Filed by sedaredgar.com - Pantera Petroleum Inc. -  Exhibit 10.1






AGREEMENT

THIS AGREEMENT (the “Agreement”) is dated October 30,
2008, and is entered into by and among PANTERA PETROLEUM INC.
(“Pantera”), LAKEHILLS PRODUCTION, INC. (“Lakehills”) and
MADOFF ENERGY IV LLC (“Madoff”). Pantera, Lakehills and Madoff are
at times each individually referred to herein as a “Party” and are at
times collectively referred to herein as the “Parties”.

W I T N E S S E T H:

     1.
Properties. The Parties desire to enter into a drilling program
and other arrangements relating to the following described properties, rights
and interests (herein collectively called the “Properties”):

     (a)
All oil and gas interests owned or to be acquired by Pantera and/or
Lakehills that are associated with wells (including plugged wells) on Section
numbers 74, 77, 78, 80 and 81 (individually, a “Well” and collectively,
the “Wells”) in the West Gomez field (Baker Ranch) located in Pecos
County, Texas, including those more particularly described on Exhibit
A-1 attached hereto and made a part hereof. Such oil and gas interests
include all well bores, equipment, surface interests, mineral leases, royalty
interests, production, drilling locations, mineral interests, and associated
contracts and rights on and/or related thereto (the “Associated
Property”). Exhibit A-2 describes certain Associated Property
by Well.

     (b)
The acreage associated with the Wells consists of approximately 2,519
developed and undeveloped acres of land (the “Acreage”). The specific
Acreage amount associated with each Well is set forth in Exhibit
A-3 attached hereto and made a part hereof.

     2. Well
Programs.

     (a)
General. Pantera and Lakehills grant to Madoff the exclusive
option to fund the drilling, re-entry and completion of the Wells (the “Well
Program”) in consideration for Pantera’s and Lakehills’ conveyance of a 100%
working interest in each Well and all Associated Property, on a Well-by-Well
basis, as contemplated in Section 3 below. This exclusive option to fund the
Well Program shall be a restrictive covenant running with the Properties. The
estimated cost associated with the drilling, re-entry and completion of each
Well is detailed under the “AFE” column on Exhibit B
attached hereto and made a part hereof (“Well Cost”). The Well Cost is
comprised of an estimate of (i) the reasonable costs to drill, complete, and
equip a Well, (ii) other reasonable costs to construct pipelines, gathering
lines, sales meters, and pipeline interconnection, and (iii) all other
reasonable capital expenses associated with each Well and the production from
each well. Madoff will make funds available (up to the specified Well Cost) for
the drilling, re-entry and completion of the Initial Well and, should Madoff
elect to continue the Well Program as set forth in Section 2(c) below, each
Additional Well. All such funds made available by Madoff shall be used
exclusively to pay for actual, reasonably 




incurred costs and expenses associated
with the Well Program and expended in accordance with a mutually agreed
timetable.

     (b)
Initial Well. The Well Program is expected to commence
with the reentry of the Section 80 Well (API #42-371-30774) (the “Initial
Well”) promptly after the closing of the transactions contemplated hereunder
(the “Closing”). Madoff will evaluate the performance of the Initial Well
after the drilling, re-entry and completion thereof, at which time Madoff will
determine its interest in continuing the Well Program. Madoff shall provide
Pantera with written notice of its determination within 5 days after receipt of
data relating to 30 days production from the Initial Well. If Madoff elects to
terminate its participation in the Well Program, it shall have no further
liability or obligation under this Agreement or the Well Program.

     (c)
Additional Wells. If Madoff elects to continue its
participation in the Well Program, the Well Program shall thereafter consist of
the re-entry and completion of the Section 74, 77, 78, and 81 Wells
(collectively, the “Additional Wells”). The drilling, re-entry and
completion of the Additional Wells will take place in the following order,
unless Madoff determines otherwise: Wells on Sections 74, 81, 78 and 77. Madoff
will evaluate the performance of each Additional Well after the drilling,
re-entry and completion thereof, at which time Madoff will determine its
interest in continuing the Well Program. Madoff shall provide Pantera with
written notice of its determination within 15 days after receipt of data
relating to 30 days production from each Additional Well. If Madoff elects to
terminate its participation in the Well Program with respect to subsequent
Additional Wells, it shall have no further liability or obligation under this
Agreement or the Well Program.

     (d)
Authority for Expenditure. Lakehills and Pantera shall prepare
separate budgets for the drilling, re-entry and completion, respectively, of
each Well in the Well Program (each, an “Authority for Expenditure” or
“AFE”). No fees or other expenses other than the actual, reasonably
incurred costs associated with the drilling, re-entry and completion of such
Well shall be allocated to any Well and set forth on an AFE. Each AFE shall be
subject to the review and approval of Madoff. Lakehills and/or Pantera shall
notify Madoff of the dates when drilling and completion will begin. Prior to
such dates, Madoff shall pay the applicable amounts set forth in the AFE.
Payment of such amounts shall be made by wire transfer of immediately available
funds to a bank account designated by Pantera for the exclusive purpose of the
Well Program (the “Drilling Program Bank Account”). The Drilling Program
Bank Account will be an interest-bearing account maintained separate and apart
from all other accounts of Lakehills and Pantera and the funds therein will not
be commingled with any of their other funds. Madoff shall be made a signatory on
the Drilling Program Bank Account, receive monthly bank statements relating
thereto and, to the extent practicable, receive online access thereto. If
requested by Madoff, Lakehills shall enter into and it shall cause any of its
contractors to enter into a joint check agreement with Madoff pursuant to which
Madoff shall have the right to make check(s) payable to both Lakehills and such
contractor. Any interest earned on the funds in the account shall be applied to
other costs paid out of such account. Notwithstanding anything otherwise set
forth herein or in any operating agreement, Madoff shall not be obligated to
pre-pay any AFEs or pre-fund the 

2




Drilling Program Bank Account. In the
event that actual drilling costs exceed the AFE budgets, Madoff shall fund its
portion of said overages to the Drilling Program Bank Account in a similar
manner promptly after receipt of acceptable documentation evidencing such
overages. Pantera and Lakehills shall ensure that none of their officers,
directors, managers or employees has a direct or indirect financial interest in
any contractor (each a “Well Program Contractor”) working on the Well
Program. Pantera and Lakehills shall also ensure that none of their officers,
directors, managers or employees directly or indirectly requests or receives
from a Well Program Contractor any commissions, gifts or compensation of any
type or value above that normally encountered in usual and customary business
practices.

     3. Working Interests;
Cash Distributions.

     (a)
Subject to the special allocation provisions set forth in Section 4(c)
below, the Parties will be entitled to the cash flow attributable to each Well
in accordance with their respective working interest ownership percentages
therein. Upon tie-in of each Well, Madoff will own a 95% working interest in
such Well and Madoff will grant to Lakehills a 5% working interest. Madoff’s
working interest shall remain 95% until such time as Madoff has achieved a 12%
IRR (defined in Section 3(c) below) from its investment in the Well
Program. Thereafter, Madoff will grant to Pantera a 5% working interest and
Madoff’s working interest percentage will be reduced to 90% until such time as
Madoff has achieved a 20% IRR from its investment in the Well Program.
Thereafter, Madoff will grant to Pantera an additional 10% working interest such
that Pantera’s working interest will be 15% and Madoff’s working interest will
be reduced to 80% until such time as Madoff has achieved a 25% IRR from its
investment in the Well Program. Thereafter, Madoff will grant to Pantera an
additional 6% working interest such that Pantera’s working interest in such Well
will be 21% and Madoff’s working interest will be reduced to 74% accordingly. In
all cases, Lakehills’ working interest will remain at 5%. Notwithstanding
anything herein to the contrary, in the event that the actual cost for the
drilling, re-entry and completion of a Well exceeds the amount set forth in an
AFE, all working interests assigned by Madoff to Lakehills and/or Pantera
hereunder shall be subject to reduction by the same percentage that the actual
cost exceeds the AFE amount. For example, if the actual cost for the drilling,
re-entry and completion of a Well is 10% above the AFE amount, the working
interests assigned by Madoff hereunder shall all be reduced by 10%.

