EXHIBIT 10.1



 





Exhibit 10.1




PURCHASE AND SALE AGREEMENT



& JOINT ESCROW INSTRUCTIONS




BETWEEN




MAGNESS PETROLEUM COMPANY



an Oklahoma corporation




NEXT GENERATION INVESTMENTS, LLC



a California limited liability company




WARREN RESOURCES OF CALIFORNIA, INC.



a California corporation




 









 








	 	 	 	 	 	 	 	 	 
	ARTICLE I DEFINITIONS	 	 	- 2 -	 
	 
	 	Section 1.1	 	“Acquisition Documents”	 	 	- 2 -	 
	 
	 	Section 1.2	 	“Agreement”	 	 	- 2 -	 
	 
	 	Section 1.3	 	“Assets”	 	 	- 2 -	 
	 
	 	Section 1.4	 	“Affiliates”	 	 	- 3 -	 
	 
	 	Section 1.5	 	“Associated Parties”	 	 	- 3 -	 
	 
	 	Section 1.6	 	“Buyer”	 	 	- 4 -	 
	 
	 	Section 1.7	 	“Claim” or “Claims”	 	 	- 4 -	 
	 
	 	Section 1.8	 	“Closing”	 	 	- 4 -	 
	 
	 	Section 1.9	 	“Closing Date”	 	 	- 4 -	 
	 
	 	Section 1.10	 	“Code”	 	 	- 4 -	 
	 
	 	Section 1.11	 	“Conveyancing Instruments”	 	 	- 4 -	 
	 
	 	Section 1.12	 	“Defensible Title”	 	 	- 4 -	 
	 
	 	Section 1.13	 	“Effective Time”	 	 	- 4 -	 
	 
	 	Section 1.14	 	“Environmental Laws”	 	 	- 4 -	 
	 
	 	Section 1.15	 	“Equipment”	 	 	- 5 -	 
	 
	 	Section 1.16	 	“Escrow Agent”	 	 	- 5 -	 
	 
	 	Section 1.17	 	“Execution Date”	 	 	- 5 -	 
	 
	 	Section 1.18	 	“Harbor”	 	 	- 5 -	 
	 
	 	Section 1.19	 	“Liability or Liabilities”	 	 	- 5 -	 
	 
	 	Section 1.20	 	“Magness Abandonment Obligations”	 	 	- 5 -	 
	 
	 	Section 1.21	 	“Material Adverse Effect”	 	 	- 5 -	 
	 
	 	Section 1.22	 	“Mineral Properties”	 	 	- 6 -	 
	 
	 	Section 1.23	 	“MPC”	 	 	- 6 -	 
	 
	 	Section 1.24	 	“NGI”	 	 	- 6 -	 
	 
	 	Section 1.25	 	“NORM”	 	 	- 7 -	 
	 
	 	Section 1.26	 	“Oil”	 	 	- 7 -	 
	 
	 	Section 1.27	 	“Operator”	 	 	- 7 -	 
	 
	 	Section 1.28	 	“Party” or “Parties”	 	 	- 7 -	 
	 
	 	Section 1.29	 	“Permitted Encumbrances”	 	 	- 7 -	 
	 
	 	Section 1.30	 	“Person”	 	 	- 8 -	 







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	 	Section 1.31	 	“Plugging Obligations”	 	 	- 8 -	 
	 
	 	Section 1.32	 	“Property or Properties”	 	 	- 8 -	 
	 
	 	Section 1.33	 	“Property Taxes”	 	 	- 8 -	 
	 
	 	Section 1.36	 	“Seller” and “Sellers”	 	 	- 8 -	 
	 
	 	Section 1.37	 	“Surface Properties”	 	 	- 8 -	 
	 
	 	Section 1.38	 	“Taxes”	 	 	- 9 -	 
	 
	 	Section 1.39	 	“Unit Agreement”	 	 	- 9 -	 
	 
	 	Section 1.40	 	“Unit Operating Agreement”	 	 	- 9 -	 
	 
	 	Section 1.41	 	“Unit Operations”	 	 	- 9 -	 
	 
	 	Section 1.42	 	“Warren”	 	 	- 9 -	 
	 
	 	Section 1.43	 	“Well” or “Wells”	 	 	- 9 -	 
	 
	 	Section 1.44	 	“WEP”	 	 	- 9 -	 
	 
	 	Section 1.45	 	“WTU”	 	 	- 9 -	 
	ARTICLE II PURCHASE AND SALE	 	 	- 9 -	 
	 
	 	Section 2.1	 	MPC Interests	 	 	- 9 -	 
	 
	 	Section 2.2	 	NGI Interests	 	 	- 9 -	 
	ARTICLE III PURCHASE PRICE	 	 	- 10 -	 
	 
	 	Section 3.1	 	Purchase Price	 	 	- 10 -	 
	 
	 	Section 3.2	 	Adjustments to Purchase Price	 	 	- 10 -	 
	 
	 	Section 3.3	 	Deposit of Purchase Price in Escrow.	 	 	- 11 -	 
	 
	 	Section 3.4	 	Delivery of Purchase Price to Sellers	 	 	- 11 -	 
	ARTICLE IV ASSUMPTION OF LIABILITIES AND OBLIGATIONS	 	 	- 11 -	 
	 
	 	Section 4.1	 	Allocation of Risk	 	 	- 11 -	 
	 
	 	            (a)	 	Liabilities	 	 	- 12 -	 
	 
	 	            (b)	 	Obligations- Generally	 	 	- 12 -	 
	 
	 	            (c)	 	Plugging and Abandonment Obligations	 	 	- 12 -	 
	 
	 	            (d)	 	Magness Abandonment Obligations	 	 	- 13 -	 
	 
	 	Section 4.3	 	Accretion Account	 	 	- 13 -	 
	 
	 	Section 4.4	 	Assignment, Assumption and Bill of Sale	 	 	- 13 -	 
	ARTICLE V REPRESENTATIONS AND WARRANTIES	 	 	- 14 -	 
	 
	 	Section 5.1	 	Representations and Warranties of Sellers	 	 	- 14 -	 







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	 	            (a)	 	Organization	 	 	- 14 -	 
	 
	 	            (b)	 	Power and Authority	 	 	- 14 -	 
	 
	 	            (c)	 	Condition of Title	 	 	- 14 -	 
	 
	 	            (d)	 	Litigation	 	 	- 14 -	 
	 
	 	            (e)	 	Consents and Filings	 	 	- 15 -	 
	 
	 	            (f)	 	Absence of Violation or Conflict	 	 	- 15 -	 
	 
	 	            (g)	 	Accuracy and Completeness of Information	 	 	- 15 -	 
	 
	 	            (h)	 	Assignments, Conveyances and Other Agreements	 	 	- 15 -	 
	 
	 	            (i)	 	Consents and Preferential Purchase Rights	 	 	- 16 -	 
	 
	 	            (j)	 	Binding Effect	 	 	- 16 -	 
	 
	 	            (k)	 	Commissions	 	 	- 16 -	 
	 
	 	            (l)	 	Bankruptcy	 	 	- 16 -	 
	 
	 	 	 	Tax Matters	 	 	- 16 -	 
	 
	 	            (n)	 	Inducement	 	 	- 17 -	 
	 
	 	            (o)	 	Continuation of Representations	 	 	- 17 -	 
	 
	 	Section 5.2	 	Representations and Warranties of MPC	 	 	- 17 -	 
	 
	 	            (a)	 	Unit Expenditures	 	 	- 17 -	 
	 
	 	            (b)	 	Insurance	 	 	- 17 -	 
	 
	 	            (c)	 	Leases, Contracts and Other Agreements	 	 	- 18 -	 
	 
	 	            (d)	 	Taxes	 	 	- 18 -	 
	 
	 	            (e)	 	Conforming Use	 	 	- 18 -	 
	 
	 	            (f)	 	Payments for Production	 	 	- 18 -	 
	 
	 	            (g)	 	Governmental Authorizations	 	 	- 19 -	 
	 
	 	            (h)	 	Inducement	 	 	- 19 -	 
	 
	 	            (i)	 	Continuation of Representations	 	 	- 19 -	 
	 
	 	Section 5.3	 	Representations and Warranties of Warren	 	 	- 19 -	 
	 
	 	            (c)	 	Organization	 	 	- 21 -	 
	 
	 	            (d)	 	Power and Authority	 	 	- 21 -	 
	 
	 	            (e)	 	Litigation	 	 	- 21 -	 
	 
	 	            (f)	 	Consents and Filings	 	 	- 21 -	 
	 
	 	            (g)	 	Absence of Violation or Conflict	 	 	- 21 -	 







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	 	            (h)	 	Accuracy and Completeness of Information	 	 	- 22 -	 
	 
	 	            (i)	 	Preferential Purchase Right	 	 	- 22 -	 
	 
	 	            (j)	 	Binding Effect	 	 	- 22 -	 
	 
	 	            (k)	 	Commissions	 	 	- 22 -	 
	 
	 	            (l)	 	Bankruptcy	 	 	- 22 -	 
	 
	 	            (m)	 	Inducement	 	 	- 22 -	 
	 
	 	            (n)	 	Continuation of Representations	 	 	- 22 -	 
	ARTICLE VI DISCLAIMERS AND NOTIFICATIONS	 	 	- 23 -	 
	 
	 	Section 6.1	 	General Matters	 	 	- 23 -	 
	 
	 	Section 6.2	 	Data	 	 	- 24 -	 
	 
	 	Section 6.3	 	Hazardous Substances	 	 	- 24 -	 
	 
	 	Section 6.4	 	Seismic Hazards	 	 	- 25 -	 
	 
	 	Section 6.5	 	Earthquake Zone	 	 	- 25 -	 
	ARTICLE VII TAXES	 	 	- 25 -	 
	 
	 	Section 7.1	 	Property Taxes	 	 	- 25 -	 
	 
	 	Section 7.2	 	Production Taxes	 	 	- 25 -	 
	 
	 	Section 7.3	 	Other Taxes	 	 	- 26 -	 
	 
	 	Section 7.4	 	Set Off	 	 	- 26 -	 
	 
	 	Section 8.1	 	Oil in Storage	 	 	- 26 -	 
	 
	 	Section 8.3	 	Proceeds, Costs and Expenses	 	 	- 27 -	 
	 
	 	Section 10.2	 	Qualification	 	 	- 28 -	 
	 
	 	Section 10.3	 	Change of Operator	 	 	- 28 -	 
	 
	 	Section 10.4	 	Resolution of Disputes	 	 	- 29 -	 
	 
	 	Section 10.5	 	Transition Period	 	 	- 29 -	 
	 
	 	            (a)	 	Utilities	 	 	- 29 -	 
	 
	 	            (b)	 	Notice to Remitters of Proceeds	 	 	- 29 -	 
	 
	 	            (c)	 	Royalties	 	 	- 29 -	 
	 
	 	            (d)	 	Reporting	 	 	- 30 -	 
	 
	 	Section 10.7	 	Compliance	 	 	- 30 -	 
	 
	 	Section 10.8	 	Operation by MPC	 	 	- 30 -	 
	 
	 	            (a)	 	Drilling/Reworking Wells	 	 	- 30 -	 







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	 	            (b)	 	Net Revenue Billing	 	 	- 30 -	 
	 
	 	            (c)	 	Insurance Proceeds	 	 	- 31 -	 
	 
	 	Section 10.9	 	Operations Account	 	 	- 31 -	 
	 
	 	Section 10.10	 	Removal of Signs	 	 	- 32 -	 
	 
	 	Section 10.11	 	Operation of Business	 	 	- 32 -	 
	 
	 	Section 10.12	 	Access to Information and Inspection	 	 	- 32 -	 
	 
	 	            (a)	 	Title Files	 	 	- 32 -	 
	 
	 	            (b)	 	Other Files	 	 	- 33 -	 
	 
	 	            (c)	 	Inspections	 	 	- 33 -	 
	 
	 	Section 10.13	 	Accounting for Interim Operation	 	 	- 33 -	 
	 
	 	            (a)	 	Generally	 	 	- 33 -	 
	 
	 	            (b)	 	Preliminary Settlement Statement	 	 	- 34 -	 
	 
	 	            (c)	 	Final Settlement Statement	 	 	- 34 -	 
	ARTICLE XI TITLE MATTERS	 	 	- 34 -	 
	 
	 	Section 11.1	 	Seller’s Title	 	 	- 34 -	 
	 
	 	Section 11.2	 	Title Notice and Defect Remedies	 	 	- 34 -	 
	ARTICLE XII CONDITIONS PRECEDENT TO CLOSING	 	 	- 36 -	 
	 
	 	Section 12.1	 	No Delay	 	 	- 36 -	 
	 
	 	Section 12.2	 	Related Agreements	 	 	- 36 -	 
	 
	 	Section 12.3	 	Current Litigation	 	 	- 36 -	 
	 
	 	Section 12.4	 	Third-Party Notifications and Approvals	 	 	- 37 -	 
	 
	 	Section 12.5	 	Replacement Bond	 	 	- 37 -	 
	 
	 	Section 12.6	 	Insurance Policy	 	 	- 38 -	 
	ARTICLE XIII CLOSING	 	 	- 39 -	 
	 
	 	Section 13.1	 	Closing Date	 	 	- 39 -	 
	 
	 	Section 13.2	 	Closing Documents	 	 	- 39 -	 
	 
	 	            (a)	 	Conveyancing Instruments	 	 	- 39 -	 
	 
	 	            (b)	 	Preliminary Change of Ownership Reports	 	 	- 39 -	 
	 
	 	            (c)	 	Withholding Exemption Certificates	 	 	- 40 -	 
	 
	 	            (d)	 	Certificates of Insurance	 	 	- 40 -	 
	 
	 	            (f)	 	Exxon Consent	 	 	- 40 -	 







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	 	            (g)	 	CND Consent	 	 	- 40 -	 
	 
	 	            (h)	 	Other Third-Party Consents	 	 	- 40 -	 
	 
	 	            (i)	 	New Operator	 	 	- 40 -	 
	 
	 	            (j)	 	Certificates of Authority	 	 	- 40 -	 
	 
	 	            (k)	 	Certificate of Status	 	 	- 40 -	 
	 
	 	            (l)	 	Preliminary Settlement Statement	 	 	- 41 -	 
	 
	 	Section 13.4	 	Close of Escrow	 	 	- 41 -	 
	 
	 	Section 13.5	 	Delivery of Possession	 	 	- 42 -	 
	 
	 	Section 13.6	 	Representations at Closing	 	 	- 42 -	 
	 
	 	Section 13.7	 	Insurance Provided by MPC	 	 	- 42 -	 
	 
	 	Section 13.8	 	Further Assurances	 	 	- 42 -	 
	ARTICLE XIV POST-CLOSING AND CONTINUING OBLIGATIONS	 	 	- 42 -	 
	 
