claim (including any valid extensions).

     7.3.  Surety  Bonds.  Buyer  shall have  surety  bonds in place prior to or
immediately  following the Closing Date  sufficient to replace  Seller's  surety
bonds set forth on Schedule 7.3.  Buyer shall release or cause  Seller's  surety
bonds to be released as soon as  reasonably  practicable  following  the Closing
Date.

     7.4. Casualty.  If any Asset shall be damaged or destroyed by fire or other
casualty before the Closing,  either party may, at its option,  and upon written
notice prior to Closing to the other party elect to exclude such Asset from this
Agreement.  In the event that the Asset to be excluded  pursuant to this Section
7.4 is the entirety of a Lease,  the Base Purchase Price shall be reduced by the
Allocated Value of the Lease to be excluded.  In the event that the Asset sought
to be excluded is less than the  entirety of a Lease,  the Base  Purchase  Price
shall be reduced by a mutually  agreed upon amount.  If neither  party elects to
delete  such  Asset  from this  Agreement  as  aforesaid,  Seller  shall pay the
deductible  due under any  insurance  policy or policies  insuring  the same and
deliver to Buyer, at the Closing, any insurance proceeds actually received by it
by reason of such  casualty,  and  assign to Buyer all of its  right,  title and
interest in any claim under any applicable insurance policies in respect of such
casualty.

     7.5. Consents and Preferential Rights.

          (a) Any  consents  other  than  consents  customarily  obtained  after
Closing, such as, for example,  consents to assign federal leases, arising under
any of the  Property  Agreements  and  unresolved  at  Closing  (either  by time
constraints  or by refusal to consent),  shall be considered  agreed-upon  Title
Defects under Exhibit A, until satisfied.  If on the Closing Date, the holder of
a preferential right has not indicated whether or not it will exercise its right
and the time period within which it must timely respond has not lapsed, then the
parties  shall proceed to Closing on those Assets  affected by the  preferential
right and Buyer shall  assume  responsibility  for  conveying  the Assets to the
holder  of the  preferential  right  should it timely  exercise,  in return  for
payment by the holder to Buyer of the Allocated Value of the affected Assets.

          (b) It is  recognized  that the  Burdened  Leases  are  subject to the
Production  Payment and that not later than 15  Business  Days prior to Closing,
Seller must notify REI of the impending  sale, and furnish  Buyer's  Schedule of
Allocated  Values and certain other  information  to REI. It is also  recognized
that REI will have 10 Business Days in which to decide whether it will liquidate
the Production  Payment for an amount  determined under a procedure set forth in
the Production Payment (the "Production  Payment  Liquidation  Amount").  If REI
liquidates  the  Production  Payment,  then:  (i) Seller will pay the Production
Payment  Liquidation  Amount to REI at  Closing;  and (ii)  Buyer  will take the
Burdened  Leases  free and  clear  of the  Production  Payment.  If REI does not
liquidate the  Production  Payment,  the  Production  Payment will be an Assumed
Liability  and the  Base  Purchase  Price  will be  reduced  at  Closing  by the
Production Payment Liquidation Amount.

                                       24
<PAGE>

     7.6.  Employee  Matters.  Attached  hereto as Schedule  7.6 is a listing of
field and office employees that Buyer may consider for employment. Buyer may, at
is sole discretion,  offer employment to any or all of such employees.  Any such
offers of  employment  shall be at a base salary or hourly  wage,  and come with
such other benefits as are commensurate with similar positions with Buyer.

     7.7.  Non-Solicitation.  For one (1) year from the date of this  Agreement,
Buyer may not  solicit  the  employment  of any  employees  of  Seller  that are
assigned,   temporarily  or   permanently,   to  Seller's   Shreveport   office.
Solicitation for employment does not include general  advertising for employment
opportunities.

     7.8.  Transition  Services  Agreement.  If requested by Buyer,  Seller will
provide  administrative  services  with  respect to the Assets for the period of
time between the Closing Date and January 31, 2005.

