exhibit10-1.htm


    
                                           Exhibit
10.1

       

       

       

      
        
          PURCHASE
AND SALE AGREEMENT

           

          BETWEEN

           

          FORTSON
PRODUCTION COMPANY
and BENCO ENERGY, INC.

           

          AS
“SELLER”

           

          AND

           

          VANGUARD
PERMIAN, LLC

           

          AS
“PURCHASER”

           

        

      

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      
        
          
            	
                    ARTICLE 1
      

                     

                     

                     

                  	
                    PURCHASE AND
      SALE

                     

                  	
                    11

                     

                  
	
                    SECTION
      1.1

                     

                  	
                    PURCHASE AND SALE

                     

                  	
                    11

                     

                  
	
                    SECTION
      1.2

                     

                  	
                    ASSETS

                     

                  	
                    11

                     

                  
	
                    SECTION
      1.3

                     

                  	
                    EXCLUDED ASSETS

                     

                  	
                    13

                     

                  
	
                    SECTION
      1.4

                     

                  	
                    EFFECTIVE TIME; PRORATION OF COSTS AND REVENUES

                     

                  	
                    14

                     

                  
	
                    SECTION
      1.5

                     

                  	
                    DELIVERY AND MAINTENANCE OF RECORDS

                     

                  	
                    15

                     

                  
	
                    ARTICLE
      2

                     

                     

                     

                  	
                    PURCHASE
      PRICE

                     

                  	
                    15

                     

                  
	
                    SECTION
      2.1

                     

                  	
                    PURCHASE PRICE

                     

                  	
                    15

                     

                  
	
                    SECTION
      2.2

                     

                  	
                    ADJUSTMENTS TO PURCHASE PRICE

                     

                  	
                    15

                     

                  
	
                    SECTION
      2.3

                     

                  	
                    ALLOCATION OF PURCHASE PRICE FOR TAX PURPOSES

                     

                  	
                    17

                     

                  
	
                    SECTION
      2.4

                     

                  	
                    DEPOSIT

                     

                  	
                    17

                     

                  
	
                    ARTICLE
      3

                     

                     

                     

                  	
                    TITLE
      MATTERS

                     

                  	
                    17

                     

                  
	
                    SECTION
      3.1

                     

                  	
                    SELLER’S TITLE

                     

                  	
                    17

                     

                  
	
                    SECTION
      3.2

                     

                  	
                    DEFINITION OF DEFENSIBLE TITLE

                     

                  	
                    18

                     

                  
	
                    SECTION
      3.3

                     

                  	
                    DEFINITION OF PERMITTED ENCUMBRANCES

                     

                  	
                    19

                     

                  
	
                    SECTION
      3.4

                     

                  	
                    NOTICE
      OF TITLE DEFECT ADJUSTMENTS

                     

                  	
                    20

                     

                  
	
                    SECTION
      3.5

                     

                  	
                    CASUALTY OR CONDEMNATION LOSS

                     

                  	
                    24

                     

                  
	
                    SECTION
      3.6

                     

                  	
                    LIMITATIONS ON APPLICABILITY

                     

                  	
                    24

                     

                  
	
                    SECTION
      3.7

                     

                  	
                    GOVERNMENT APPROVALS RESPECTING ASSETS

                     

                  	
                    25

                     

                  
	
                    ARTICLE
      4

                     

                     

                     

                  	
                    ENVIRONMENTAL
      MATTERS

                     

                  	
                    26

                     

                  
	
                    SECTION
      4.1

                     

                  	
                    ASSESSMENT

                     

                  	
                    26

                     

                  
	
                    SECTION
      4.2

                     

                  	
                    NORM,
      WASTES AND OTHER SUBSTANCES

                     

                  	
                    26

                     

                  
	
                    SECTION
      4.3

                     

                  	
                    INSPECTION INDEMNITY

                     

                  	
                    27

                     

                  
	
                    ARTICLE
      5

                     

                     

                     

                  	
                    REPRESENTATIONS
      AND WARRANTIES OF SELLER

                     

                  	
                    27

                     

                  
	
                    SECTION
      5.1

                     

                  	
                    GENERALLY

                     

                  	
                    27

                     

                  
	
                    SECTION
      5.2

                     

                  	
                    EXISTENCE AND QUALIFICATION

                     

                  	
                    27

                     

                  
	
                    SECTION
      5.3

                     

                  	
                    POWER

                     

                  	
                    27

                     

                  
	
                    SECTION
      5.4

                     

                  	
                    AUTHORIZATION AND ENFORCEABILITY

                     

                  	
                    27

                     

                  
	
                    SECTION
      5.5

                     

                  	
                    NO
      CONFLICTS

                     

                  	
                    28

                     

                  
	
                    SECTION
      5.6

                     

                  	
                    LIABILITY FOR BROKER’S FEES

                     

                  	
                    28

                     

                  
	
                    SECTION
      5.7

                     

                  	
                    LITIGATION

                     

                  	
                    28

                     

                  
	
                    SECTION
      5.8

                     

                  	
                    TAXES
      AND ASSESSMENTS

                     

                  	
                    28

                     

                  
	
                    SECTION
      5.9

                     

                  	
                    COMPLIANCE WITH LAWS

                     

                  	
                    29

                     

                  
	
                    SECTION
      5.10

                     

                  	
                    CONTRACTS

                     

                  	
                    29

                     

                  
	
                    SECTION
      5.11

                     

                  	
                    PAYMENTS FOR HYDROCARBON PRODUCTION

                     

                  	
                    29

                     

                  
	
                    SECTION
      5.12

                     

                  	
                    GOVERNMENTAL AUTHORIZATIONS

                     

                  	
                    29

                     

                  
	
                    SECTION
      5.13

                     

                  	
                    PREFERENCE RIGHTS AND TRANSFER REQUIREMENTS

                     

                  	
                    30

                     

                  
	
                    SECTION
      5.14

                     

                  	
                    (RESERVED)

                     

                  	
                    30

                     

                  
	
                    SECTION
      5.15

                     

                  	
                    OUTSTANDING CAPITAL COMMITMENTS

                     

                  	
                    30

                     

                  
	
                    SECTION
      5.16

                     

                  	
                    IMBALANCES

                     

                  	
                    30

                     

                  
	
                    SECTION
      5.17

                     

                  	
                    CONDEMNATION

                     

                  	
                    30

                     

                  
	
                    SECTION
      5.18

                     

                  	
                    BANKRUPTCY

                     

                  	
                    30

                     

                  
	
                    SECTION
      5.19

                     

                  	
                    PUHCA/NGA

                     

                  	
                    30

                     

                  


          

           

           

           

           

          
            
              
              

            

            
              2

              
                

              

            

            
              
              

            

          

          
            	
                    SECTION
      5.20

                     

                  	
                    INVESTMENT COMPANY

                     

                  	
                    31

                     

                  
	
                    ARTICLE
      6

                     

                     

                     

                  	
                    REPRESENTATIONS
      AND WARRANTIES OF PURCHASER

                     

                  	
                    31

                     

                  
	
                    SECTION
      6.1

                     

                  	
                    EXISTENCE AND QUALIFICATION

                     

                  	
                    31

                     

                  
	
                    SECTION
      6.2

                     

                  	
                    POWER

                     

                  	
                    31

                     

                  
	
                    SECTION
      6.3

                     

                  	
                    AUTHORIZATION AND ENFORCEABILITY

                     

                  	
                    31

                     

                  
	
                    SECTION
      6.4

                     

                  	
                    NO
      CONFLICTS

                     

                  	
                    31

                     

                  
	
                    SECTION
      6.5

                     

                  	
                    LIABILITY FOR BROKERS’ FEES

                     

                  	
                    32

                     

                  
	
                    SECTION
      6.6

                     

                  	
                    LITIGATION

                     

                  	
                    32

                     

                  
	
                    SECTION
      6.7

                     

                  	
                    FINANCING

                     

                  	
                    32

                     

                  
	
                    SECTION
      6.8

                     

                  	
                    LIMITATION

                     

                  	
                    32

                     

                  
	
                    SECTION
      6.9

                     

                  	
                    SEC
      DISCLOSURE

                     

                  	
                    32

                     

                  
	
                    SECTION
      6.10

                     

                  	
                    BANKRUPTCY

                     

                  	
                    33

                     

                  
	
                    SECTION
      6.11

                     

                  	
                    QUALIFICATION

                     

                  	
                    33

                     

                  
	
                    ARTICLE
      7

                     

                     

                     

                  	
                    COVENANTS OF THE
      PARTIES

                     

                  	
                    33

                     

                  
	
                    SECTION
      7.1

                     

                  	
                    ACCESS

                     

                  	
                    33

                     

                  
	
                    SECTION
      7.2

                     

                  	
                    GOVERNMENT REVIEWS

                     

                  	
                    34

                     

                  
	
                    SECTION
      7.3

                     

                  	
                    NOTIFICATION OF BREACHES

                     

                  	
                    34

                     

                  
	
                    SECTION
      7.4

                     

                  	
                    LETTERS-IN-LIEU; ASSIGNMENTS; OPERATORSHIP

                     

                  	
                    34

                     

                  
	
                    SECTION
      7.5

                     

                  	
                    PUBLIC
      ANNOUNCEMENTS

                     

                  	
                    35

                     

                  
	
                    SECTION
      7.6

                     

                  	
                    OPERATION OF BUSINESS

                     

                  	
                    35

                     

                  
	
                    SECTION
      7.7

                     

                  	
                    RESERVED

                     

                  	
                    36

                     

                  
	
                    SECTION
      7.8

                     

                  	
                    PREFERENCE RIGHTS AND TRANSFER REQUIREMENTS

                     

                  	
                    36

                     

                  
	
                    SECTION
      7.9

                     

                  	
                    TAX
      MATTERS

                     

                  	
                    38

                     

                  
	
                    SECTION
      7.10

                     

                  	
                    FURTHER
      ASSURANCES

                     

                  	
                    39

                     

                  
	
                    SECTION
      7.11

                     

                  	
                    INSURANCE

                     

                  	
                    39

                     

                  
	
                    ARTICLE
      8

                     

                     

                     

                  	
                    CONDITIONS TO
      CLOSING

                     

                  	
                    40

                     

                  
	
                    SECTION
      8.1

                     

                  	
                    CONDITIONS OF SELLER TO CLOSING

                     

                  	
                    40

                     

                  
	
                    SECTION
      8.2

                     

                  	
                    CONDITIONS OF PURCHASER TO CLOSING

                     

                  	
                    40

                     

                  
	
                    ARTICLE
      9

                     

                     

                     

                  	
                    CLOSING

                     

                  	
                    41

                     

                  
	
                    SECTION
      9.1

                     

                  	
                    TIME
      AND PLACE OF CLOSING

                     

                  	
                    41

                     

                  
	
                    SECTION
      9.2

                     

                  	
                    OBLIGATIONS OF SELLER AT CLOSING

                     

                  	
                    42

                     

                  
	
                    SECTION
      9.3

                     

                  	
                    OBLIGATIONS OF PURCHASER AT CLOSING

                     

                  	
                    42

                     

                  
	
                    SECTION
      9.4

                     

                  	
                    CLOSING
      PAYMENT & POST-CLOSING PURCHASE PRICE ADJUSTMENTS

                     

                  	
                    43

                     

                  
	
                    ARTICLE
      10

                     

                     

                     

                  	
                    TERMINATION

                     

                  	
                    44

                     

                  
	
                    SECTION
      10.1

                     

                  	
                    TERMINATION

                     

                  	
                    44

                     

                  
	
                    SECTION
      10.2

                     

                  	
                    EFFECT
      OF TERMINATION

                     

                  	
                    44

                     

                  
	
                    SECTION
      10.3

                     

                  	
                    DISTRIBUTION OF DEPOSIT UPON TERMINATION

                     

                  	
                    44

                     

                  
	
                    ARTICLE
      11

                     

                     

                     

                  	
                    POST-CLOSING
      OBLIGATIONS; INDEMNIFICATION; LIMITATIONS; DISCLAIMERS AND
      WAIVERS

                     

                  	
                    45

                     

                  
	
                    SECTION
      11.1

                     

                  	
                    RECEIPTS

                     

                  	
                    45

                     

                  
	
                    SECTION
      11.2

                     

                  	
                    EXPENSES

                     

                  	
                    45

                     

                  
	
                    SECTION
      11.3

                     

                  	
                    ASSUMED
      SELLER OBLIGATIONS

                     

                  	
                    45

                     

                  
	
                    SECTION
      11.4

                     

                  	
                    INDEMNITIES

                     

                  	
                    46

                     

                  
	
                    SECTION
      11.5

                     

                  	
                    INDEMNIFICATION ACTIONS

                     

                  	
                    48

                     

                  


          

           

           

           

           

          
            
              
              

            

            
              3

              
                

              

            

            
              
              

            

          

          
            	
                    SECTION
      11.6

                     

                  	
                    RELEASE

                     

                  	
                    49

                     

                  
	
                    SECTION
      11.7

                     

                  	
                    LIMITATION ON ACTIONS

                     

                  	
                    50

                     

                  
	
                    SECTION
      11.8

                     

                  	
                    DISCLAIMERS

                     

                  	
                    50

                     

                  
	
                    SECTION
      11.10

                     

                  	
                    RECORDING

                     

                  	
                    52

                     

                  
	
                    ARTICLE
      12

                     

                     

                     

                  	
                    MISCELLANEOUS

                     

                  	
                    52

                     

                  
	
                    SECTION
      12.1

                     

                  	
                    COUNTERPARTS

                     

                  	
                    52

                     

                  
	
                    SECTION
      12.2

                     

                  	
                    NOTICE

                     

                  	
                    52

                     

                  
	
                    SECTION
      12.3

                     

                  	
                    SALES
      OR USE TAX RECORDING FEES AND SIMILAR TAXES AND FEES

                     

                  	
                    53

                     

                  
	
                    SECTION
      12.4

                     

                  	
                    EXPENSES

                     

                  	
                    53

                     

                  
	
                    SECTION
      12.5

                     

                  	
                    CHANGE
      OF NAME

                     

                  	
                    54

                     

                  
	
                    SECTION
      12.6

                     

                  	
                    REPLACEMENT OF BONDS, LETTERS OF CREDIT AND GUARANTEES

                     

                  	
                    54

                     

                  
	
                    SECTION
      12.7

                     

                  	
                    GOVERNING LAW AND VENUE

                     

                  	
                    54

                     

                  
	
                    SECTION
      12.8

                     

                  	
                    CAPTIONS

                     

                  	
                    54

                     

                  
	
                    SECTION
      12.9

                     

                  	
                    WAIVERS

                     

                  	
                    54

                     

                  
	
                    SECTION
      12.10

                     

                  	
                    ASSIGNMENT

                     

                  	
                    54

                     

                  
	
                    SECTION
      12.11

                     

                  	
                    ENTIRE
      AGREEMENT

                     

                  	
                    55

                     

                  
	
                    SECTION
      12.12

                     

                  	
                    AMENDMENT

                     

                  	
                    55

                     

                  
	
                    SECTION
      12.13

                     

                  	
                    NO
      THIRD-PARTY BENEFICIARIES

                     

                  	
                    55

                     

                  
	
                    SECTION
      12.14

                     

                  	
                    REFERENCES

                     

                  	
                    55

                     

                  
	
                    SECTION
      12.15

                     

                  	
                    CONSTRUCTION

                     

                  	
                    55

                     

                  
	
                    SECTION
      12.16

                     

                  	
                    LIMITATION ON DAMAGES

                     

                  	
                    56

                     

                  
	
                    SECTION
      12.17

                     

                  	
                    CONSPICUOUSNESS

                     

                  	
                    56

                     

                  
	
                    SECTION
      12.18

                     

                  	
                    SEVERABILITY

                     

                  	
                    56

                     

                  
	
                    SECTION
      12.19

                     

                  	
                    TIME OF
      ESSENCE

                     

                  	
                    56

                     

                  


          

           

           

          
          

        

        
          4

          
            

          

        

        
          
          

        

      

    



    
      EXHIBITS

       

      Exhibit
“A”               
Properties

       

      Exhibit
“A-1”            
Wells and Units

       

      Exhibit
“A-2”            
Equipment

       

      Exhibit
“B”               
Conveyance

       

      Exhibit
“C”               
Press Release

       

       

      SCHEDULES

       

      Schedule 1.2(d)         Contracts

       

      Schedule 1.2(e)
       
Surface Contracts

       

      Schedule 1.2(g)         Pipelines

       

      Schedule 1.2(j)         
Field Offices

       

      Schedule 2.3 
           
Allocation of Purchase Price for Tax Purposes

       

      Schedule 5.7(a)         Litigation

       

      Schedule 5.8
             Taxes
and Assessments

       

      Schedule 5.9             
Compliance with Laws

       

      Schedule 5.10
           Contract
Matters

       

      Schedule 5.11
           Hydrocarbon
Production Payments

       

      Schedule 5.12
           Governmental
Authorizations

       

      Schedule 5.13
           Preference Rights
and Transfer Requirements

       

      Schedule 5.15           
Outstanding Capital
Commitments

       

      Schedule 5.16           
Imbalances

       

      Schedule 7.6             
Operation of Business

       

      Schedule 11.3           
Interests Held in Suspense

       

       

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

      DEFINITIONS

       

      “Adjustment Period” has the meaning set forth in
Section 2.2(a).