	 	Section 14.1	 	Deposit of Operations Account Balance	 	 	- 42 -	 
	 
	 	Section 14.2	 	Final Settlement Statement	 	 	- 42 -	 
	 
	 	Section 14.3	 	Copies and Files	 	 	- 43 -	 
	 
	 	Section 14.4	 	Further Assurances	 	 	- 43 -	 
	 
	 	Section 14.5	 	Documents	 	 	- 44 -	 
	 
	 	Section 14.6	 	Subsequent Conveyances	 	 	- 44 -	 
	
ARTICLE XV RELEASE, DISCHARGE, AND COVENANT NOT TO SUE; OBLIGATIONS TO INDEMNIFY, DEFEND,
 AND HOLD HARMLESS
	 	 	- 44 -	 
	 
	 	Section 15.1	 	Release and Discharge	 	 	- 44 -	 
	 
	 	Section 15.2	 	Covenant Not to Sue	 	 	- 44 -	 
	 
	 	Section 15.3	 	Obligations to Indemnify, Defend and Hold Harmless	 	 	- 45 -	 
	 
	 	Section 15.4	 	Limitation on Scope of this Article	 	 	- 45 -	 
	 
	 	Section 15.5	 	Waiver of Consumer Protection Laws	 	 	- 45 -	 
	 
	 	Section 15.6	 	Guaranty of Obligations	 	 	- 46 -	 
	 
	 	Section 15.7	 	Retroactive Effect	 	 	- 46 -	 
	ARTICLE XVI DEFAULT AND REMEDIES	 	 	- 46 -	 
	 
	 	Section 16.1	 	Buyer’s Default	 	 	- 46 -	 
	 
	 	Section 16.2	 	Sellers’ Default	 	 	- 46 -	 







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	 	Section 16.3	 	Other Defaults	 	 	- 47 -	 
	 
	 	Section 16.4	 	Nonconsent & Election	 	 	- 47 -	 
	ARTICLE XVII MISCELLANEOUS	 	 	- 47 -	 
	 
	 	Section 17.1	 	Notices	 	 	- 47 -	 
	 
	 	Section 17.2	 	Entire Agreement	 	 	- 48 -	 
	 
	 	Section 17.3	 	Termination of Agreements	 	 	- 48 -	 
	 
	 	Section 17.4	 	Successors and Assignees	 	 	- 48 -	 
	 
	 	Section 17.5	 	Amendment	 	 	- 48 -	 
	 
	 	Section 17.6	 	Survival	 	 	- 48 -	 
	 
	 	Section 17.7	 	Choice of Law	 	 	- 48 -	 
	 
	 	Section 17.8	 	Assignment	 	 	- 48 -	 
	 
	 	Section 17.9	 	No Admissions	 	 	- 49 -	 
	 
	 	Section 17.10	 	No Third-Party Beneficiaries	 	 	- 49 -	 
	 
	 	Section 17.11	 	Headings and Titles	 	 	- 49 -	 
	 
	 	Section 17.12	 	Exhibits	 	 	- 49 -	 
	 
	 	Section 17.13	 	Meaning of “Includes”	 	 	- 49 -	 
	 
	 	Section 17.14	 	Severability	 	 	- 49 -	 
	 
	 	Section 17.15	 	Counterparts	 	 	- 49 -	 
	 
	 	Section 17.16	 	Conflicts	 	 	- 49 -	 
	 
	 	Section 17.17	 	Drafter of Agreement	 	 	- 49 -	 
	 
	 	Section 17.18	 	No Waiver	 	 	- 49 -	 
	 
	 	Section 17.19	 	Express Negligence Rule: Conspicuousness	 	 	- 50 -	 
	 
	 	Section 17.20	 	Execution by the Parties	 	 	- 50 -	 







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PURCHASE AND SALE AGREEMENT



& JOINT ESCROW INSTRUCTIONS




EXECUTION DATE: November 24, 2004.




EFFECTIVE TIME: January 1, 2005, at 12:01 a.m. Pacific Standard Time.





	PARTIES: (1)	 	 Magness Petroleum Company, an Oklahoma corporation (“MPC”);
	 
	(2)	 	Next Generation Investments, LLC, a California
limited liability company (“NGI”); and
	 
	(3)	 	Warren Resources of California, Inc., a
California corporation (“Warren”).





RECITALS:





	A.	 	MPC is the owner of working interests, net revenue interests,
oil and gas leasehold interests, mineral interests, subsurface fee
properties, royalty interests and overriding royalty interests
within the Fault Block I Townlot Unit, Wilmington Oil Field situated
in the County of Los Angeles, State of California, and known as the
Wilmington Townlot Unit (the “WTU”).
	 
	B.	 	NGI is also the owner of working interests, net revenue
interests, oil and gas leasehold interests, mineral interests,
subsurface fee properties, royalty interests and overriding royalty
interests within the WTU.
	 
	C.	 	MPC and NGI are the owners of certain surface fee and surface
leasehold interests within the geographical boundaries of the WTU,
all as more specifically described herein.
	 
	D.	 	MPC and NGI desire to sell and Warren desires to purchase the
above-described kinds and types of interests of MPC and NGI within
the WTU, all as more specifically described herein.
	 
	E.	 	It is the Parties’ intent that Warren shall have
responsibility and liability for certain matters relating to the
Assets assigned, conveyed or otherwise transferred pursuant to this
Agreement, whether related





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	 	 	to events occurring before or after closing this transaction,
except to the limited extent provided in this Agreement.





AGREEMENT:




          The terms and conditions of this Agreement and the instructions to Escrow
Agent with regard to the escrow created pursuant hereto are as follows:



ARTICLE I




DEFINITIONS




          The following terms, when used in this Agreement, shall have the meanings
set forth below.



          Section 1.1 “Acquisition Documents” means and includes:




     (a) Purchase and Sale Agreement between ESE Land Corporation and The
Magness Group, LLC and Magness Petroleum Company dated April 18, 1997;




     (b) Security Agreement between ESE Land Corporation and The Magness
Group, LLC and Magness Petroleum Company;




     (c) Purchase and Sale Agreement between Exxon Corporation, ESE Land
Corporation, Magness Petroleum Company and The Magness Group, LLC. dated
February 27, 1997, as amended;




     (d) Assignment and Assumption Agreement dated April 30, 1997 between
ESE Land Corporation and The Magness Group, LLC and Magness Petroleum
Company; and




     (e) Assignment and Bill of Sale between ESE Land Corporation and The
Magness Group, LLC and Magness Petroleum Company.



          Section 1.2 “Agreement” means this Purchase and Sale Agreement.



          Section 1.3 “Assets” means, subject to the terms and conditions of this
Agreement, all of the Sellers’ right, title and interest in and to the
following:




	(a)	 	The Mineral Properties;
	 
	(b)	 	The Surface Properties;




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	(c)	 	The Equipment; and
	 
	(d)	 	All lease files, land files, well files, gas
and oil sales contract files, gas processing files, division
order files, abstracts, title opinions, land surveys,
proprietary geologic and geophysical data which Sellers have
a right to sell or license and if the Sellers do not have the
right to sell or license such data, then the Sellers will
grant the Buyer access to such data in order to review the
same; non-confidential logs; maps; engineering data and
reports; reserve studies, evaluations and files and all other
books, records, data, files, maps and accounting records
related primarily to the Assets, or used or held for use
primarily in connection with the maintenance or operation
thereof, but excluding (i) any books, records, data, files,
maps and accounting records to the extent disclosure or
transfer is restricted by third-party agreement or applicable
law and the necessary consents to transfer are not obtained
pursuant to the terms hereof, (ii) computer software (iii)
work product of legal counsel (other than title opinions) and
(iv) records relating to the negotiation and consummation of
the sale of the Assets; provided, however, that Sellers may
retain the originals of such files and other records as may
be required for litigation, tax, accounting, and auditing
purposes and provide Buyer with copies thereof.





Notwithstanding the foregoing, the Assets do not include:





     (1) the reservations, exceptions and exclusions listed on
Exhibits “A,” “B” and “C” hereto.




     (2) personal property, equipment, machinery, vehicles and
interests in land owned by Harbor or by third parties such as
lessors, purchasers, or transporters of oil or gas.




     (3) computer equipment, telecommunications equipment,
vehicles, boats, tools, pulling machines, rigs, draw works and
other equipment and material temporarily located on the Property.




     (4) software, databases or other digital media utilized by
MPC for Unit Operations, except as herein provided.



          Section 1.4 “Affiliates” means any Person more than 5% of the equity
interests of which are owned or controlled, directly or indirectly by a Party.



3









 





          Section 1.5 “Associated Parties” means the successors, assignees,
directors, officers, employees, agents, partners, members and Affiliates of a
Party, but does not include contractors or subcontractors.



          Section 1.6 “Buyer” means Warren Resources of California, Inc., a
California corporation.



          Section 1.7 “Claim” or “Claims” means, collectively, claims, demands,
causes of action, and lawsuits asserted or filed by any Person or by any local,
state or federal governmental entity.



          Section 1.8 “Closing” means the recordation of the Conveyancing
Instruments in Official Records of Los Angeles County, California and the
delivery of the Purchase Price (net of Sellers’ share of escrow costs and
expenses) to Sellers, and the performance by all Parties of their respective
obligations hereunder.



          Section 1.9 “Closing Date” means the date on which Closing occurs.



          Section 1.10 “Code” means the Internal Revenue Code of 1986, as amended.



          Section 1.11 “Conveyancing Instruments” means the Grant Deed – Mineral
Properties, the Assignment, Assumption and Bill of Sale and the Grant Deed –
Surface Properties, the forms of which are attached hereto as Exhibits “A,” “B”
and “C,” respectively.



          Section 1.12 “Defensible Title” means, subject to the Permitted
Encumbrances, such title to the Assets as is deductible from the records, and:
(i) entitles Sellers to receive not less than the Working Interests, Royalty
Interests and Overriding Royalty Interests included in the definition of
Mineral Properties set forth in Section 1.22 below; and (ii) is free and clear
of liens, encumbrances, obligations, pledges and security interests created,
made, done or suffered by, through or under the Sellers, or either of them.



          Section 1.13 “Effective Time” means 12:01 a.m. (Pacific Standard Time in
Los Angeles, California) on January 1, 2005.



          Section 1.14 “Environmental Laws” means applicable federal, state, and
local laws, including statutes, regulations, orders, ordinances, and common
law, currently enacted or enacted in the future and relating to protection of
public health, welfare, and the environment, including those laws relating to
storage, handling, and use of chemicals and other hazardous materials; those
relating to the generation, processing, treatment, storage, transport,
disposal,



4









 







cleanup, remediation, or other management of waste materials or hazardous
substances of any kind; and those relating to the protection of environmentally
sensitive or protected areas. “Environmental Laws” includes, but is not limited
to, the Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Resource Conservation and Recovery Act of 1976, the Clean Water Act,
the Safe Drinking Water Act, the Hazardous Materials Transportation Act, the
Toxic Substance Control Act and the Clean Air Act, as each is amended from time
to time.



          Section 1.15 “Equipment” means MPC’s and NGI’s interest in the Unit
Equipment (as such term is defined in the Unit Agreement) described in Exhibit
“E” hereto.



          Section 1.16 “Escrow Agent” means an independent title or escrow company
to be mutually agreed upon by the Parties.



          Section 1.17 “Execution Date” means the date on which the last of the
Parties executes this Agreement.



          Section 1.18 “Harbor” means Harbor Energy Services, Inc., a California
corporation. The Parties expressly agree that Harbor is neither an Affiliate
nor an Associated Party of any Party hereto.



          Section 1.19 “Liability or Liabilities” means, individually and
collectively, all damages (including consequential and punitive damages),
including those for personal injury, death, or damage to personal or real
property (both surface and subsurface) and costs for remediation, restoration,
or clean up of contamination, whether the injury, death, or damage occurred or
occurs on or off the Property by migration, disposal, or otherwise; losses;
fines; penalties, expenses; costs to remove or modify facilities on or under
the Property; attorneys’ fees; court and other costs incurred in defending a
Claim; liens; and judgments created by third parties (and not the Sellers);
whether these damages and other costs are foreseeable or unforeseeable.



          Section 1.20 “Magness Abandonment Obligations” are defined in ARTICLE IV
below.



          Section 1.21 “Material Adverse Effect” means any adverse effect on the
ownership, operation or value of the Assets, as currently operated, which: (i)
is material to the ownership, operation or value of the Assets, taken as a
whole, for purposes of determining whether the conditions to Closing have been
satisfied; or (ii) exceeds $50,000.00 in value for all other purposes under
this Agreement, provided, however, that “Material Adverse Effect” shall not
include general



5









 







changes in industry or economic conditions or changes in laws or
in regulatory policies.



          Section 1.22 “Mineral Properties” means MPC’s and NGI’s interest in the
minerals and other interests described in the form of Grant Deed – Mineral
Interest attached hereto as Exhibit “A”, together with their interests in the
oil and gas leasehold estates described in the form of Assignment, Assumption
and Bill of Sale attached hereto as Exhibit “B.” The Mineral Properties
represent a working interest in the WTU of approximately 51.142926% and a net
revenue interest of approximately 41.963871% (which number includes the royalty
and overriding royalty interests) held by MPC, but is subject to the payment of
third party royalty obligations shown in the Division of Interest by Property
attached hereto as Exhibit “F”). The oil and gas leasehold estates include
MPC’s and NGI’s interest in the following:




     (1) Each Well located on the land and leases described on the
form of Grant Deed – Mineral Interest and the form of Assignment,
Assumption and Bill of Sale attached hereto as Exhibits “A” and
“B,” respectively;




     (2) Any easements, permits, licenses, surface and subsurface
leases, rights-of-way, servitudes and other surface and subsurface
rights necessary to operate the WTU and described on the form of
Grant Deed – Mineral Interest, the form of Assignment, Assumption
and Bill of Sale, the form of Grant Deed – Surface Interest and
the Schedule of Contracts attached hereto as Exhibits “A” through
“D,” respectively;




     (3) The contracts affecting the Mineral Properties, including
agreements for sale or purchase of oil, gas, and other
hydrocarbons; processing agreements; division orders; unit
agreements; operating agreements; and other contracts and
agreements arising out of, or connected with, or attributable to
production of oil and gas from the Mineral Properties and the
Surface Properties, which contracts are described in the Schedule
of Contracts attached hereto as Exhibit “D;” and




     (4) The Equipment, facilities and pipelines located pursuant
to the rights described above and necessary to market the
production of oil and gas from the Mineral Properties, as
described in Exhibit “E” hereto.



          Section 1.23 “MPC” means Magness Petroleum Company, an Oklahoma
corporation.



6









 





          Section 1.24 “NGI” means Next Generation Investments, LLC, a California
limited liability company.



          Section 1.25 “NORM” means naturally occurring radioactive material.



          Section 1.26 “Oil” means crude oil, distillate, drip gasoline, condensate,
and other liquid hydrocarbons.



          Section 1.27 “Operator” means the Person recognized as operator of the WTU
by the applicable regulatory agency.



          Section 1.28 “Party” or “Parties” means MPC, NGI and Warren, individually
and collectively.



          Section 1.29 “Permitted Encumbrances” means any or all of the following:




     (a) Royalties and any overriding royalties, reversionary interests
and other burdens owned by third parties to the extent that they do not,
individually or in the aggregate, impair the Sellers’ rights to receive
proceeds of production from the Mineral Properties;




     (b) The leases, unit agreements, pooling agreements, operating
agreements, and division orders applicable to the Assets and described in
Exhibit “D”;




     (c) Preferential rights to purchase the Assets with respect to which
waivers are obtained by the Sellers from the appropriate parties prior to
the Closing Date or the appropriate time period for asserting the right
has expired;




     (d) Third-party consent requirements and similar restrictions with
respect to which waivers or consents are obtained by the Sellers from the
appropriate parties prior to the Closing Date or the appropriate time
period for asserting the right has expired or which need not be satisfied
prior to a transfer;




     (e) A lien to secure payment of Property Taxes not delinquent and
the lien for supplemental taxes assessed pursuant to Chapter 3.5
commencing with Section 7.5 of the California Revenue and Taxation Code;




     (f) Materialman’s, mechanic’s, repairman’s, employee’s,
contractor’s, operator’s and other similar liens or charges arising in
the



7









 






ordinary course of business for amounts not yet delinquent
(including any amounts being withheld as provided by law);




     (g) Rights to consents by, required notices to, filings with, or
other actions by any governmental body in connection with the sale or
conveyance of oil and gas leases or interests therein if they are not
required prior to the sale or conveyance; and




     (h) Easements, rights-of-way, restrictions, covenants, conditions,
servitudes, permits, and other rights and obligations regarding surface
operations that are of record, that are apparent from physical inspection
of the Assets, or which Sellers acquired the Assets subject to, to the
extent they do not, individually or in the aggregate, impair the Sellers’
right to receive proceeds of production from the Mineral Properties or
use the Surface Properties.