     7.9.  Leased  Equipment  and  Licensed   Software.   Seller  will  exercise
commercially  reasonable  efforts to provide for the  transfer of leased  office
equipment and licensed software that is used by Seller in its Irving,  Texas and
Bridgeport,  Texas,  offices,  the leases and licenses with respect to which are
not owned by Winchester.

     7.10. Beck Lease.  Until Closing,  Seller will continue to use commercially
reasonable  efforts to negotiate  with the lessors under the Beck Lease to allow
for the expansion of the pad sites.

     7.11. Ewing Lease.

          (a) Buyer and  Seller  acknowledge  that the Ewing  Lease  expires  on
December 31, 2004. It is also  recognized  that Buyer and Seller have engaged in
negotiations  with the lessor under the Ewing Lease, Mr. Finley Ewing,  with the
objective of renewing or extending the Ewing Lease.  Seller  commits to continue
to assist in such  negotiations  following  Closing  until  December 31, 2005 or
until the lease or other agreement is secured, whichever comes first.

          (b) At Closing,  Buyer will pay Seller the entire  value  allocated by
Buyer to the Ewing Lease, as set forth on Buyer's Schedule of Allocated  Values.
From the date this Agreement is executed through December 31, 2005, Buyer agrees
to exercise commercially  reasonable efforts to negotiate a new or revised lease
on the  lands  covered  by the Ewing  Lease (a  "Replacement  Lease").  The term
"Replacement  Lease"  means a new lease or an  extension  of the Ewing  Lease or
other  agreement  that allows Buyer to achieve the  development  program for the
Ewing Lease set forth on Exhibit F. Seller will have the right to participate in
all negotiations  with Mr. Ewing. If the terms of the Replacement  Lease require
the  payment of a bonus to Mr.  Ewing,  Seller  will pay the first four  hundred
thousand dollars (US $400,000.00) of such bonus.

          (c) If Buyer, after the exercise of commercially  reasonable  efforts,
exercised  in good faith,  does not, by December  31,  2005,  acquire a lease or
other  agreement  that qualifies as a Replacement  Lease,  Seller will refund to
Buyer,  upon the later of: (i) December  31, 2005;  or (ii) the date that is the

                                       25
<PAGE>

end of the primary term or the end of any allowable  period of drilling  allowed
by any lease or other agreement  acquired by Buyer covering lands covered by the
Ewing Lease, an amount of money equal to five million dollars (US $5,000,000.00)
minus US  $294,118  times the number of wells that Buyer has  drilled or has the
right to drill under the new agreement, if any.

                                  ARTICLE VIII
                            SURVIVAL; INDEMNIFICATION

     8.1. Limitation on and Survival of Representations and Warranties.

          (a) The Buyer and Seller acknowledge and agree that no representations
or  warranties  have  been  made by  Buyer  or  Seller  in  connection  with the
transactions  contemplated by this Agreement,  except for those  representations
and warranties made in Article III and Article IV hereof.

          (b) Subject to paragraph (a) of this Section 8.1, all  representations
and warranties contained in this Agreement,  or in any agreements or instruments
executed in connection herewith or delivered pursuant hereto,  shall survive the
Closing  for a period of six months  beginning  on the Closing  Date;  provided,
however,  that the  representations  set forth in Section 3.10 shall survive the
Closing for a period of one year. Such representations and warranties shall only
be  effective  with respect to any breach or claim when notice of such breach or
claim  shall have been given in writing to the other  party in breach or against
whom indemnification is sought within such period. Any claim for indemnification
for which notice has been given within the  prescribed  period may be prosecuted
to conclusion notwithstanding the subsequent expiration of such period. No party
to this  Agreement  shall be entitled to pursue any remedy for the breach of any
representation  or  warranty:  (i) to the extent  such  party was given  written
notice of such  breach;  or (ii) to the extent that such matter was set forth in
any documents  provided to Buyer prior to Closing and would reasonably give rise
to the conclusion  that such matter was a breach,  prior to the Closing Date and
such party proceeds with the Closing.