       

      “Adjusted Purchase Price” shall mean the Purchase
Price after calculating and applying the adjustments set forth in Section
2.2.

       

      "AFE"
means authority for expenditure.

       

      “Affiliates” with respect to any Person, means any
person that directly or indirectly controls, is controlled by or is under common
control with such Person.  “Control” means ownership of fifty percent (50%)
or more of the voting interest (stock or otherwise) of such
entity.

       

      “Agreement” means this Purchase and Sale
Agreement.

       

      “Aggregate Benefit Deductible” has the meaning set
forth in Section 3.4(k).

       

      “Aggregate Title Deductible” has the meaning set
forth in Section 3.4(j).

       

      “Allocated Value” has the meaning set forth in
Section 3.4(a).

       

      "Assessment" has the meaning set forth in Section
4.1.

       

      “Assets” has the meaning set forth in Section
1.2.

       

      “Assumed Seller Obligations” has the meaning set
forth in Section 11.3.

       

      “Bonds”
has the meaning set forth in Section 6.11.

       

      “Business Day” means each calendar day except
Saturdays, Sundays, and Federal holidays.

       

      “Claim”
or “Claims” has the meaning set forth in Section
11.4(a).

       

      “Claim
Notice” has the meaning set forth in Section 11.5(b).

       

      “Closing” has the meaning set forth in Section
9.1(a).

       

      “Closing Date” has the meaning set forth in Section
9.1(b).

       

      “Closing Payment” has the meaning set forth in
Section 9.4(a).

       

      “Code”
has the meaning set forth in Section 2.3.

       

      “Confidentiality Agreement” has the meaning set
forth in Section 7.1.

       

      “Contracts” has the meaning set forth in Section
1.2(d).

       

      “Conveyance” has the meaning set forth in Section
3.1(b).

       

      “Cure
Period” has the meaning set forth in Section 3.4(c).

       

      “Defensible Title” has the meaning set forth in
Section 3.2.

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

      “Deposit” has the meaning set forth in Section
2.4.

       

      "DTPA"
has the meaning set forth in Section 11.9.1.

       

      “Effective Time” has the meaning set forth in
Section 1.4(a).

       

      “Environmental Laws” means, as the same may have
been amended, the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. § 9601 et seq.; the Resource
Conservation and Recovery Act, 42 U.S.C. § 6901 et seq.; the Federal
Water Pollution Control Act, 33 U.S.C. § 1251 et seq.; the Clean
Air Act, 42 U.S.C. § 7401 et seq. the Hazardous
Materials Transportation Act, 49 U.S.C. § 1471 et seq.; the Toxic
Substances Control Act, 15 U.S.C. §§ 2601 through 2629; the Oil Pollution Act,
33 U.S.C. § 2701 et
seq.; the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. §
11001 et seq.;
the Safe Drinking Water Act, 42 U.S.C. §§ 300f through 300j; the Federal
Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. § 136 et seq.; the
Occupational Safety and Health Act, 29 U.S.C. § 651 et seq.; the Atomic Energy
Act, 42 U.S.C. § 2011 et seq.; and all applicable related law, whether local,
state, territorial, or national, of any Governmental Body having jurisdiction
over the property in question addressing pollution or protection of human
health, safety, natural resources or the environment and all regulations
implementing the foregoing. 

       

      “Environmental Liabilities” shall mean any and all
environmental response costs (including costs of remediation), damages, natural
resource damages, settlements, consulting fees, expenses, penalties, fines,
orphan share, prejudgment and post-judgment interest, court costs, attorneys’
fees, and other liabilities incurred or imposed (i) pursuant to any order,
notice of responsibility, directive (including requirements embodied in
Environmental Laws), injunction, judgment or similar act (including settlements)
by any Governmental Body or court of competent jurisdiction to the extent
arising out of any violation of, or remedial obligation under, any Environmental
Laws which are attributable to the ownership or operation of the Assets prior to
the Effective Time or (ii) pursuant to any claim or cause of action by a
Governmental Body or other Person for personal injury, property damage, damage
to natural resources, remediation or response costs to the extent arising out of
any violation of, or any remediation obligation under, any Environmental Laws
which is attributable to the ownership or operation of the Assets prior to the
Effective Time.

       

      “Equipment” has the meaning set forth in Section
1.2(f).

       

      “Excluded Assets” has the meaning set forth in
Section 1.3.

       

      “Financial Statements” has the meaning set forth in
Section 7.7(a).

       

      “Governmental Authorizations” has the meaning set
forth in Section 5.12.

       

      “Governmental Body” or “Governmental Bodies” means
any federal, state, local, municipal, or other governments; any governmental,
regulatory or administrative agency, commission, body or other authority
exercising or entitled to exercise any administrative, executive, judicial,
legislative, police, regulatory or taxing authority or power; and any court or
governmental tribunal.

       

      "HSR
Act" means the Hart-Scott Rodino Antitrust Improvements Act of
1976.

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

      “Hydrocarbons” means oil, gas, condensate and other
gaseous and liquid hydrocarbons or any combination thereof and sulphur extracted
from hydrocarbons.

       

      “Imbalance” or “Imbalances” means over-production of
Hydrocarbons or under-production of Hydrocarbons or over-deliveries or
under-deliveries with respect to Hydrocarbons produced from or allocated to the
Assets, regardless of whether such over-production of Hydrocarbons or
under-production of Hydrocarbons or over-deliveries or under-deliveries arise at
the platform, wellhead, pipeline, gathering system, transportation or other
location.

       

      “Indemnified Party” has the meaning set forth in
Section 11.5(a).

       

      “Indemnifying Party” has the meaning set forth in
Section 11.5(a).

       

      “Indemnity Claim” has the meaning set forth in
Section 11.5(b).

       

      “Individual Benefit Threshold” has the meaning set
forth in Section 3.4(k).

       

      “Individual Environmental Threshold” has the meaning
set forth in Section 3.4(j).

       

      “Individual Title Threshold” has the meaning set
forth in Section 3.4(j).

       

      “Invasive Activity” has the meaning set forth in
Section 4.1.

       

       “Lands” has the meaning set forth in Section
1.2(a).

       

      “Laws”
means all statutes, laws, rules, regulations, ordinances, orders, and codes of
Governmental Bodies.

       

      “Leases” has the meaning set forth in Section
1.2(a).

       

      “Like-Kind Exchange” has the meaning set forth in
Section 7.9(b).

       

      “Material Adverse Effect” means any effect that is
reasonably expected to have an adverse effect on the ownership, operation or
value of the Assets, as currently operated, in an amount in excess of ten
percent (10%) of the Purchase Price; provided, however,
that “Material Adverse Effect” shall not include (i) any effect resulting from
entering into this Agreement or the announcement of the transactions
contemplated by this Agreement; (ii) any effect resulting from changes in
general market, economic, financial or political conditions or any outbreak of
hostilities or war, (iii) any effect that affects the Hydrocarbon exploration,
production, development, processing, gathering and/or transportation industry
generally (including changes in commodity prices or general market prices in the
Hydrocarbon exploration, production, development, processing, gathering and/or
transportation industry generally), and (iv) any effect resulting from a change
in Laws or regulatory policies. 

       

      “Minerals and Royalties” has the meaning set forth
in Section 1.3(j).

       

      “Net
Revenue Interest” has the meaning set forth in Section
3.2(a).

       

      "NORM"
means naturally occurring radioactive material.

       

      “Permitted Encumbrances” has the meaning set forth
in Section 3.3.

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

      “Pipelines” has the meaning set forth in Section
1.2(g).

       

      “Person” means any individual, firm, corporation,
partnership, limited liability company, joint venture, association, trust,
unincorporated organization, Governmental Body or any other
entity.

       

      “Preference Property” has the meaning set forth in
Section 7.8(b).

       

      “Preference Right” means any right or agreement that
enables any Person to purchase or acquire any Asset or any interest therein or
portion thereof as a result of or in connection with (i) the sale, assignment or
other transfer of any Asset or any interest therein or portion thereof or (ii)
the execution or delivery of this Agreement or the consummation or performance
of the terms and conditions contemplated by this
Agreement.

       

      “Properties” has the meaning set forth in Section
1.2(c).

       

      “Property Costs” has the meaning set forth in
Section 1.4(b).

       

      “Purchase Price” has the meaning set forth in
Section 2.1.

       

      “Purchaser” means Vanguard Permian,
LLC.

       

      "Purchaser Indemnitees" shall mean Purchaser,
Purchaser’s Affiliates, joint owners and venturers, co-lessees and partners, and
Purchaser’s contractors and each of their respective officers, directors,
employees, agents, representatives, insurers, subcontractors, successors and
permitted assigns.

       

       “Records” has the meaning set forth in Section
1.2(i).

       

      “REGARDLESS OF FAULT” has the meaning set forth in
Section 11.4(a).

       

      “Retained Asset” has the meaning set forth in
Section 7.8(d).

       

       “Seller” means, collectively, Fortson
Production Company, a Texas corporation, and Benco Energy, Inc., a Texas
corporation.  

       

      "Seller
Indemnitees" shall mean Seller, Seller’s Affiliates, joint owners and venturers,
co-lessees and partners, and Seller’s contractors, and each of their respective
officers, directors, employees, agents, representatives, insurers,
subcontractors, successors and permitted assigns.

       

      “Seller
Operated Assets” shall mean Assets operated by
Seller.

       

      “Surface Contracts” has the meaning set forth in
Section 1.2(e).

       

      “Tax
Allocated Value” has the meaning set forth in Section
2.3.

       

      “Taxes”
means all federal, state, local, and foreign income, profits, franchise, sales,
use, ad valorem, property, severance, production, excise, stamp, documentary,
real property transfer or gain, gross receipts, goods and services,
registration, capital, transfer, or withholding taxes or other governmental fees
or charges imposed by any taxing authority, including any interest, penalties or
additional amounts which may be imposed with respect
thereto.

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

      “Tax
Returns” has the meaning set forth in Section 5.8.

       

      “Title
Arbitrator” has the meaning set forth in Section
3.4(i).

       

      “Title
Benefit” has the meaning set forth in Section 3.2.

       

      “Title
Benefit Amount” has the meaning set forth in Section
3.4(e).

       

      “Title
Benefit Notice” has the meaning set forth in Section
3.4(b).

       

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

       

      “Title
Defect” has the meaning set forth in Section 3.2.

       

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

       

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

       

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

       

      “Transfer Requirement” means any consent, approval,
authorization or permit of, or filing with or notification to, any Person which
is required to be obtained, made or complied with for or in connection with any
sale, assignment or transfer of any Asset or any interest therein, other than
any consent of, notice to, filing with, or other action by Governmental Bodies
in connection with the sale or conveyance of oil and/or gas leases or interests
therein or Surface Contracts or interests therein, if they are not required
prior to the assignment of such oil and/or gas leases, Surface Contracts or
interests or they are customarily obtained subsequent to the sale or conveyance
(including consents from state agencies).      


       

      “Units”
has the meaning set forth in Section 1.2(c).

       

      “Wells”
has the meaning set forth in Section 1.2(b).

       

    



    
       

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

      PURCHASE AND SALE AGREEMENT

       

      This Agreement is executed on November 27, 2009 by
and between Fortson Production Company, a Texas corporation, and Benco Energy,
Inc., a Texas corporation, collectively as “Seller,” and Vanguard Permian, LLC,
a Delaware limited liability company, as “Purchaser”.  Seller and Purchaser
are collectively referred to herein as “Parties” and individually referred to as
a “Party”.

       

      RECITALS

       

      A.        
Seller owns various working interests in certain oil and gas leases, either of
record or beneficially, more fully described in the Exhibits
hereto.

       

      B.        
Seller desires to sell to Purchaser and Purchaser desires to purchase from
Seller such working interests of Seller hereafter described, in the manner and
upon the terms and conditions hereafter set forth.

       

      C.       
Capitalized terms used herein shall have the meanings ascribed to them in this
Agreement as such terms are identified and/or defined in the preceding
Definitions section hereof.

       

      NOW, THEREFORE, in consideration of the premises and of the
mutual promises, representations, warranties, covenants, conditions and
agreements contained herein, and for other valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Parties hereto, intending
to be legally bound by the terms hereof, agree as follows:

       

      
        ARTICLE 1

        PURCHASE AND
SALE

         

        Section 1.1
Purchase and
Sale.

        At the Closing, and upon the terms and subject to
the conditions of this Agreement, Seller agrees to sell, transfer and convey the
Assets to Purchaser, and Purchaser agrees to purchase, accept and pay for the
Assets and to assume the Assumed Seller Obligations attributable to the
Assets.

         

        Section 1.2
Assets.