     (b)
All working interests assigned by Madoff to Lakehills and/or Pantera
hereunder shall be subject to existing royalty burdens and proportionately
reduced based upon the actual working interest then owned by Madoff. For
example, if Madoff only owns a 50% working interest in a Well before any
issuance of interests to Lakehills and/or Pantera, all working interests
assigned by Madoff hereunder shall be 50% of the percentages referenced above.
The working interests assigned to Lakehills and Pantera with respect to a Well
will be subject to forfeiture and assigned back to Madoff if Lakehills or
Pantera (i) is unable or refuses to be the operator for such Well, (ii) is
removed as the operator of such Well for “good cause” (defined below) or
(iii) resigns as the operator of such Well other than for “good reason”
(defined below). “Good cause”

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and “good reason” shall have
meanings ascribed to such terms in the Joint Operating Agreement (defined
in Section 9(c)(ii) below)

     (c)
For purposes of this Agreement, “IRR” shall mean the Internal Rate of
Return as determined by using the Microsoft Excel Spreadsheet formula for the
XIRR function and will take into account, on the one hand, the actual costs
incurred by Madoff in connection with its investment (including, without
limitation, capital expenditures for land and related equipment) and, on the
other hand, all cash distributions to Madoff from the investment for the same
period. The calculation shall be performed using monthly cash inflows and
monthly cash outflows for the period under analysis. Any cash
distributions to Madoff from the sale of all or any part of the Acreage shall be
taken into consideration for the IRR calculation. 

     4. Acquisition of
Acreage.

     (a)
In conjunction with the Well Program, Pantera and/or Lakehills shall be
entitled to reimbursement for actual costs incurred in connection with the
purchase of the Acreage, land research and title work associated with the
Acreage (“Land Costs”) on a Well-by-Well basis. The Land Costs allocated
to each Well are set forth in Exhibit C attached hereto and made a
part hereof. Simultaneously with payment in full by Madoff of the Land Costs
associated with a particular Well, or upon payment by Madoff of the Success
Fee (defined in Section 4(b) below), Pantera and/or Lakehills shall execute
and deliver to Madoff (i) assignments for the real property, including all
mineral leases, and rights to all land pooled or communitized therewith and all
surface rights associated with such Well in form and substance satisfactory to
Madoff and (ii) assignments conveying all related personalty, including the
wellhead equipment, pumping units, tanks and other equipment relating to the
Well and used in connection with the exploration, development, operation or
maintenance thereof in forms satisfactory to Madoff (collectively, the
“Equipment”). All reimbursement amounts, including the Success Fee (if
applicable), shall be paid in readily available U.S. funds as hereinafter
provided.

     (b)
As reimbursement for the Land Costs associated with the Initial Well, Madoff
shall pay Lakehills the lesser of $87,190 or $450 per net acre (as determined by
Madoff’s title due diligence) at Closing (the “Closing Payment”) and (i)
Pantera and Lakehills shall simultaneously execute and deliver the assignments
referenced in Section 4(a) above with respect to the Initial Well and (ii)
Pantera shall simultaneously issue to Madoff an unsecured note in the same
amount as the Closing Payment (the “Note”). The Note shall have an annual
interest rate of 5% and accrued interest thereon and the remaining principal
balance thereof shall be payable to Madoff in full on or before April 30, 2009.
If Madoff elects to continue its participation in the Well Program and the
Initial Well is successful (defined in Section 4(d) below), Madoff shall
pay to Lakehills an amount equal to the total net acreage for the Additional
Wells (as determined by Madoff’s title due diligence, which shall continue after
the Closing Date) multiplied by $450, reduced by any amounts previously paid by
Madoff for such net acreage (the “Success Fee”). The Success fee is
currently estimated to be $846,360. Such amount shall be paid to Lakehills
within 10 days after the determination that the Initial Well is successful. If
such determination is not made by November 15, 2008, Madoff will have 

4




the option, but not the obligation, to
pay the Success Fee or a portion thereof and acquire the real property and the
Equipment related to the corresponding Additional Well(s).

     (c)
Madoff will receive 100% of the Initial Well’s operating cash flow until the
aggregate amount of such cash flow received by Madoff exceeds the principal and
interest owed with respect to the Note and, if applicable, the Success Fee. No
cash distributions shall be made or otherwise accrue to Pantera or Lakehills
until all amounts owing with respect to the Note and, if applicable, the Success
Fee have been paid. If Well 80 is deemed successful and all amounts owing with
respect to the Note and, if applicable, the Success Fee have been paid, Pantera
shall thereafter receive 100% of the Initial Well’s operating cash flow until
the aggregate amount of such cash flow received by Pantera totals $350,000. No
cash distributions shall be made or otherwise accrue to Madoff or Lakehills
during this period. Thereafter, Madoff and Pantera will each receive 50% of the
Initial Well’s operating cash flow until each party receives $175,000 (i.e., an
aggregate of $350,000). No cash distributions shall be made or otherwise accrue
to Lakehills during this period. Thereafter, cash distributions shall be
calculated in accordance with the then current working interest ownership
percentages associated with the Initial Well as outlined in Section 3(a) and
Section 3(b) above. The distributions that would otherwise be payable to Pantera
pursuant to the immediately preceding sentence shall be paid to Madoff until the
aggregate of such distributions paid to Madoff totals $175,000. The first
$525,000 of cash flow received by Pantera hereunder shall be used by Pantera to
satisfy its obligations to investors as set forth in the oil and gas
certificates referenced in Schedule 5(g) attached hereto, copies of which are
included as part of Schedule 5(h) attached hereto. 

     (d)
The Initial Well shall be deemed “successful” if it (i) has a sales
rate and a production rate greater than or equal to 3.0 MMCFE per day based on a
30-day average that utilizes day one as the maximum 24 hour production rate
during the first 30 days of sales, (ii) has a natural gas quality greater than
950 mmBtu, (iii) contains no contaminants that have a materially adverse effect
on the sales price of the gas and (iv) satisfies the gas quality requirements
set forth in Section 5.1 of the General Terms and Conditions of the Gas
Gathering Agreement (defined in Section 9(b)(viii) below)..

     5. Representations of
Pantera. Pantera and Lakehills jointly and severally represent and
warrant to Madoff as follows:

     (a)
Organization and Qualification. Pantera is a corporation duly
organized, legally existing and in good standing under the laws of the State of
Nevada and is qualified to do business and in good standing in each of the
states in which the Properties are located where the laws of such state would
require a corporation owning the Properties located in such state to so qualify.
Lakehills is a corporation duly organized, legally existing and in good standing
under the laws of the State of Texas and is qualified to do business and in good
standing in each of the states in which its operations are located where the
laws of such state would require a corporation with such operations located in
such state to so qualify.

5




     (b)
Due Authorization. Each of Pantera and Lakehills has full
power and authority to enter into and perform its obligations under this
Agreement and has taken all proper action to authorize entering into this
Agreement and performance of its obligations hereunder. The execution, delivery
and performance by Pantera and Lakehills of this Agreement has been and the
consummation by Pantera and Lakehills of the transactions contemplated hereby
have been duly and validly authorized and approved by all necessary corporate
action.