     8.2. Indemnification by Seller.

          (a) Subject to the  limitations  set forth in Sections  8.1,  8.4, and
7.2,  Seller  and PFC  (the  "Seller  Indemnifying  Parties")  hereby  agree  to
indemnify  and  hold  the  Buyer  and its  employees,  officers,  directors  and
affiliates (each a "Buyer Indemnified  Party") harmless from and against any and
all  claims,  demands,  suits,  proceedings,   judgments,  losses,  liabilities,
damages,  costs  and  expenses  (including,   but  not  limited  to,  reasonable
attorneys' fees) (collectively,  "Losses") imposed upon or incurred by any Buyer
Indemnified Party as a result of or in connection with any of the following:

               (i) Any breach of a representation  or warranty made by Seller in
     Article  III of  this  Agreement;  provided,  that  for  purposes  of  this
     provision,  a breach of a  representation  or warranty that is qualified by
     materiality  or Material  Adverse  Effect shall be deemed to occur if there
     would have been a breach of such  representation  or  warranty  absent such
     qualification; or

               (ii) The breach of, or default in the  performance  by Seller of,
     any covenant, agreement or obligation to be performed by Seller pursuant to
     this  Agreement  or any  agreement  or  instrument  executed in  connection
     herewith or pursuant hereto.

                                       26
<PAGE>

          (b) Within thirty (30) days after receipt by a Buyer Indemnified Party
of notice of an Action or other  event  giving  rise to a buyer  claim (a "Buyer
Claim")  with  respect to which a Buyer  Indemnified  Party may be  entitled  to
indemnification  under this Section 8.2, the party  receiving  such notice shall
notify (the "Buyer Claim Notice") the Seller Indemnifying  Parties in writing of
the commencement of such Action or the assertion of such Buyer Claim;  provided,
however,  that  failure  to give  such  notice  shall  not  affect  the right to
indemnification hereunder except to the extent of actual prejudice to the Seller
Indemnifying Parties. The Seller Indemnifying Parties shall have the option, and
shall notify the Buyer  Indemnified  Party in writing  within ten (10)  business
days after the date of the Buyer Claim Notice of their election,  either: (A) to
participate (at the expense of the Seller  Indemnifying  Parties) in the defense
of such Action or Buyer Claim (in which case the defense of such Action or Buyer
Claim shall be controlled by the Buyer Indemnified  Party) or (B) to take charge
of and  control the defense of such Action or Buyer Claim (at the expense of the
Seller  Indemnifying  Parties).  If the  Seller  Indemnifying  Parties  elect to
control the defense,  it will not compromise or settle the Action or Buyer Claim
if (X) the amount to be paid in settlement  exceeds the Maximum Indemnity Amount
or (Y)  the  settlement  does  not  include  a  provision  releasing  the  Buyer
Indemnified  Party from all  liabilities  with  respect  thereto.  If the Seller
Indemnifying  Parties  fail to  notify  the  Buyer  Indemnified  Party  of their
election within the applicable  response  period,  then the Seller  Indemnifying
Parties  shall be deemed to have  elected  not to  control  the  defense of such
Action or Buyer Claim. If the Seller  Indemnifying  Parties elect to control the
defense of any Action or Buyer Claim, the Buyer Indemnified Party shall have the
right to employ  separate  counsel and participate in the defense of such Action
or Buyer  Claim,  but the  fees and  expenses  of such  counsel  shall be at the
expense of the Buyer  Indemnified  Party  unless:  (1) the named parties in such
Action or Buyer Claim  (including any impleaded  parties) include both the Buyer
Indemnified  Party and an  indemnifying  party and the Buyer  Indemnified  Party
shall  have been  advised  by such  counsel  that there may be one or more legal
defenses  available  to it that  are  different  from  or  additional  to  those
available to the  indemnifying  party,  or (2) the Buyer  Indemnified  Party has
reasonably  determined  that  Losses  that may be  incurred  may  exceed  either
individually,  or when aggregated with other Buyer Claims, the Maximum Indemnity
Amount (in which case, the Seller Indemnifying  Parties shall not have the right
to  control  the  defense of such  Action or Buyer  Claim on behalf of the Buyer
Indemnified Party, it being understood,  however,  that the Seller  Indemnifying
Parties shall not, in connection  with such Action or Buyer Claim, be liable for
the fees and expenses of more than one separate  firm of attorneys  (in addition
to any local counsel) and that all such fees and expenses shall be reimbursed as
they are incurred).