        As used herein, the term
“Assets” means, subject to the terms and conditions of this Agreement, all of
Seller’s right, title, and interest in and to the following (but excluding the
Excluded Assets):

         

        (a)              Seller’s working interest in and to all of the oil and gas leases
described on Exhibit
A, subject to such depth limitations and other restrictions as may be
expressly set forth on Exhibit
A (collectively, the “Leases”);

         

        (b)                         
All oil, gas, water or injection wells located on the lands covered by
the Leases (the “Lands”), whether producing, shut-in, or temporarily abandoned,
including the interests in the wells shown on Exhibit
A-1 attached hereto (the “Wells”);

         

        
          
            
            

          

          
            11

            
              

            

          

          
            
            

          

        

        (c)                         
Except for the Excluded Assets, all interests of Seller in or to any currently existing pools or
units which include any Lands or all or a part of any Leases or any Wells,
including those pools or units shown on Exhibit
A-1 (the “Units”; the Units, together with the Leases, Lands and Wells, being hereinafter collectively referred to
as the “Properties”), and including all interests of Seller in production of Hydrocarbons from any
such Unit, whether such Unit production of Hydrocarbons comes from Wells located
on or off of a Lease or the Lands, and all tenements, hereditaments and
appurtenances belonging to the Wells, Leases and Units;

         

        (d)                         
All contracts, agreements and instruments by which the Properties are
bound, or that relate to or are otherwise applicable to the Properties, but only
to the extent applicable to the Properties and not Seller’s other properties,
including but not limited to: operating agreements, unitization, pooling and
communitization agreements, declarations and orders, joint venture agreements,
farmin and farmout agreements, exploration agreements, participation agreements,
exchange agreements, transportation or gathering agreements, agreements for the
sale and purchase of oil, gas, casinghead gas or processing agreements to the
extent applicable to the Properties or the production of Hydrocarbons produced
in association therewith from the Properties, including those identified on
Schedule
1.2(d) (hereinafter collectively referred to as “Contracts”), but
excluding any contracts, agreements and instruments to the extent
transfer is restricted by third-party agreement or applicable Law and the
necessary consents to transfer are not obtained pursuant to Section 7.8 and
provided,
that “Contracts” shall not include the instruments constituting the
Leases;

         

        (e)                         
All easements, permits, licenses, servitudes, rights-of-way, surface
leases and other surface rights appurtenant to, and used or held for use
primarily in connection with the Properties (including those identified on Schedule
1.2(e) (“Surface Contracts”), but
excluding any permits and other rights to the extent transfer is
restricted by third-party agreement or applicable Law and the necessary consents
to transfer are not obtained pursuant to Section 7.8;

         

        (f)                          
All equipment, machinery, fixtures and other tangible personal property
and improvements located on the Properties or used or held for use primarily in
connection with the operation of the Properties, including those identified on
Exhibit
A-2 (“Equipment”);

         

        (g)                         
All flow lines, pipelines, gathering systems and appurtenances thereto
located on the Properties or used, or held for use, primarily in connection with
the operation of the Properties, including those identified on Schedule
1.2(g) (“Pipelines”);

         

        (h)                         
All Hydrocarbons produced from or attributable to the Leases, Lands, and
Wells from and after the Effective Time; 

         

        (i)                           
All lease files; land files; well files; gas and oil sales contract
files; gas processing files; division order files; abstracts; title opinions;
computer and communications software or intellectual property
presently used for the operation of the Assets and located on the Properties and
within the possession and control of Seller (including codes, tapes, data and
program documentation and related technical information); land surveys;
logs, interpretive data, technical evaluations and technical outputs, but only
to the extent such logs, data, evaluations and outputs are not subject to any
third-party confidentiality limitations or transfer restrictions; maps;
engineering data and reports; and other books, records, data, files, and
accounting and financial records, in each case to the extent 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 Section 7.8, (ii) attorney-client privileged communications
and work product of Seller’s legal counsel (other than title opinions related to
the Properties), (iii) reserve studies and evaluations, and (iv) records relating to the negotiation and consummation of
the sale of the Assets (subject to such exclusions, the “Records”);
and

         

        
          
            
            

          

          
            12

            
              

            

          

          
            
            

          

        

        (j)                           
The field offices identified on Schedule
1.2(j); and 

         

        (k)                         
Proprietary seismic data or licenses related to the Properties to the
extent transferable.

         

        Section 1.3
Excluded
Assets.

         

        Notwithstanding the foregoing, the Assets shall not include, and there is
excepted, reserved and excluded from the purchase and sale contemplated hereby
(collectively, the “Excluded Assets”):

         

        (a)                         
all corporate, financial, income and franchise tax and legal records of
Seller that relate to Seller’s business generally (whether or not relating to
the Assets), and all books, records and files that relate to the Excluded Assets
and those records retained by Seller pursuant to Section 1.2(i) or proprietary
data or licenses shared with third parties that is restricted or not otherwise
transferable, without the payment of a fee and copies of any other Records
retained by Seller pursuant to Section 1.5; 

         

        (b)                         
all non-proprietary seismic data, including reprocessed geological and
geophysical data, and, to the extent not expressly included in Section 1.2(i),
all logs, interpretive data, technical evaluations, technical outputs, reserve
estimates and economic estimates; 

         

        (c)                         
all rights to any refund of Taxes or other costs or expenses borne by
Seller or Seller’s predecessors in interest and title attributable to periods
prior to the Effective Time;

         

        (d)                         
Seller’s area-wide Bonds, permits and licenses or other permits, licenses
or authorizations used in the conduct of Seller’s business
generally;

         

        (e)                         
all trade credits, account receivables, note receivables, take-or-pay
amounts receivable, and other receivables attributable to the Assets with
respect to any period of time prior to the Effective Time;

         

        (f)                          
all rights, titles, claims and interests of Seller or any Affiliate of
Seller (i) to or under any policy or agreement of insurance or any insurance
proceeds; except to the extent provided in Section 3.5, and (ii) to or under any
Bonds or Bond proceeds;

         

        (g)                         
any patent, patent application, logo, service mark, copyright, trade name
or trademark of or associated with Seller or any Affiliate of Seller or any
business of Seller or of any Affiliate of Seller; 

         

        (h)                         
a non-exclusive right to freely use any logs, maps, engineering data and
reports, reserve studies and evaluations, and other geological or geophysical
data and information being transferred as a part of the Assets except to the
extent any such use or transfer is restricted by a currently existing
third-party agreement or applicable Law;

         

        
          
            
            

          

          
            13

            
              

            

          

          
            
            

          

        

        (i)                           
a non-exclusive license to use the proprietary seismic data related to
the Properties and included in the Assets except to the extent any such use or
transfer is restricted by a currently existing third-party agreement or
applicable Law; and

         

        (j)                           
all fee mineral interest, fee royalty interest and other fee interests in
oil, gas and other minerals and all overriding royalty interest, net profits
interest, and other non-cost bearing interests in the Properties (the “Minerals
and Royalties”).

         

        Section 1.4
Effective Time;
Proration of Costs and Revenues.

         

        (a)                         
Subject to Section 1.5, possession of and title to the Assets shall be transferred from Seller to
Purchaser at the Closing, but certain financial benefits and burdens of the
Assets shall be transferred effective as of 7:00 A.M., local time, where the
respective Assets are located, on October 1, 2009 (the “Effective Time”), as
described below.

         

        (b)                         
Purchaser shall be entitled to all Hydrocarbon production from or
attributable to the Leases, Units and Wells at and after the Effective Time (and all
products and proceeds attributable thereto), and to all other income, proceeds,
receipts and credits earned with respect to the Assets at or after the Effective
Time, and shall be responsible for (and entitled to any refunds with respect to)
all Property Costs incurred at and after the Effective Time. Seller shall be
entitled to all Hydrocarbon production from or attributable to Leases, Units and Wells prior to the Effective Time (and all
products and proceeds attributable thereto), and to all other income, proceeds,
receipts and credits earned with respect to the Assets prior to the Effective
Time, and shall be responsible for (and entitled to any refunds with respect to)
all Property Costs incurred prior to the Effective Time. 

         

                   
For purposes
of this Agreement, the terms “earned” and "incurred”, as used in this Agreement,
shall be interpreted in accordance with generally accepted accounting principles
and Council of Petroleum Accountants Society (COPAS) standards. “Property Costs”
means all costs attributable to the ownership and operation of the Assets
(including without limitation costs of insurance and ad valorem, property,
severance, Hydrocarbon production and similar Taxes based upon or measured by
the ownership or operation of the Assets or the production of Hydrocarbons
therefrom, but
excluding any other Taxes) and all royalties
and other payments due to third parties in respect of Hydrocarbon production or
the sale thereof and capital expenditures incurred in the ownership and
operation of the Assets in the ordinary course of business and, where
applicable, in accordance with the relevant operating or unit agreement, if any,
and overhead costs charged to the Assets under the relevant operating agreement
or unit agreement, if any, but
excluding without limitation liabilities, losses, costs, and expenses
attributable to (i) Claims for personal injury or death, property damage or
violation of any Law, (ii) obligations to plug wells or dismantle, abandon and
salvage facilities, (iii)
obligations to remediate any contamination of groundwater, surface water, soil,
Equipment or Pipelines under applicable Environmental Laws, and (iv)
obligations to pay working interests, royalties, overriding royalties or other
interests held in suspense, all of which are addressed in Article 11.  For
purposes of this Section 1.4, determination of whether Property Costs are
attributable to the period before or after the Effective Time shall be based on
when services are rendered, when the goods are delivered, or when the work is
performed.  For clarification, the date an item or work is ordered is not
the date of a pre-Effective Time transaction for settlement purposes, but rather
the date on which the item ordered is delivered to the job site, or the date on
which the work ordered is performed, shall be the relevant date.  For
purposes of allocating Hydrocarbon production (and accounts receivable with
respect thereto), under this Section 1.4, (i) liquid Hydrocarbons shall be
deemed to be “from or attributable to” the Leases, Units
and Wells when they pass through the pipeline connecting into the storage
facilities into which they are run and (ii) gaseous Hydrocarbons shall be deemed
to be “from or attributable to” the Leases, Units
and Wells when they pass through the delivery point sales meters on the
pipelines through which they are transported. Seller shall utilize reasonable
interpolative procedures to arrive at an allocation of Hydrocarbon production
when exact meter readings or gauging and strapping data is not available. Seller
shall provide to Purchaser, no later than three (3) Business Days prior to
Closing, all data necessary to support any estimated allocation, for purposes of
establishing the adjustment to the Purchase Price pursuant to Section 2.2 hereof
that will be used to determine the Closing Payment (as defined in Section
9.4(a)). Taxes, right-of-way fees, insurance premiums and other Property Costs
that are paid periodically shall be prorated based on the number of days in the
applicable period falling before and the number of days in the applicable period
falling at or after the Effective Time, except that Hydrocarbon production,
severance and similar Taxes shall be prorated based on the number of units
actually produced, purchased or sold or proceeds of sale, as applicable, before,
and at or after, the Effective Time. In each case, Purchaser shall be
responsible for the portion allocated to the period at and after the Effective
Time and Seller shall be responsible for the portion allocated to the period
before the Effective Time. If the Seller or
Purchaser determines that an additional gas imbalance exists as to Seller’s net
revenue interest in the Properties as of the Effective Time other than as
disclosed on Schedule
5.16, then such imbalance will be treated as a Property Cost and
the Purchase Price will be adjusted upwards or downward as
appropriate.

         

        
          
            
            

          

          
            14

            
              

            

          

          
            
            

          

        

        Section 1.5
Delivery and
Maintenance of Records.

         

        (a)                         
Seller, at Purchaser’s sole cost and expenses shall deliver the Records
to Purchaser within thirty (30) days following Closing.  Seller may retain copies of
any Records and shall have access to the Records following the Closing as
provided below. 

         

        (b)                         
Purchaser, or its successors or assigns, for a period of five (5) years
following Closing, will (i) retain the Records, (ii) provide Seller, its
Affiliates, and its and their officers, employees and representatives with
access to the Records  during normal business hours for review and copying
at Seller’s sole cost and expense, and (iii) provide Seller, its Affiliates, and
its and their officers, employees and representatives with access, during normal
business hours, to materials received or produced after Closing relating to any
Indemnity Claim made under Section 11.4 of this Agreement for review and
copying.

         

                                           ARTICLE
2
                                  PURCHASE PRICE

        Section 2.1
Purchase
Price.

        
          The purchase price for the Assets (the “Purchase
Price”) shall be Forty Eight Million Nine Hundred Twenty Six Thousand Seven
Hundred Ninety Three Dollars and No Cents ($48,926,793.00), adjusted as provided
in Section 2.2.

          
            Section 2.2
Adjustments to
Purchase Price.

            
              The Purchase Price for the Assets shall be adjusted
as follows with all such amounts being determined in accordance with generally
accepted accounting principles and Council of Petroleum Accountants Society
(COPAS) standards:

              
                
                  
                  

                

                
                  15

                  
                    

                  

                

                
                  
                  

                

              

              (a)                         
Reduced by the aggregate amount of the following proceeds received by
Seller between the Effective Time and the Closing Date (with the period between
the Effective Time and the Closing Date referred to as the “Adjustment Period”):
(i) proceeds from the sale of Hydrocarbons (net of any royalties, overriding
royalties or other burdens paid to third-parties on or payable out of Hydrocarbon
production, gathering, processing and transportation costs and any Hydrocarbon
production, severance, sales or excise Taxes not reimbursed to Seller by the
purchaser of Hydrocarbon production) produced from or attributable to the
Properties during the Adjustment Period, and (ii) other proceeds earned with
respect to the Assets during the Adjustment Period;

               

              (b)                         
Reduced to the extent provided in Section 7.8 with respect to Preference
Rights and Retained Assets;

               

              (c)                         
(i)  If Seller makes the election under Section 3.4(d)(i) with
respect to a Title Defect, subject to the Individual Title Threshold or the
Individual Environmental Threshold, as applicable, and in each case subject to
the Aggregate Title Deductible, reduced by the Title Defect Amount with respect
to such Title Defect, if the Title Defect Amount has been determined prior to
Closing, or (ii) subject to the Individual Benefit Threshold and the Aggregate
Benefit Deductible, increased by the Title Benefit Amount with respect to each
Title Benefit for which the Title Benefit Amount has been determined prior to
Closing;

               

              (d)                         
Increased by the amount of all Property Costs and other costs
attributable to the ownership and operation of the Assets which are paid by
Seller and incurred at or after the Effective Time, except any Property Costs
and other such costs already deducted in the determination of proceeds in
Section 2.2(a); 

               

              (e)                         
Reduced to the extent provided in Section 3.4(d)(iii) for any Properties
excluded from the Assets pursuant to Section 3.4(d)(iii); 

               

              (f)                          
Increased or reduced as agreed upon in writing by Seller and Purchaser;


               

              (g)                         
Increased by the amount of merchantable Hydrocarbons stored in tanks and
pipelines attributable to the ownership and operation of the Assets that belong
to Seller as of the Effective Time, which shall be valued based upon the price
reflected in existing Contracts of Seller for the sale of such Hydrocarbons;
and

               

              (h)                         
Reduced by the amount of funds held in suspense, as reflected on Schedule
11.3.

               

              Each adjustment made
pursuant to Section 2.2(a) shall serve to satisfy, up to the amount of the
adjustment, Purchaser’s entitlement under Section 1.4 to Hydrocarbon production
from or attributable to the Properties during the Adjustment Period, and to the
value of other income, proceeds, receipts and credits earned with respect to the
Assets during the Adjustment Period, and as such, Purchaser shall not have any
separate rights to receive any Hydrocarbon production or income, proceeds,
receipts and credits with respect to which an adjustment has been made.
Similarly, the adjustment described in Section 2.2(d) shall serve to satisfy, up
to the amount of the adjustment, Purchaser’s obligation under Section 1.4 to pay
Property Costs and other costs attributable to the ownership and operation of
the Assets which are incurred during the Adjustment Period, and as such,
Purchaser shall not be separately obligated to pay for any Property Costs or
other such costs with respect to which an adjustment has been
made.

              
                
                  
                    
                    

                  

                  
                    16

                    
                      

                    

                  

                  
                    
                    

                  

                

                Section 2.3
Allocation of
Purchase Price for Tax Purposes.

                
                  Concurrent with the execution of this Agreement,
Purchaser and Seller will agree upon an allocation of the unadjusted Purchase
Price among the Assets, in compliance with the principles of Section 1060 of the
Internal Revenue Code of 1986, as amended (the “Code”), and the Treasury
regulations thereunder.  Such allocation of value shall be attached to this
Agreement as Schedule 2.3
and shall be treated as Class V assets for purposes of Internal Revenue
Service Form 8594. The “Tax Allocated Value” for any Asset equals the portion of
the unadjusted Purchase Price allocated to such Asset on Schedule 2.3,
increased or reduced as described in this Article 2.  Any adjustments to
the Purchase Price other than the adjustments provided for in Sections 2.2(b)
and 2.2(c) shall be applied on a pro rata basis to the amounts set forth on
Schedule 2.3 for all Assets.  After all such adjustments are made, any
adjustments to the Purchase Price pursuant to Sections 2.2(b) and 2.2(c) shall
be applied to the amounts set forth in Schedule 2.3
for the particular affected Assets. After Seller and Purchaser have agreed on
the Tax Allocated Values for the Assets, Seller will be deemed to have accepted
such Tax Allocated Values for purposes of this Agreement and the transactions
contemplated hereby, but otherwise makes no representation or warranty as to the
accuracy of such values. Seller and Purchaser agree (i) that the Tax Allocated
Values shall be used by Seller and Purchaser as the basis for reporting asset
values and other items for purposes of all federal, state, and local Tax
Returns, including without limitation Internal Revenue Service Form 8594 and
(ii) that neither they nor their Affiliates will take positions inconsistent
with the Tax Allocated Values in notices to government authorities or in audit
or other proceedings with respect to Taxes.  Purchaser and Seller further
agree that the portion of Tax Allocated Values included in Schedule 2.3
attributable to tangible personal property shall equal the fair value of such
property on the Closing Date.  