     (c)
No Violations. The execution, delivery and performance of this
Agreement by Pantera and Lakehills and the consummation by Pantera and Lakehills
of the transactions contemplated hereby will not: (i) violate, conflict with, or
result in a breach or default under any provision of their respective
organizational documents; (ii) violate any statute, ordinance, rule, regulation
or order of any court or of any governmental or regulatory body, agency or
authority applicable to either of them or by which any of their respective
properties or assets may be bound; or (iii) result in a violation or breach by
Pantera or Lakehills of, conflict with, constitute a default by Pantera or
Lakehills (or give rise to any right of termination, cancellation, payment or
acceleration) under, or result in the creation of any Encumbrance
(defined below) upon any of their respective properties or assets under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
license, franchise, Permit (defined in Section 5(p) below), agreement,
lease, franchise agreement or other instrument or obligation to which either of
them is a party, or by which either of them or any of their respective
properties or assets may be bound. For purposes of this Agreement,
“Encumbrance” shall mean any liens, security interests, options, rights
of first refusal, easements, mortgages, charges, debentures, indentures, deeds
of trust, rights-of-way, restrictions, agreements, encroachments, licenses,
leases, permits, security agreements, or any other encumbrances or other
restrictions or limitations on the use of real or personal property or
irregularities in title thereto.

     (d)
Valid, Binding and Enforceable. This Agreement constitutes
(and the Conveyance (defined in Section 9(b)(i) below) will, when
executed and delivered, constitute) the legal, valid and binding obligation of
Pantera and Lakehills, enforceable in accordance with its terms, except as
limited by bankruptcy or other laws applicable generally to creditor’s rights
and as limited by general equitable principles.

     (e)
Litigation. There are no pending claims, suits, actions or
other proceedings in which Pantera or Lakehills is a party (or, to their
respective knowledge, which have been threatened to be instituted against either
of them or the Properties) which affect the Properties (including, without
limitation, any actions challenging or pertaining to their respective title to
any of the Properties), or affecting the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby or the
Parties’ performance of their obligations hereunder.

     (f)
Title to the Properties. Pantera and/or Lakehills have good,
valid and defensible title to all of the Properties free and clear of all
Encumbrances, except Permitted Encumbrances (defined below). For purposes
of this Agreement, “Permitted Encumbrances” means (a) royalties,
overriding royalties and other burdens 

6




as described in Schedule 5(g); (b)
liens for taxes for which payment is not due; (c) Encumbrances of mechanics,
materialmen, warehousemen, vendors, and carriers and any similar Encumbrances
arising by operation of law which, in each instance, arise in the ordinary
course for sums not yet due; and (d) easements, surface leases and rights, plat
restrictions, zoning laws, restrictive covenants and conditions, and building
and other land use laws and similar encumbrances, none of which interferes with
the development and operation of the Properties for the production of
hydrocarbons or for the use for which the same are held.

     (g)
Royalty Burdens. All of the royalty burdens associated with
any of the Properties and the holders thereof are specifically identified and
described in Schedule 5(g) attached hereto
and neither Lakehills, Pantera nor any of their Affiliates (defined in
Section 15(a)(i) below) nor any natural person related by blood, law or marriage
to any other natural person associated with Lakehills, Pantera or any of their
Affiliates has any royalty interest with respect to any of the Properties.
Neither Pantera, Lakehills nor any of their Affiliates has any other obligation
(oral or in writing) to grant any royalty burdens with respect to the
Properties. The rights of the investors referred to in Section 4(c) above are
not a lien on any of the Properties being conveyed to Madoff hereunder and
Pantera has not made any representations to the contrary to such investors.

     (h)
Contracts Relating to the Properties. Schedule
5(h) attached hereto sets forth all contracts, agreements and
obligations, which relate to or bind the Properties or any production therefrom,
including without limitation, farmouts, gathering agreements, sales contracts,
participation agreements and area of mutual interest agreements (collectively,
the “Contracts”). Pantera and Lakehills have previously delivered or made
available to Madoff correct and complete copies of each of the written Contracts
and expressly represent and warrant that there are no oral Contracts. Each
Contract is in full force and effect. Neither Pantera nor Lakehills has
breached, nor to their respective knowledge is there any claim or any legal
basis for a claim that Pantera, Lakehills or any other Person (defined in
Section 15(a)(iv) below) has breached, any of the terms or conditions of any
Contract. Neither Pantera nor Lakehills have given or received from any third
party notice of any intent to terminate or amend any Contract.

     (i)
Consents. No consent, approval, authorization or permit of,
waiver by or filing with or notification to, any Person is required for or in
connection with the execution and delivery by Pantera or Lakehills of this
Agreement and the other agreements, documents and instruments executed in
connection herewith to which either of them is a party or for or in connection
with the Closing and performance by Pantera or Lakehills of the terms and
conditions contemplated hereby and thereby.

     (j)
Equipment. All of the Equipment associated with any of the
Wells and the Acreage is specifically identified and described in Schedule
5(j) attached hereto. All of the Wells were drilled and (if completed)
completed, operated and produced within the boundaries of the applicable land or
within the limits otherwise permitted by applicable laws and Permits. Each Well
was (and any other wells on any of the Properties were) plugged in accordance
with prudent industry practices and in compliance with applicable 

7




laws and there is no well that Pantera
or Lakehills (or any of their Affiliates) is currently obligated by law or
Contract to plug and abandon on any of the Properties. 

     (k)
Broker’s or Finder’s Fees. Except as provided in
Schedule 5(k) attached hereto, no agent, broker, financial
advisor, investment or merchant banker, or other Person is, or will be, entitled
to any fee, commission or broker’s or finder’s fees from Pantera or Lakehills,
or from any Affiliate (defined in Section 15(a)(i) below) of Pantera or
Lakehills, in connection with this Agreement or any of the transactions
contemplated hereby.

     (l)
Maintenance of the Properties. The Properties, including
without limitation the Wells and the Equipment, are being (and, to the extent
the same could adversely affect the ownership or operation of the Properties
after the date hereof, have in the past during Pantera’s and Lakehills’
Ownership thereof been) maintained in a good and workmanlike manner in all
material respects, in accordance with prudent industry standards and in
conformity with all applicable laws and in conformity with all Contracts. All
Wells have the appropriate and necessary infrastructure in place and/or
available for the marketing, transportation and processing of natural gas
therefrom.

     (m)
Books and Records. All accounts, books, ledgers, operating
information, data and official and other financial records necessary for the
operation of the Properties (the “Books and Records”), during Pantera’s
and Lakehills’ ownership of the Properties, have been fully, properly and
accurately kept and are complete in all material respects, and copies of the
Books and Records have been made available to Madoff for review at Pantera’s or
Lakehills’ offices.

     (n)
Environmental. (i) With the exception of production of natural
gas from the Wells, neither Pantera nor Lakehills has, and, to the knowledge of
Pantera and Lakehills, no other Person has, generated, used, treated, disposed
of, released or stored Hazardous Materials (defined below) on, or
transported Hazardous Materials in any material quantities to or from, any of
the Properties; (ii) Pantera and Lakehills are in compliance with applicable
environmental laws and the requirements of any permits issued under such
environmental laws with respect to the Properties; and (iii) there are no
pending or threatened claims, suits, demands, investigations, proceedings or
other actions relating to any applicable environmental law with respect to the
Properties, nor is there a reasonable basis for any such actions. None of the
Equipment on the Properties is leaking as of the Closing Date nor to Pantera’s
knowledge have any such leaks occurred. For purposes of this Agreement,
“Hazardous Materials” shall mean all hazardous substances, wastes,
materials or constituents, solid wastes, special wastes, toxic substances,
pollutants, contaminants, radioactive materials, urea formaldehyde,
polychlorinated biphenyls, radon gas and related materials, including, without
limitation, any such materials defined, listed, identified under or described in
any applicable environmental laws. 

     (o)
Insurance. Lakehills maintains, with financially sound and
reputable insurance companies, insurance in such amounts and against such risks
as are customarily maintained by companies engaged in the same or similar
business operating in the same 

8




or similar locations. A summary of such
insurance coverage is set forth on Schedule 5(o) attached
hereto.