          (c) If the Seller  Indemnifying  Parties do not control the defense of
any Action or Buyer  Claim,  then the Buyer  Indemnified  Party may settle  such
Action or Buyer  Claim with the prior  written  consent  of Seller  Indemnifying
Party (not to be unreasonably withheld).

     8.3. Indemnification by Buyer.

          (a) Subject to the  limitations  set forth in Section  8.4,  the Buyer
hereby  agrees  to  indemnify  and  hold  Seller  and its  employees,  officers,
managers,  members,  and affiliates (each a "Seller Indemnified Party") harmless
from and  against  any and all Losses  imposed  upon or  incurred  by any Seller
Indemnified  Party (any of such Losses by Seller,  a "Seller Claim") as a result
of or in connection with any of the following:

                                       27
<PAGE>

               (i) Any breach of a representation  or warranty made by the Buyer
     in this Agreement or in any agreement or instrument  executed in connection
     herewith or pursuant hereto; provided, that for purposes of this provision,
     a breach of a  representation  or warranty that is qualified by materiality
     or  Material  Adverse  Effect  shall be deemed to occur if there would have
     been a breach of such representation or warranty absent such qualification;

               (ii) The breach of or default in the  performance by the Buyer of
     any covenant, agreement or obligation to be performed by the Buyer pursuant
     to this  Agreement or any  agreement or  instrument  executed in connection
     herewith or pursuant hereto; or

               (iii) The ownership or operation of the Assets from and after the
     Closing Date.

          (b)  Within  thirty  (30) days after  receipt by a Seller  Indemnified
Party of notice of the commencement of an Action or other event giving rise to a
seller claim (a "Seller Claim") with respect to which a Seller Indemnified Party
may be entitled to indemnification, the party receiving such notice shall notify
(the "Seller Claim Notice") Buyer in writing of the  commencement of such Action
or the assertion of such Seller Claim;  provided,  however, that failure to give
such notice shall not affect the right to  indemnification  hereunder  except to
the extent of actual prejudice to Buyer.  Buyer shall have the option, and shall
notify each indemnified party in writing within ten business days after the date
of the Seller Claim of its  election,  either:  (A) to  participate  (at its own
expense) in the defense of the Action or Seller Claim (in which case the defense
of such Action or Seller  Claim shall be  controlled  by the Seller  Indemnified
Party) or (B) to take  charge of and  control  defense of such  Action or Seller
Claim (at its own  expense).  If Buyer  fails to notify the  Seller  Indemnified
Party of its election within the applicable response period, then Buyer shall be
deemed to have  elected  not to control  the  defense  of such  Action or Seller
Claim.  If Buyer  elects to control the  defense of any Action or Seller  Claim,
each Seller  Indemnified  Party shall have the right to employ separate  counsel
and participate in the defense of any such Action or Seller Claim,  but the fees
and expenses of such counsel  shall be at the expense of the Seller  Indemnified
Party unless:  (1) the named  parties in such Action or Seller Claim  (including
any impleaded  parties) include both the Seller  Indemnified Party and Buyer and
the Seller  Indemnified Party shall have been advised by such counsel that there
may be one or more legal  defenses  available to it that are  different  from or
additional to those available to Buyer, or (2) Seller has reasonably  determined
that  Losses  that may be  incurred  may  exceed  either  individually,  or when
aggregated  with other Seller  Claims,  the Maximum  Indemnity  Amount (in which
case,  Buyer  shall not have the right to assume the  defense of such  Action or
Seller Claim on behalf of the Seller  Indemnified  Party,  it being  understood,
however, that Buyer shall not, in connection with such Action or Seller Claim be
liable for the fees and expenses of more than one separate firm of attorneys (in
addition  to any  local  counsel)  and  that  such  fees and  expenses  shall be
reimbursed as they are incurred).