                  
                    Section 2.4
Deposit.

                    
                      Concurrently with the
execution of this Agreement, Purchaser has paid to Seller an earnest money
deposit  of Five Million Four Hundred Fifty Nine Thousand, Four Hundred
Eighty Five Dollars ($5,459,485.00) (the "Deposit").  The Deposit shall be
non-interest bearing and applied against the Purchase Price if the Closing
occurs, or shall be otherwise distributed in accordance with the terms of this
Agreement.

                      
                                                              ARTICLE 3
                                  TITLE
MATTERS

                        Section 3.1
Seller’s
Title.

                         

                        (a)                         
Except for the special warranty of title referenced in Section 3.1(b) and
without limiting Purchaser’s right to adjust the Purchase Price by operation of
this Article 3, Seller makes no warranty or representation, express, implied,
statutory or otherwise, with respect to Seller’s title to any of the Assets and
Purchaser hereby acknowledges and agrees that Purchaser’s sole remedy for any
defect of title, including any Title Defect, with respect to any of the Assets
(i) before Closing, shall be Purchaser’s right to adjust the Purchase Price to
the extent provided in this Article 3 and (ii) after Closing, shall be pursuant
to the special warranty of title referenced in Section 3.1(b).

                         

                        (b)                         
The conveyance to be delivered by Seller to Purchaser shall be
substantially in the form of Exhibit
B hereto (the “Conveyance”) and contain a special warranty of Defensible
Title (as defined below) by, through and under Seller, but not otherwise, to the
Properties shown in Exhibit
A-1, subject to the Permitted Encumbrances, but shall otherwise be
without warranty of title of any kind, express, implied or statutory or
otherwise.

                         

                        
                          
                            
                            

                          

                          
                            17

                            
                              

                            

                          

                          
                            
                            

                          

                        

                        (c)                         
Purchaser shall not be entitled to protection under Seller’s special
warranty of title in the Conveyance against any Title Defect reported under this
Article 3 and/or any Title Defect disclosed to Purchaser or provided in writing
to Purchaser in any abstract of title, title opinion or landman’s title chain
prior to the Title Claim Date.

                         

                        (d)                         
Notwithstanding anything herein provided to the contrary, if a Title
Defect under this Article 3 results from any matter which could also result in
the breach of any representation or warranty of Seller set forth in Article 5,
then Purchaser shall only be entitled to assert such matter (i) before Closing,
as a Title Defect to the extent permitted by this Article 3, or (ii) after
Closing, as a breach of Seller’s special warranty of title contained in the
Conveyance to the extent permitted by this Section 3.1, and shall be precluded
from also asserting such matter as the basis of the breach of any such
representation or warranty.

                         

                        Section 3.2
Definition of
Defensible Title.

                        As
used in this Agreement, the term “Defensible Title” means that title of Seller
with respect to the Properties shown in Exhibit
A-1 that, except for and subject to Permitted Encumbrances
which:

                         

                        (a)                         
Entitles Seller to receive a share of the Hydrocarbons produced, saved
and marketed from any Properties shown in Exhibit
A-1 throughout the duration of the productive life of such Properties (after satisfaction of all royalties, overriding
royalties, net profits interests or other similar burdens paid to third parties on or measured by production of
Hydrocarbons, hereinafter “Net Revenue Interest”), of not less than the Net
Revenue Interest shown in Exhibit
A-1 for such Properties, except decreases in connection with those
operations in which Seller may after the date of this Agreement be a
non-consenting co-owner, decreases resulting from the establishment or amendment
after the date of this Agreement  of pools or units, and except as stated
in such Exhibit
A-1;

                         

                        (b)                         
Obligates Seller to bear a percentage of the costs and expenses for the
maintenance and development of, and operations relating to, (i) any Properties shown in Exhibit
A-1  not greater than the “working interest” shown in Exhibit
A-1 for such Properties, without increase throughout the productive life
of such Properties except as stated in Exhibit
A-1 and except increases resulting from contribution requirements with
respect to non-consenting co-owners under applicable operating agreements and
increases that are accompanied by at least a proportionate increase in Seller’s
Net Revenue Interest; and

                         

                        (c)                         
Is free and clear of liens, encumbrances, obligations, security
interests, irregularities, pledges, Environmental Liabilities, or other defects.

                         

                        As
used in this Agreement, the term “Title Defect” means any lien, charge,
encumbrance, obligation (including contract obligation), defect, Environmental
Liability or other matter (including without limitation a discrepancy in Net
Revenue Interest or working interest) that causes Seller not to have Defensible
Title in and to the Properties shown in Exhibit
A-1 as of the Effective Time and the Closing Date.  As used
in this Agreement, the term “Title Benefit” shall mean any right, circumstance
or condition that operates to increase the Net Revenue Interest of Seller in any
Properties shown on Exhibit
A-1, without causing a greater than proportionate increase in
Seller’s working interest above that shown in Exhibit
A-1 as of the Effective Time. Notwithstanding the foregoing, the
following shall not be considered Title Defects:

                         

                        
                          
                            
                            

                          

                          
                            18

                            
                              

                            

                          

                          
                            
                            

                          

                        

                        1.        
defects based solely on (i) lack of information in the Seller’s files, or (ii)
references to a document(s) if such document(s) is not in Seller’s
files;

                         

                        2.         defects arising out of
lack of corporate or other entity authorization of Persons other than Seller or
its Affiliates, unless Purchaser provides
affirmative evidence that the action was not authorized and results in a
third-party’s  actual and superior claim of title to the relevant
Property;

                         

                        3.         defects based on
failure to record Leases issued by any Governmental Body, or any assignments of
record title or operating rights in such Leases, in the real property,
conveyance or other records of the county in which such Property is
located;

                         

                        4.        
defects based on a gap in Seller’s chain of title in the county records as to
fee Leases, unless such gap is affirmatively shown to exist in such records by
an abstract of title, title opinion or landman’s title chain, which documents
shall be included in a Title Defect Notice; and

                         

                        5.        
defects that have been cured by applicable Laws of limitations or
prescription.

                         

                        Section 3.3
Definition of
Permitted Encumbrances.

                        As
used herein, the term “Permitted Encumbrances” means any or all of the
following:

                         

                        (a)                         
Royalties and any overriding royalties, reversionary interests and other
burdens to the extent that the net cumulative effect of such burdens does not
reduce Seller’s Net Revenue Interest below that shown in Exhibit
A-1 or increase Seller’s working interest above that shown in Exhibit
A-1 without a corresponding increase in the Net Revenue
Interest;

                         

                        (b)                         
All Leases, unit agreements, pooling agreements, operating agreements,
Hydrocarbon production sales contracts, division orders and other contracts,
agreements and instruments applicable to the Assets, to the extent that the net
cumulative effect of such instruments does not reduce Seller’s Net Revenue
Interest below that shown in Exhibit
A-1 or increase Seller’s working interest above that shown in Exhibit
A-1 without a corresponding increase in the Net Revenue
Interest;

                         

                        (c)                         
Preference Rights applicable to the Assets;

                         

                        (d)                         
Third-party consent requirements and similar restrictions;

                         

                        (e)                         
Liens for current Taxes or assessments not yet delinquent or, if
delinquent, contested in good faith by appropriate actions;

                         

                        (f)                          
Materialman’s, mechanic’s, repairman’s, employee’s, contractor’s,
operator’s and other similar liens or charges arising in the ordinary course of
business for amounts not yet delinquent (including any amounts being withheld as
provided by Law), or if delinquent, contested in good faith by appropriate
actions;

                         

                        
                          
                            
                            

                          

                          
                            19

                            
                              

                            

                          

                          
                            
                            

                          

                        

                        (g)                         
All rights to consent by, required notices to, filings with, or other
actions by Governmental Bodies in connection with the sale or conveyance of the
Assets or interests therein if they are not required or customarily obtained
prior to the sale or conveyance;

                         

                        (h)                         
Excepting circumstances where such rights have already been
triggered, rights of reassignment arising upon final intention to abandon
or release the Assets, or any of them;

                         

                        (i)                           
Easements, rights-of-way, servitudes, permits, surface leases and other
rights in respect of surface operations to the extent that they do not unreasonably interfere with the operation of the
Assets;

                         

                        (j)                           
All rights reserved to or vested in any Governmental Body to control or
regulate any of the Assets in any manner and all obligations and duties under
all applicable laws, rules and orders of any such Governmental Body or under any
franchise, grant, license or permit issued by any such Governmental
Body;

                         

                        (k)                         
Any encumbrance on or affecting the Assets which is expressly assumed,
bonded or paid by Purchaser at or prior to Closing or which is discharged by
Seller at or prior to Closing;

                         

                        (l)                           
Any matters shown on Exhibit
A-1; 

                         

                        (m)                        
Any other liens, charges, encumbrances, defects or irregularities which
do not, individually or in the aggregate, materially interfere with the use or
ownership of the Assets subject thereto or affected thereby (as currently used
or owned), which would be accepted by a reasonably prudent purchaser engaged in
the business of owning and operating oil and gas properties, and which do not
reduce Seller’s Net Revenue Interest below that shown in Exhibit
A-1, or increase Seller’s working interest above that shown in Exhibit
A-1 without a corresponding increase in Net Revenue
Interest;

                         

                        (n)                         
Matters that would otherwise be considered Title Defects but that do not
meet the Individual Title Threshold or Individual Environmental Threshold, as
applicable, set forth in Section 3.4(j); and

                         

                        (o)                         
Liens granted under applicable joint operating agreements. 

                         

                        Section 3.4
Notice of Title
Defect Adjustments.

                         

                        (a)                         
To assert a claim of a Title Defect, Purchaser must deliver claim notices
to Seller (each a “Title Defect Notice”) on or before fifteen (15) days prior to
the Closing (the “Title Claim Date”).  Each Title Defect Notice shall be in
writing and shall include (i) a description of the alleged Title Defect(s), (ii)
the Properties affected by the Title Defect (each a “Title Defect
Property”), (iii) the Allocated Value of each Title Defect Property, (iv)
supporting documents reasonably necessary for Seller (as well as any title
attorney, environmental attorney or examiner hired by Seller) to verify the
existence of the alleged Title Defect(s), and (v) the amount by which Purchaser
reasonably believes the Allocated Value of each Title Defect Property is reduced
by the alleged Title Defect(s) and the computations and information upon which
Purchaser’s belief is based. Notwithstanding any other provision of this
Agreement to the contrary, Purchaser shall be deemed to have waived its right to
assert Title Defects if Seller has not been given notice on or before the Title
Claim Date; provided,
however, subject to the limitation set forth in Section 3.1(c), such waiver
shall have no effect or limitation on the special warranty of title referenced
in Section 3.1(b).  For purposes of this Agreement, the term “Allocated
Value” shall mean the portion of the Purchase Price that has been allocated to a
Property in Exhibit
A-1.

                         

                        
                          
                            
                            

                          

                          
                            20

                            
                              

                            

                          

                          
                            
                            

                          

                        

                        (b)                         
Seller shall have the right, but not the obligation, to deliver to
Purchaser on or before the Title Claim Date with respect to each Title Benefit a
notice (a “Title Benefit Notice”) including (i) a description of the Title
Benefit, (ii) the Properties affected, (iii) the Allocated Value of the Properties subject to such Title Benefit and (iv) the amount
by which the Seller reasonably believes the Allocated Value of those Properties is increased by the Title Benefit, and the
computations and information upon which Seller’s belief is based. Seller shall
be deemed to have waived all Title Benefits of which it has not given notice on
or before the Title Claim Date.

                         

                        (c)                         
Seller shall have the right, but not the obligation, to attempt, at its
sole cost and expense, to cure or remove at any time prior to Closing (the “Cure
Period”), unless the Parties otherwise agree, any Title Defects of which it has
been advised by Purchaser.

                         

                        (d)                         
Remedies for Title Defects.

                        In the event that any Title Defect is not waived by
Purchaser or cured on or before Closing, Seller shall, at its sole election,
elect to:

                        
                          (i)        
subject to the Individual Title Threshold or the Individual Environmental
Threshold, as applicable, and the Aggregate Title Deductible, reduce the
Purchase Price by an amount agreed upon ("Title Defect Amount") pursuant to
Sections 3.4(g), 3.4(i) or 3.4(l) by Purchaser and Seller as being the value of
such Title Defect, (taking into consideration the Allocated Value of the
Property subject to such Title Defect, the portion of the Property subject to
such Title Defect and the legal effect of such Title Defect on the Property
affected thereby); provided, however, that the
methodology, terms and conditions of Sections 3.4(g) and 3.4(l) shall control
any such determination;

                          
                            (ii)       
[reserved];

                            
                              (iii)       retain the
entirety of the Property that is subject to such Title Defect, together with all
associated Assets, in which event the Purchase Price shall be reduced by an
amount equal to the Allocated Value of such Property; provided, however,
that this remedy shall not be applicable if such Title Defect results from an
increase in Seller’s working interest or decrease in Seller’s Net Revenue
Interest in such Property; or

                              
                                (iv)       if
applicable, to the extent provided under Section 8.1(e) of this Agreement,
terminate this Agreement.

                                
                                  (e)                         
Subject to the Individual Benefit Threshold and the Aggregate
Benefit Deductible, with respect to each Property affected by Title Benefits reported under Section
3.4(b), the Purchase Price shall be increased by an amount (the “Title Benefit
Amount”) equal to the increase in the Allocated Value for such Property caused by such Title Benefits, as determined
pursuant to Section 3.4(h).  

                                   

                                  
                                    
                                      
                                      

                                    

                                    
                                      21

                                      
                                        

                                      

                                    

                                    
                                      
                                      

                                    

                                  

                                  (f)                          
Section 3.4(d) shall be the exclusive right and remedy of Purchaser with
respect to Title Defects asserted by Purchaser pursuant to Section
3.4.

                                   

                                  (g)                         
The Title Defect Amount resulting from a Title Defect shall be the amount
by which the Allocated Value of the Title Defect Property affected by such Title
Defect is reduced as a result of the existence of such Title Defect and shall be
determined in accordance with the following methodology, terms and
conditions:

                                   

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

                                  
                                    (ii)        if
the Title Defect is a lien, encumbrance or other charge which is undisputed and
liquidated in amount, then the Title Defect Amount shall be the  undisputed
and liquidated amount;

                                    
                                      (iii)       if the
Title Defect represents a discrepancy between (A) the Net Revenue Interest for
any Title Defect Property and (B) the Net Revenue Interest stated on Exhibit A-1,
then the Title Defect Amount shall be the product of the Allocated Value of such
Title Defect Property multiplied by a fraction, the numerator of which is the
Net Revenue Interest decrease and the denominator of which is the Net Revenue
Interest stated on Exhibit
A-1;

                                      
                                        (iv)       if the
Title Defect represents an obligation, encumbrance, burden or charge upon or
other defect in title to the Title Defect Property of a type not described in
subsections (i), (ii) or (iii) above, the Title Defect Amount shall be
determined by taking into account the Allocated Value of the Title Defect
Property, the portion of the Title Defect Property 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 Title Defect Property, the values placed upon the
Title Defect by Purchaser and Seller and such other factors as are necessary to
make a proper evaluation; and

                                        
                                          (v)       
notwithstanding anything to the contrary in this Article 3, the aggregate Title
Defect Amounts attributable to the effects of all Title Defects (other than
those resulting exclusively from Environmental Liabilities) upon any Title
Defect Property shall not exceed the Allocated Value of the Title Defect
Property.

                                          
                                            (h)                         
The Title Benefit Amount for any Title Benefit shall be the product of
the Allocated Value of the affected Property multiplied by a fraction, the numerator of which is
the Net Revenue Interest increase and the denominator of which is the Net
Revenue Interest stated on Exhibit
A-1.