     (p)
Permits. Lakehills has obtained and is maintaining all
material federal, state and local governmental licenses, permits, franchises,
orders, exemptions, variances, waivers, authorizations, certificates, consents,
rights, privileges and applications therefor (collectively, the
“Permits”) that are necessary or required for the ownership and operation
of the Properties as currently owned and operated. A listing of all such Permits
is set forth on Schedule 5(p) attached hereto. During Pantera’s
and Lakehills’ ownership thereof, the Properties have been operated and
maintained in all material respects in accordance with the conditions and
provisions of such Permits, and no notices of violation of such Permits have
been received by Pantera, Lakehills or their respective Affiliates.

     (q)
Payment of Property Costs. All Property Costs (defined
below) and other payments due in connection with the ownership and operation of
the Properties, during Pantera’s and Lakehills’ ownership of the Properties,
have been properly and correctly made by Pantera and/or Lakehills. As used
herein, “Property Costs” means all operating expenses (including, without
limitation, costs of insurance and ad valorem, property, severance, production
and similar taxes based upon or measured by ownership of the Properties or the
production therefrom), capital expenditures incurred in the ownership and
operation of the Properties, and overhead costs charged to the Properties.

     (r)
Lease Obligations. Neither Lakehills nor Pantera is in breach
under the terms of any of the mineral leases comprising a part of the Contracts
(the “Leases”) and, to their knowledge, no other party thereto is in
breach thereunder and all of such Leases are in full force and effect and there
has not occurred any event, fact or circumstance which with the lapse of time or
the giving of notice or both, would constitute a breach or default under any
Lease on behalf of them or any other party. Neither Pantera nor Lakehills has
received any claims or demands (whether written or oral) that royalties or other
payments due under any Leases have not been properly and timely paid, or that
any conditions necessary to keep the Leases in force have not been fully
performed. The lease expiration dates for each of the Leases is set forth on
Schedule 5(r) attached hereto.

     (s)
Calls on Production; Hedging. No Person has any call upon,
option to purchase, or similar rights with respect to production from the
Properties. There are no hedging contracts or similar contracts currently in
place related to production from the Properties.

     (t)
Taxes. Lakehills and Pantera have filed all tax returns
required by applicable laws with respect to their respective interests in the
Properties due on or prior to the Closing Date. Neither Lakehills nor Pantera
has received written notice of any pending claim against it or its interest in
any of the Properties from any applicable taxing authority for assessment of
taxes with respect to the Properties. Lakehills’ and Pantera’s respective
interests in the Properties are not subject to tax partnership recording for
federal income tax purposes. 

9




     (u)
No Untrue Statements. No representation or warranty of Pantera
or Lakehills contained in this Agreement or any statement or information made by
or provided by Pantera or Lakehills contained in any schedule, exhibit,
certificate, written statement, document or instrument, or other information
attached to, delivered or required to be delivered by Pantera or Lakehills
pursuant to this Agreement contains any untrue statement of material fact or
omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading or necessary in order to fully and
fairly provide the information required to be provided in any such document.

     6. Representations of
Madoff. Madoff represents and warrants to Pantera and Lakehills as
follows:

     (a)
Organization and Qualification. Madoff is a limited liability
company duly organized and legally existing and in good standing under the laws
of the State of Delaware, and is qualified to do business and in good standing
in each of the states where the laws of such state would require a limited
liability company in such state to so qualify.

     (b)
Due Authorization. Madoff has full power to enter into and
perform its obligations under this Agreement and has taken all proper action to
authorize entering into this Agreement and performance of its obligations
hereunder. The execution, delivery and performance by Madoff of this Agreement
has been and the consummation by Madoff of the transactions contemplated hereby
have been, duly and validly authorized and approved by all necessary company
action of Madoff.

     (c)
No Violations. The execution, delivery and performance of this
Agreement by Madoff and the consummation by Madoff of the transactions
contemplated hereby will not: (i) violate, conflict with, or result in a breach
or default under any provision of the certificate of formation or limited
liability company agreement of Madoff; (ii) violate any statute, ordinance,
rule, regulation or order of any court or of any governmental or regulatory
body, agency or authority applicable to Madoff or by which any of its properties
or assets may be bound; or (iii) result in a violation or breach by Madoff of,
conflict with, constitute a default by Madoff (or give rise to any right of
termination, cancellation, payment or acceleration) under, or result in the
creation of any Encumbrance upon any of the properties or assets of Madoff
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, franchise, permit, agreement, lease, franchise agreement or
other instrument or obligation to which Madoff is a party, or by which Madoff or
any of its properties or assets may be bound.

     (d)
Valid, Binding and Enforceable. This Agreement constitutes the
legal, valid and binding obligation of Madoff, enforceable in accordance with
its terms, except as limited by bankruptcy or other laws applicable generally to
creditor’s rights and as limited by general equitable principles.

     (e)
No Litigation. There are no pending claims, suits, actions, or
other proceedings in which Madoff is a party (or, to Madoff’s knowledge, which
have been 

10




threatened to be instituted against
Madoff) which affect the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.

     (f)
Broker’s or Finder’s Fees. No agent, broker, financial
advisor, investment or merchant banker, or other Person is, or will be, entitled
to any fee, commission or broker’s or finder’s fees from Madoff, or from any
Affiliate of Madoff, in connection with this Agreement or any of the
transactions contemplated hereby.

     7.
Indemnification.

(a) For purposes of this
Agreement:

     (i)
“Madoff Indemnified Persons” shall mean Madoff and its Affiliates and
their respective directors, officers, employees, stockholders, members, agents,
consultants, advisors and other representatives (including legal counsel,
accountants and financial advisors).

     (ii)
“Damages” shall mean the amount of any actual liability, loss, cost,
expense, claim, award or judgment incurred or suffered by any Indemnified Person
arising out of or resulting from the indemnified matter, whether attributable to
personal injury or death, property damage, contract claims, torts or otherwise
including reasonable fees and expenses of attorneys, consultants, accountants,
or other agents and experts reasonably incident to matters indemnified against,
and the costs of investigation and/or monitoring of such matters, and the costs
of enforcement of the indemnity.

     (iii)
“Indemnifying Person” shall mean the Person having an obligation to
indemnify another Person with respect to Damages pursuant to this Agreement.

     (iv)
“Indemnified Person” shall mean the Person having the right to be
indemnified with respect to Damages pursuant to this Agreement.

     (v)
“Pantera Indemnified Persons” shall mean Pantera and Lakehills and their
respective Affiliates and their respective directors, officers, employees,
stockholders, members, agents, consultants, advisors and other representatives
(including legal counsel, accountants and financial advisors).

     (b)
From and after Closing, Pantera and Lakehills shall jointly and severally
indemnify, defend and hold harmless the Madoff Indemnified Persons against and
from all Damages incurred or suffered by any such Indemnified Person
REGARDLESS OF WHETHER SUCH CLAIMS ARISE OUT OF THE NEGLIGENCE (WHETHER SOLE,
JOINT, COMPARATIVE OR CONCURRENT) OF SUCH INDEMNIFIED PERSON caused by,
arising out of or resulting from (i) the ownership, use, or operation of the
Properties before the Closing including, without limitation, any liability
associated with the plugging and abandonment of the Wells, or (ii) any breach of
any representation or warranty made by Pantera and Lakehills contained in
Section 5 or in any covenant or other agreement made by Pantera or Lakehills in
this Agreement.

11




     (c)
From and after Closing, Madoff shall indemnify, defend, and hold harmless
the Pantera Indemnified Persons against and from all Damages incurred or
suffered by any such Indemnified Person REGARDLESS OF WHETHER SUCH CLAIMS
ARISE OUT OF THE NEGLIGENCE (WHETHER SOLE, JOINT, COMPARATIVE OR CONCURRENT) OF
SUCH INDEMNIFIED PERSON caused by, arising out of or resulting from any
breach of (i) any representation or warranty made by Madoff contained in Section
6 or (ii) any covenant or other agreement made by Madoff in this Agreement.