          (c) If Buyer  does not  control  the  defense  of any Action or Seller
Claim,  then the Seller  Indemnified  Party or parties may settle such Action or
Seller  Claim with the prior  written  consent of Buyer (not to be  unreasonably
withheld).

                                       28
<PAGE>

     8.4. Limitation of Liability. Notwithstanding the foregoing, (i) the Seller
Indemnifying  Parties shall not be obligated to indemnify the Buyer  Indemnified
Parties,  and Buyer shall not be obligated to indemnify  the Seller  Indemnified
Parties  pursuant to this Article VIII unless and until the amount of all Losses
incurred by Buyer, or by Seller, as the case may be, exceeds one million dollars
($1,000,000.00)  in the  aggregate  (the  "Basket"),  in which  event  the party
seeking  indemnity may recover all Losses  incurred in excess of the Basket from
the first  dollar  above the Basket,  and (ii) the Seller  Indemnifying  Parties
maximum liability for Losses under Section 8.2 and Buyer's maximum liability for
Losses under  Section 8.3 shall be, in each case,  fifteen  percent (15%) of the
Purchase Price (the "Maximum Indemnity Amount").

     8.5.  Exclusive  Remedy.  Except as provided in Section 7.2 or Section 8.6,
after the Closing,  the parties' sole and exclusive  recourse against each other
for any Loss or claim of Losses  arising out of or  relating  to this  Agreement
shall be expressly limited to the provisions of this Article VIII.

     8.6. Title Defects. Buyer's sole and exclusive remedy with respect to Title
Defects, or Losses arising thereunder, shall be as provided in Exhibit A.

     8.7. Disclaimer of Other Warranties.

          (a) The express  representations and warranties of Seller contained in
this  Agreement are exclusive and are in lieu of all other  representations  and
warranties,  express,  implied,  or statutory.  SELLER HAS NOT MADE,  AND SELLER
HEREBY EXPRESSLY  DISCLAIMS AND NEGATES,  AND BUYER HEREBY EXPRESSLY WAIVES, ANY
REPRESENTATION  OR  WARRANTY,  EXPRESS,  IMPLIED,  AT COMMON  LAW, BY STATUTE OR
OTHERWISE RELATING TO (A) PRODUCTION RATES, RECOMPLETION OPPORTUNITIES,  DECLINE
RATES,  GAS BALANCING  INFORMATION  OR THE QUALITY,  QUANTITY,  OR VOLUME OF THE
RESERVES OF HYDROCARBONS,  IF ANY, ATTRIBUTABLE TO THE ASSETS, (B) THE ACCURACY,
COMPLETENESS OR MATERIALITY OF ANY INFORMATION, DATA OR OTHER MATERIALS (WRITTEN
OR ORAL) NOW,  HERETOFORE  OR  HEREAFTER  FURNISHED  TO BUYER BY OR ON BEHALF OF
SELLER,  (C) THE ENVIRONMENTAL  CONDITION OF THE PROPERTIES,  (D) ANY IMPLIED OR
EXPRESS  WARRANTY OF  MERCHANTABILITY,  (E) ANY  IMPLIED OR EXPRESS  WARRANTY OF
FITNESS  FOR A  PARTICULAR  PURPOSE,  (F) ANY  IMPLIED  OR EXPRESS  WARRANTY  OF
CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, (G) ANY RIGHTS OF PURCHASERS UNDER
APPROPRIATE  STATUTES TO CLAIM DIMINUTION OF CONSIDERATION,  AND (H) ANY AND ALL
IMPLIED WARRANTIES EXISTING UNDER APPLICABLE LAW; IT BEING THE EXPRESS INTENTION
OF BOTH BUYER AND SELLER THAT SUBJECT TO AND WITHOUT  LIMITING  SELLER'S EXPRESS
REPRESENTATION AND WARRANTIES CONTAINED HEREIN, THE PERSONAL PROPERTY, EQUIPMENT
AND FIXTURES INCLUDED WITHIN THE PROPERTIES ARE TO BE CONVEYED TO BUYER IN THEIR
PRESENT  CONDITION AND STATE OF REPAIR,  AND THAT BUYER HAS MADE OR CAUSED TO BE
MADE SUCH INSPECTIONS AS BUYER DEEMS  APPROPRIATE.  SELLER AND BUYER AGREE THAT,
TO THE EXTENT  REQUIRED BY APPLICABLE  LAW TO BE EFFECTIVE,  THE  DISCLAIMERS OF
CERTAIN WARRANTIES  CONTAINED IN THIS SECTION ARE "CONSPICUOUS"  DISCLAIMERS FOR
THE PURPOSES OF ANY APPLICABLE LAW, RULE OR ORDER.