          Section 1.30 “Person” means any individual, firm, corporation,
partnership, Limited Liability Company, joint venture, association, trust,
unincorporated organization, government or agency or subdivision thereof or any
other entity.



          Section 1.31 “Plugging Obligations” is defined in ARTICLE IV below.



          Section 1.32 “Property or Properties” means the real property in which and
on which the Assets exist or are located, whether in whole or in part.



          Section 1.33 “Property Taxes” is defined in Section 7.1 below.



          Section 1.34 “Purchase Price” is the amount set forth in Section 3.1
below.



          Section 1.35 “Related Agreements” is defined in Section 12.2 below.



          Section 1.36 “Seller” and “Sellers” means MPC and NGI, individually and
collectively.



          Section 1.37 “Surface Properties” means MPC’s and NGI’s interest in the
surface estate of those parcels of real property described in the form of Grant
Deed – Surface Interest attached hereto as Exhibit “C.” The Parties agree that
the Surface Properties include all of Seller’s right, title and interest in and
to real property situated within the geographical boundaries of the WTU, save
and
except those parcels of real property described in Exhibit “G” hereto. It
is expressly understood and agreed that MPC is retaining ownership of those
parcels



8









 








 of real property described in Exhibit “G” hereto for development to
other than oil and gas uses and Warren will cooperate with such development by
executing and delivering such quitclaims of surface interests to MPC, its
successors or assigns as may be reasonably requested after Closing.



          Section 1.38 “Taxes” is defined in ARTICLE VII below.



          Section 1.39 “Unit Agreement” means the Unit Agreement dated March 1, 1971
establishing the WTU, as such agreement has been amended from time to time.



          Section 1.40 “Unit Operating Agreement” means the Unit Operating Agreement
dated March 1, 1971 controlling Unit Operations within the WTU, as such
agreement has been amended from time to time.



          Section 1.41 “Unit Operations” has the meaning ascribed to it in the Unit
Agreement.



          Section 1.42 “Warren” means Warren Resources of California, Inc., a
California corporation.



          Section 1.43 “Well” or “Wells” means wellbores, both abandoned and
unabandoned, including oil wells, gas wells, injection wells, disposal wells
and water wells.



          Section 1.44 “WEP” means Warren E&P, Inc., a New Mexico corporation.



          Section 1.45 “WTU” means the Fault Block I Townlot Unit, Wilmington Oil
Field, situated in the County of Los Angeles, State of California.



ARTICLE II




PURCHASE AND SALE




          Section 2.1 MPC Interests. MPC agrees to sell to Warren, and Warren
agrees to buy from MPC, all of MPC’s interest in the Assets for the
consideration recited in and subject to the terms of this Agreement.



          Section 2.2 NGI Interests. NGI agrees to sell to Warren, and Warren
agrees to buy from NGI, all of NGI’s interest in the Assets for the
consideration recited in and subject to the terms of this Agreement.



9









 





ARTICLE III




PURCHASE PRICE




     Section 3.1 Purchase Price. The Purchase Price is Fourteen Million Eight
Hundred Thousand Dollars ($14,800,000.00), to be apportioned among MPC and NGI
as follows:




     (1) To MPC (“MPC Consideration”):



	 	 	 	 	 
	Type of Asset
	 	Purchase Price

	Surface Properties
	 	$	3,285,000.00	 
	Mineral Properties (excluding Equipment)
	 	 	8,425,000.00	 
	Equipment
	 	 	960,000.00	 
	 
	 	 	
 	 
	 
	 	$	12,670,000.00	 








     (2) To NGI (“NGI Consideration”)



	 	 	 	 	 
	Type of Asset
	 	Purchase Price

	Surface Properties
	 	$	600,000.00	 
	Mineral Properties (excluding Equipment)
	 	 	1,400,000.00	 
	Equipment
	 	 	130,000.00	 
	 
	 	 	
 	 
	 
	 	$	2,130,000.00	 







The allocation of the Purchase Price in accordance with this Section 3.1 is
intended to comply with the allocation method required by Section 1060 of the
Internal Revenue Code. MPC, NGI and Warren shall cooperate to comply with all
substantive and procedural requirements of Section 1060 of the Code and
Regulations thereunder, including without limitation the filing by the parties
of IRS Form 8594 with their federal income tax returns for the taxable year in
which the Closing occurs. The parties agree that each will not take for income
tax purposes, or permit any affiliate to take, any position inconsistent with
the above-described allocation of the Purchase Price.



          Section 3.2 Adjustments to Purchase Price. The Purchase Price for the
Assets shall be adjusted, if necessary, pursuant to Section 11.2(d)
below.



10









 







Any adjustments shall be reflected as debits and credits to the
appropriate Party on the Preliminary Settlement Statement, as well as the Final
Settlement Statement referred to elsewhere herein.



          Section 3.3 Deposit of Purchase Price in Escrow. The Purchase Price shall
be deposited into Escrow by Warren as follows:




     (1) Within ten (10) days after execution of this Agreement,
Warren shall deliver to the Escrow Agent, as a refundable deposit,
a cashier’s check or other immediately available funds in the sum
of One Million Five Hundred Thousand Dollars ($1,500,000.00) (the
“Earnest Money”).




     (2) At the Closing, Warren shall deliver the balance of the
Purchase Price to the Escrow Agent, by cashier’s check or other
immediately available funds.



          Section 3.4 Delivery of Purchase Price to Sellers. The Purchase Price
shall be delivered to Sellers as provided in Section 13.4 and Section 14.2
below.



ARTICLE IV




ASSUMPTION OF LIABILITIES AND OBLIGATIONS




          Section 4.1 Allocation of Risk. Except as may be otherwise apportioned in
this Agreement, the Parties agree that the risk of loss from Claims or
Liabilities shall be apportioned as follows:




     (a) The Parties acknowledge that Claims and/or Liabilities may be
made either before or after the Effective Time of this transaction which
arise from an occurrence predating the Effective Time. It is the intent
of the Parties that responsibility for such Claims and/or Liabilities
shall be borne by the Parties hereto as follows:




     (1) If the Claim or Liability is a Unit Expenditure or is
related to the use, ownership or operation of the WTU and is not a
Unit Expenditure, then and only to the extent that a Claim and/or
Liability is not covered by insurance, the Parties shall be
responsible for such Claim or Liability in proportion to their
respective working interests in the WTU;




     (2) If the Claim or Liability is caused by the negligence,
gross negligence or intentional misconduct of Sellers (or either
of them) or attributable to personal injury resulting from
day-to-day



11









 






Unit Operations by MPC, then Sellers (or MPC, as applicable)
shall be solely responsible therefor, except to the extent limited
by the contributory negligence of Warren, WEP or their Associated
Parties; and




     (3) In all other cases, Sellers shall have no liability
whatsoever.




     (b) For Claims and/or Liabilities which arise from an occurrence
that happens between the Effective Time and the end of the Transition
Period, responsibility for such Claims and/or Liabilities shall be borne
by the Parties hereto as follows:




     (1) If the Claim or Liability is caused by the negligence,
gross negligence or intentional misconduct of MPC or attributable
to personal injury resulting from day-to-day Unit Operations by
MPC, then MPC shall be solely responsible therefor, except to the
extent limited by the contributory negligence of Warren, WEP or
their Associated Parties; and




     (2) In all other cases, Sellers shall have no liability
whatsoever.




     (c) If a Claim or Liability arises from an occurrence after the
Effective Time, Sellers shall have no liability whatsoever.



          Section 4.2 Assumption of Liabilities and Obligations. As partial
consideration to Sellers for this transaction, Warren agrees to assume
(collectively, the “Assumed Obligations”):




     (a) Liabilities. All Liabilities of MPC and/or NGI associated, in
any way, with the WTU, whether such Liabilities arise out of Unit
Operations, ownership of the Assets or otherwise; but excluding any of
the matters for which the risk of loss is allocated to Sellers (or either
of them) pursuant to Section 4.1 above;




     (b) Obligations- Generally. All obligations of MPC and/or NGI under
all contracts concerning the ownership or operation of the Assets and/or
the WTU, from and after the Effective Time, but not before, which
contracts are more particularly described in Exhibit “D” hereto, but
excluding those matters for which MPC and NGI are responsible as provided
in Section 8.3 below;




     (c) Plugging and Abandonment Obligations. All obligations
attributable to MPC and/or NGI to properly plug and abandon all wells



12









 






within the WTU; abandon all flowlines and other pipelines;
remove all equipment and facilities; close all pits and sumps; remediate
all soil and ground water that may have been impacted by oil and gas
production operations; and restore the surface and/or subsurface
associated with the WTU including all surface properties (collectively,
the “Plugging Obligations”); in accordance with the rules, regulations,
and requirements of any governmental authority having jurisdiction
thereof and in accordance with all obligations, express or implied, in
the Unit Agreement and any other Related Agreement, regardless of when
these obligations arose or arise; and




     (d) Magness Abandonment Obligations. All of the “Magness
Abandonment Obligations,” as such term is defined in that certain
Assignment and Assumption Agreement entered into as of April 27, 1997 by
and between MPC, The Magness Group, LLC, an Oklahoma limited liability
company and ESE Land Corporation, an Illinois corporation, and shall
indemnify MPC and NGI from and against any Claims with respect to the
Magness Abandonment Obligations in accordance with Section 15.3(a) below.
The parties acknowledge, however, that performance of the Magness
Abandonment Obligations is subject to the provisions of the Unit
Agreement. Nothing contained in this Agreement will obligate Warren to
reduce unit production, abandon any wells or other operations, or
undertake any operations under the Unit Agreement unless such operations
are undertaken in accordance with prudent operations and the Unit
Agreement. Warren acknowledges that regardless of any vote of the other
working interest owners under the Unit Agreement, Warren will be
responsible to MPC and NGI for completing the Magness Abandonment
Obligations whether or not the Replacement Bond (as defined in Section
12.5 below) or any of the security provided under the Acquisition
Documents is in effect.



          Section 4.3 Accretion Account. The Parties acknowledge that MPC and
Warren each have a credit balance in the Accretion Account, as such term is
defined in the Acquisition Documents. At the Closing, Warren shall pay to MPC
an amount equal to MPC’s share of the Accretion Account and MPC shall assign to
Warren any right that MPC has to the Accretion Account. This payment shall be
reflected in the Preliminary Settlement Statement, as hereinafter defined.



          Section 4.4 Assignment, Assumption and Bill of Sale. At the Closing,
Warren shall assume the Assumed Obligations. Prior to Closing, the Parties
shall execute and deliver to Escrow Agent a fully executed original of the
Assignment, Assumption and Bill of Sale in the form attached hereto as Exhibit
“B” to effect, among other things, the assumption of liabilities and
obligations provided in this Agreement.



13









 





ARTICLE V




REPRESENTATIONS AND WARRANTIES




          Section 5.1 Representations and Warranties of Sellers. Subject to the
disclaimers and disclosures set forth in ARTICLE VI, Sellers represent and
warrant as of the date hereof and as of the Closing Date to Warren as follows:




     (a) Organization.




     (1) MPC is a corporation duly organized, validly existing and
in good standing under the laws of the State of Oklahoma, and is
duly qualified to carry on its business in California, with full
power and authority to enter into this Agreement and carry out the
terms, conditions and provisions hereof.




     (2) NGI is a limited liability company duly organized,
validly existing and in good standing under the laws of the State
of California, with full power and authority to enter into this
Agreement and carry out the terms, conditions and provisions
hereof.




     (b) Power and Authority. The Sellers have full power and authority
to enter into, execute and perform this Agreement; to make any
representation, warranty, covenant or agreement contained herein; to
perform every act and execute and deliver any and all documents,
instruments or agreements necessary or appropriate to consummate the
transactions contemplated by this Agreement. All actions on the part of
the Sellers necessary to consummate the transactions contemplated by this
Agreement have been duly taken as required by applicable law, the
governing documents of the Sellers and any applicable agreements. This
Agreement has been, and other agreements, documents and instruments
required to be executed and delivered by the Sellers in accordance with
the provisions hereof, have been or will be duly executed and delivered
by the Sellers and constitute (or will at Closing constitute) the legal,
valid and binding obligations of the Sellers, enforceable against the
Sellers in accordance with their terms.




     (c) Condition of Title. Subject to the Permitted Encumbrances,
Sellers will convey Defensible Title to the Assets to
Warren. Sellers make no other representation or warranty as to the
condition of title to the Assets.




     (d) Litigation. There is no litigation, proceeding or governmental
investigation pending or threatened in any court, arbitration board,



14









 






administrative agency or tribunal against or relating to the Sellers that
would prevent or impede the consummation of this Agreement by the
Sellers. The Sellers do not know of and have no reasonable ground to
know of any basis for any such litigation, proceeding or investigation,
and the execution and performance of this Agreement by them will not
result in a default with respect to any judgment, order, writ,
injunction, decree, rule or regulation of any applicable court or
administrative agency. Except as disclosed on Exhibit “F”, there are no
actions, suits or proceedings pending, or to Sellers’ knowledge
threatened or noticed in writing against Sellers or the Assets, which
could have a Material Adverse Effect on any of the Assets, including any
written notice or claim from any governmental authority or person
claiming any violation of any law, judgment, order, writ, injunction,
decree, rule or regulation.




     (e) Consents and Filings. There is no requirement applicable to the
Sellers to obtain any consent, approval or authorization of, or to make
or effect any declaration, filing or registration with, any governmental
authority for the valid execution and delivery by the Sellers of this
Agreement, the due performance by the Sellers of their obligations
hereunder or the lawful consummation of the transactions contemplated
hereby.




     (f) Absence of Violation or Conflict. The execution, delivery and
performance of the transactions contemplated by this Agreement by the
Sellers does not and will not violate, conflict with or result in the
breach of any term, condition or provision of or require the consent of
any other person under: (i) any law, ordinance or governmental rule or
regulation known to the Sellers and to which the Sellers or the Assets is
subject; (ii) the governing documents of or any securities issued by the
Sellers; or (iii) any mortgage, indenture or other instrument to which
the Sellers are a party or by which any of the Assets may be bound or
effected. No authorization, approval or consent of and no registration
or filing with any governmental or regulatory body or any other third
party is required in connection with the execution, delivery and
performance of this Agreement by the Sellers.




     (g) Accuracy and Completeness of Information. No written statement,
representation, warranty or other information provided or furnished by or
on behalf of the Sellers to the Buyer in this Agreement or
otherwise in connection with this transaction contains any untrue
statement of a material fact or omits to state any material fact
necessary to make the statements herein or therein not misleading.