     (d)
The indemnity to which each Party is entitled under this Agreement shall be
for the benefit of and extend to such Indemnified Persons affiliated with such
Party as described above in this Agreement. Any claim for indemnity under this
Agreement by any such Indemnified Person (other than a Party) must be brought
and administered by the applicable Party to this Agreement. No Indemnified
Person other than a Party shall have any rights against any Party under the
terms of this Section 7 or otherwise under this Agreement except as may be
exercised on its behalf by a Party, pursuant to this Section 7(d). Each Party
may elect to exercise or not exercise indemnification rights under this Section
on behalf of the other Indemnified Persons affiliated with it in its sole
discretion and shall have no liability to any such other Indemnified Person for
any action or inaction under this Agreement.

     8. Indemnification
Actions. All claims for indemnification under Section 7 shall be
asserted and resolved as follows:

     (a)
To make claim for indemnification under Section 7, an Indemnified Person
shall notify the Indemnifying Person of its claim, including the basis under
this Agreement for its claim (the “Claim Notice”). If the claim for
indemnification is based upon a claim by a third party against the Indemnified
Person (a “Claim”), the Indemnified Person shall provide its Claim Notice
promptly after the Indemnified Person has actual knowledge of the Claim and
shall enclose a copy of all papers (if any) served with respect to the Claim;
provided that the failure of any Indemnified Person to give notice of a Claim as
provided in this Section 8(a) shall not relieve the Indemnifying Person of its
obligations under Section 7 except to the extent (and only to the extent of any
incremental Damages incurred) such failure results in insufficient time being
available to permit the Indemnifying Person to effectively defend against the
Claim or otherwise materially prejudices the Indemnifying Person’s ability to
defend against the Claim.

     (b)
In the case of a claim for indemnification based upon a Claim, the
Indemnifying Person shall have 15 days from its receipt of the Claim Notice to
notify the Indemnified Person whether or not it agrees to indemnify and defend
the Indemnified Person against such Claim under this Section 8. The Indemnified
Person is authorized, prior to and during such 15 day period, to file any
motion, answer, or other pleading that it shall reasonably deem necessary or
appropriate to protect its interests or those of the Indemnifying Person.

12




     (c)
If the Indemnifying Person agrees to indemnify the Indemnified Person, the
Indemnifying Person shall have the right and obligation to diligently defend, at
its sole cost and expense, the Claim. The Indemnifying Person shall have control
of such defense and proceedings except to the extent the Indemnified Person
reasonably believes that there might be a conflict of interest between such
Indemnified Person and the Indemnifying Person in connection with such Claim, in
which case the Indemnified Person shall be entitled to maintain separate counsel
at the Indemnifying Person’s expense and the Indemnified Person shall have full
control of such defense and proceedings. The Indemnified Person may participate
in, but not control, at its sole cost and expense, any defense or settlement of
any Claim controlled by the Indemnifying Person pursuant to this Section 8. An
Indemnifying Person shall not, without the written consent of the Indemnified
Person, settle any Claim or consent to the entry of any judgment with respect
thereto that (i) does not result in a final resolution of the Indemnified
Person’s liability with respect to the Claim (including, in the case of a
settlement, an unconditional written release of the Indemnified Person from all
liability in respect of such Claim) or (ii) may adversely affect the Indemnified
Person or any of its Affiliates or any of their assets (other than as a result
of money damages covered by the indemnity).

     (d)
If the Indemnifying Person does not agree to indemnify the Indemnified
Person within the 15 day period specified in Section 8(b), fails to give notice
to the Indemnified Person within such 15 day period regarding its election, or
if the Indemnifying Person agrees to indemnify, but fails to diligently defend
or settle the Claim, then the Indemnified Person shall have the right to defend
against the Claim (at the sole cost and expense of the Indemnifying Person, if
the Indemnified Person is entitled to indemnification hereunder), with counsel
of the Indemnified Person’s choosing.

     (e)
In the case of a claim for indemnification not based upon a Claim, the
Indemnifying Person shall have 15 days from its receipt of the Claim Notice to
(i) cure the Damages complained of; (ii) agree to indemnify the Indemnified
Person for such Damages; or (iii) dispute the claim for such Damages. If such
Indemnifying Person does not respond to such Claim Notice within such 15 day
period, such Person will be conclusively deemed obligated to provide such
indemnification hereunder.

     (f)
The indemnities in Section 7 relating to breaches of representations and
warranties shall terminate as of the termination date, if any, of each
respective representation or warranty that is subject to indemnification, except
(in each case) as to matters for which a specific written claim for indemnity
has been delivered to the Indemnifying Person on or before such termination date
which shall not be time limited.

     9.
Closing.

     (a)
Conditions to Closing. The Closing Payment will be paid by
Madoff, and the Closing shall occur, once Madoff has determined in good faith
that the Properties are free and clear from any and all existing, threatened,
and potential Encumbrances other than Permitted Encumbrances.

13




     (b)
Actions At Closing. The Closing shall take place on the date
hereof and at a mutually agreed time and place. At the Closing:

     (i)
Delivery of Conveyance. Upon the execution hereof, Pantera and/or
Lakehills shall execute, acknowledge and deliver to Madoff a conveyance of the
Initial Well, the related Equipment and Acreage and associated interests and
rights (the “Conveyance”), in the form attached hereto as Exhibit
D and made a part hereof.

     (ii)
Federal, State and other Conveyance Forms. Pantera and/or Lakehills shall
execute (and, where required, acknowledge) and deliver to Madoff forms of
conveyance or assignment as required by the applicable authorities for transfers
of interests in any state, federal or Indian leases included in the relevant
Properties and, if requested by Madoff, such other forms of conveyance, in form
acceptable to both Parties.

     (iii)
Letters in Lieu. Pantera and/or Lakehills shall, if requested by Madoff,
execute and deliver to Madoff letters in lieu of transfer orders (or similar
documentation), in form acceptable to both Parties.

     (iv)
Turn Over Possession. Pantera and/or Lakehills shall, to the extent they
can do so, turn over possession of the Initial Well to Madoff, subject to the
terms of the Joint Operating Agreement.

     (v)
Payment to Lakehills. Madoff shall deliver to Lakehills, by wire transfer
of immediately available funds to an account designated by Lakehills in a bank
located in the United States, an amount equal to the Closing Payment.

     (vi)
Delivery of the Note by Pantera. Pantera shall execute and deliver to
Madoff the Note.

     (vii)
Non Foreign Status Affidavit. If Madoff so requests, Pantera and
Lakehills will execute and deliver to Madoff an affidavit or other certification
(as permitted by the Internal Revenue Code of 1986, as amended (the
“Code”)) that each is not a “foreign person” within the meaning of
Section 1445 (or similar provisions) of the Code (i.e., each of Pantera and
Lakehills is not a non-resident alien, foreign corporation, foreign partnership,
foreign trust or foreign estate as those terms are defined in the Code and
regulations promulgated thereunder).

(c) Additional
Agreements.

     (i)
Transfer of Files. In addition to the rights set forth in the “Access to
Contract Area and Records” section set forth in the Joint Operating Agreement,
following Closing Pantera and/or Lakehills will preserve at their respective
offices all of the lease files, abstracts and title opinions, division order
files, production records, well files, accounting records (but not including
general financial accounting or tax accounting records which do not particularly
relate to the Properties), and other similar files and records which relate to
the Properties.

14




Pantera and Lakehills will allow
Madoff access (including, without limitation, the right to make copies at
Madoff’s expense) to such files at all reasonable times. Neither Pantera nor
Lakehills shall dispose of such files without the prior written consent of
Madoff after providing Madoff with an opportunity to receive delivery of such
files.