                                       29
<PAGE>

          (b) Buyer is aware that the Properties have been used for exploration,
development, production, handling, transporting and/or processing of oil and gas
and that there may be petroleum,  produced  water,  wastes,  or other  materials
located  on or under  the  Properties  or  associated  with the  premises.  Some
equipment and sites included in the Properties may contain  asbestos,  Hazardous
Substances, or naturally occurring radioactive material ("NORM"). NORM may affix
or attach itself to the inside of wells,  materials,  and equipment as scale, or
in other forms; the wells, materials, and equipment located on the Properties or
included in the  Properties  may contain  NORM and other  materials or Hazardous
Substances;  and  NORM-containing  material  and other  materials  or  Hazardous
Substances  may have been  buried,  come in contact  with the soil or water,  or
otherwise been disposed of on the Properties. Special procedures may be required
for  the  remediation,   removal,  transportation,  or  disposal  of  materials,
asbestos,  Hazardous Substances, and NORM from the Properties. Buyer will assume
all liability for the  assessment,  remediation,  removal,  transportation,  and
disposal of these  materials and  associated  activities  and will conduct these
activities in accordance  with all applicable  laws and  regulations,  including
applicable environmental laws.

          (c) Buyer  understands  that  operation  of the  Leases is  subject to
requirements of the governmental authorities having jurisdiction. It will be the
obligation of Buyer to ensure that, as of the Closing,  or as soon thereafter as
reasonably  practicable,  Buyer will meet the qualifications of the governmental
authorities  having  jurisdiction,  in order to become  record  operator  of the
Leases.

                                   ARTICLE IX
                                   TERMINATION

     9.1.  Termination.  This Agreement may be terminated  and the  transactions
contemplated  by this  Agreement  may be  abandoned  at any  time,  prior to the
Closing only as follows:

          (a) by mutual written consent of the Buyer and Seller;

          (b) by the Buyer or Seller if the Closing  shall not have  occurred on
or before December 30, 2004 (provided that the right to terminate this Agreement
under this Section  9.1(b) shall not be available to any party whose  failure to
fulfill  any  obligation  under  this  Agreement  has been the  cause of, or has
resulted in, the failure of the Closing to occur on or before such date); or

          (c) by the Buyer or Seller, if any court of competent  jurisdiction in
the United States or other United States  governmental body shall have issued an
order,  decree or ruling or taken any other  action  restraining,  enjoining  or
otherwise  prohibiting  the  transactions  contemplated  hereby and such  order,
decree, ruling or other action shall have become final and non-appealable.