     (h) Assignments, Conveyances and Other Agreements. The Sellers have
not transferred, assigned or conveyed any portion of the Assets



15









 






and have
not entered into any agreement or agreements, either written or oral,
under which they are, individually or collectively, or could be obligated
to sell or transfer all or any portion of the Assets or rights under this
Agreement, and agree not to enter into or negotiate any such agreement or
agreements.




     (i) Consents and Preferential Purchase Rights. Except for the Right
of First Refusal between MPC and Warren (which shall terminate at the
Closing), none of the Assets, or any portion thereof, are subject to any
preferential rights to purchase or restrictions on assignment or required
third-party consents to assignment, which may be applicable to the
transactions contemplated by this Agreement, except for (i) governmental
consents and approvals of assignments that are customarily obtained after
Closing, (ii) preferential rights, consents and restrictions contained in
easements, rights-of-way or equipment leases and (iii) preferential
rights, consents and restrictions contained in any contracts affecting
the Assets (including the Acquisition Documents).




     (j) Binding Effect. This Agreement has been duly authorized,
executed and delivered on behalf of the Sellers and constitutes the
legal, valid and binding obligation thereof, enforceable in accordance
with its terms; subject, however, to the effects of bankruptcy,
insolvency, reorganization and other laws for the protection of
creditors.




     (k) Commissions. Sellers have incurred no liability, contingent or
otherwise, for brokers’ or finders’ fees relating to the transactions
contemplated by this Agreement for which Warren shall have any
responsibility whatsoever.




     (l) Bankruptcy. There are no bankruptcy, reorganization or
arrangement proceedings pending, being contemplated by or, to the
knowledge of Sellers, threatened against either of them.




     (m) Tax Matters. Section 1445 of the Internal Revenue Code provides
that a buyer of a U.S. property interest must withhold tax if the seller
is a foreign person. To inform Warren that the withholding of tax is not
required in the disposition of the Assets, the Sellers hereby declare as
follows: (i) the name, address and U.S. employer tax identification
numbers
of MPC and NGI are set forth below; (ii) MPC and NGI are not a
nonresident alien for the purposes of U.S. income taxation or a foreign
corporation, a foreign partnership, a foreign trust or a foreign estate
as those terms are defined in the Internal Revenue Code and Income Tax
Regulations; and (iii) the undersigned understands that this Tax
Certification may be disclosed to the Internal Revenue Service by Warren



16









 






and that any false statement contained herein could be punishable by
fine, imprisonment or both. Under penalty of perjury, the undersigned
declares to the best of the undersigned’s knowledge and belief, it is
true, correct and complete. The undersigned further declares that the
undersigned has all necessary authority to execute this document.



	 	 	 
	Magness Petroleum Company

	 	Next Generation Investments, LLC
	4281 Katella Ave., Suite 116

	 	4655 E. Behymer
	Los Alamitos, California 90720

	 	Clovis, California 93619
	EIN: 73-1435396

	 	EIN: 77-0551347
	 
	 	 
	Gary D. Magness, President

	 	Marcus D. Magness, Manager








     (n) Inducement. Sellers acknowledge that their representations
under this article and the rest of this Agreement are a material
inducement to Buyer to enter into this Agreement with, and close the sale
from, Sellers.




     (o) Continuation of Representations. The representations,
warranties and covenants of the Sellers shall be in full force and effect
as of the Closing Date, and shall, except as otherwise provided herein,
survive the Closing for a period of two (2) years from and after the
Closing Date, unless written notice of a claim is given to the Sellers
within such period, in which event, the claims identified within such
notice shall survive without time limitation (but subject to any statutes
of limitation applicable thereto under governing law).



          Section 5.2 Representations and Warranties of MPC. Subject to the
disclaimers and disclosures set forth in ARTICLE VI, MPC represents and
warrants as of the date hereof and as of the Closing Date to Warren as follows:




     (a) Unit Expenditures. All Unit Expenditures have been paid or
provided for in the ordinary course of business, or otherwise
disclosed in writing to the Buyer, and there is no threat by any
person, including any governmental body, to impose a lien upon the
Assets, or any portion thereof for any purpose.




     (b) Insurance. MPC, as Unit Operator, has in effect and will keep
in full force and effect prior to the Closing Date of this Agreement
adequate insurance policies and bonds covering the Assets issued by
financially responsible insurers at no less than existing levels of
coverage.



17









 






     (c) Leases, Contracts and Other Agreements. MPC has incurred no
liability, made no contract or agreement, nor entered into any written or
oral arrangements whatsoever which would impose or result in any
obligations upon the Buyer as a result of or at the Closing of this
Agreement, except for the contracts which will be specifically assumed
and performed by the Buyer pursuant to this Agreement on, as of and after
the Closing Date. MPC is not in default under any contract affecting the
Assets except such defaults as would not, individually or in the
aggregate, have a Material Adverse Effect. Exhibit “D” sets forth all of
the contracts, agreements, and commitments to which any of the Assets
will be bound as of the Closing, including: (i) any agreement with any
Affiliate; (ii) any agreement or contract for the sale, exchange, or
other disposition of hydrocarbons produced from or attributable to
Sellers’ Interests in the Assets that is not cancelable without penalty
or other material payment on not more than 30 days prior written notice;
and (iii) any tax partnership agreement of or binding upon Sellers
affecting any of the Assets.




     (d) Taxes. All ad-valorem and other personal property taxes for the
2003-2004 fiscal year and prior years assessed against the Assets, and
all state and federal taxes assessed against the MPC’s employees’ wages
have been paid or provided for, or MPC will make sure the same will be
paid and provided for as of the Closing Date of this Agreement; and no
legal, governmental or administrative action is pending or threatened
with regard to any such taxes or assessments. The first installment of
ad-valorem and other personal property taxes for the 2004-2005 fiscal
year and any other amounts of such taxes due prior to the Effective Time
will be paid prior to the Effective Time and will be charged to the WTU
working interest owners in accord with the Unit Operating Agreement.




     (e) Conforming Use. MPC has used the Assets for the purposes for
which such property was intended, and have abided by, conformed to and
caused others to abide by and conform to all laws, ordinances, orders,
rules, regulations and statutes of national, state,
municipal or county governmental authorities that are now existing
or may hereinafter be enacted and that are controlling or in manner
affecting the use and operation by MPC of the Assets.




     (f) Payments for Production. Except for funds held in suspense (as
discussed in Section 8.4 below), all rentals, royalties, excess royalty,
overriding royalty interests, production payments, and other payments due
and/or payable by MPC to mineral and royalty holders and other interest
owners, if any, on or prior to the Closing Date with respect to the
Assets and the hydrocarbons produced therefrom or attributable thereto,
have been



18









 






or will be properly and timely paid in the ordinary course of
business, and MPC is not obligated under any contract or agreement for
the sale of gas from the Assets containing a take-or-pay, advance
payment, prepayment, or similar provision, or under any gathering,
transmission, or any other contract or agreement with respect to any of
the Assets to gather, deliver, process, or transport any gas without then
or thereafter receiving full payment therefor.




     (g) Governmental Authorizations. MPC has obtained and is
maintaining, and at the Closing will be in compliance with, all
governmental authorizations that are presently necessary or required for
the ownership and operation of the Assets as currently owned and operated
(including, but not limited to, those required under Environmental Laws),
the loss of which would, individually or in the aggregate, have a
Material Adverse Effect. MPC has operated the Assets in accordance with
the conditions and provisions of such governmental authorizations and no
notices of violation have been received by MPC, and no proceedings are
pending or, to MPC’s knowledge, threatened in writing that might result
in any modification, revocation, termination or suspension of any such
governmental authorizations or which would require any corrective or
remediation action by MPC.




     (h) Inducement. MPC acknowledges that its representations under
this article and the rest of this Agreement are a material inducement to
Buyer to enter into this Agreement with, and close the sale from,
Sellers.




     (i) Continuation of Representations. The representations,
warranties and covenants of MPC shall be in full force and effect as of
the Closing Date, and shall, except as otherwise provided herein, survive
the Closing for a period of two (2) years from and after the Closing
Date, unless written notice of a claim is given to MPC within such
period, in which event, the claims identified within such notice shall
survive without
time limitation (but subject to any statutes of limitation
applicable thereto under governing law).



          Section 5.3 Representations and Warranties of Warren. Subject to the
disclaimers and disclosures set forth in ARTICLE VI, Warren represents and
warrants as of the date hereof, and as of the Closing Date, to MPC and to NGI
as follows:



19









 






     (a) Securities Laws.




     (1) Warren acknowledges that the solicitation of an offer for
and the sale of the Assets by MPC and/or NGI has not been
registered under any securities laws.




     (2) Warren intends to acquire the Assets for its own benefit
and account and is not acquiring the Assets with the intent of
distributing fractional undivided interests in them or otherwise
selling them in a manner that would be subject to regulation by
federal or state securities laws. If Warren sells, transfers, or
otherwise disposes of the Assets or fractional undivided interests
in them in the future, it will do so in compliance with applicable
federal and state laws.




     (3) Warren represents that at no time has it been presented
with or solicited by or through any public promotion or other form
of advertising in connection with this transaction.




     (b) Basis of Warren’s Decision. Warren represents that:




     (1) It is an experienced oil and gas company and operator.
It has entered into this Agreement on the basis of its own
independent judgment and analysis. Warren is the current owner of
interests within the WTU and as such has express knowledge
concerning the Assets and Unit Operations. Warren is in the
business of purchasing and owning oil and gas properties.




     (2) It has reviewed and investigated the Assets to its
satisfaction in order to enter into this Agreement.




     (3) It has evaluated the Assets to its satisfaction and has
made an informed decision, as a prudent and knowledgeable
purchaser, to acquire the Assets.




     (4) It is knowledgeable and experienced in the evaluation,
acquisition, and operation of oil and gas properties.




     (5) It has evaluated the merits and risks of purchasing the
Assets and has formed an opinion based solely upon its knowledge
and experience and not in reliance on any statements or actions by
MPC, NGI or their respective Associated Parties.




     (6) Except as provided herein, it will acquire the Assets “as
is, where is,” and with all faults.



20









 






     (c) Organization. Warren is a corporation duly organized, validly
existing and in good standing under the laws of the State of California,
and is duly qualified to carry on its business in California, with full
power and authority to enter into this Agreement and carry out the terms,
conditions and provisions hereof.




     (d) Power and Authority. Warren has full power and authority to
enter into, execute and perform this Agreement; to make any
representation, warranty, covenant or agreement contained herein; to
perform every act and execute and deliver any and all documents,
instruments or agreements necessary or appropriate to consummate the
transactions contemplated by this Agreement. All actions on the part of
Warren necessary to consummate the transactions contemplated by this
Agreement have been duly taken as required by applicable law, the
governing documents of the Warren and any applicable agreements. This
Agreement has been, and other agreements, documents and instruments
required to be executed and delivered by Warren in accordance with the
provisions hereof, have been or will be duly executed and delivered by
the Warren and constitute (or will at Closing constitute) the legal,
valid and binding obligations of Warren, enforceable against Warren in
accordance with their terms.




     (e) Litigation. There is no litigation, proceeding or governmental
investigation pending or threatened in any court, arbitration board,
administrative agency or tribunal against or relating to Warren that
would prevent or impede the consummation of this Agreement by Warren.
Warren does not know of and have no reasonable ground to know of any
basis for any such litigation, proceeding or investigation, and the
execution and performance of this Agreement by it will not result in a
default with respect to any judgment, order, writ, injunction, decree,
rule or regulation of any applicable court or administrative agency.




     (f) Consents and Filings. There is no requirement applicable to
Warren to obtain any consent, approval or authorization of, or to make or
effect any declaration, filing or registration with, any governmental
authority for the valid execution and delivery by Warren of
this Agreement, the due performance by Warren of its obligations
hereunder or the lawful consummation of the transactions contemplated
hereby.




     (g) Absence of Violation or Conflict. The execution, delivery and
performance of the transactions contemplated by this Agreement by Warren
does not and will not violate, conflict with or result in the breach of
any term, condition or provision of or require the consent of any other
person under: (i) any law, ordinance or governmental rule or regulation



21









 






known to Warren and to which Warren is subject; (ii) the governing
documents of or any securities issued by Warren; or (iii) any mortgage,
indenture or other instrument to which Warren is a party. No
authorization, approval or consent of and no registration or filing with
any governmental or regulatory body or any other third party is required
in connection with the execution, delivery and performance of this
Agreement by Warren.




     (h) Accuracy and Completeness of Information. No written statement,
representation, warranty or other information provided or furnished by or
on behalf of Warren to the Sellers in this Agreement or otherwise in
connection with this transaction contains any untrue statement of a
material fact or omits to state any material fact necessary to make the
statements herein or therein not misleading.




     (i) Preferential Purchase Right. The Right of First Refusal between
MPC and Warren shall terminate at the Closing.




     (j) Binding Effect. This Agreement has been duly authorized,
executed and delivered on behalf of Warren and constitutes the legal,
valid and binding obligation thereof, enforceable in accordance with its
terms; subject, however, to the effects of bankruptcy, insolvency,
reorganization and other laws for the protection of creditors.




     (k) Commissions. Warren has incurred no liability, contingent or
otherwise, for brokers’ or finders’ fees relating to the transactions
contemplated by this Agreement for which Sellers (or either of them)
shall have any responsibility whatsoever.




     (l) Bankruptcy. There are no bankruptcy, reorganization or
arrangement proceedings pending, being contemplated by or, to the
knowledge of Warren, threatened against it.




     (m) Inducement. Warren acknowledges that its representations under
this article and the rest of this Agreement are a
material inducement to MPC and NGI to enter into this Agreement
with, and close the sale to, Warren.




     (n) Continuation of Representations. The representations,
warranties and covenants of Warren shall be in full force and effect as
of the Closing Date, and shall, except as otherwise provided herein,
survive the Closing for a period of two (2) years from and after the
Closing Date, unless written notice of a claim is given to Warren within
such period, in which event, the claims identified within such notice
shall survive without



22









 






time limitation (but subject to any statutes of
limitation applicable thereto under governing law).



ARTICLE VI




DISCLAIMERS AND NOTIFICATIONS




          Section 6.1 General Matters. Warren, MPC and NGI make the following
disclaimers and notifications:




     (a) Except as otherwise provided herein there are no express or
implied warranties that apply to the transactions contemplated herein.




     (b) IT IS EXPRESSLY UNDERSTOOD BY THE PARTIES THAT NEITHER MPC NOR
NGI MAKE ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, AS TO
TITLE (EXCEPT AS PROVIDED IN Section 5.1(c) above) OR THE CONDITION OR
STATE OF REPAIR OF THE ASSETS, THEIR VALUE, QUALITY, MERCHANTABILITY OR
FITNESS FOR ANY PARTICULAR USES OR PURPOSES, NOR AS TO THE CURRENT
VOLUME, NATURE, QUALITY, CLASSIFICATION, OR VALUE OF THE HYDROCARBON
RESERVES THEREUNDER OR COVERED THEREBY, NOR WITH RESPECT TO ANY
APPURTENANCES THERETO BELONGING OR APPERTAINING TO THE ASSETS. EXCEPT
FOR LIENS, ENCUMBRANCES, OBLIGATIONS, PLEDGES AND SECURITY INTERESTS
CREATED, DONE, MADE OR SUFFERED BY SELLERS (OR EITHER OF THEM) OR ANY
PERSON CLAIMING UNDER THEM, WARREN ACCEPTS THE ASSETS IN “AS IS, WHERE
IS” CONDITION AND SUBJECT TO ANY AND ALL OBLIGATIONS, DUTIES,
LIABILITIES, RESTRICTIONS, LIMITATIONS, WAIVERS AND OBLIGATIONS RELATING
THERETO. WITHOUT LIMITATION OF THE FOREGOING, WARREN HEREBY WAIVES ANY
AND ALL RIGHTS AND REMEDIES WARREN MAY HAVE AGAINST MPC, NGI AND/OR THEIR
RESPECTIVE ASSOCIATED PARTIES ARISING FROM SAME
INCLUDING, WITHOUT LIMITATION, ANY RIGHTS AND REMEDIES WARREN MAY
HAVE AGAINST MPC AND/OR NGI PURSUANT TO CALIFORNIA’S UNFAIR PRACTICES ACT
(CALIFORNIA BUSINESS AND PROFESSIONS CODE SECTIONS 17200, ET SEQ.).