     (ii)
Operational Transition. In light of the agreement among the Parties that
Lakehills shall remain as operator of the Properties, upon the execution hereof,
the Parties are entering into that certain operating agreement in the form as
attached hereto as Exhibit E and made a part hereof (the “Joint
Operating Agreement”) and to the extent Lakehills so operates the Properties
after Closing, its obligations to Madoff and Pantera with respect thereto shall
be as set forth in the Joint Operating Agreement. Madoff’s right to remove
Lakehills as operator of the Properties shall be governed by the terms of the
Joint Operating Agreement.

     (iii)
Due Diligence. The Parties acknowledge that Madoff shall not have
completed its due diligence with respect to the Additional Wells prior to the
Closing Date. Madoff shall have the right to continue its due diligence after
the Closing Date and Pantera and Lakehills agree to use commercially reasonable
efforts to facilitate Madoff’s continued due diligence.

     (iv)
Participation Agreement. Pantera, Lakehills and Madoff shall enter into a
Participation Agreement that includes a right of first refusal on behalf of
Madoff to participate in additional lease/land acquisition(s) and all drilling
thereon on the terms set forth herein (the “Participation Agreement”),
and an area of interest under the Participation Agreement that encompasses the
Acreage and surrounding area as described in Exhibit F attached
hereto and made a part hereof. 

     (v)
Lease Ratification. In the event that any of the Acreage is not held by
production or is otherwise not capable of being assigned by Pantera and/or
Lakehills to Madoff as contemplated hereunder, Pantera and Lakehills (in
consultation with Madoff) shall use their best efforts to negotiate and obtain a
ratification or renewal of the existing lease(s) on commercially reasonable
terms to enable the affected acreage to be so assigned to Madoff.

     (vi)
Drilling Schedule. If Madoff elects to continue participation in the Well
Program pursuant to Section 2(c) above, the Additional Wells shall be drilled,
re-entered and completed in accordance with the drill schedule set forth in
Exhibit G attached hereto and made a part hereof. If all of the
Additional Wells are not re-entered and completed by January 7, 2010, Lakehills
will forfeit the Success Fee applicable to the Additional Wells not so completed
(as set forth on Exhibit C) and immediately pay such amount to Madoff. Such
amount payable to Madoff shall also include any amounts that Madoff previously
paid for any of the acreage associated with the Additional Wells not so
completed.

15




     (vii)
Lease Acquisitions. Madoff will make available up to $175,000 for the
acquisition of acreage associated with the Section 81 Well. All such acreage and
the acquisition thereof shall be subject to Madoff approval after Madoff has had
the opportunity to conduct due diligence with respect thereto.

     (viii)
Gas Gathering Agreement. Madoff hereby ratifies the Gas Gathering and
Treating Agreement dated April 9, 2008 (the “Gas Gathering Agreement”) between
Lakehills and WGR Asset Holding Company LLC (“WGR”) and agrees to the terms of
the Gas Gathering Agreement with such changes as Madoff, Lakehills and WGR may
negotiate in good faith after the Closing. Lakehills represents that it has made
the [“Take in Kind”] [“WGR Purchase”] election as set forth in Section 4(c) of
the Gas Gathering Agreement. Lakehills shall take all actions necessary to
ensure the each of the Wells will be included within the terms and conditions of
the Gas Gathering Agreement.

     10. Assumption of
Liabilities and Obligations. Subject to (a) the continuing
obligations and responsibilities of (i) Lakehills as operator of the Properties
under the Joint Operating Agreement, and (ii) Lakehills and Pantera as working
interest owners and (b) Pantera’s and Lakehills’ indemnity obligations and other
obligations hereunder, Madoff shall, as of the Closing Date, agree (and, upon
the delivery to Madoff of the Conveyance, shall be deemed to have agreed) to
assume, and to timely pay and perform, its proportionate share (based on working
interest ownership) of all duties, obligations and liabilities relating to the
ownership and/or operation of the Properties conveyed to Madoff (including,
without limitation, those arising under the Contracts), but only to the extent
the same accrued or otherwise arose after the Closing Date.

     11. Commissions.
As to any commissions or the like not set forth on Schedule 5(k)
attached hereto, each Party agrees to indemnify, defend and hold the other
Parties (and their respective Affiliates, and the respective officers,
directors, employees, attorneys, contractors and agents of such parties)
harmless from and against any and all claims, actions, causes of action,
liabilities, damages, losses, costs or expenses (including, without limitation,
court costs and reasonable attorneys fees) of any kind or character arising out
of or resulting from any agreement, arrangement or understanding alleged to have
been made by, or on behalf of, such Party with any broker or finder in
connection with this Agreement or the transactions contemplated hereby.

     12.
Notices. All notices and other communications required under
this Agreement shall (unless otherwise specifically provided herein) be in
writing and be delivered personally, by recognized commercial courier or
delivery service which provides a receipt, by telecopier (with receipt
acknowledged), or by registered or certified mail (postage prepaid), at the
following addresses:

16





	If to Madoff: 	Madoff Energy IV LLC 
	  	885 Third Avenue, 19th Floor 
	  	New York, New York 10022 
	  	Tel: 212-230-2444 
	  	Fax No.: 212-901-2120 
	  	Attention: Andrew Madoff 
	  	  
	If to Pantera: 	Pantera Petroleum Inc. 
	  	111 Congress Avenue 
	  	Suite 400 
	  	Austin, Texas 78701 
	  	Tel: 512-391-3868 
	  	Fax No.: 512-391-3869 
	  	Attention: Chris Metcalf 
	  	  
	If to Lakehills: 	Lakehills Production, Inc. 
	  	3267 Bee Cave Drive 
	  	Suite 107, PMB #512 
	  	Austin, Texas 78746 
	  	Tel: 512-306-8620 
	  	Fax No.: 512-306-8621 
	  	Attention: Tom Stratton 


and shall be considered delivered on the date of receipt. Each
Party may specify as its proper address any other post office address within the
continental limits of the United States by giving notice to the other Parties,
in the manner provided in this Section, at least ten (10) days prior to the
effective date of such change of address.

     13. Survival of
Provisions. All representations and warranties made herein by the
Parties shall be continuing and shall survive the Closing and the delivery of
the Conveyance for a period of two (2) years after the termination of all
drilling operations arising out of or in connection with this Agreement. The
obligations of the Parties under Section 9 (to the extent the same are, by
mutual agreement, not performed at Closing) and Sections 7, 8, 10, 11, 12, 13,
14 and 15 shall (subject to any limitations set forth therein) survive the
Closing and the delivery of the Conveyance until the expiration of any
applicable statute of limitations.

     14. Restrictions on
Transfer.

     (a)
Transfer. No Transfer by Pantera or Lakehills of their
respective interests in any of the Properties (collectively, the
“Interests”) shall be permitted unless it is made in compliance with the
terms and conditions hereof. For purposes of this Section 14, the term
“Transfer” means: sell, transfer, convey, assign, distribute or otherwise
dispose of the asset or property in question; provided, however, that the term
Transfer shall not include any pledge, charge, grant of a security interest or
other encumbrance incurred in connection with a bank financing. The term
Transfer also includes any change in the Person(s) of which Pantera or Lakehills
is a direct or indirect subsidiary or that otherwise 

17




control (defined in Section
15(a) below) either such entity whether by merger, equity interest sale or
otherwise.

     (b)
Notice of Desired Transfer. Prior to any Transfer of all or
any portion of the Interests, Pantera or Lakehills, as the case may be (the
“Transferring Party”), shall promptly notify Madoff in writing of its
desire to make such Transfer and the cash price or other consideration it
desires to receive in connection with such Transfer (the “Desired
Price”). If the Desired Price includes consideration other than cash, the
cash equivalent value of the non-cash consideration shall be mutually determined
by Madoff and the Transferring Party in good faith. If the Transferring Party
and Madoff cannot agree on such value, such determination shall be made by a
mutually acceptable appraiser whose cost shall be shared equally by Madoff and
the Transferring Party. The Transferring Party and Madoff shall negotiate in
good faith to determine if Madoff desires to acquire the Transferring Party’s
Interests being offered for sale at the Desired Price.