                                       30
<PAGE>

          (d) by the Buyer or  Seller,  if the  aggregate  of the  Title  Defect
Values and  Environmental  Defect  Values  asserted by Buyer total more than ten
percent (10%) of the Base Purchase Price.

     9.2.  Effect of  Termination.  If this Agreement is terminated  pursuant to
Section  9.1  and  the  transactions  contemplated  by  this  Agreement  are not
consummated,  all further  obligations  of the parties under or pursuant to this
Agreement  shall  terminate  without  further  liability  of either party to the
other;  provided,  however,  the  obligations  contained in this Section 9.2 and
Section  10.2 of this  Agreement  shall  survive any such  termination.  Nothing
contained in this  Section 9.2 shall  relieve any party from  liability  for any
breach of this Agreement.

     9.3.  Amendment.  This Agreement may not be amended except by an instrument
in writing signed by all of the parties.

     9.4. Extension;  Waiver. At any time prior to the Closing,  the parties may
(a) extend the time for the  performance of any of the obligations or other acts
of the other parties hereto,  (b) waive any inaccuracies in the  representations
and  warranties  contained  herein or in any  document,  certificate  or writing
delivered  pursuant  hereto,  or (c) waive compliance with any of the covenants,
agreements  or  conditions  contained  herein.  Any agreement on the part of any
party to any such  extension  or waiver  shall be valid  only if set forth in an
instrument in writing signed on behalf of such party.

                                    ARTICLE X
                                  MISCELLANEOUS

     10.1. Entire Agreement. This Agreement and the documents referred to herein
and to be delivered  pursuant hereto constitute the entire agreement between the
parties  pertaining to the subject  matter  hereof,  and supersede all prior and
contemporaneous agreements, understandings,  negotiations and discussions of the
parties,  whether oral or written, and there are no warranties,  representations
or other  agreements  between the parties in connection  with the subject matter
hereof, except as specifically set forth herein or therein.

     10.2. Expenses.

          (a) Whether or not the transactions contemplated by this Agreement are
consummated, each of the parties hereto shall pay the fees and expenses of their
respective  counsel,  investment bankers,  financial  advisors,  accountants and
other experts and the other expenses incident to the negotiation and preparation
of this Agreement and consummation of the transactions contemplated hereby.

          (b) Buyer shall be solely responsible for all filings and recording of
assignments  and other  documents  which  transfer any of the Assets to Buyer or
which  designate  Buyer as the operator of the Assets and for all fees connected
with such filing or recording.  Upon  request,  Buyer shall advise Seller of the
pertinent  recording data. Seller shall not be responsible for any loss to Buyer
because of Buyer's  failure to file or record any such  documents  correctly  or
promptly

                                       31
<PAGE>

     10.3.  Governing  Law. This  Agreement  shall be construed and  interpreted
according to the laws of the State of Texas  without  regard to the conflicts of
law rules thereof.

     10.4.  Assignment.  This  Agreement  and  each  party's  respective  rights
hereunder  may not be assigned at any time except as expressly  set forth herein
without the prior written consent of the other parties.

     10.5.  Notices.  All  communications,  notices and disclosures  required or
permitted by this Agreement shall be in writing and shall be deemed to have been
given  when  delivered  personally  or by  messenger  or by  overnight  delivery
service,  or when mailed by registered or certified United States mail,  postage
prepaid, return receipt requested, or when received via telecopy, telex or other
electronic  transmission,  in all cases  addressed  to the person for whom it is
intended  at his  address  set forth  below or to such other  address as a party
shall have  designated  by notice in  writing  to the other  party in the manner
provided by this Section 10.5:



     If to Seller, TGG or Progress Fuels  Progress Fuels Corporation
     Corporation:                         P.O. Box 1551
                                          Raleigh, North Carolina 27602
                                          Attention:  Robert M. Deacy
                                                      Senior Vice President,
                                                      Gas Operations
                                          Telecopy:  919-546-2990