                                             

                                            (i)                           
Seller and Purchaser shall attempt to agree on all Title Defect Amounts
and Title Benefit Amounts prior to Closing.  If Seller and Purchaser are
unable to agree by Closing, the Title Defect Amounts and Title Benefit Amounts
in dispute shall be exclusively and finally resolved by arbitration pursuant to
this Section 3.4(i). There shall be a single arbitrator, who shall be a title
attorney with at least ten (10) years experience in oil and gas titles involving
properties in the regional area in which the Properties are located, as selected
by mutual agreement of Purchaser and Seller within fifteen (15) Business Days
after the end of the Cure Period, and absent such agreement, by the Dallas
office of the American Arbitration Association (the “Title Arbitrator”). The
arbitration proceeding shall be held in Tarrant County, Texas and shall be
conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, to the extent such rules do not conflict with the terms
of this Section. The Title Arbitrator’s determination shall be made within
fifteen (15) Business Days after submission of the matters in dispute and shall
be final and binding upon both Parties, without right of appeal. In making his
determination, the Title Arbitrator shall be bound by the rules set forth in
Sections 3.4(g) and 3.4(h) and may consider such other matters as in the opinion
of the Title Arbitrator are necessary or helpful to make a proper determination.
Additionally, the Title Arbitrator may consult with and engage disinterested
third parties to advise the arbitrator, including, without limitation, petroleum
engineers. The Title Arbitrator shall act as an expert for the limited purpose
of determining the specific disputed Title Defect Amounts and Title Benefit
Amounts submitted by either Party and shall not be empowered to award damages,
interest or penalties to either Party with respect to any matter. Seller and
Purchaser shall each bear its own legal fees and other costs of presenting its
case and indemnify and hold harmless the other Party with respect thereto. Each
Party shall bear one-half of the costs and expenses of the Title Arbitrator,
including any costs incurred by the Title Arbitrator that are attributable to
such third party consultation.  Within ten (10) days after the Title
Arbitrator delivers written notice to Purchaser and Seller of his award with
respect to a Title Defect Amount or a Title Benefit Amount, (i) Purchaser shall
pay to Seller the amount, if any, so awarded by the Title Arbitrator to Seller
and (ii) Seller shall pay to Purchaser the amount, if any, so awarded by the
Title Arbitrator to Purchaser.

                                             

                                            
                                              
                                                
                                                

                                              

                                              
                                                22

                                                
                                                  

                                                

                                              

                                              
                                                
                                                

                                              

                                            

                                            (j)                           
Notwithstanding anything to the contrary in this Agreement, (i) in no
event shall there be any adjustments to the Purchase Price or other remedies
provided by Seller for (x) individual Title Defects (excluding Title Defects
related to Environmental Liabilities) that do not exceed two and one-half
percent (2.5%) of the Allocated Value of the Property affected by the Title
Defect as listed in Exhibit
A-1 (“Individual Title Threshold”); and (y) individual Environmental Liabilities that constitute Title
Defects that do not exceed two and one-half percent (2.5%) of the Allocated
Value of the Property affected by the Title Defect (“Individual Environmental Threshold”); and (ii) in no event
shall there be any adjustments to the Purchase Price or other remedies provided
by Seller for Title Defects (including without limitation those resulting from Environmental
Liabilities) unless the amount of all such Title Defects (assuming that
such Title Defect exceeds the Individual Title Threshold or the Individual
Environmental Threshold, as applicable), in the aggregate (excluding any Title
Defects cured by Seller) exceeds seven and one-half percent (7.5%) of the Allocated Value of
the Properties (the “Aggregate Title Deductible”), after which point Purchaser
shall be entitled to adjustments to the Purchase Price or other remedies only
with respect to Title Defects in excess of such Aggregate Title
Deductible.

                                             

                                            (k)                         
Notwithstanding anything to the contrary in this Agreement, (i) in no
event shall there be any increase in the Purchase Price for Individual Title
Benefits that do not exceed (A) two and one-half percent (2.5%) of the Allocated
Value of the Properties listed in Exhibit
A-1 (“Individual Benefit Threshold”); and (ii) in no event shall there be
any increase in the Purchase Price for any Title Benefits unless the amount of
all Title Benefits, in the aggregate, exceeds a deductible in an amount equal to
seven and one-half percent (7.5%)  of the Allocated
Value of the Properties (“Aggregate Benefit Deductible”), after which point
Seller shall be entitled to an increase to the Purchase Price in excess of such
Aggregate Benefit Deductible.

                                             

                                            (l)                           
Subject to the Individual Title Threshold and the Individual
Environmental Threshold, as applicable, if the amount of all Title Defects is in
excess of the Aggregate Title Deductible, then the Purchase Price shall be
adjusted downward on account of additional Environmental Liabilities that
constitute Title Defects, by a mutually agreed amount equal to the estimated
costs of cleanup or remediation of such condition, or Seller, at its sole
option, may elect to  cure such Environmental Liabilities before Closing;
provided,
however, that if such cure shall take place after Closing, Seller shall first
obtain Purchaser’s approval of any plan to cure such Environmental Liabilities,
which approval shall not be unreasonably withheld or conditioned.  If
Seller does not elect to so cure, and if the Parties have not agreed upon a
Purchase Price adjustment amount, then the amount of such adjustment shall be
determined in accordance with the provisions of Section 3.4(i) above, except
that the Title Arbitrator will be an environmental law attorney or other
professional with at least ten (10) years experience in oilfield environmental
and cleanup matters.  

                                             

                                            
                                              
                                                
                                                

                                              

                                              
                                                23

                                                
                                                  

                                                

                                              

                                              
                                                
                                                

                                              

                                            

                                            Section 3.5
Casualty or
Condemnation Loss.

                                             

                                            (a)                         
Purchaser shall assume all risk of loss with respect to, and any change
in the condition of the Assets from the Effective Time until Closing for
production of Hydrocarbons through normal depletion (including, but not limited
to, the watering out of any Well, collapsed casing or sand infiltration of any
Well) and the depreciation of personal property due to ordinary wear and
tear.

                                             

                                            (b)                         
Subject to the provisions of Sections 8.1(f) and 8.2(f) hereof, if, after
the date of this Agreement but prior to the Closing Date, any portion of the
Assets is destroyed by fire or other casualty or is taken in condemnation or
under right of eminent domain, and the loss as a result of such individual
casualty or taking exceeds ten percent (10%) of the Purchase Price, Purchaser
shall nevertheless be required to close, and Seller shall elect by written
notice to Purchaser prior to Closing either (i) to cause the Assets affected by
any casualty or taking to be repaired or restored to at least its condition
prior to such casualty, at Seller’s sole cost, as promptly as reasonably
practicable (which work may extend after the Closing Date), or (ii) to treat
such casualty or taking as a Title Defect with respect to the affected Property
or Properties under Section 3.4. In each case, Seller shall retain all rights to
insurance and other claims against third parties with respect to the casualty or
taking, except to the extent the Parties otherwise agree in
writing.

                                             

                                            (c)                         
If, after the date of this Agreement but prior to the Closing Date, any
portion of the Assets is destroyed by fire or other casualty or is taken in
condemnation or under right of eminent domain, and the loss as a result of such
individual casualty or taking is ten percent (10%) or less of the Purchase
Price, Purchaser shall nevertheless be required to close and Seller shall, at
Closing, pay to Purchaser all sums paid to Seller by third parties by reason of
such casualty or taking and shall assign, transfer and set over to Purchaser or
subrogate Purchaser to all of Seller’s right, title and interest (if any) in
insurance claims, unpaid awards, and other rights against third parties (other
than Affiliates of Seller and its and their directors, officers, employees and
agents) arising out of the casualty or taking.

                                             

                                            Section 3.6
Limitations on
Applicability.

                                            
                                              The right of Purchaser to assert a Title Defect
under this Agreement shall terminate as of the Title Claim Date; provided there shall
be no termination of Purchaser’s or Seller’s rights under Section 3.4 with
respect to any bona fide Title Defect properly reported in a Title Defect Notice
or bona fide Title Benefit Claim properly reported in a Title Benefit Notice on
or before the Title Claim Date. Thereafter, Purchaser’s sole and exclusive
rights and remedies with regard to title to the Assets shall be as set forth in,
and arise under, the Conveyance transferring the Assets from Seller to
Purchaser.

                                              
                                                
                                                  
                                                    
                                                    

                                                  

                                                  
                                                    24

                                                    
                                                      

                                                    

                                                  

                                                  
                                                    
                                                    

                                                  

                                                

                                                Section 3.7
Government Approvals Respecting Assets.

                                                
                                                  (a)                         
Purchaser, within thirty
(30) days after Closing, shall file for approval with the applicable government
agencies all assignment documents and other state and federal transfer documents
required to effectuate the transfer of the Assets.  Purchaser and Seller further agree promptly after Closing to
take all other actions reasonably required of them by federal or state agencies having jurisdiction to
obtain all requisite regulatory approvals with respect to this transaction, and
to use reasonable commercial efforts to obtain the approval by such federal or
state agencies, as applicable, of Seller’s assignment documents requiring
federal or state approval in order for Purchaser to be recognized by the federal
or state agencies as the owner of the Assets.  Purchaser shall timely
provide Seller with the resignation and designation of operator instruments,
approved copies of the assignment documents and other state and federal transfer
documents.

                                                   

                                                  (b)                         
Until all of the
governmental approvals provided for in Section 3.7(a) have been obtained, the
following shall occur with respect to the affected portion of the
Assets:

                                                  (i)        
Seller shall continue to hold record title to the affected Properties and other
affected portion of the Assets as nominee for
Purchaser;

                                                  
                                                    (ii)       
Purchaser shall be responsible for all assumed obligations with respect to the
affected Leases and other affected portion of the Assets as if Purchaser was the
record owner of such Properties and other portion of the Assets as of the
Effective Date; and 

                                                    
                                                      (iii)      
Seller shall act as Purchaser’s nominee but shall be authorized to act only upon
and in accordance with Purchaser’s written instructions, and Seller shall have
no authority, responsibility or discretion to perform any tasks or functions
with respect to the affected Properties and other affected portion of the Assets
other than those which arise as a result of an emergency where the failure to
act may result in injury or damage to Persons or Property or are purely
administrative or ministerial in nature, unless otherwise specifically requested
and authorized by Purchaser.

                                                      
                                                        (c)                         
Denial of Required
Governmental Approvals.  If the federal or state agency fails to
grant approval within twenty-four (24) months after the
Closing, Seller may continue to hold record title to the affected Properties and other affected Assets as Purchaser’s nominee
or, at Seller’s sole option, it may terminate this Agreement and all its
obligations hereunder as to the affected Properties and
other affected portion of the Assets by giving sixty (60) days written notice to
Purchaser.  Upon such termination:  (i) this Agreement shall be null
and void and terminated only as to the affected Properties and other affected portion of the Assets, (ii)
Purchaser shall immediately reassign and return to Seller the assignment
documents and any and all other documents, materials and data previously
delivered to Purchaser with respect to the affected  Properties and other affected portion of the Assets, and
(iii) Seller shall pay to Purchaser the Allocated Value of the affected
Property, without interest, less the proceeds of Hydrocarbon production received
by Purchaser (which shall be retained by Purchaser as its sole property) net of
all expenses, overhead, royalties, and costs of operations (including plugging
and abandonment expenses but excluding mortgage interest and any burdens, liens,
or encumbrances created by Purchaser which must be released prior to this
payment) attributable to the affected Properties or
other affected portion of the Assets from the Effective Date forward.  In
no event, however, shall Seller ever be required to reimburse Purchaser for any
expenditures associated with workovers, recompletions, sidetracks, or the
drilling, completion or plugging and abandonment of wells drilled or work
performed by Seller with respect to such affected Properties.

                                                         

                                                        
                                                          
                                                            
                                                            

                                                          

                                                          
                                                            25

                                                            
                                                              

                                                            

                                                          

                                                          
                                                            
                                                            

                                                          

                                                        

                                                                                            ARTICLE
4
                              ENVIRONMENTAL
MATTERS

                                                        Section 4.1
Assessment.

                                                        Upon
notice to Seller, Purchaser shall, subject to the provisions of Section
11.4(b)(vi), have the right to conduct an environmental assessment of all or any
portion of the Properties (the “Assessment”) to be conducted by a reputable
environmental consulting or engineering firm approved in advance in writing by
Seller.  The Assessment shall be conducted at the sole cost and expense of
Purchaser, and shall be subject to the indemnity provisions of Section 4.3 and
Section 11.4(b)(vi).  Prior to conducting any sampling, boring, drilling or
other invasive investigative activity with respect to the Properties (“Invasive
Activity”), Purchaser shall furnish for Seller’s review a proposed scope of such
Invasive Activity, including a description of the activities to be conducted and
a description of the approximate locations of such activities.  If any of
the proposed activities may unreasonably interfere with normal operation of the
Properties, Seller may request an appropriate modification of the proposed
Invasive Activity.  Seller shall have the right to be present during any
Assessment of the Properties and shall have the right, at its option and
expense, to split samples with Purchaser.  After completing any Assessment
of the Properties, Purchaser shall, at its sole cost and expense, restore the
Properties in all material respects to their condition prior to the commencement
of such Assessment (unless Seller requests otherwise) and shall promptly and
properly dispose of all drill cuttings, corings, or other investigative-derived
wastes generated in the course of the Assessment.  Purchaser shall
maintain, and shall cause its officers, employees, representatives, consultants,
agents and advisors to maintain, all information obtained by Purchaser pursuant
to any Assessment or other due diligence activity as strictly confidential in
perpetuity, unless disclosure of any facts as a result of such Assessment is
required under any Environmental Laws.  Purchaser shall provide Seller with
a copy of the final product of all environmental reports prepared by, or on
behalf of, Purchaser with respect to any Assessment or Invasive Activity
conducted on the Properties.  In the event that any necessary disclosures
under applicable Environmental Laws are required with respect to matters
discovered by any Assessment conducted by, for or on behalf of Purchaser,
Purchaser agrees that Seller shall be the responsible Party for disclosing such
matters to the appropriate Governmental Bodies.

                                                        
                                                          Section 4.2
NORM, Wastes and
Other Substances.

                                                          Purchaser
acknowledges that the Assets have been used for exploration, development, and
production Hydrocarbons and that there may be petroleum, produced water, wastes,
or other substances or materials located in, on or under the Properties or
associated with the Assets.  Equipment and sites included in the Assets may
contain asbestos, hazardous substances, or NORM.  NORM may affix or attach
itself to the inside of wells, materials, and equipment as scale, or in other
forms.  The wells, materials, and equipment located on the Properties or
included in the Assets may contain NORM and other wastes or hazardous
substances.  NORM containing material and/or other wastes or hazardous
substances may have come in contact with various environmental media, including
without limitation, water, soils or sediment.  Special procedures may be
required for the assessment, remediation, removal, transportation, or disposal
of environmental media, wastes, asbestos, hazardous substances, and NORM from
the Assets.

                                                          
                                                            26

                                                            
                                                              

                                                            

                                                          

                                                          Section 4.3
Inspection
Indemnity.

                                                          PURCHASER
HEREBY AGREES TO DEFEND, INDEMNIFY, RELEASE, PROTECT, SAVE AND HOLD HARMLESS THE
SELLER INDEMNITEES FROM AND AGAINST ANY AND ALL LOSSES AND CLAIMS RESULTING FROM
ANY DUE DILIGENCE ACTIVITY CONDUCTED BY PURCHASER OR ITS AGENTS, WHETHER BEFORE
OR AFTER THE EXECUTION OF THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, ANY
LOSSES RESULTING, IN WHOLE OR IN PART, FROM THE NEGLIGENCE OR STRICT LIABILITY
OF SELLER.

                                                          
                                                                                               ARTICLE
5
                           REPRESENTATIONS AND
WARRANTIES OF SELLER

                                                            Section 5.1
Generally.