     (c)
Exercise of Desired Transfer. At any time within 30 days after
receipt of the Transferring Party’s notice, Madoff may elect to purchase all of
the Interest proposed to be transferred at the Desired Price or a portion of
such Interest at a proportionately equivalent price by providing written notice
thereof to the Transferring Party. Payment of the purchase price for the
Interest shall be made by wire transfer of immediately available funds in
accordance with the terms and conditions of the relevant documentation
evidencing the proposed transaction.

     (d)
Right to Transfer. If Madoff elects not to purchase the
Interest as provided herein at the Desired Price, then the Transferring Party
may Transfer the Interest to an acceptable transferee party (as described in
Section 14(g) below) at a price that is no less than the Desired Price, provided
that such Transfer is consummated within one hundred eighty (180) days after
Madoff notified the Transferring Party of its election not to purchase the
Interest, and subject to Madoff’s right of first refusal described in Section
14(e) below. If Madoff elects not to purchase the Interest as provided herein
and the Interest is not Transferred to the proposed transferee within such
period, a new notice shall be given to Madoff, and Madoff shall again be offered
the right to purchase the Interest (as provided in Section 14(b) above) before
the Interest may again be offered to an acceptable transferee party.

     (e)
Right of First Refusal. Before all or any portion of the
Transferring Party’s Interests may be Transferred to a third party, Madoff shall
have a right of first refusal to purchase the Interests on the following terms
and conditions:

18




     (i) The
Transferring Party shall deliver to Madoff a written notice (the
“Notice”) stating (1) the name of each proposed purchaser or other
transferee (“Proposed Transferee”), (2) the specific Interest to be
transferred to each Proposed Transferee, (3) the bona fide cash price or other
consideration for which the Transferring Party proposes to transfer the Interest
(the “Offered Price”), and (4) the material terms and conditions of the
proposed transfer (the “Offer Terms”).

     (ii) The
Transferring Party shall offer the Interest to Madoff at the Offered Price and
on the Offer Terms.

     (iii) At
any time within 15 days after receipt of the Notice, Madoff may, by giving
written notice to the Transferring Party (“Notice of Exercise”), elect to
purchase all or part of the Interest proposed to be transferred to any one or
more of the Proposed Transferees, at the purchase price and on the terms
determined in accordance with clause (iv) below.

     (iv) The
purchase price (“Purchase Price”) for the Interest purchased by Madoff
under this Section 14(e) shall be the Offered Price, and the terms and
conditions of the transfer shall be identical in all material respects to the
Offer Terms (the “Terms”). If the Offered Price includes consideration
other than cash, the cash equivalent value of the non-cash consideration shall
be determined as provided in Section 14(b) above. Payment of the Purchase Price
shall be made by wire transfer of immediately available funds, within thirty
(30) days after delivery of the Notice of Exercise to the Transferring
Party.

     (f)
Conditions to Transfer. If Madoff elects not to purchase the
Interest as provided herein and the Transferring Party Transfers the Interest to
a third party, the Transferring Party shall make no representations or
warranties that are attributable to Madoff and shall not enter into any
restrictions or conditions that are binding on Madoff. The transferee must
acknowledge and agree and the Transfer shall be subject to Madoff’s exclusive
option to fund the re-entry and completion of the Wells on the Acreage. The
transferee must covenant not to sue any Madoff Indemnified Person for any claim,
loss or damage arising directly or indirectly out of the transferee’s
acquisition of all or any portion of the Interests. The transferee’s sole remedy
and cause of action shall be against the Transferring Party. The transferee must
grant a release of any and all claims against all Madoff Indemnified Persons.
The Transferring Party shall indemnify, defend and hold harmless the Madoff
Indemnified Persons from and against any claim, loss or damage arising directly
or indirectly out of its Transfer of any Interests. The transferee must agree in
writing that the provisions and restrictions of this Section 14 shall continue
to apply to the Interests in the hands of such transferee if it elects to
subsequently Transfer the acquired Interests.

     (g)
Acceptable Transferee Parties. No portion of the Transferring
Party’s Interests may be directly or indirectly sold or transferred in
connection with a public offering or private placement of such interests that
requires the preparation of an offering memorandum or similar document. All such
Transfers must take place in the form of a 

19




private sale to sophisticated persons
with experience in the oil and gas industry. All Transfers must be funded by the
transferee as principal and not directly or indirectly with any partners or
external funds (other than bank financing).

     15. Miscellaneous
Matters.

(a) Additional
Definitions. For purposes of this Agreement:

     (i)
“Affiliate” means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under common control with, that
Person.

     (ii)
“Business Day” means any day excluding Saturday, Sunday and any day which
is a legal holiday under the laws of the State of New York or the State of Texas
or is a day on which banking institutions located in either such state are
authorized or required by law or other governmental action to close.

     (iii)
“control” (including, with correlative meanings, the terms “controlling,”
“controlled by” and “under common control with”), as applied to any Person,
means the possession, directly or indirectly, of the power (through the
ownership of voting securities or by contract or otherwise) (i) to vote 10% or
more of the securities having ordinary voting power for the election of
directors of such Person or (ii) to direct or cause the direction of the
management and policies of that Person.

     (iv)
“day” means any calendar day.

     (v)
“Person” means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, limited
liability partnerships, joint stock companies, joint ventures, associations,
companies, trusts, banks, trust companies, land trusts, business trusts or other
organizations, whether or not legal entities

     (b)
Further Assurances. After the Closing, each Party shall, at
the request of the other Party, execute and deliver, and shall otherwise cause
to be executed and delivered, from time to time, such further instruments,
notices, division orders, transfer orders and other documents, and do such other
and further acts and things, as may be reasonably necessary or appropriate to
more fully and effectively grant, convey and assign the Properties to Madoff or
otherwise to confirm or carry out the provisions of this Agreement.

     (c) Dispute
Resolution.

     (i) Any
dispute, controversy or claim (“Dispute”) arising out of, relating to or
in connection with this Agreement, including any question regarding its
existence, validity or termination, or regarding a breach hereof which cannot be
resolved by good faith discussions among the Parties within 30 days (or such
longer period as may be agreed by the Parties) shall be referred by any Party
to, 

20




and shall be finally settled by,
arbitration under and in accordance with the Commercial Arbitration Rules of the
American Arbitration Association (the “Rules”). A Dispute shall be deemed
arisen when either Party notifies the other in writing to that effect.

     (ii) The
place of arbitration shall be Houston, Texas, and the award shall be deemed to
have been made there. The arbitration tribunal shall consist of one arbitrator
appointed in accordance with the Rules. Arbitration shall be in English. The
arbitrator shall have at least (10) years of experience in the oil and gas
industry as an attorney or other relevant professional. The decision of the
arbitrator shall include a statement of reasons for such decision, the award
shall be final and binding on the Parties, and judgment thereon may be entered
in any court having jurisdiction for its enforcement. In connection with such
enforcement, the Parties will submit to the non-exclusive jurisdiction of the
courts of Texas, waive any objections to venue in such courts and, to the extent
necessary to accomplish the foregoing, enter into such agreements as are
necessary to appoint an agent for the service of process in connection with such
an enforcement action.

     (iii)
The costs of the arbitration proceedings shall be borne according to the
arbitration award. However, each Party to the Dispute shall bear its own costs,
including costs regarding its own witnesses, expert witnesses, translators and
attorneys, as well as such expert witnesses, translators and attorneys’ fees,
regardless of which Party prevails.

     (d)
Parties Bear Own Expenses. Each Party shall bear and pay all
expenses (including, without limitation, legal fees) incurred by it in
connection with the transactions contemplated by this Agreement.