     (c) WARREN ACKNOWLEDGES AND AGREES THAT THE ASSETS HAVE BEEN
UTILIZED FOR THE PURPOSE OF EXPLORATION, DEVELOPMENT AND PRODUCTION OF
OIL AND



23









 






GAS, AND THAT MATERIALS ASSOCIATED THEREWITH MAY HAVE BEEN
STORED, KEPT, DISPOSED OF, ON OR IN THE ASSETS. WARREN ACKNOWLEDGES THAT
EQUIPMENT, PLANTS, BUILDINGS, STRUCTURES, IMPROVEMENTS, ABANDONED AND
OTHER TANKS AND PIPING, STORAGE FACILITIES, GATHERING AND DISTRIBUTION
LINES, WELLS AND OTHER PETROLEUM PRODUCTION FACILITIES AND APPURTENANCES
MAY BE LOCATED THEREON. WARREN ACKNOWLEDGES THAT THERE HAVE BEEN SPILLS
OF CRUDE OIL, PRODUCED WATER AND OTHER MATERIALS IN THE PAST ON AND IN
THE ASSETS. IN ADDITION, SOME PRODUCTION EQUIPMENT MAY CONTAIN ASBESTOS
AND NORM. IN THIS REGARD, WARREN EXPRESSLY ACKNOWLEDGES AND AGREES THAT
NORM MAY AFFIX OR ATTACH ITSELF TO THE INSIDE OF WELLS, MATERIALS AND
EQUIPMENT AS SCALE, OR IN OTHER FORMS, AND THAT WELLS, MATERIALS AND
EQUIPMENT LOCATED ON THE ASSETS MAY CONTAIN NORM AND THAT NORM-CONTAINING
MATERIAL MAY BE BURIED AND OTHERWISE DISPOSED OF ON THE ASSETS. WARREN
ALSO EXPRESSLY UNDERSTANDS THAT SPECIAL PROCEDURES MAY BE REQUIRED FOR
THE REMOVAL AND DISPOSAL OF ASBESTOS AND NORM FROM THE EQUIPMENT AND LAND
WHERE IT MAY BE FOUND AND WARREN ASSUMES ALL LIABILITY AND EXPENSE FOR
SUCH ASSESSMENT, REMOVAL, AND DISPOSAL OF ANY SUCH MATERIALS AND
ASSOCIATED ACTIVITIES.



          Section 6.2 Data. All data, evaluations, reports, and any other
information, heretofore or hereafter furnished Warren by MPC and/or NGI
concerning any or all of the Assets, and the operation thereof, have been and
shall be furnished solely for Warren’s convenience and have not constituted and
shall not constitute a representation or warranty of any kind by MPC or by NGI,
and any reliance thereon by Warren shall be at Warren’s sole risk and
liability. Neither MPC nor NGI represent or warrant the accuracy or
completeness of any information, data or materials furnished to Warren with
respect to this transaction.



          Section 6.3 Hazardous Substances. The California Health and Safety Code
(California Health and Safety Code Section 25359.7) provides that any owner of
nonresidential real property who knows, or has reasonable cause to believe,
that any release of Hazardous Substances has come to be located on or beneath
the real property shall, prior to the sale of that real property, give written
notice of that condition to the buyer. The term “Hazardous Substances”
includes without limitation, hazardous waste and substances which are commonly
used or contain material commonly used in oil field operations. This
Subsection shall



24









 







serve as notice from MPC and NGI to Warren that some
concentrations of Hazardous Substances may have come to be located hereon or
under the Assets.



          Section 6.4 Seismic Hazards. Some or all of the Assets may be situated in
a Seismic Hazard Zone as designated under the Seismic Hazards Mapping Act
(California Public Resources Code Sections 2690-2699.6). Warren, MPC and NGI
agree that Warren has been notified by MPC and NGI that the Assets are, or may
be, within a Seismic Hazard Zone for all purposes related to this Agreement.



          Section 6.5 Earthquake Zone. Some or all of the Assets may be situated in
an Earthquake Fault Zone under the Alquist-Priolo Earthquake Fault Zoning Act
(California Public Resources Code Sections 2621-2630) and the construction or
development on the Assets of any structure for human occupancy may be subject
to the findings of a geologic report prepared by a geologist registered in
California, unless such report is waived by the City or County of Los Angeles
under the terms of said Act.



ARTICLE VII




TAXES




          Section 7.1 Property Taxes. Ad valorem taxes (including production-based
ad valorem taxes), real property taxes, personal property taxes, the California
Mining Rights Tax and similar obligations (“Property Taxes”) applicable to the
Assets will be apportioned between MPC and NGI (on the one hand) and Warren (on
the other hand) as of the Effective Time. The basis of the apportionment will
be the assessment for the calendar year in which the Effective Time occurs or,
if that assessment is not known, then the basis of the apportionment will be
the assessment for the previous calendar year. If Property Taxes have not been
paid before Closing, the same shall be reflected on the Preliminary Settlement
Statement. Warren will be credited for MPC’s and NGI’s portion of the Property
Taxes. If they have been paid before Closing, MPC and NGI will be credited for
Warren’s portion of the taxes. Warren will be responsible for all Property
Taxes that are applied to the Assets after the Effective Time, even
if such Property Taxes are applied retroactively to a period before the
Effective Time.



          Section 7.2 Production Taxes. All taxes (other than Property Taxes and
income taxes) imposed on or with respect to the production of Oil, gas, or
other hydrocarbons or minerals, or the receipt of proceeds from their sale
(including severance, production, excise taxes, and the State of California
Department of Conservation Tax) will be apportioned between the parties based
on their respective shares of production, as of the Effective Time. If the tax
is



25









 







based on prior year’s production, the assessment will be apportioned between
MPC and NGI (on the one hand) and Warren (on the other hand) as of the
Effective Time on the Preliminary Closing Statement; provided, however, Warren
will be responsible for paying or withholding all taxes that are assessed after
the Effective Time, even if applied retroactively to periods before the
Effective Time.



          Section 7.3 Other Taxes. Warren shall be responsible for any sales taxes
or use taxes that may be assessed as a result of this transaction. The Parties
will pay their respective share of all federal, state and local taxes,
including penalty and interest, if any, assessed prior to or after the
Effective Time with respect to this transaction or, if paid by one Party, the
other Parties will promptly reimburse the paying Party for amounts paid. Warren
will pay all documentary transfer taxes.



          Section 7.4 Set Off. If any Party pays any taxes owed by another Party,
the responsible Party shall reimburse the Party who paid the same within ten
(10) calendar days of demand therefor, or the same shall be reflected on the
Preliminary Settlement Statement.



ARTICLE VIII




OIL IN STORAGE AND


PROCEEDS, COSTS & EXPENSES




          Section 8.1 Oil in Storage. Each Party’s proportionate share of all “Oil
in Storage” at the Effective Time, including working inventory, belongs to that
Party. Oil in Storage includes all Oil in the system downstream of the
wellhead at the Effective Time, including Oil in stock tanks, wash tanks,
heater treaters, flowlines, and pipelines. Oil in Storage will be determined by
the sum of the following: (i) Oil in stock tanks, as gauged by MPC at the
Effective Time; plus (ii) 1620 barrels (representing the agreed upon amount of
Oil downstream of the wellhead other than oil in stock tanks). Warren may be
present when the stock tanks are gauged.



          Section 8.2 Transfer and Payment. At the Closing, title to MPC’s and
NGI’s proportionate share of Oil in Storage will transfer to Warren as of the
Effective Time. At the Closing, Warren shall pay to MPC and to NGI an amount
determined by multiplying their respective net revenue interest in the WTU as
of December 31, 2004 by an amount derived by multiplying the Oil in Storage by
the price that would have been received for such Oil from Lunday Thagard
Company had such Oil been sold on December 31, 2004. This amount shall be set
forth on the Preliminary Closing Statement.



26









 





          Section 8.3 Proceeds, Costs and Expenses. Except as otherwise provided in
this Agreement, MPC and NGI reserve all rights to their proportionate share of
proceeds, including proceeds held in suspense or escrowed, receipts,
reimbursements, credits, and income attributable to the Assets and accruing
before the Effective Time. Except as otherwise provided in this Agreement, all
proceeds, receipts, credits, income and charges attributable to the Assets and
accruing from and after the Effective Time will be Warren’s property and
responsibility. Except as otherwise provided in this Agreement, Sellers will be
responsible for (a) payment of charges and invoices for costs and expenses
accruing before the Effective Time and attributable to the Assets and (b)
payments necessary as the result of sales of production from the Assets
occurring before the Effective Time (including payments out of proceeds held in
suspense or escrow). Warren will be responsible for (a) payment of all charges
and invoices for costs and expenses accruing after the Effective Time, (b)
payments necessary as the result of sales of production from the Assets
occurring after the Effective Time (including payments to fund suspense
obligations with respect to unknown working interest, royalty interest and
overriding royalty interest owners) and (c) disbursements after the Effective
Time, but if MPC makes any payments or disbursements as contemplated in this
Agreement, Warren will reimburse MPC for the amounts paid. All amounts due
from one party to the other under this section may be made by debits and
credits in the Preliminary Settlement Statement and the Final Settlement
Statement.



          Section 8.4 Suspended Funds. MPC will retain all funds that are held in
suspense (or will be received into the suspense account with respect to oil
sales occurring while MPC served as Unit Operator) with respect to unknown
working interest, royalty interest and overriding royalty interest owners as of
the date that MPC ceases to serve as Unit Operator and will be solely
responsible for the disbursement of such funds to the Persons entitled thereto.



ARTICLE IX




OPENING OF ESCROW & SUPPLEMENTAL ESCROW INSTRUCTIONS




          For purposes of this Agreement, the Escrow shall be deemed opened on the
date Escrow Agent shall have received an executed counterpart of this Agreement
from both Buyer and Sellers. Escrow Agent shall notify Buyer and Sellers, in
writing, of the date Escrow is opened (the “Opening of Escrow”). In addition,
Buyer and Sellers agree to execute, deliver and be bound by any reasonable or
customary supplemental escrow instructions of Escrow Agent or other instruments
as may reasonably be required by Escrow Agent in order to consummate the
transaction contemplated by this Agreement. Any such supplemental instructions
shall not conflict with, amend or supercede any portions



27









 







of this Agreement. If
there is any inconsistency between such supplemental instructions and this
Agreement, this Agreement shall control.



ARTICLE X




USE AND OPERATION OF THE INTERESTS, ASSETS AND WTU

BETWEEN THE EXECUTION DATE AND THE CLOSING DATE




          Section 10.1 Generally. It is the intent of the Parties that Warren or
WEP, an affiliate of Warren, shall become the Operator of the WTU on February
1, 2005. It is also the intent of the Parties that MPC shall continue its
duties as Operator until its successor is duly qualified and elected, but not
later than February 28, 2005 (unless otherwise required by the Unit Operating
Agreement or agreed upon by the Parties). Notwithstanding anything in this
Agreement to the contrary, Warren agrees that it shall be liable for all Unit
Expenditures and Liabilities associated with Unit Operations after the
Effective Time and that Warren shall indemnify, defend and save MPC harmless
therefrom. To the extent that working interest owners other than Warren are
responsible for a prorata share of such Unit Expenditures or Liabilities, MPC,
as Operator will assign its right to collect such amounts to Warren.



          Section 10.2 Qualification. WEP shall be qualified to serve as Operator
at least fifteen (15) days before the Closing Date. If WEP is not qualified to
serve as Operator on such date, then at least seven (7) days before the Closing
Date, Warren shall provide MPC with written notice of Warren’s nomination of a
third party that is qualified to serve in such capacity. Such written notice
shall include all evidence of the third party’s qualifications (including all
required permits) and a written agreement signed by such third party to accept
its election as Operator and the written consent of all applicable third
parties and working interest owners to such third party’s election as Operator.
As used herein, the “New Operator” shall mean WEP or Warren’s nominated third
party Operator.



          Section 10.3 Change of Operator. Provided MPC has received proof of the
qualifications of the New Operator, as provided in Section 10.2 above, then at
least seven (7) days before the Closing Date, MPC shall give
notice to the other WTU working interest owners of its resignation as
Operator, which resignation shall be contingent upon Closing as herein
provided. Such notice shall also contain a nomination of the New Operator.
The notice shall call a meeting of all WTU working interest owners in accord
with the Unit Operating Agreement to take place on or before the Closing Date
at which the New Operator will be elected, said election being expressly
contingent upon Closing as herein provided. The New Operator will assume Unit
Operations on the first day of the calendar month immediately following its
election, but not before the Closing Date. If



28









 







Closing does not occur, then the
resignation of MPC and the election of the New Operator shall be null and void
and of no effect whatsoever.



          Section 10.4 Resolution of Disputes. Upon execution of this Agreement, MPC
and Warren (and its Associated Parties) shall jointly move for the vacation of
all awards, findings and/or judgments rendered in and the dismissal of (i)
Warren Resources, et al. v. Magness Petroleum Co., JAMS Case #BS071728; (ii)
Magness Petroleum v. Warren Resources, et al., AAA Action #72 180 00621 03
BETO; (iii) Magness Petroleum v. Warren Resources, et al., L.A. County Sup. Ct.
#BC302653 and (iv) any other causes of action between the Parties. The latest
date that such joint motions are filed is herein called the “Transition
Commencement Date.” The actual court and arbitration orders dismissing and
vacating such cases shall be conditioned upon Closing and shall be delivered to
the Escrow Agent until the Closing Date.



          Section 10.5 Transition Period. The period of time between the Transition
Commencement Date and the date that the New Operator assumes Unit Operations is
herein called the “Transition Period.” During the Transition Period, MPC,
Warren and the New Operator agree to cooperate with each other in good faith
and in a fair and reasonable manner in order to facilitate the change of Unit
Operator and close the transactions contemplated by this Agreement. During the
Transition Period, such cooperation shall include, but not be limited to the
activities described below and elsewhere in this Article.




     (a) Utilities. The Parties shall notify all utilities of the change
of Operator, to close all accounts held in the name of MPC as of the end
of the Transition Period, and to open new accounts in the name of the New
Operator as of the first day after the Transition Period;




     (b) Notice to Remitters of Proceeds. The Parties shall notify all
remitters of proceeds from the sale of production to advise them of this
transaction. MPC is responsible for obtaining from the remitters revenues
accrued during the Transition Period, and the New Operator shall be
responsible for obtaining from the remitters revenues accruing
thereafter. Each Party will forward to the other any amounts delivered to
it by mistake, and copies of all amounts received. The Parties will
inform the
remitters of such transfer by letter-in-lieu-of-transfer order or
other documents required by each remitter. The receipt of proceeds by
all Parties shall be reflected on the Preliminary Settlement Statement to
the extent received by the due date for the Preliminary Settlement
Statement and on the Final Settlement Statement to the extent received
thereafter.