                                                            (a)                         
Any representation or warranty qualified “to the knowledge of Seller” or
“to Seller’s knowledge” or with any similar knowledge qualification is limited
to matters within the actual knowledge of the officers of Seller.  “Actual
knowledge” for purposes of this Agreement means information personally known by
 the officers of the Party referenced. 

                                                             

                                                            (b)                         
Inclusion of a matter on a Schedule to this Agreement in relation to a
representation or warranty which addresses matters having a Material Adverse
Effect shall not be deemed an indication that such matter does, or may, have a
Material Adverse Effect.  Likewise, the inclusion of a matter on a Schedule
in this Agreement in relation to a representation or warranty shall not be
deemed an indication that such matter necessarily would, or may, breach such
representation or warranty absent its inclusion on such Schedule. Matters may be
disclosed on a Schedule to this Agreement for purposes of information
only.

                                                             

                                                            (c)                         
Subject to the foregoing provisions of this Section 5.1, the disclaimers
and waivers contained in Sections 11.8 and 11.9 and the other terms and
conditions of this Agreement, Seller represents and warrants to Purchaser the
matters set out in Sections 5.2 through 5.20.

                                                             

                                                            Section 5.2
Existence and
Qualification.

                                                            Seller is each a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas and is duly
qualified to do business as a foreign corporation  where the Assets are
located, except where the failure to so qualify would not have a Material
Adverse Effect.  

                                                            
                                                              Section 5.3
Power.

                                                              Seller has the power to enter into and perform this
Agreement and consummate the transactions contemplated by this
Agreement.

                                                              
                                                                Section 5.4
Authorization
and Enforceability.

                                                                The execution, delivery and performance of this
Agreement, and the performance of the transactions contemplated hereby, have
been duly and validly authorized by all necessary partnership actions on the
part of Seller. This Agreement has been duly executed and delivered by Seller
(and all documents required hereunder to be executed and delivered by Seller at
Closing will be duly executed and delivered by Seller) and this Agreement
constitutes, and at the Closing such documents will constitute, the valid and
binding obligations of Seller, enforceable against Seller in accordance with
their terms except as such enforceability may be limited by applicable
bankruptcy or other similar laws affecting the rights and remedies of creditors
generally as well as to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at
law).

                                                                
                                                                  
                                                                    
                                                                    

                                                                  

                                                                  
                                                                    27

                                                                    
                                                                      

                                                                    

                                                                  

                                                                  
                                                                    
                                                                    

                                                                  

                                                                

                                                                 

                                                                Section 5.5
No
Conflicts.

                                                                Subject to compliance with the Preference Rights and
Transfer Requirements set forth in Schedule 5.13,
the execution, delivery and performance of this Agreement by Seller, and the
transactions contemplated by this Agreement will not (i) violate any provision
of the articles of incorporation, bylaws, or similar governing documents of
Seller, (ii) result in default (with due notice or lapse of time or both) or the
creation of any lien or encumbrance or give rise to any right of termination,
cancellation or acceleration under any of the terms, conditions or provisions of
any note, Bond, mortgage, indenture, license or agreement to which Seller is a
Party or which affect the Assets, (iii) violate any judgment, order, ruling, or
decree applicable to Seller as a party in interest, (iv) violate any Laws
applicable to Seller or any of the Assets, except for (a) rights to consent by,
required notices to, filings with, approval or authorizations of, or other
actions by any Governmental Body where the same are not required prior to the
assignment of the related Asset or they are customarily obtained subsequent to
the sale or conveyance thereof, and (b) any matters described in clauses (ii),
(iii) or (iv) above which would not  have a  Material Adverse Effect.


                                                                
                                                                  Section 5.6
Liability for
Brokers’ Fees.

                                                                  Purchaser shall not directly or indirectly have any
responsibility, liability or expense, as a result of undertakings or agreements
of Seller, for brokerage fees, finder’s fees, agent’s commissions or other
similar forms of compensation in connection with this Agreement or any agreement
or transaction contemplated hereby.

                                                                  
                                                                    Section 5.7
Litigation.

                                                                    Except as set forth in Schedule
5.7(a), (a) no investigation, proceeding, action, suit, or other
legal proceeding of any kind or nature before any Governmental Body or
arbitrator (including any take-or-pay claims) is pending or, to Seller’s
knowledge, threatened to which Seller is a party and which relates to the
Assets; (b) no notice in writing from any Governmental Body which could have a
Material Adverse Effect has been received by Seller claiming any violation of or
noncompliance with any Law with respect to the Assets; and (c) to Seller’s
knowledge, there are no presently existing or threatened claims for personal
injury or death related to the Assets.

                                                                    
                                                                      Section 5.8
Taxes and
Assessments.

                                                                      With respect to all Taxes related to the Assets and
to the knowledge of Seller, (a) all reports, returns, statements (including
estimated reports, returns or statements), and other similar filings (the “Tax
Returns”) relating to the Assets required to be filed by Seller with respect to
such Taxes have been timely filed with the appropriate Governmental Body in all
jurisdictions in which such Tax Returns are required to be filed; and (b) such
Tax Returns are true and correct in all material respects, and (c) all Taxes
reported on such Tax Returns have been paid, except those being contested in
good faith.

                                                                      
                                                                        With respect to all Taxes related to the Assets,
except as set forth on Schedule 5.8,
(a) there are not currently in effect any extension or waiver of any statute of
limitations of any jurisdiction regarding the assessment or collection of any
such Tax; (b) there are no administrative proceedings or lawsuits pending
against the Assets or Seller by any taxing authority; and (c) there are no Tax
liens on any of the Assets except for liens for Taxes not yet
due.

                                                                        
                                                                          
                                                                            
                                                                            

                                                                          

                                                                          
                                                                            28

                                                                            
                                                                              

                                                                            

                                                                          

                                                                          
                                                                            
                                                                            

                                                                          

                                                                        

                                                                        Section 5.9
Compliance with
Laws.

                                                                        Except as disclosed on Schedule 5.9,
the Assets are, and the operation of the Assets is, in compliance with the
provisions and requirements of all Laws of all Governmental Bodies having
jurisdiction with respect to the Assets, or the ownership, operation,
development, maintenance, or use of any thereof, except where the failure to so
comply would not have a Material Adverse Effect. Notwithstanding the foregoing,
Seller makes no representation or warranty, express or implied, under this
Section relating to any Environmental Liabilities or Environmental
Law.

                                                                        
                                                                          Section 5.10             
Contracts.

                                                                          Except as disclosed on Schedule 5.10,
to the knowledge of Seller, Seller has paid its share of all costs payable by it
under the contracts and agreements described in Schedule
1.2(d), except those being contested in good faith.  To
Seller’s knowledge, Seller is in compliance with all Contracts listed on Schedule
1.2(d) except as disclosed on Schedule 5.10
and except such non-compliance as would not, individually or the aggregate, have
a Material Adverse Effect.  

                                                                          
                                                                            Section 5.11             
Payments for
Hydrocarbon Production.

                                                                            Except as set forth on Schedule 5.11,
to the knowledge of Seller, (a) all rentals, royalties, excess royalty,
overriding royalty interests, Hydrocarbon production payments, and other
payments due and/or payable by Seller to any other interest owners in the
Properties with respect to production occurring on or prior to the Effective
Time under or with respect to the Assets and the Hydrocarbons produced therefrom
or attributable thereto, have been paid, and (b) Seller 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.

                                                                            
                                                                              Section 5.12             
Governmental
Authorizations.

                                                                              To Seller’s knowledge, except as disclosed on Schedule 5.12,
Seller has obtained and is maintaining all material federal, state and local
governmental licenses, permits, franchises, orders, exemptions, variances,
waivers, authorizations, certificates, consents, rights, privileges and
applications therefor (the “Governmental Authorizations”) that are presently
necessary or required for the ownership and operation of the Seller Operated
Assets as currently owned and operated.  Except as disclosed in Schedule
5.7(a), Schedule
5.7(b) or Schedule 5.12
and except as would not, individually or in the aggregate, have a Material
Adverse Effect, (i) Seller has operated the Seller Operated Assets in accordance
with the conditions and provisions of such Governmental Authorizations, and (ii)
no written notices of violation have been received by Seller, and no proceedings
are pending or, to Seller’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 remedial
action by Seller.

                                                                              
                                                                                
                                                                                  
                                                                                  

                                                                                

                                                                                
                                                                                  29

                                                                                  
                                                                                    

                                                                                  

                                                                                

                                                                                
                                                                                  
                                                                                  

                                                                                

                                                                              

                                                                              Section 5.13             
Preference
Rights and Transfer Requirements.

                                                                              To Sellers knowledge, except as disclosed on Schedule 5.13,
none of the Assets, or any portion thereof, is subject to any Preference Right
or Transfer Requirement which may be applicable to the transactions contemplated
by this Agreement. 

                                                                              
                                                                                Section 5.14             
(Reserved).

                                                                                
                                                                                  Section 5.15             
Outstanding
Capital Commitments.

                                                                                  As of the date hereof, there are no outstanding AFEs
or other commitments to make capital expenditures which are binding on the
Assets and which Seller reasonably anticipates will individually require
expenditures by the owner of the Assets after the Closing Date in excess of One
Hundred Fifty Thousand dollars ($150,000.00) other than those shown on Schedule
5.15.

                                                                                  
                                                                                    Section 5.16             
Imbalances.

                                                                                    To Seller’s knowledge, except as disclosed on Schedule 5.16,
Seller does not have any Imbalances arising with respect to the Assets, and
(i) no Person is entitled to receive any
material portion of the
Seller’s Hydrocarbons produced from the Assets or to receive material
cash or other payments to “balance” any
disproportionate allocation of Hydrocarbons produced from the Assets under any
operating agreement, gas balancing or storage agreement, gas processing or
dehydration agreement, gas transportation agreement, gas purchase agreement, or
other agreements, whether similar or dissimilar, (ii) Seller is not obligated to
deliver any material quantities of gas
or to pay any material penalties
or other amounts, in connection with the violation of any of the terms of any
gas  contract or other agreement with shippers with respect to the Assets,
and (iii) Seller is not obligated to pay any material penalties or other material payments under any gas transportation or other
agreement as a result of the delivery of quantities of gas from the Wells in
excess of the contract requirements.

                                                                                    
                                                                                      Section 5.17             
Condemnation.

                                                                                      To Seller’s knowledge, there is no actual or
threatened taking (whether permanent, temporary, whole or partial) of any part
of the Properties by reason of condemnation or the threat of
condemnation.

                                                                                      
                                                                                        Section 5.18             
Bankruptcy.

                                                                                        To Seller’s knowledge, there are no bankruptcy,
reorganization, or similar arrangement proceedings pending, being contemplated
by or threatened against Seller or any Affiliate of
Seller.

                                                                                        
                                                                                          Section 5.19             
PUHCA/NGA.

                                                                                          Seller is not a “holding company,” or a “subsidiary
company” of a “holding company,” or an “affiliate” of a “holding company,” or an
“affiliate” of a “subsidiary” of a “holding company,” or a “public-utility
company” within the meaning of the Public Utility Holding Company Act of 1935,
as amended. No consent is required in connection with the transaction
contemplated hereby under the Natural Gas Policy Act of 1978, as amended. Seller
is not an interstate pipeline company within the meaning of the Natural Gas Act
of 1938.

                                                                                          
                                                                                            
                                                                                              
                                                                                              

                                                                                            

                                                                                            
                                                                                              30

                                                                                              
                                                                                                

                                                                                              

                                                                                            

                                                                                            
                                                                                              
                                                                                              

                                                                                            

                                                                                          

                                                                                          Section 5.20             
Investment
Company.

                                                                                          Seller is not an investment company or a company
controlled by an investment company within the meaning of the Investment Company
Act of 1940, as amended.

                                                                                          
                                                                                                                                 ARTICLE
6
                           REPRESENTATIONS AND WARRANTIES OF
PURCHASER

                                                                                            Purchaser represents and warrants to Seller the
following:

                                                                                            
                                                                                              Section 6.1
Existence and
Qualification.

                                                                                              Purchaser is a limited liability company duly
formed, validly existing and in good standing under the laws of the State of
Delaware; and Purchaser is duly qualified to do business as a foreign
corporation in every jurisdiction in which it is required to qualify in order to
conduct its business except where the failure to so qualify would not have a
material adverse effect on Purchaser or its properties; and Purchaser is, or
will be at the Closing, duly qualified to do business as a foreign corporation
in the respective jurisdictions where the Assets are
located.

                                                                                              
                                                                                                Section 6.2
Power.

                                                                                                Purchaser has the corporate power to enter into and
perform this Agreement and consummate the transactions contemplated by this
Agreement.

                                                                                                
                                                                                                  Section 6.3
Authorization
and Enforceability.

                                                                                                  The execution, delivery and performance of this
Agreement, and the performance of the transaction contemplated hereby, have been
duly and validly authorized by all necessary corporate actions on the part of
Purchaser. This Agreement has been duly executed and delivered by Purchaser (and
all documents required hereunder to be executed and delivered by Purchaser at
Closing will be duly executed and delivered by Purchaser) and this Agreement
constitutes, and at the Closing such documents will constitute, the valid and
binding obligations of Purchaser, enforceable in accordance with their terms
except as such enforceability may be limited by applicable bankruptcy or other
similar laws affecting the rights and remedies of creditors generally as well as
to general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).

                                                                                                  
                                                                                                    Section 6.4
No
Conflicts.

                                                                                                    The execution, delivery and performance of this
Agreement by Purchaser, and the  transactions contemplated by this
Agreement will not (i) violate any provision of the [certificate of 
incorporation or bylaws] of Purchaser, (ii) result in a default (with due notice
or lapse of time or both) or the creation of any lien or encumbrance or give
rise to any right of termination, cancellation or acceleration under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, license
or agreement to which Purchaser is a party, (iii) violate any judgment, order,
ruling, or regulation applicable to Purchaser as a party in interest, or (iv)
violate any Law applicable to Purchaser or any of its assets, or (v) require any
filing with, notification of or consent, approval or authorization of any
Governmental Body or authority, except any matters described in clauses (ii),
(iii), (iv) or (v) above which would not have a material adverse effect on
Purchaser or the transactions contemplated hereby.

                                                                                                    
                                                                                                      
                                                                                                        
                                                                                                        

                                                                                                      

                                                                                                      
                                                                                                        31

                                                                                                        
                                                                                                          

                                                                                                        

                                                                                                      

                                                                                                      
                                                                                                        
                                                                                                        

                                                                                                      

                                                                                                    

                                                                                                    Section 6.5
Liability for
Brokers’ Fees.

                                                                                                    Seller shall not directly or indirectly have any
responsibility, liability or expense, as a result of undertakings or agreements
of Purchaser, for brokerage fees, finder’s fees, agent’s commissions or other
similar forms of compensation in connection with this Agreement or any agreement
or transaction contemplated hereby.

                                                                                                    
                                                                                                      Section 6.6
Litigation.

                                                                                                      There are no actions, suits or proceedings pending,
or to the knowledge of Purchaser’s officers and directors, threatened in writing
before any Governmental Body against Purchaser or any Affiliate of Purchaser
which are reasonably likely to impair materially Purchaser’s ability to perform
its obligations under this Agreement.

                                                                                                      
                                                                                                        Section 6.7
Financing.

                                                                                                        Purchaser has sufficient cash, available lines of
credit or other sources of immediately available funds (in United States
dollars) to enable it to pay the Closing Payment to Seller at the
Closing.

                                                                                                        
                                                                                                          Section 6.8
Limitation.