     With a copy to:                      Hunton & Williams LLP
                                          421 Fayetteville Street Mall,
                                          Suite 1400
                                          Raleigh, North Carolina 27601
                                          Attention:  Timothy S. Goettel
                                          Telecopy:  919-899-3160

                                          And

                                          David B. Fountain
                                          Deputy General Counsel
                                          Progress Energy Service Company, LLC
                                          Mail Code PEB 17B2
                                          Raleigh, North Carolina 27602
                                          Telecopy:  (919) 546-2920

                                       32
<PAGE>

     If to the Buyer:                     EnCana Oil & Gas (USA), Inc.
                                          950 17th Street, Suite 2600
                                          Denver, CO 80202
                                          Attention:  Roger Biemans, President
                                          Telecopy:  (303) 623-9178

                                          With a copy to:

                                          Mr. John Sanchez
                                          14001 N. Dallas Parkway, Suite 1000
                                          Dallas, Texas 75240
                                          Telecopy: (214) 691-1415

     10.6.  Counterparts;  Headings.  This  Agreement may be executed in several
counterparts,  each of which shall be deemed an original,  but such counterparts
shall together constitute but one and the same Agreement.  The Table of Contents
and Article and Section  headings in this Agreement are inserted for convenience
of reference only and shall not constitute a part hereof.

     10.7.  Specific  Performance.  The parties  hereto  agree that  irreparable
damage would occur in the event any of the provisions of this Agreement were not
performed  in  accordance  with the terms  hereof and that the parties  shall be
entitled to specific  performance of the terms hereof,  in addition to any other
remedy at law or equity.

     10.8. Interpretation. Unless the context requires otherwise, all words used
in this Agreement in the singular number shall extend to and include the plural,
all words in the plural  number shall extend to and include the singular and all
words in any gender shall extend to and include all genders.  All  references to
contracts, agreements, leases, Employee Benefit Plans or other understandings or
arrangements shall refer to oral as well as written matters.

     10.9. Severability.  If any provision, clause or part of this Agreement, or
the  application  thereof under  certain  circumstances,  is held  invalid,  the
remainder of this Agreement,  or the  application of such  provision,  clause or
part under other circumstances, shall not be affected thereby.

     10.10. No Third-Party  Reliance.  No third party is entitled to rely on any
of the  representations,  warranties and agreements contained in this Agreement,
and Seller and the Buyer assume no  liability to any third party  because of any
reliance on the  representations,  warranties  and  agreements of Seller and the
Buyer contained in this Agreement.

                            [SIGNATURE PAGE FOLLOWS]

                                       33
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     IN WITNESS WHEREOF,  the parties have caused this Purchase  Agreement to be
duly executed as of the day and year first above written.

                                         WINCHESTER PRODUCTION
                                         COMPANY, LTD.
                                         By: Vaughan Holding Company, LLC,
                                         its general partner


                                         By: /s/Robert M. Deacy
                                             -------------------------------
                                         Name:  Robert M. Deacy
                                         Title: Senior Vice President


                                         TGG PIPELINE, LTD.,
                                         solely for the purpose of conveying
                                         the TGG Assets
                                         By: Vaughan Holding Company, LLC,
                                         its general partner


                                         By: /s/Robert M. Deacy
                                             -------------------------------
                                         Name:  Robert M. Deacy
                                         Title:    Senior Vice President

                                         PROGRESS FUELS CORPORATION,
                                         solely for the purpose of supporting
                                         the obligations of Seller set forth in
                                         Article VIII



                                         By: /s/Bonnie V. Hancock
                                             -------------------------------
                                         Name:  Bonnie V. Hancock
                                         Title:    President

                                         ENCANA OIL & GAS (USA) INC.


                                         By: /s/Roger Biemans
                                             -------------------------------
                                         Name:  Roger Biemans
                                         Title:    President