     (c) Royalties. Consistent with Section 8.4 above, MPC shall continue
to pay royalties, overriding royalties and severance taxes for sales



29









 






of
Oil occurring during the Transition Period. The New Operator will pay
royalties, overriding royalties and severance taxes for sales occurring
after the Transition Period. All such amounts shall be reflected on the
Preliminary Settlement Statement to the extent paid by the due date for
the Preliminary Settlement Statement and on the Final Settlement
Statement to the extent paid thereafter.




     (d) Reporting. MPC shall continue to prepare and file all regulatory
and other monthly production reports for production during the Transition
Period. WEP (or the New Operator) shall prepare and file all regulatory
and other monthly production reports for production after the Transition
Period.



          Section 10.6 Transfer of Permits. To the extent permitted under applicable
law, MPC will transfer permits associated with the oil and gas operations to
the New Operator concurrent with the end of the Transition Period; provided,
however, MPC has been released by the regulatory authority issuing the
applicable permit.



          Section 10.7 Compliance. Warren, on its behalf and on behalf of the New
Operator, warrants that Warren and the New Operator will comply with all rules,
regulations, statutes, and laws applicable to ownership or operation of the
Interests and all laws applicable to Unit Operations, including, but not
limited to the franchise ordinances of the City of Los Angeles, California.



          Section 10.8 Operation by MPC. MPC will operate the Assets during the
Transition Period, but not later than February 28, 2005 (unless otherwise
required by the Unit Operating Agreement or agreed to by the Parties). At the
end of the Transition Period, operations will be turned over to, and become the
responsibility of, the New Operator. During the Transition Period, MPC and
Warren agree to consult with each other concerning any material aspect of
operations of the WTU, including, but not limited to the activities described
below.




     (a) Drilling/Reworking Wells. During the Transition Period, the
Parties agree that they will not propose the drilling of any new
Wells or the reworking of old Wells; provided, however, that if an
existing Well fails before such time, MPC will notify Warren of such
fact. Warren and MPC agree to consult with each other concerning any
redrilling or reworking of such Well, and the manner in which any costs
associated therewith will be paid, if such operation is approved.




     (b) Net Revenue Billing. MPC agrees to “net revenue bill” all
working interest owners during the Transition Period; both before and
after



30









 






the Effective Time. Warren and MPC agree to consult with each other
and agree on any charges for labor, services, equipment or materials
provided by Harbor Energy Services, Inc.; provided, however, that if the
Parties cannot reach agreement before such services are required, then
MPC may charge for such services consistent with past practice. If any
sums remain due and owing MPC by working interest owners other than
Warren (or its affiliates, subsidiaries, joint ventures, partnerships or
drilling funds) at the end of the Transition Period, MPC will assign the
right to collect such debt to Warren. Any sums remaining due and owing
MPC by Warren (or its affiliates, subsidiaries, joint ventures,
partnerships or drilling funds) shall be paid by Warren to MPC at the
Closing. All amounts referred to above shall be reflected on the
Preliminary Settlement Statement, to the extent incurred by the due date
for the Preliminary Settlement Statement and on the Final Settlement
Statement to the extent incurred thereafter.




     (c) Insurance Proceeds. If, during the Transition Period, the Assets
are affected by any occurrence that is covered by insurance, then
provided Warren pays all damages or Claims resulting from such insured
occurrence, MPC shall collect the proceeds of such insurance and remit
the same to the Escrow Agent. Such proceeds shall be reflected as a
credit to Warren on the Preliminary Settlement Statement to the extent
received by the due date for the Preliminary Settlement Statement and on
the Final Settlement Statement to the extent received thereafter.



          Section 10.9 Operations Account. During the Transition Period, but not
later than January 5, 2005, Warren shall establish and fund and MPC shall hold
(as the only authorized signatory) a checking account (the “Operations
Account”) with the sum of $250,000.00. Warren shall deposit such additional
sums as may be required from time to time to ensure that the Operations Account
maintains a balance of $250,000.00. The financial institution at which the
Operations Account is maintained shall be instructed as follows: (a) that the
Operations Account may be closed only upon receipt of written instructions
signed by both MPC and Warren; (b) that account statements shall be mailed to
both MPC and Warren; and (c) that the only Party with the power to draw against
the
funds held on deposit in the Operations Account is MPC. All sums due
Warren (or its affiliates, subsidiaries, joint ventures, partnerships and/or
drilling funds) with respect to production obtained from the WTU, including the
proceeds and revenue attributable thereto and payable thereon, after the
Effective Time shall be credited to and deposited in the Operations Account.
MPC shall charge against the Operations Account the costs and expenses of all
Unit Operations, the costs of all Liabilities, any sums that may be required to
be deposited into the Accretion Account and any other sums due and owing under
the Related Agreements. If the balance in the Operations Account falls below
$250,000.00 at any time during the



31









 







Transition Period, Warren shall deliver to
MPC (within 3 business days of demand therefor) an amount of money sufficient
to bring the Operations Account balance to $250,000.00. At the end of each
calendar month during the Transition Period, MPC shall remit to Warren from the
Operations Account the amount by which the Operations Account balance exceeds
$250,000.00. Any remaining balance in the Operations Account shall be
deposited by MPC into Escrow as herein provided, and all activity in the
Operations Account shall be reflected on the Preliminary Settlement Statement
and Final Settlement Statement.



          Section 10.10 Removal of Signs. MPC shall remove its name and signs from
the WTU at the time it ceases to be Operator of the WTU. The New Operator
shall provide MPC (or its contractors) access to the WTU (and the Assets) for a
period of thirty (30) days following the end of the Transition Period for such
purpose. If MPC fails to remove its name or signs after MPC ceases to be
Operator, Warren shall (a) remove any remaining signs and references to MPC
promptly, but no later than the time required by applicable regulations or
forty-five (45) days after MPC ceases to be Operator, whichever occurs first,
(b) install signs complying with applicable governmental regulations, including
signs showing the New Operator as Operator, and (c) notify MPC of the removal
and installation.



          Section 10.11 Operation of Business. Until the Closing, MPC: (i) will
operate the Assets in the ordinary course, (ii) will not, without prior written
consent of Warren, which consent shall not be unreasonably withheld, commit to
any operation, or series of related operations, reasonably anticipated to
require future capital expenditures in excess of $10,000.00, or make any
capital expenditures in excess of $10,000.00, or terminate, materially amend,
execute or extend any material agreements affecting the Assets, (iii) will
maintain insurance coverage on the Assets presently furnished by nonaffiliated
third parties in the amounts and of the types presently in force, (iv) will use
commercially reasonable efforts to maintain in full force and effect all
leases, (v) will maintain all material governmental permits and approvals
affecting the Assets, (vi) will not transfer, farmout, sell, hypothecate,
encumber or otherwise dispose of the Assets, except for sales and dispositions
of oil and gas production made in the ordinary course of
business consistent with past practices, and (vii) will not commit to do
any of the foregoing.



          Section 10.12 Access to Information and Inspection.




     (a) Title Files. During the Transition Period, Seller shall permit
Buyer and its representatives at reasonable times during normal business
hours to examine, in Sellers’ offices, any abstracts of title, title
opinions, title files, ownership maps, lease files, assignments, division
orders, check vouchers, payout statements and agreements pertaining to
the Assets



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insofar as the same may now be in existence and in the
possession of Sellers, provided however that Sellers may redact from any
and all of the Acquisition Agreements all references to the purchase
prices paid by Sellers and/or other monetary consideration exchanged
therefor. Buyer acknowledges that Sellers have advised Buyer that most
original title and lease documents are in the possession of Exxon
Corporation in Houston, Texas. Sellers shall authorize Buyer to inspect
such documents at such place or places as may be permitted by Exxon
Corporation to the extent allowed under the Exxon Purchase Agreement.




     (b) Other Files. Sellers shall make available to Buyer for
inspection by Buyer at reasonable times during normal business hours at
their actual location, all accounting, revenue, marketing,
transportation, processing, environmental, geological, geophysical,
production and engineering books, records and data which directly relate
to the Assets, if any, and which are in the possession of Sellers, except
for such records or data which Sellers are prevented by contractual
obligations with third parties from disclosing; provided that in the
event Sellers are prohibited from making files or records available
because of provisions of third party agreements, then Sellers shall
inform Buyer of the existence of such records, the parties thereto and
the subject matter of such records. Buyer may, at Buyer’s expense, copy
any and all documents which are referenced above; provided that all such
documents shall at all times remain in the possession of Sellers.




     (c) Inspections. Sellers shall permit Buyer and its representatives
at reasonable times and at their sole risk, cost and expense, to conduct
reasonable inspections of the Assets; provided, however, Buyer shall
repair any damage to the Assets resulting from such inspections and Buyer
does hereby indemnify and hold harmless Sellers from and against any and
all losses, costs, damages, obligations, claims, liabilities, expenses or
causes of action arising from Buyer’s inspection of the Assets,
including, without limitation, claims for personal injuries, property
damage and reasonable attorney’s fees.



          Section 10.13 Accounting for Interim Operation.




     (a) Generally. MPC shall have the right to hold all production
prior to the Effective Time attributable to the Assets for Sellers’
account, and all production thereafter attributable to the Assets shall
be for the account of Warren. In accounting to Warren for interim
operations MPC shall deduct from all revenues accruing to the Assets from
the sale of production the following:



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     (1) All royalties and overriding royalties;




     (2) All lease operating expenses and capital costs which
shall be interpreted in accordance with generally accepted
accounting principles and the COPAS standards;




     (3) All handling charges;




     (4) Any severance, production, and other taxes (except
federal and state in come tax); and




     (5) Other payments out of or with respect to production with
which the Assets are burdened or encumbered.




     (b) Preliminary Settlement Statement. Not later than ten (10)
business days prior to Closing Date, MPC shall prepare and deliver to NGI
and Warren, based upon the best information available to it, a
Preliminary Settlement Statement that reports all activity in the
Operations Account and estimates the amounts due to and from Buyer and
Sellers (or either of them) hereunder as of the Closing Date. The
Parties shall make such adjustments as are necessary, execute such
Preliminary Settlement Statement and deposit same with Escrow Agent.




     (c) Final Settlement Statement. See Section 14.2 below.



ARTICLE XI




TITLE MATTERS




          Section 11.1 Seller’s Title.




     (a) Sellers (including any Associated Parties) represent to Buyer
that Sellers own and can convey to Buyer Defensible Title to the Assets
shown on the Exhibits attached hereto as of the Effective Time and on and
as of the Closing Date, without reservation of any overriding royalty
interest or other lease burden.




     (b) Sellers shall also transfer to Buyer all rights or actions on
title warranties given or made by Sellers’ predecessors, if any, to the
extent Sellers may legally transfer such rights.



          Section 11.2 Title Notice and Defect Remedies.




     (a) In order for Buyer to assert a claim under this ARTICLE XI for a
title defect, such defect must (i) relate to working interest, royalty



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interests and/or overriding royalty interests acquired by Sellers or
their Associated Parties after May 24, 1999; (ii) have a Material Adverse
Effect; and (iii) be made by Buyer by delivery to Sellers of a “Title
Defect Notice” at least ten (10) days before the Closing Date. A Title
Defect Notice shall be in writing and shall include: (x) a description of
the alleged title defect(s); (y) a description of the Assets affected by
the title defect; and (z) supporting documents reasonably necessary for
Sellers (as well as any title attorney or examiner hired by Sellers) to
verify the existence of the alleged title defect(s).




     (b) Sellers shall have the right, but not the obligation, to
attempt, at their sole cost, to cure or remove, at any time prior to the
Closing (and thereafter if the amount of the title defect has not been
determined), any title defects of which they have been advised by Buyer,
unless the Parties otherwise extend such period by mutual written
agreement.




     (c) In the event that any title defect with respect to the Assets is
not waived by Warren or cured on or before the Closing Date, Sellers
shall reduce the Purchase Price by an amount agreed upon pursuant to
Paragraph D below, taking into consideration the value and portion of the
Assets subject to the title defect, and the legal effect of such title
defect on the Assets affected thereby.




     (d) The amount of a title defect shall be determined as follows:




     (1) If the Parties mutually agree on the amount (which they
both shall be obligated to attempt to do in good faith), then that
amount shall be the amount of the title defect.




     (2) If the title defect is a lien, encumbrance or other
charge which is undisputed and liquidated in amount, then the
amount shall be the amount necessary to be paid to remove the
title defect from the Assets.




     (3) If the title defect represents a discrepancy between: (A)
the actual Working Interest or Net Revenue Interest for any
Assets, and (B) the Working Interest or Net Revenue Interest
stated on the Exhibits attached hereto or represented to Buyer,
then the title amount shall be the product of the value of such
title defect multiplied by a fraction, the numerator of which is
the applicable Working Interest or Net Revenue Interest or
percentage ownership decrease and the denominator of which is the
applicable Working Interest or Net Revenue Interest or percentage
ownership stated on said Exhibit, or as represented to Buyer.



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     (4) If the title defect represents an obligation,
encumbrance, burden or charge upon or other defect in title to the
Assets of a type not described in subsections (1), (2) or (3)
above, then the amount shall be determined by taking into account
the value of the Assets, the portion of the Assets affected by the
title defect, the legal effect of the title defect, the potential
economic effect of the title defect over the life of the Assets,
the values placed upon the title defect by the Parties and such
other factors as are necessary to make a proper evaluation.




     (e) The Parties shall be mutually obligated to attempt to agree on
all title defect amounts prior to the Closing Date. If the Parties
cannot agree, then Closing shall occur notwithstanding such disagreement,
but the Holdback described in Section 13.4(e) below shall be interpled by
Escrow Agent and the amount of the title defect shall be determined
through such interpleader action.



ARTICLE XII




CONDITIONS PRECEDENT TO CLOSING




          The performance of each Party’s obligations under this Article is a
condition precedent to the other Parties’ obligations to close this
transaction. The conditions precedent are as follows:



          Section 12.1 No Delay. The Parties hereby covenant that they shall each
maintain their respective corporate or limited liability company status and
shall assure that as of the Closing Date they will not be under any material
corporate, legal or contractual restriction that would prohibit or delay the
timely consummation of the transaction contemplated herein.



          Section 12.2 Related Agreements. Except as otherwise provided in this
Agreement, the sale of the Assets will be subject to all oil, gas, and mineral
leases, assignments, subleases, farmout agreements, Unit Agreements, joint
operating agreements, joint venture agreements, pooling agreements, letter
agreements, easements, rights-of-way, gathering and transportation
agreements, sales agreements, and other agreements concerning or pertaining to
such interests (“Related Agreements”), to the extent that they are binding on
MPC, NGI or their respective successors or assigns.



          Section 12.3 Current Litigation. The execution of the Settlement Agreement
and Release by and among WARREN RESOURCES OF CALIFORNIA, INC., a California
corporation; WARREN DEVELOPMENT CORP., a Delaware corporation; WARREN RESOURCES, INC., a Delaware



36









 








corporation; and PETROLEUM DEVELOPMENT CORPORATION,
a New Mexico corporation (now Warren E&P) and MPC and the vacation of all
awards, findings and/or judgments rendered in and the dismissal of (i) Warren
Resources, et al. v. Magness Petroleum Co., JAMS Case #BS071728; (ii) Magness
Petroleum v. Warren Resources, et al., AAA Action #72 180 00621 03 BETO; and
Magness Petroleum v. Warren Resources, et al., L.A. County Sup. Ct. #BC302653
are further conditions precedent to the Parties’ obligations to close this
transaction.