                                                                                                          Except for the representations and warranties
expressly made by Seller in Article 5 of this Agreement, the special warranty of
title referenced in Section 3.1(b), or confirmed in any certificate furnished or
to be furnished to Purchaser pursuant to this Agreement, Purchaser represents
and acknowledges that (i) there are no representations or warranties, express,
statutory or implied, as to the Assets or prospects thereof, and (ii) Purchaser
has not relied upon any oral or written information provided by Seller. 
Without limiting the generality of the foregoing, Purchaser represents and
acknowledges that Seller has made and will make no representation or warranty
regarding any matter or circumstance relating to Environmental Laws,
Environmental Liabilities, the release of materials into the environment or
protection of human health, safety, natural resources or the environment or any
other environmental condition of the Assets.  Purchaser further represents
and acknowledges (i) that it is knowledgeable of the oil and gas business and of
the usual and customary practices of oil and gas producers, (ii) in making the
decision to enter into this Agreement and consummate the transactions
contemplated hereby, Purchaser has relied solely on the basis of its own
independent due diligence investigation of the Assets and the terms and
conditions of this Agreement, and (iii) all the information and data furnished
to Buyer by Seller (its officers, employers, representatives, consultants,
agents or any third party on Seller’s behalf) is furnished only as an
accommodation to Buyer without any representation or warranty. 


                                                                                                          
                                                                                                            Section 6.9
SEC
Disclosure.

                                                                                                            Purchaser is acquiring the Assets for its own
account for use in its trade or business, and not with a view toward or for sale
associated with any distribution thereof, nor with any present intention of
making a distribution thereof within the meaning of the Securities Act of 1933,
as amended and applicable state securities laws.

                                                                                                            
                                                                                                              
                                                                                                                
                                                                                                                

                                                                                                              

                                                                                                              
                                                                                                                32

                                                                                                                
                                                                                                                  

                                                                                                                

                                                                                                              

                                                                                                              
                                                                                                                
                                                                                                                

                                                                                                              

                                                                                                            

                                                                                                            Section 6.10             
Bankruptcy.

                                                                                                            There are no bankruptcy, reorganization or
receivership proceedings pending against, being contemplated by, or threatened
against Purchaser.

                                                                                                            
                                                                                                              Section 6.11             
Qualification.

                                                                                                              Purchaser is now, and hereafter shall continue to
be, qualified to own and assume operatorship of federal and state oil, gas and
mineral leases in all jurisdictions where the Assets to be transferred to it are
located, and the consummation of the transactions contemplated in this Agreement
will not cause Purchaser to be disqualified as such an owner or operator. 
To the extent required by the applicable state and federal Governmental Bodies,
Purchaser currently has, and will continue to maintain, lease bonds, area-wide
bonds or any other surety bonds as may be required by, and in accordance with,
such state or federal regulations governing the ownership and operation of such
leases.  For purposes of this Agreement, the term bond, lease bond,
area-wide bonds or surety bonds mean “Bonds”, respectively.  Purchaser
represents and acknowledges that it is not relying on the effectiveness of
Seller’s Bonds in purchasing the Assets; and in the event any of Seller’s Bonds
are not released as a result of Purchaser’s failure to timely secure any such
Bond in connection with the operation of the Assets, Purchaser shall indemnify
Seller for any damages related to such failure pursuant to Section 11.4 of this
Agreement.

                                                                                                              
                                                                                                                                                   ARTICLE
7
                               COVENANTS OF THE PARTIES

                                                                                                                Section 7.1
Access.

                                                                                                                
                                                                                                                  (a)        Between the date of execution
of this Agreement and continuing until seven (7) days prior to the Closing Date,
Seller will give Purchaser and its representatives access to the Assets and
access to the Records in Seller’s possession, for the purpose of conducting an
investigation of the Assets, but only to the extent that Seller may do so
without violating any confidentiality or other obligations to any third party
and to the extent that Seller has authority to grant such access without
breaching any restriction binding on Seller. Such access by Purchaser shall be
limited to Seller’s normal business hours, and any weekends and after hours
requested by Purchaser that can be reasonably accommodated by Seller, and
Purchaser’s investigation shall be conducted in a manner that minimizes
interference with the operation of the Assets. All information obtained by
Purchaser and its representatives under this Section shall be subject to the
terms of Section 11.4(b)(vi) and the terms of that certain confidentiality
agreement between Seller and Vanguard Natural Resources, LLC, dated September
25, 2009 (as to which Purchaser agrees hereby to be bound)(the "Confidentiality
Agreement").  

                                                                                                                   

                                                                                                                  (b)        Purchaser
acknowledges that the permission of the operator (if other than Seller) or
another third person may be required before Purchaser will be able to inspect
portions of the Properties and that such permission must be obtained prior to
the inspection of such portions.  Seller shall use reasonable efforts to
obtain such permission for Purchaser upon Purchaser’s request.  All
inspections pursuant to this Section 7.1 shall be at Purchaser’s sole risk,
cost, and expense, and Purchaser shall indemnify, defend, and hold Seller and
Seller’s respective officers, directors, employees, contractors, and agents
harmless from and against any and all losses, liabilities, liens, or
encumbrances for labor or materials, claims, causes of action, and costs and
expenses (including, but not limited to, attorneys’ fees) arising out of or
related to any personal injury to or death of any Person or damage to property
occurring to or on the Properties as a result of Purchaser’s exercise of its
right under this Section 7.1.  The foregoing indemnity shall continue in
full force and effect notwithstanding any termination of this Agreement. 
Purchaser agrees to comply with the rules, regulations, and instructions issued
by Seller and other operators of the Properties regarding the actions of
Purchaser while upon, entering, or leaving the
Properties.

                                                                                                                   

                                                                                                                  
                                                                                                                    
                                                                                                                      
                                                                                                                      

                                                                                                                    

                                                                                                                    
                                                                                                                      33

                                                                                                                      
                                                                                                                        

                                                                                                                      

                                                                                                                    

                                                                                                                    
                                                                                                                      
                                                                                                                      

                                                                                                                    

                                                                                                                  

                                                                                                                  Section 7.2
Government
Reviews.

                                                                                                                  Seller
and Purchaser shall in a timely manner (a) make all required filings, if any,
with and prepare applications to and conduct negotiations with, each
governmental agency as to which such filings, applications or negotiations are
necessary or appropriate in the consummation of the transactions contemplated
hereby specifically including, but not limited to, the HSR Act, (b) provide such
information as each may reasonably request to make such filings, prepare such
applications and conduct such negotiations, and (c) request early termination or
waiver of any applicable waiting period under the HSR Act. Each Party shall
cooperate with and use all commercially reasonable efforts to assist the other
with respect to such filings, applications and
negotiations.

                                                                                                                   

                                                                                                                  Section 7.3
Notification of
Breaches.

                                                                                                                  Until the Closing,

                                                                                                                   

                                                                                                                  (a)                         
Purchaser shall notify Seller promptly after Purchaser obtains actual
knowledge that any representation or warranty of Seller contained in this
Agreement is untrue in any material respect or will be untrue in any material
respect as of the Closing Date or that any covenant or agreement to be performed
or observed by Seller prior to or on the Closing Date has not been so performed
or observed in any material respect.

                                                                                                                   

                                                                                                                  (b)                         
Seller shall notify Purchaser promptly after Seller obtains actual
knowledge that any representation or warranty of Purchaser contained in this
Agreement is untrue in any material respect or will be untrue in any material
respect as of the Closing Date or that any covenant or agreement to be performed
or observed by Purchaser prior to or on the Closing Date has not been so
performed or observed in any material respect.

                                                                                                                   

                                                                                                                  (c)                         
If any of Purchaser’s or Seller’s representations or warranties is untrue
or shall become untrue in any material respect between the date of execution of
this Agreement and the Closing Date, or if any of Purchaser’s or Seller’s
covenants or agreements to be performed or observed prior to or on the Closing
Date shall not have been so performed or observed in any material respect, but
if such breach of representation, warranty, covenant or agreement shall (if
curable) be cured by the Closing (or, if the Closing does not occur, by the date
set forth in Section 10.1), then such breach shall be considered not to have
occurred for all purposes of this Agreement.

                                                                                                                   

                                                                                                                  Section 7.4
Letters-in-Lieu; Assignments;
Operatorship.

                                                                                                                   

                                                                                                                  (a)                         
Seller will execute on the Closing Date letters in lieu of division and
transfer orders relating to the Assets on forms prepared by Seller and reasonably satisfactory to Purchaser to reflect the transaction contemplated
hereby.

                                                                                                                   

                                                                                                                  
                                                                                                                    
                                                                                                                      
                                                                                                                      

                                                                                                                    

                                                                                                                    
                                                                                                                      34

                                                                                                                      
                                                                                                                        

                                                                                                                      

                                                                                                                    

                                                                                                                    
                                                                                                                      
                                                                                                                      

                                                                                                                    

                                                                                                                  

                                                                                                                  (b)                         
Seller will prepare and Seller and Purchaser will execute on the Closing
Date all assignments necessary to convey to Purchaser all Leases in the form as
prescribed by the applicable Governmental Body and otherwise acceptable to
Purchaser and Seller.

                                                                                                                   

                                                                                                                  (c)                         
Seller makes no representations or warranties to Buyer as to
transferability or assignability of operatorship of any Seller Operated
Assets.  Rights and obligations associated with operatorship of such
Properties are governed by operating and similar agreements covering the
Properties and will be decided in accordance with the terms of such agreements.
However, Seller will assist Purchaser in its efforts to succeed Seller as
operator of any Wells included in the Assets.  Purchaser shall, promptly
following Closing, file all appropriate forms and declarations or Bonds with
federal and state agencies relative to its assumption of operatorship.  For
all Seller Operated Assets, Seller shall execute and deliver to Purchaser and
Purchaser shall promptly file the appropriate forms with the applicable
regulatory agency transferring operatorship of such Assets to
Purchaser.

                                                                                                                   

                                                                                                                  Section 7.5
Public
Announcements.

                                                                                                                   

                                                                                                                  Purchaser shall not make any press release or other public announcement
regarding the existence of this Agreement, the contents hereof or the
transactions contemplated hereby without the prior written consent of the Seller
(which consent shall not be unreasonably withheld or delayed); provided,
however, the foregoing shall not restrict disclosures by Purchaser which are
required by applicable securities or other laws or regulations or the applicable
rules of any stock exchange having jurisdiction over Purchaser  or its
Affiliates.  In this connection,
Purchaser will issue a press release upon the execution of this Agreement
substantially in the form set forth in Exhibit
C.

                                                                                                                  
                                                                                                                    Section 7.6
Operation of
Business.

                                                                                                                    
                                                                                                                      Except as set forth on Schedule 7.6, until the Closing, Seller (i) will
operate its business in the ordinary course, (ii) will not, without the prior
written consent of Purchaser, which consent shall not be unreasonably withheld,
commit to any operation, or series of related operations, reasonably anticipated
by Seller to require future capital expenditures by the owner of the Assets in
excess of One Hundred Fifty Thousand dollars ($150,000.00) proportionate to
Seller’s working interest, or make any capital expenditures in excess of One
Hundred Fifty Thousand dollars ($150,000.00), proportionate to Seller’s working
interest, 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 any Assets, except
for sales and dispositions of Hydrocarbon production and Equipment made in the
ordinary course of business, consistent with past practices, and (vii) will not
commit to do any of the foregoing.  Purchaser’s approval of any action
restricted by this Section 7.6 shall be considered granted within ten (10) days
(unless a shorter time is reasonably required by the circumstances and such
shorter time is specified in Seller’s written notice) of Seller’s notice to
Purchaser requesting such consent unless Purchaser notifies Seller to the
contrary in writing during that period.  In the event of an emergency,
Seller may take such action as a prudent operator would take and shall notify
Purchaser of such action promptly thereafter.

                                                                                                                       

                                                                                                                      
                                                                                                                        
                                                                                                                          
                                                                                                                          

                                                                                                                        

                                                                                                                        
                                                                                                                          35

                                                                                                                          
                                                                                                                            

                                                                                                                          

                                                                                                                        

                                                                                                                        
                                                                                                                          
                                                                                                                          

                                                                                                                        

                                                                                                                      

                                                                                                                      Notwithstanding
anything to the contrary in this Agreement, Seller shall have no liability to
Purchaser for the incorrect payment of delay rentals, royalties, shut-in
payments or similar payments made during the period from the Effective Time to
the Closing Date or for failure to make such payments through mistake or
oversight (including Seller's negligence).

                                                                                                                       

                                                                                                                      Purchaser
acknowledges that Seller may own an undivided interest in certain of the Assets
and Purchaser agrees that the acts or omissions of the other working interest
owners who are not affiliated with Seller shall not constitute a violation of
the provisions of this Section 7.6, nor shall any action required by a vote of
working interest owners constitute such a violation so long as Seller has voted
its interest in a manner consistent with the provisions of this Section
7.6.

                                                                                                                      
                                                                                                                        Section 7.7
 

                                                                                                                                   
[Reserved]

                                                                                                                        
                                                                                                                          Section 7.8
Preference
Rights and Transfer Requirements.

                                                                                                                          
                                                                                                                            (a)                         
Purchaser’s purchase of the Assets is expressly subject to all validly
existing and applicable Preference Rights and Transfer Requirements.  Prior
to the Closing Date, Seller shall initiate all procedures which in Seller’s good
faith judgment are reasonably required to comply with or obtain the waiver of
all Preference Rights and Transfer Requirements set forth in Schedule
5.13 with respect to the transactions contemplated by this
Agreement.  Seller shall not be obligated to pay any consideration to (or
incur any cost or expense for the benefit of) the holder of any Preference Right
or Transfer Requirement in order to obtain the waiver thereof or compliance
therewith.

                                                                                                                             

                                                                                                                            (b)                         
The portion of the Purchase Price to be allocated to any Asset or portion
thereof affected by a Preference Right (a “Preference Property”) or that becomes
a Retained Asset shall be the portion of the Purchase Price allocated thereto in
Exhibit
A-1.  If a Preference Property or a Retained Asset affects only a
portion of a Property and a portion of the Purchase Price has not been allocated
specifically to such portion of a Property in Exhibit
A-1, then the portion of the Purchase Price to be allocated to such
Preference Property or Retained Asset shall be determined in a reasonable manner
taking into account the net acreage (or net acre feet, as appropriate) that the
portion of such Property affected by such Preference Property or Retained Asset
bears to the net acreage (or net acre feet, as appropriate) in the entire
Property.  Any Preference Property or Retained Asset that is a Property
shall include a pro rata share of all of Seller’s right, title and interest in,
to and under all Contracts, Surface Contracts, Equipment, Hydrocarbon production
and Records included in the Assets that are directly related or attributable to
such Preference Property or Retained Asset.  

                                                                                                                             

                                                                                                                            (c)                         
If the holder of a Preference Right who has been offered a Preference
Property pursuant to Section 7.8(a) elects prior to Closing to purchase such
Preference Property in accordance with the terms of such Preference Right, and
Seller and Purchaser receive written notice of such election prior to the
Closing, such Preference Property will be eliminated from the Assets and the
Purchase Price shall be reduced by the portion of the Purchase Price allocated
to such Preference Property pursuant to Section 7.8(b).  Except as provided
in Section 7.8(d), if the holder of a Preference Right who has been offered a
Preference Property or who has been requested to waive its Preference Right
pursuant to Section 7.8(a) does not elect to purchase such Preference Property
or waive such Preference Right with respect to the transactions contemplated by
this Agreement prior to the Closing Date and the time in which the Preference
Right may be exercised has not expired, such Preference Property shall be
conveyed to Purchaser at Closing subject to the rights, if any, of the holder of
such Preference Right.  In such event, Seller shall continue its efforts to
obtain the waiver of such Preference Rights to the extent provided in Section
7.8(a) and Purchaser shall cooperate with such efforts.  If the holder of a
Preference Right elects to purchase a Preference Property subject to its
Preference Right and Closing has already occurred with respect to such
Preference Property, Purchaser shall be obligated to comply with such Preference
Right to the extent, if any, that the same remains valid and enforceable with
respect to this transaction and Purchaser shall be entitled to the consideration
for the sale of such Preference Property from Purchaser to such Preference Right
holder.