     (e)
Transfer Taxes. No sales, transfer or similar tax will be
collected at Closing from Madoff in connection with this transaction. If,
however, this transaction is later deemed to be subject to sales, transfer or
similar tax, for any reason, Madoff agrees to be solely responsible, and shall
indemnify and hold the Pantera Indemnified Persons harmless, for any and all
sales, transfer or other similar taxes (including related penalty, interest or
legal costs) due by virtue of this transaction on the Properties transferred
pursuant hereto and the Madoff shall remit such taxes at that time.
Notwithstanding the foregoing, nothing herein shall be interpreted as causing
Madoff to have any liability for any sale, use or income tax attributable to the
Properties and to any tax period, or portion thereof, prior to the Closing Date.
The Parties agree to cooperate with each other in demonstrating that the
requirements for exemptions from such taxes have been met. The Party that is
required by applicable law to make the filings, reports, or returns with respect
to any of the above taxes shall do so, and the other Parties shall cooperate
with respect thereto as necessary.

     (f)
Ad Valorem Taxes. Lakehills and Pantera shall be responsible
for all ad valorem taxes assessed prior to the Closing Date and (i) associated
with production from the Wells and (ii) relating to the Equipment and Acreage.
Madoff shall be responsible for 

21




all ad valorem taxes associated with
production from the Wells on or after the Closing Date. 

     (g)
Correspondence. After the Closing Date, Pantera and Lakehills
shall promptly forward to Madoff all mail and other communication addressed to
Pantera or Lakehills and received by either of them that relate directly or
indirectly to the Properties.

     (h)
Payments. If a Party makes a payment for or on behalf of
another Party with respect to any expense, cost or other item for which the
other Party is responsible hereunder or otherwise, the other Party shall
reimburse the Party making the payment promptly within 10 Business Days after
receipt of evidence of such payment.

     (i)
Insurance. For the avoidance of doubt, from and after the
Closing Date, Pantera and Lakehills shall include Madoff as an additional
insured on all insurance policies relating to the Properties as required
pursuant to the Joint Operating Agreement.

     (j)
Entire Agreement. This Agreement, the Participation Agreement
and the Joint Operating Agreement contain the entire understanding of the
Parties with respect to the subject matter hereof and supersede all prior
agreements, understandings, negotiations, and discussions among the parties with
respect to such subject matter. In the event of a conflict between the
provisions of this Agreement and the Joint Operating Agreement, the provisions
of this Agreement shall be controlling.

     (k)
Amendments, Waivers. This Agreement may be amended, modified,
supplemented, restated or discharged (and provisions hereof may be waived) only
by an instrument in writing signed by the Party against whom enforcement of the
amendment, modification, supplement, restatement or discharge (or waiver) is
sought.

     (l)
Choice of Law. Without regard to principles of conflicts of
law, this Agreement, including any arbitration contemplated in Section 15(c),
shall be construed and enforced in accordance with and governed by the laws of
the State of Texas applicable to contracts made and to be performed entirely
within such state and the laws of the United States of America.

     (m)
Headings, Time of Essence, etc. The descriptive headings
contained in this Agreement are for convenience only and shall not control or
affect the meaning or construction of any provision of this Agreement. Within
this Agreement words of any gender shall be held and construed to cover any
other gender, and words in the singular shall be held and construed to cover the
plural, unless the context otherwise requires. Time is of the essence in this
Agreement.

     (n)
Successors and Assigns. Subject to the limitation on
assignment contained in the following sentence, the Agreement shall be binding
on and inure to the benefit of the Parties and their respective successors and
assigns. Prior to Closing, no Party shall have the right to assign its rights
under this Agreement, without the prior written consent of the other Parties
first having been obtained. Notwithstanding the foregoing, Madoff may assign its
rights and obligations under this Agreement to an Affiliate of Madoff without
the other Parties’ prior written consent.

22




     (o)
Counterpart Execution. This Agreement may be executed in
counterparts, all of which are identical and all of which constitute one and the
same instrument. It shall not be necessary for any of the Parties to sign the
same counterpart.

     (p)
No Third Party Beneficiary Rights. This Agreement is not
intended to and shall not be construed to give any Person other than the Parties
and their respective successors and permitted assigns any interest or rights
(including, without limitation, any third party beneficiary rights) with respect
to or in connection with any agreement or provision contained herein or
contemplated hereby.

     (q)
Publicity. Except as otherwise required by applicable laws or
regulations, no Party shall issue any press release or make any other public
statement, in each case relating to or connected with or arising out of this
Agreement or the matters contemplated hereby, without obtaining the prior
written approval of the other Parties hereto to the contents and the manner of
presentation and publication thereof.

     (r)
Severability. If any provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other provisions of this Agreement shall nevertheless remain in full force and
effect so long as the economic or legal substance of the transaction
contemplated hereby is not affected in any manner adverse to any Party. Upon
such determination that any provision is invalid, illegal or incapable of being
enforced, the Parties shall negotiate in good faith to modify this Agreement so
as to effect the original intent of the Parties as closely as possible in an
acceptable manner to the end that the transactions contemplated hereby are
fulfilled.

     (s)
Termination of Pantera/Lakehills Agreement. Pantera and
Lakehills agree that the letter agreement dated August 11, 2008 between Pantera
and Lakehills, relating to certain of the Properties, a copy of which is
attached hereto as Exhibit H, is hereby terminated effective as of the date
hereof and shall be of no further force or effect. Neither Pantera nor Lakehills
shall have any further obligation or liability thereunder.

     (t)
Not to be Construed Against the Drafter. Each Party
acknowledges that it has read this Agreement, has had the opportunity to review
it with an attorney of its choice, and has agreed to all of its terms. Under
these circumstances, the Parties agree that the rule of construction that a
contract be construed against the drafter shall not be applied in interpreting
this Agreement.

     (u)
Conspicuousness. Each Party acknowledges and agrees that the
provisions of this Agreement that are printed in all capital letter and/or in
bold face type are conspicuous.

[SIGNATURE PAGE
FOLLOWS.]

23




IN WITNESS WHEREOF, this Agreement is executed by the Parties
on the Closing Date.

	MADOFF ENERGY IV LLC 	 
	  	  	 
	  	  	 
	  	  	 
	By: 	/s/ Andrew Madoff 	 
		Name: Andrew Madoff 	 
		Title: CEO 	 
	  	  	 
	  	  	 
	PANTERA PETROLEUM INC. 	 
	  	  	 
	  	  	 
	  	  	 
	By: 	/s/ Chris Metcalf 	 
		Name: Chris Metcalf 	 
		Title: President and CEO 	 
	  	  	 
	  	  	 
	LAKEHILLS PRODUCTION, INC.
    	 
	  	  	 
	  	  	 
	  	  	 
	By: 	/s/ Tom Stratton 	 
		Name: Tom Stratton 	 
		Title: President 	 


24




LIST OF SCHEDULES AND EXHIBITS

Exhibits

	Exhibit A-1 	Wells 
	Exhibit A-2 	Associated Property 
	Exhibit A-3 	Acreage Description 
	Exhibit B 	Well Cost 
	Exhibit C 	Land Costs 
	Exhibit D 	Conveyance Form 
	Exhibit E 	Joint Operating Agreement 
	Exhibit F 	Participation Agreement Acreage 
	Exhibit G 	Drill Schedule 
	Exhibit H 	Pantera/Lakehills Agreement



Schedules

	Schedule 5(g) 	Royalty Burdens 
	Schedule 5(h) 	Contracts Relating to the Properties 
	Schedule 5(j) 	Equipment 
	Schedule 5(k) 	Broker’s or Finder’s Fees of Pantera and
      Lakehills 
	Schedule 5(o) 	Insurance 
	Schedule 5(p) 	Permits 
	Schedule 5(r) 	Lease Expirations