          Section 12.4 Third-Party Notifications and Approvals. The sale of the
Assets may require the approval or consent of lessors, joint interest owners,
farmouts, sublessors, assignors, grantors, parties to agreements, governmental
bodies having jurisdiction, or other third parties. Sellers shall promptly
prepare and send notices to the holders of any such required consent. Warren
shall cooperate in obtaining such consents by timely providing such data
(operations experience, financial information, etc.) as may be reasonably
requested by any party from whom consent is required, as well as making people
available for any meetings that may be requested by such party from whom
consent is required.




     (a) The sale of the Assets will require the approval and consent of
Exxon-Mobil Corporation (the “Exxon Consent”) and of California/Nevada
Developments, LLC (the “CND Consent”). The Exxon Consent and the CND
Consent shall release MPC and NGI from all liability under the
Acquisition Documents.




     (b) All consents (including the Exxon Consent and the CND Consent)
shall be delivered to and held by the Escrow Agent as soon as the same
are obtained.




     (c) The Parties shall use commercially reasonable efforts to cause
such consents to be obtained and delivered prior to January 28, 2005. If
the consents have not been obtained by January 28, 2005, the Parties
shall mutually agree to extend the Closing Date to a time after such
consents are reasonably believed to be forthcoming.



          Section 12.5 Replacement Bond. Warren must obtain a performance bond (the
“Replacement Bond”) as required by the Acquisition Documents in a form and by a
third party acceptable to Exxon-Mobil Corporation and to California/Nevada
Developments, LLC and must secure permission from both Exxon-Mobil Corporation
and from California/Nevada Developments, LLC to substitute such performance
bond for the performance bond posted by MPC and issued by American Contractors
Indemnity Company on December 16, 2003 (the “ACIC Bond”). Upon termination of
the ACIC Bond, MPC will instruct ACIC to deliver the zero coupon bonds held by
ACIC as collateral for the ACIC Bond to Warren.



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          Section 12.6 Insurance Policy. Before Closing, Warren will arrange for
either a policy of Commercial General Liability Insurance (Claims Made Basis)
to insure its activities with respect to the WTU Unit Operations or separate
endorsements for the WTU Unit Operations on its existing policy or policies,
including, but not limited to, pollution liability and coverage for sudden and
accidental leaks or spills (“Insurance”) for Warren’s ownership and/or
operation of the WTU in an amount of at least $5,000,000 per accident or
occurrence, with a policy aggregate totaling at least $5,000,000, from
insurance carriers having a Best’s Rating of not less than A-, with an
endorsement naming Exxon-Mobil Corporation, California/Nevada Developments,
LLC, MPC and NGI as the additional insureds, with severability of interest
clause (gross liability) and waiver of subrogation against Exxon-Mobil Corp.,
California/Nevada Developments, LLC, MPC and NGI which shall be primary as to
any other existing, valid, and collectible insurance, self-insurance, or
fronting policy of insurance. The policies evidencing the insurance must
provide that (a) covered liabilities include liabilities resulting from
Warren’s activities relating to oil and gas operations and Warren’s activities
relating to the Magness Abandonment Obligations, and (b) “pollution” includes,
but is not limited to, sudden and accidental oil spills and other contaminant
spills, but does not cover gradual leakage or gradual seepage of petroleum
products or other contaminants, into the air or water or onto land. If
requested by Exxon-Mobil Corporation, California/Nevada Developments, LLC, MPC
or NGI, Warren shall permit the requesting company to examine the insurance
policies, or at such company’s option, Warren shall furnish the requesting
company with copies, certified by the carriers, of insurance policies carried
in compliance with requirements hereof, and Warren shall deliver to MPC and
NGI, at least three business days before Closing, binding commitments by the
insurance companies to issue the policies, and certificates that such policies
are in full force and effect within ten days after Closing, together with a
copy of each such policy. Warren covenants that insurance meeting these
requirements will remain in effect with no material changes in coverage or
insureds until the latest of the termination of the WTU, the termination of all
oil and gas leases which are part of the MPC Interests and NGI
Interests, or after Warren has furnished evidence satisfactory to
Exxon-Mobil Corporation, California/Nevada Developments, LLC, MPC and NGI that
the Magness Abandonment Obligations have been performed to completion and in
accordance with applicable law. The insurance policy will provide that the
insurer will notify Exxon-Mobil Corporations, California/Nevada Developments,
LLC, MPC and NGI if the premium for the next policy period has not been paid
thirty days before expiration of the current policy period. Exxon-Mobil
Corporation, California/Nevada Developments, LLC, MPC and NGI (or either of
them) may then, if it chooses, pay the premium on Warren’s behalf. If
Exxon-Mobil Corporation, California/Nevada Developments, LLC, MPC and/or NGI
pays the premium, Warren must reimburse such party for amounts expended, with
interest



38









 







at twelve percent or the legal rate, whichever is lower, until the
reimbursement is made. The Insurance in no way limits the obligations of Warren
with respect to any claim for liability resulting from Warren’s ownership
and/or operation of the MPC Interests or the NGI Interests, oil spills, water
spills, Warren’s performance of the Magness Abandonment Obligations, or any
other obligations under this Agreement.



          Section 12.7 Deposit of Closing Documents. It is a condition of Closing
that the Parties shall have timely executed and deposited with the Escrow Agent
the documents described in Section 13.2 below.



ARTICLE XIII




CLOSING




          Section 13.1 Closing Date. Unless delayed because of the failure to obtain
the Exxon Consent and/or the CND Consent, the Closing Date will occur at 10:00
a.m., Pacific Standard Time on January 31, 2005 at the office of the Escrow
Agent, or at another place mutually agreed upon by the Parties. Except as
otherwise provided herein, the costs and expenses of the Escrow Agent shall be
paid by the one-half (1⁄2) by Sellers and one-half (1⁄2) by Buyer. Buyer
shall pay all recording and filing fees and the costs of any title insurance
policies it chooses to purchase.



          Section 13.2 Closing Documents. Prior to the Closing Date (or as
hereinafter provided), the Parties shall deposit with Escrow Agent each of the
following documents:




     (a) Conveyancing Instruments. The Parties shall execute the
Conveyancing Instruments. All such instruments shall be in recordable
form, modified to the extent necessary to conform to the terms of this
Agreement. All such instruments will (i) be effective as of the Effective
Time; (ii) except for the warranties implied under California Civil Code
§
1113 or as otherwise provided herein, be without warranty of any
kind (e.g., title, fitness, condition); and (iii) restate or incorporate
the indemnities, releases and waivers contained in this Agreement. The
instruments will not state or warrant the working or net revenue interest
assigned to Warren. Upon obtaining the Exxon Consent and the CND
Consent, Sellers shall deposit the fully executed original and all copies
of the Conveyancing Instruments with the Escrow Agent.




     (b) Preliminary Change of Ownership Reports. Warren shall deliver
to the Escrow Agent executed a Preliminary Change of Ownership Reports in
the form required to record the Conveyancing Instruments.



39









 






     (c) Withholding Exemption Certificates. MPC and NGI shall each
complete, execute and deliver to Escrow Agent a Real Estate Withholding
Exemption Certificate and Waiver Request for Non-Individual Sellers
(California Form 593-W).




     (d) Certificates of Insurance. Warren shall deliver to MPC and NGI
certificates that the policies of insurance required under Section 12.6
above are in full force and effect as of Closing.




     (e) Replacement Bond. Warren shall deliver to MPC and NGI the
certificates that the performance bond required under Section 12.5 above
is in full force as of Closing.




     (f) Exxon Consent. MPC shall deposit with Excrow Agent the executed
original of the Exxon Consent.




     (g) CND Consent. MPC shall deposit with Excrow Agent the executed
original of the CND Consent.




     (h) Other Third-Party Consents. MPC will deliver to Warren proof of
required third-party consents and approvals, except to the extent waived
by Warren in writing.




     (i) New Operator. The Parties shall deliver to Escrow Agent written
certification that the New Operator has been qualified and elected,
contingent upon closing as provided in Section 10.3 above.




     (j) Certificates of Authority. The Parties shall each deliver to the
Escrow Agent, at least three (3) days before the Closing Date,
certificates in form and substance satisfactory to all Parties, effective
as of the Closing Date and executed by each such Party’s duly authorized
officer, manager, partner, or owner, as appropriate, to the effect that
(1) such Party
has all requisite corporate authority to purchase (or sell, as
applicable) the Assets on the terms of this Agreement and to perform its
other obligations under this Agreement and has fulfilled all corporate or
other prerequisites to closing this transaction, and (2) each individual
executing this Agreement and any documents required to consummate this
transaction has the authority to act on behalf of such Party.




     (k) Certificate of Status. The Parties shall deliver to Escrow
Agent, at least three (3) days the Closing Date, a Certificate of Status
issued by the Secretary of State of the State of California within 30
days of the Closing Date that certifies that such Party is duly qualified
to do business in



40









 






the State of California and that its rights and
privileges are not suspended on the records of the office of the
Secretary of State.




     (l) Preliminary Settlement Statement. The Preliminary Settlement
Statement shall be deposited with Escrow Agent by MPC as provided in
Section 10.13(b) above.



          Section 13.3 Deposit of Funds. Prior to Close of Escrow, Buyer shall
deposit the balance of the Purchase Price, as required in Section 3.3 above,
together with such additional funds as are required to (i) satisfy the amounts
due Sellers pursuant to the Preliminary Settlement Statement; and (ii) pay
Buyer’s share of all escrow costs, and fees, costs of recordation, documentary
transfer taxes, and other closing costs, prorations and expenses.



          Section 13.4 Close of Escrow. On the Closing Date, Escrow Agent shall:




     (a) Insert the Closing Date and other appropriate dates on the
Conveyancing Instruments;




     (b) Record the Conveyancing Instruments in the Official Records of
Los Angeles County, California, with instructions to the recorder to mail
the same to Buyer following recording;




     (c) Deliver to Buyer a copy of Escrow Agent’s closing statement;




     (d) Deliver to Sellers a copy of Escrow Agent’s closing statement;




     (e) Deliver to MPC the MPC Consideration, less a holdback of
$250,000.00 (the “Holdback”) to secure MPC’s performance of its
post-closing obligations as Operator and less MPC’s share of the Seller’s
portion of the closing costs, prorations and expenses;




     (f) Deliver to NGI the NGI Consideration, less NGI’s share of the
Seller’s portion of the closing costs, prorations and expenses; and




     (g) Deliver the fully executed original of all Closing Documents to
MPC with a fully executed copy of all such documents to NGI and to
Warren.




     (h) Deliver to the parties such other and further documents as
necessary to comply with these Escrow Instructions or otherwise
convenient.



41









 





          Section 13.5 Delivery of Possession. Subject to the terms of the Unit
Agreement, Unit Operating Agreement, the Related Agreements and this Agreement,
MPC and NGI will deliver possession of the Assets to Warren as soon as
practicable after the Closing Date.



          Section 13.6 Representations at Closing. By Closing this transaction, each
Party will be deemed to represent to the other Parties that all representations
under this Agreement are true as of the Closing Date.



          Section 13.7 Insurance Provided by MPC. MPC will terminate all insurance
that it has provided for the Assets on the Closing Date, except to the extent
that insurance is required by or provided under the Unit Agreement or the Unit
Operating Agreement. The termination will be effective retroactive to the
Effective Time. Warren relinquishes and waives, on its behalf and on behalf of
all persons subrogated to Warren’s rights, all rights to claim against any
insurance provided by MPC, except to the extent that insurance is required by,
or provided under the Unit Agreement or Unit Operating Agreement.



          Section 13.8 Further Assurances. The Parties agree and shall execute such
other documents, instruments and agreements that are or may be necessary or
reasonably required to close this transaction and implement the terms of this
Agreement, including the exhibits attached hereto, deeds, bills of sale and the
like, and instruments necessary under the Unit Agreement, Unit Operating
Agreement, laws and regulations affecting the Assets to transfer same from
Sellers to Buyer and comply with the terms of this Agreement.



ARTICLE XIV




POST-CLOSING AND CONTINUING OBLIGATIONS




          Section 14.1 Deposit of Operations Account Balance. Within 30 days
following the end of the Transition Period, MPC shall deposit with
the Escrow Agent the then existing balance of the Operations Account,
which deposit shall be reflected on the Final Settlement Statement.



          Section 14.2 Final Settlement Statement. MPC shall prepare a “Final
Settlement Statement” setting forth, in detail, all credits and debits
regarding operations of the WTU as of the Closing Date and during the
Transition Period, including any amounts paid or received thereafter, any other
debits and credits, either cash or accrued, but excluding income and franchise
taxes, which under generally accepted accounting principles would reflect
transfer of ownership of the Assets on the Effective Time as well as any
adjustments required to reflect differences between the estimates made in the
Preliminary Settlement Statement and the actual amounts due and owing the
Parties as provided in this Agreement.



42









 






     (a) The Final Settlement Statement shall be delivered to the Warren
and NGI for their approval within 60 days following the end of the
Transition Period.




     (b) Warren and NGI must respond in writing with any objections and
proposed corrections within thirty (30) days after the Final Settlement
Statement is received from MPC. If any objections are timely made, the
Parties will negotiate in good faith to resolve their differences. If an
agreement has not been reached within thirty (30) days of the date the
objections are made, then both Parties shall instruct the Escrow Agent to
interplead any funds remaining in Escrow with the Los Angeles County
Superior Court.




     (c) If either Party does not respond to the Final Settlement
Statement by signing or objecting in writing within the thirty (30) day
period, the statement will be conclusively deemed approved by such Party.




     (d) If a Final Settlement Statement is obtained (i.e., no objections
are timely made or such objections are resolved), then the Final
Settlement Statement shall be deposited with the Escrow Agent and the
funds remaining on deposit with Escrow Agent shall be disbursed as set
forth on such Final Settlement Statement.



          Section 14.3 Copies and Files. Within sixty (60) days after the Closing
Date, MPC will deliver to Warren, at Warren’s cost and request, copies of data
(including geological, geophysical and seismic data) and records in MPC’s
possession concerning Unit Operations that have not already been delivered to
Warren. Warren must advise MPC before Closing which data and records that it
wants to be copied. Alternately, Warren may make its own copies, in MPC’s
offices, of the data and records relating to Unit Operations. If the
transfer of any geological, geophysical and seismic data is restricted,
then Warren’s execution of a licensing agreement reasonably satisfactory to MPC
will be a condition of MPC’s delivering the data to Warren. MPC shall not
provide copies of any software used by MPC for Unit Operations (or accounting
with respect thereto). However, MPC shall deliver spreadsheets or other
electronic databases on Unit Operations containing all applicable information,
including but not limited to the divisions of working interests (including
non-consent payout status of working interests), royalties and overriding
royalties; the current names, addresses and phone numbers for all owners of
such interests (to the extent known by MPC), and the names of all vendors,
subcontractors, regulatory authorities and other Parties providing goods and/or
services to the WTU.



          Section 14.4 Further Assurances. The Parties each will, from time to time
after Closing and upon reasonable request, execute, acknowledge, and



43









 







deliver in
proper form any conveyance, assignment, transfer, assumption or other
instrument reasonably necessary to accomplish the purposes of this Agreement.



          Section 14.5 Documents. If originals or the last remaining copies of
documents relating to the WTU (or any surface or subsurface interests therein)
have been provided to Warren, MPC may have access to them at reasonable times
and upon reasonable notice during regular business hours for five (5) years
after the Effective Time of this Agreement or a longer period if required by
the Related Agreements, law or governmental regulations. MPC may, during this
period and at its expense, make copies of the documents pursuant to a
reasonable request. Without limiting the generality of the two preceding
sentences, for five (5) years after the Effective Time of this Agreement or for
a longer period if required by the Related Agreements, law or governmental
regulation, Warren may not destroy or give up possession of any original or
last remaining copy of the documents without first offering MPC the
opportunity, at MPC’s expense, to obtain the original or a copy. After this
period expires, Warren must offer to deliver the documents (or copies) to MPC,
at MPC’s expense, before giving up possession or destroying them.



          Section 14.6 Subsequent Conveyances. If required, in each of Warren’s
contracts or other agreements to convey a Surface Property to a third party,
Warren will include a notice that the Surface Property may have been used for
oil and gas operations in connection with the Wilmington Fault Block I Townlot
Unit; that there may have been petroleum, produced water, wastes, or other
materials located on or under the surface property; and that either Warren or
California/Nevada Developments, LLC, has assumed responsibility for remediation
of the Surface Property.



ARTICLE XV




RELEASE, DISCHARGE, AND COVENANT



NOT TO SUE; OBLIGATIONS TO INDEMNIFY,



DEFEND, AND HOLD HARMLESS




          Section 15.1 Release and Discharge. Each Party hereby agrees to and shall
release and discharge each other Party pursuant to Section 4.1 above.



          Section 15.2 Covenant Not to Sue. Except to the extent that a Party has
liability pursuant to Section 4.1 above:




     (a) Warren covenants not to sue MPC, NGI or their respective
Associated Parties with regard to: (i) each Claim and Liability relating
to the Assets and this transaction, regardless of when or how the Claim
or Liability arose or arises or whether the Claim or Liability was
foreseeable



44









 






or unforeseeable from and after the Effective Time only, but
not otherwise; and (ii) the Magness Abandonment Obligations and the
Plugging Obligations; and




     (b) MPC and NGI covenant not to sue Warren or its Associated Parties
with regard to any Claim and Liability relating to the Assets and this
transaction, regardless of when or how the Claim or Liability arose or
arises or whether the Claim or Liability was foreseeable or unforeseeable
prior to the Effective Time only, but not otherwise; provided, however,
the foregoing covenant does not apply to (i) the Magness Abandonment
Obligations; or (ii) the Plugging Obligations.



          Section 15.3 Obligations to Indemnify, Defend and Hold Harmless. Except to
the extent that a Party has liability pursuant to Section 4.1 above:




     (a) Warren will indemnify, defend, and hold MPC, NGI and their
respective Associated Parties harmless from (i) each Claim and Liability
relating to the Assets and this transaction, regardless of when or how
the Claim or Liability arose or arises or whether the Claim or Liability
was foreseeable or unforeseeable from and after the Effective Time only,
but not otherwise; (ii) the Magness Abandonment Obligations and the
Plugging Obligations both before and after the Effective Time; and (iii)
each Claim and Liability arising out of the breach of any representation,
covenant or warranty made by Warren to Sellers hereunder; and




     (b) MPC and NGI will indemnify, defend, and hold Warren and its
Associated Parties harmless from (i) each Claim and Liability relating
to the Assets and this transaction, regardless of when or how the Claim
or Liability arose or arises or whether the Claim or Liability was
foreseeable or unforeseeable prior to the Effective Time only, but not
otherwise; and (ii) each Claim and Liability, arising out of the breach
of any representation, covenant or warranty made by MPC and/or NGI to
Warren hereunder.



          Section 15.4 Limitation on Scope of this Article. Notwithstanding any
other provision of this Agreement, each Party’s obligations to release,
indemnify, defend, and hold the other Parties and their respective Associated
Parties harmless and its covenant not to sue the other Parties or their
respective Associated Parties do not apply, however, to disputes arising from
such other Parties’ (or any of their) performance or non-performance of this
Agreement.



          Section 15.5 Waiver of Consumer Protection Laws. THE PARTIES EXPRESSLY
WAIVE ANY AND ALL RIGHTS AND REMEDIES



45









 







THEY MAY HAVE AGAINST THE OTHER PARTIES
AND/OR THEIR RESPECTIVE ASSOCIATED PARTIES ARISING FROM THIS TRANSACTION UNDER
CONSUMER PROTECTION LAWS INCLUDING, WITHOUT LIMITATION, ANY RIGHTS AND REMEDIES
THE PARTIES MAY HAVE AGAINST EACH OTHER AND/OR THEIR RESPECTIVE ASSOCIATED
PARTIES PURSUANT TO CALIFORNIA’S UNFAIR PRACTICES ACT (CALIFORNIA BUSINESS AND
PROFESSIONS CODE SECTIONS 17200, ET SEQ.).



          Section 15.6 Guaranty of Obligations. Warren Resources, Inc., a Maryland
corporation, hereby guarantees the full and faithful performance of the
obligations of Warren and WEP under this Agreement and the Exhibits hereto.



          Section 15.7 Retroactive Effect. Each Party acknowledges that its
obligations to release, discharge, defend, and hold the other Parties and their
respective Associated Parties harmless and its covenant not to sue the other
Parties or their respective Associated Parties may apply to matters occurring
or arising before the Execution Date to the extent provided in this Agreement.



ARTICLE XVI




DEFAULT AND REMEDIES




          Section 16.1 Buyer’s Default. IF THE CLOSING DOES NOT OCCUR BY REASON OF
A DEFAULT BY WARREN OF ANY OF ITS
OBLIGATIONS HEREUNDER, THEN IN SUCH EVENT, MPC AND NGI MAY, AS THEIR SOLE
REMEDY FOR SUCH DEFAULT, BY WRITTEN NOTICE TO WARREN, TERMINATE THIS AGREEMENT
AND RETAIN THE EARNEST MONEY AS LIQUIDATED DAMAGES THEREFOR. IT IS EXPRESSLY
ACKNOWLEDGED AND AGREED BY AND BETWEEN THE PARTIES TO THIS AGREEMENT THAT MPC’S
AND NGI’S ACTUAL DAMAGES FOR ANY SUCH DEFAULT WOULD BE SUBSTANTIAL BUT
EXTREMELY DIFFICULT TO ASCERTAIN.



	 	 	 	 	 	 	 	 	 	 	 
	MPC:

	 	 	 	NGI:
	 	 	 	Warren:	 	 
	

	 	
 
	 	 	 	
 
	 	 	 	
 
	

	 	(Initials)
	 	 	 	(Initials)
	 	 	 	(Initials)







          Section 16.2 Sellers’ Default. If MPC or NGI defaults under this
Agreement by failing to perform its obligations to close this transaction,
Warren may, at its sole option, either terminate this Agreement and receive the
Earnest Money in return or sue to enforce specific performance of this
Agreement. The Parties agree that these are the only remedies available to
Buyer.



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          Section 16.3 Other Defaults. If Closing occurs, but a dispute occurs
among the Parties, or either of them, then the parties reserve all of their
rights at law or in equity.



          Section 16.4 Nonconsent & Election. Notwithstanding anything to the
contrary in the Unit Operating Agreement, Sellers shall be deemed to have
elected to go “nonconsent” with respect to any Unit Operations requiring
approval of the working interest owners (an Authorization for Expenditure or
AFE) between the Execution Date and the end of the Transition Period. If, for
any reason, Escrow does not Close, then Sellers (and each of them) shall have
forty-five (45) calendar days from the date that Escrow is terminated to elect
to participate each AFE (or any of them). Said election may be exercised only
by written instrument signed by the applicable Seller and delivered to Warren.



ARTICLE XVII




MISCELLANEOUS




          Section 17.1 Notices. All notices or other communications required or
permitted hereunder shall be in writing, and shall be personally delivered
(which shall include Federal Express or other overnight courier) or sent by
registered or certified mail, postage prepaid, return receipt requested, and
shall be deemed received upon the earlier of (i) if personally delivered or
sent by overnight courier, the date of delivery to the address of the person to
receive such
notice, or (ii) if mailed, four (4) business days after the date of
posting by the United States post office.



	 	 	 
	To MPC

	 	Magness Petroleum Company
	

	 	4281 Katella Ave., Suite 116
	

	 	Los Alamitos, California 90720
	 
	 	 
	To NGI

	 	Next Generation Investments, LLC
	

	 	4655 E. Behymer
	

	 	Clovis, California 93619
	 
	 	 
	To Warren

	 	Warren Resources of California, Inc.
	

	 	489 Fifth Avenue, 32nd Floor
	

	 	New York, NY 10017







Notice of change of address shall be given by written notice in the manner
detailed in this Paragraph. Rejection or other refusal to accept or the
inability to deliver because of changed address of which no notice was given
shall be deemed to constitute receipt of the notice, demand, request or
communication sent.



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          Section 17.2 Entire Agreement. This Agreement constitutes the entire
agreement and understanding between the Parties as to the transactions
described herein. All previous negotiations and communications between the
parties as to these matters are merged into this Agreement and the Exhibits
attached hereto.



          Section 17.3 Termination of Agreements. The Closing of all transactions
contemplated by this Agreement and the full performance hereunder by all
Parties shall be deemed to constitute a termination of all previous contracts,
agreements and documents between the Parties without the necessity of preparing
or executing separate or additional documents or agreements evidencing such
termination.



          Section 17.4 Successors and Assignees. This Agreement is binding on and
inures to the benefit of the Parties and their respective successors, heirs,
representatives and assignees.



          Section 17.5 Amendment. This Agreement and the Exhibits attached hereto
may be supplemented, altered, amended, modified, or revoked only by a written
instrument signed by all Parties.



          Section 17.6 Survival. THIS AGREEMENT, INCLUDING ALL COVENANTS AND
INDEMNITIES HEREIN, SHALL SURVIVE THE CLOSING, AND SHALL NOT BE EXTINGUISHED BY
THE DOCTRINE OF
MERGER BY DEED OR ANY SIMILAR DOCTRINE. NO WAIVER, RELEASE, OR
FORBEARANCE OF THE APPLICATION OF THE PROVISIONS OF A SECTION IN ANY GIVEN
CIRCUMSTANCE SHALL OPERATE AS A WAIVER, RELEASE, OR FORBEARANCE OF THE
PROVISIONS OF THE SECTION AS TO ANY OTHER CIRCUMSTANCE.



          Section 17.7 Choice of Law. This Agreement and its performance will be
construed in accordance with, and enforced under, the internal laws of the
State of California, without regard to choice of law rules of any jurisdiction,
including California. Venue for any dispute shall be filed in the Superior
Court of the State of California for Los Angeles County, or in the United
States District Court in and for the Central District of California.



          Section 17.8 Assignment. Unless otherwise provided for herein, this
Agreement and the rights and obligations hereunder shall not be assigned by any
Party without the prior written consent of the other Parties, which consent may
not be unreasonably withheld. An attempted assignment or delegation in
violation of this provision is void.



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          Section 17.9 No Admissions. Neither this Agreement, nor any part of it,
nor any performance under this Agreement, nor any payment of any amount under
this Agreement will constitute or may be construed as a finding, evidence of or
an admission or acknowledgement of any liability fault, past or present
wrongdoing, or violation of law, rule, regulation or policy; by any Party or
its respective Associated Parties.



          Section 17.10 No Third-Party Beneficiaries. There are no third-party
beneficiaries of this Agreement.



          Section 17.11 Headings and Titles. The headings and titles in this
Agreement are for guidance and convenience of reference only and do not limit
or otherwise affect or interpret the terms or provisions of this Agreement.



          Section 17.12 Exhibits. All exhibits referenced in and attached to this
Agreement are incorporated into it.



          Section 17.13 Meaning of “Includes”. The word “includes” and its
syntactical variants mean “includes, but is not limited to” and corresponding
syntactical variants. The rule ejusdem generis may not be invoked to restrict
or limit the scope of the general term or phrase followed or preceded by an
enumeration of particular examples.



          Section 17.14 Severability. If a court of competent jurisdiction finds any
part of this Agreement to be void, invalid, or otherwise
unenforceable, then this Agreement will be enforced without the void,
invalid, or unenforceable parts.



          Section 17.15 Counterparts. This Agreement may be executed in multiple
counterparts, all of which together will be considered one instrument.



          Section 17.16 Conflicts. If the text of this Agreement conflicts with the
terms of any exhibit to this Agreement, then the text of this Agreement will
control.



          Section 17.17 Drafter of Agreement. Each Party acknowledges that it has
read this Agreement, has had 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 may not be applied in interpreting this Agreement.



          Section 17.18 No Waiver. No waiver by any Party of any part of this
Agreement will be deemed to be a waiver of any other part of this Agreement or
a waiver of strict performance of the waived part in the future.



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          Section 17.19 Express Negligence Rule: Conspicuousness. The Parties
acknowledge that the provisions of this Agreement that are set out in
capitalized letters satisfy the requirements of the express negligence rule
and/or are conspicuous.



          Section 17.20 Execution by the Parties. Neither the submission of this
Agreement or any information concerning the Assets, nor discussions or
negotiations between the parties constitute an offer to sell, a reservation of,
or an option for the Assets, and this instrument and the underlying transaction
will become enforceable and binding between the Parties only upon execution and
delivery of this instrument by all Parties.



IN WITNESS WHEREOF, the Parties have executed this Purchase and Sale Agreement
& Joint Escrow Instructions as of the date first above written.



	 	 	 	 	 	 	 
	SELLERS
MAGNESS PETROLEUM COMPANY,
an Oklahoma corporation	 	BUYER & AFFILIATES
WARREN RESOURCES, INC., a
Maryland corporation
	 
	 	 	 	 	 	 
	By:

	 	/s/ Gary D. Magness
	 	By:
	 	/s/ Norman F. Swanton
	

	 	
 
	 	 	 	
 
	

	 	Gary D. Magness, President
	 	 	 	Norman F. Swanton, Chief
	

	 	 	 	 	 	Executive Officer and President
	 
	 	 	 	 	 	 
	NEXT GENERATION INVESTMENTS, LLC, a

California limited liability company	 	WARREN RESOURCES OF CALIFORNIA, INC., a California
corporation
	 
	 	 	 	 	 	 
	By:

	 	/s/ Marcus D. Magness
	 	By:
	 	/s/ Norman F. Swanton
	

	 	
 
	 	 	 	
 
	

	 	Marcus D. Magness, Manager
	 	 	 	Norman F. Swanton, President







50









 






	 	 	 	 	 	 	 
	 	 	 	 	WARREN E&P, INC., a New Mexico corporation
	 
	 	 	 	 	 	 
	

	 	 	 	By:
	 	/s/ Ellis G. Vickers
	

	 	 	 	 	 	
 
	

	 	 	 	 	 	Ellis G. Vickers,
	

	 	 	 	 	 	Senior Vice President







51









 






Acceptance by Escrow Agent:



          
                    hereby acknowledges that it has received a fully executed
counterpart of the foregoing Purchase and Sale Agreement & Joint Escrow
Instructions and agrees to act as Escrow Agent thereunder and to be bound by
and perform the terms thereof as such terms apply to Escrow Agent.




	 	 	 	 
	
     Dated:
	


 	 	 
	

	 	ESCROW AGENT:
	 
	 	 	 
	

	 	           
, a California corporation
	 
	 	 
	

	 	By: 	



	

	 	Its:	











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