                                                                                                                             

                                                                                                                            
                                                                                                                              
                                                                                                                                
                                                                                                                                

                                                                                                                              

                                                                                                                              
                                                                                                                                36

                                                                                                                                
                                                                                                                                  

                                                                                                                                

                                                                                                                              

                                                                                                                              
                                                                                                                                
                                                                                                                                

                                                                                                                              

                                                                                                                            

                                                                                                                            (d)                         
In the event

                                                                                                                                       
(i)        
a third party brings any suit, action or other proceeding prior to the Closing
seeking to restrain, enjoin or otherwise prohibit the consummation of the
transactions contemplated hereby in connection with a claim to enforce a
Preference Right; or

                                                                                                                             

                                                                                                                                       
(ii)        an Asset is subject to a Transfer
Requirement that provides that transfer of such Asset without compliance with
such Transfer Requirement will result in termination or other material
impairment of any rights in relation to such Asset, and such Transfer
Requirement is not waived, complied with or otherwise satisfied prior to the
Closing Date, then, unless otherwise mutually agreed by Seller and Purchaser,
the Asset or portion thereof affected by such Preference Right or Transfer
Requirement (a “Retained Asset”) shall be held back from the Assets to be
transferred and conveyed to Purchaser at Closing and the Purchase Price to be
paid at Closing shall be reduced by the portion of the Purchase Price which is
allocated to such Retained Asset pursuant to Section 7.8(b).


                                                                                                                             

                                                                                                                                       
(iii)       Any Retained Asset so held back at the
initial Closing will be conveyed to Purchaser at a delayed Closing (which shall
become the new Closing Date with respect to such Retained Asset), within ten
(10) days following the date on which the suit, action or other proceeding, if
any, referenced in clause (i) above is settled or a judgment is rendered (and no
longer subject to appeal) permitting transfer of the Retained Asset to Purchaser
pursuant to this Agreement and Seller obtains, complies with, obtains a waiver
of or notice of election not to exercise or otherwise satisfies all remaining
Preference Rights and Transfer Requirements with respect to such Retained Asset
as contemplated by this Section.  At the delayed Closing, Purchaser shall
pay Seller a purchase price equal to the amount by which the Purchase Price was
reduced on account of the holding back of such Retained Asset (as adjusted
pursuant to Section 2.2 through the new Closing Date therefor); provided,
however, if all such Preference Rights and Transfer Requirements with respect to
any Retained Asset so held back at the initial Closing are not obtained,
complied with, waived or otherwise satisfied as contemplated by this Section
within one hundred eighty (180) days after the initial Closing has occurred with
respect to any Assets, then such Retained Asset shall be eliminated from the
Assets and this Agreement (unless Seller and Purchaser mutually agree to proceed
with a closing on such Retained Asset in which case Purchaser shall be deemed to
have waived any objection and shall be obligated to indemnify the Seller
Indemnitees for all Claims) with respect to non-compliance with such Preference
Rights and Transfer Requirements related to such Retained
Asset.

                                                                                                                             

                                                                                                                            
                                                                                                                              
                                                                                                                                
                                                                                                                                

                                                                                                                              

                                                                                                                              
                                                                                                                                37

                                                                                                                                
                                                                                                                                  

                                                                                                                                

                                                                                                                              

                                                                                                                              
                                                                                                                                
                                                                                                                                

                                                                                                                              

                                                                                                                            

                                                                                                                            (e)                         
Purchaser acknowledges that Seller desires to sell all of the Assets and
would not have entered into this Agreement but for Purchaser’s agreement to
purchase all of the Assets as herein provided.  Accordingly, it is
expressly understood and agreed that Seller does not desire to sell any
Preference Property unless the sale of all of the Assets is consummated by the
Closing Date in accordance with the terms of this Agreement.  In
furtherance of the foregoing, Seller’s obligation hereunder to sell the
Preference Properties to Purchaser is expressly conditioned upon the
consummation by the Closing Date of the sale of all of the Assets to be conveyed
under this Agreement in accordance with the terms of this Agreement, either by
conveyance to Purchaser or conveyance pursuant to an applicable Preference
Right; provided
that, nothing herein is intended or shall operate to extend or apply any
Preference Right to any portion of the Assets which is not otherwise burdened
thereby.  Time is of the essence with respect to the Parties’ agreement to
consummate the sale of the Assets by the Closing Date (or by the delayed Closing
Date pursuant to Section 7.8(d)).

                                                                                                                             

                                                                                                                            Section 7.9
Tax
Matters.

                                                                                                                            
                                                                                                                              (a)                         
Subject to the provisions of Section 12.3, Seller shall be responsible
for all Taxes related to the Assets (other than ad valorem, property, severance,
Hydrocarbon production and similar Taxes based upon or measured by the ownership
or operation of the Assets or the production of Hydrocarbons  therefrom,
which are addressed in Section 1.4) attributable to any period of time at or
prior to the Closing Date, and Purchaser shall be responsible for all such Taxes
related to the Assets attributable to any period of time after the Closing Date.
Regardless of which Party is responsible, Seller shall handle payment to the
appropriate Governmental Body of all Taxes with respect to the Assets which are
required to be paid prior to Closing (and shall file all Tax Returns with
respect to such Taxes). Seller shall deliver to Purchaser within thirty (30)
days of filing copies of all Tax Returns filed by Seller after the Closing Date
relating to the Assets and any supporting documentation provided by Seller to
taxing authorities, excluding Tax Returns related to income tax, franchise tax,
or other similar Taxes.

                                                                                                                               

                                                                                                                              (b)                         
Purchaser agrees to cooperate (at no cost or liability to Purchaser) with
Seller so that Seller’s transfer of the Assets to Purchaser shall, at Seller’s
election, be accomplished in a manner enabling the transfer to qualify as a part
of a like-kind exchange of property by Seller within the meaning of Section 1031
of the Code (a “Like-Kind Exchange”).  If Seller so elects, Purchaser shall
cooperate with Seller to effect such like-kind exchange, which cooperation shall
include, without limitation, taking such actions as Seller reasonably requests
in order to pay the Purchase Price in a manner which enables such transfer to
qualify as part of a like-kind exchange of property within the meaning of
Section 1031 of the Code, and Purchaser agrees that Seller may assign its rights
(but not its obligations) under this Agreement to a qualified intermediary as
defined in Treasury Regulations Section 1.1031(k) - 1(g)(4)(iii) under United
States Treasury Regulations, to qualify the transfer of the Purchase Price as a
part of a like-kind exchange of property within the meaning of Section 1031 of
the Code. Notwithstanding the foregoing, (i) Seller agrees to indemnify and hold
harmless Purchaser from any costs and expenses relating to its cooperation
arising out of any such Like-Kind Exchange of Seller, which indemnity shall
survive the Closing; (ii) nothing in this Section 7.9(b) is intended to relieve
any Party from its obligations hereunder; (iii) Purchaser does not represent,
warrant or covenant to Seller that any particular Tax treatment will be given to
any such Like-Kind Exchange, including that the Like-Kind Exchange will qualify
as a “like kind” exchange for purposes of Section 1031 of the Code; and (iv) the
sale of the Assets shall not be contingent or otherwise subject to the
consummation of any such Like-Kind Exchange.

                                                                                                                               

                                                                                                                              
                                                                                                                                
                                                                                                                                  
                                                                                                                                  

                                                                                                                                

                                                                                                                                
                                                                                                                                  38

                                                                                                                                  
                                                                                                                                    

                                                                                                                                  

                                                                                                                                

                                                                                                                                
                                                                                                                                  
                                                                                                                                  

                                                                                                                                

                                                                                                                              

                                                                                                                              (c)                         
Seller agrees to cooperate (at no cost or liability to Seller) with
Purchaser so that Seller’s transfer of the Assets to Purchaser shall, at
Purchaser’s election, be accomplished in a manner enabling the transfer to
qualify as a part of a Like-Kind Exchange of property by Purchaser.  If
Purchaser so elects, Seller shall cooperate with Purchaser to effect such
like-kind exchange, which cooperation shall include, without limitation, taking
such actions as Purchaser reasonably requests in order to transfer the Assets in
a manner which enables such transfer to qualify as part of a like-kind exchange
of property by Purchaser within the meaning of Section 1031 of the Code, and
Seller agrees that Purchaser may assign its rights (but not its obligations)
under this Agreement to an exchange accommodation titleholder as defined in IRS
Revenue Procedure 2000-37, to qualify the transfer of the Assets as a part of a
like-kind exchange of property by Purchaser within the meaning of Section 1031
of the Code.  Notwithstanding the foregoing, (i) Purchaser agrees to
indemnify and hold harmless Seller from any costs and expenses relating to its
cooperation arising out of any such Like-Kind Exchange of Purchaser, which
indemnity shall survive the Closing; (ii) nothing in this Section 7.9(c) is
intended to relieve any Party from its obligations hereunder; (iii) Seller does
not represent, warrant or covenant to Purchaser that any particular Tax
treatment will be given to any such Like-Kind Exchange, including that the
Like-Kind Exchange will qualify as a “like kind” exchange for purposes of
Section 1031 of the Code; and (iv) the purchase of the Assets shall not be
contingent or otherwise subject to the consummation of any such Like-Kind
Exchange.

                                                                                                                               

                                                                                                                              Section 7.10             
Further
Assurances.

                                                                                                                              After
Closing, Seller and Purchaser each agrees to take such further actions and to
execute, acknowledge and deliver all such further documents as are reasonably
requested by the other Party for carrying out the purposes of this Agreement or
of any document delivered pursuant to this Agreement.


                                                                                                                               

                                                                                                                              Section 7.11             
Insurance.

                                                                                                                              Effective
as of the Closing Date, Purchaser shall carry and maintain the following: (i)
general liability insurance with combined single limits per occurrence of not
less than $2,000,000.00 for bodily injury and property damage, including
property damage by blowout and cratering, completed operations, and contractual
liability as respects any contract into which the Purchaser may enter under the
terms of this Agreement; and (ii) operators extra expense insurance with limits
of not less than $2,000,000.00 per occurrence, covering the costs of controlling
a blowout, and certain other related and/or resulting costs and seepage and
pollution liability.

                                                                                                                               

                                                                                                                              Section 7.12             
Audit
Rights

                                                                                                                              Following
the Closing, Purchaser, at Purchaser’s expense, may engage an auditing firm to
conduct an audit of the revenues and expenses of Seller attributable to the
Assets for calendar year 2008 and to prepare unaudited statements for January
2008 through September 2008 and 2009.  Seller agrees that it will cooperate
and assist such auditors including, without limitation, making available (at
Purchaser’s sole cost and expense) books, records, and personnel reasonably
requested by such auditing firm.

                                                                                                                              
                                                                                                                                
                                                                                                                                  
                                                                                                                                    
                                                                                                                                    

                                                                                                                                  

                                                                                                                                  
                                                                                                                                    39

                                                                                                                                    
                                                                                                                                      

                                                                                                                                    

                                                                                                                                  

                                                                                                                                  
                                                                                                                                    
                                                                                                                                    

                                                                                                                                  

                                                                                                                                

                                                                                                                                 

                                                                                                                                
                                                                                                                                                                         ARTICLE
8
                                  CONDITIONS TO CLOSING

                                                                                                                                  Section 8.1
Conditions of
Seller to Closing.

                                                                                                                                  The obligations of Seller to consummate the
transactions contemplated by this Agreement are subject, at the option of
Seller, to the satisfaction on or prior to Closing of each of the following
conditions:

                                                                                                                                  
                                                                                                                                    (a)                         
Representations. 
The representations and warranties of Purchaser set forth in Article 6 shall be
true and correct in all material respects, other than representations and
warranties that are already qualified as to materiality, which shall be true and
correct in all respects , as of the Closing Date as though made on and as of the
Closing Date;

                                                                                                                                     

                                                                                                                                    (b)                         
Performance. 
Purchaser shall have performed and observed, in all material respects, all
covenants and agreements to be performed or observed by it under this Agreement
prior to or on the Closing Date;

                                                                                                                                     

                                                                                                                                    (c)                         
Pending
Litigation.  No suit, action or other proceeding by a third party
(including any Governmental Body) seeking to restrain, enjoin or otherwise
prohibit the consummation of the transactions contemplated by this Agreement
shall be pending before any Governmental Body; provided, however, Closing shall
proceed notwithstanding any suits, actions or other proceedings seeking to
restrain, enjoin or otherwise prohibit the consummation of the transactions
contemplated hereby brought by holders of Preference Rights seeking to enforce
such rights with respect to Assets with aggregate Allocated Values of less than
thirty percent (30%) of  the unadjusted Purchase Price, and the Assets
subject to such suits, actions or other proceedings shall be treated in
accordance with Section 7.8;

                                                                                                                                     

                                                                                                                                    (d)                         
Deliveries. 
Purchaser shall have delivered to Seller duly executed counterparts of the
Conveyance and the other documents and certificates to be delivered by Purchaser
under Section 9.3;

                                                                                                                                               
(e)        Payment. 
Purchaser shall have paid the Closing Payment; 

                                                                                                                                    
                                                                                                                                                 
(f)      HSR Act.  Any
waiting period applicable to the consummation of the transaction contemplated by
this Agreement under the HSR Act shall have lapsed or terminated (by early
termination or otherwise); and 

                                                                                                                                      
                                                                                                                                        (g)        The sum of (i) the Allocated Value of
the Preference Properties for which holders of Preference Rights have elected
prior to Closing to exercise their Preference Rights, plus (ii) the adjustment
to the Purchase Price on account of the sum of all Title Defect Amounts for
Title Defects determined under Section 3.4(g) prior to Closing, less the sum of
all Title Benefit Amounts for Title Benefits determined under Section 3.4(h)
prior to the Closing, plus (iii)  the aggregate losses from casualties to
the Assets and takings of Assets under right of eminent domain, shall be less
than twenty-five percent (25%) of the Allocated Value of the
Properties.

                                                                                                                                        
                                                                                                                                          Section 8.2
Conditions of
Purchaser to Closing.

                                                                                                                                          
                                                                                                                                            The obligations of Purchaser to consummate the
transactions contemplated by this Agreement are subject, at the option of
Purchaser, to the satisfaction on or prior to Closing of each of the following
conditions:

                                                                                                                                            
                                                                                                                                              
                                                                                                                                                
                                                                                                                                                  
                                                                                                                                                  

                                                                                                                                                

                                                                                                                                                
                                                                                                                                                  40

                                                                                                                                                  
                                                                                                                                                    

                                                                                                                                                  

                                                                                                                                                

                                                                                                                                                
                                                                                                                                                  
                                                                                                                                                  

                                                                                                                                                

                                                                                                                                              

                                                                                                                                              (a)                         
Representations. 
The representations and warranties of Seller set forth in Article 5 shall be
true and correct in all material respects, other than representations and
warranties that are already qualified as to materiality, which shall be true and
correct in all respects, as of the Closing Date as though made on and as of the
Closing Date (other than representations and warranties that refer to a
specified date which need only be true and correct on and as of such specified
date);

                                                                                                                                               

                                                                                                                                              (b)                         
Performance. 
Seller shall have performed and observed, in all material respects, all
covenants and agreements to be performed or observed by it under this Agreement
prior to or on the Closing Date;

                                                                                                                                               

                                                                                                                                              (c)                         
Pending
Litigation.  No suit, action or other proceeding by a third party
(including any Governmental Body) seeking to restrain, enjoin or otherwise
prohibit the consummation of the transactions contemplated by this Agreement
shall be pending before any Governmental Body; provided, however, Closing shall
proceed notwithstanding any suits, actions or other proceedings seeking to
restrain, enjoin or otherwise prohibit the consummation of the transactions
contemplated hereby brought by holders of Preference Rights seeking to enforce
such rights with respect to Assets with aggregate Allocated Values of less than
thirty percent (30%) of the unadjusted Purchase Price, and the Assets subject to
such suits, actions or other proceedings shall be treated in accordance with
Section 7.8;

                                                                                                                                              
                                                                                                                                                (d)        Deliveries. 
Seller shall have delivered to Purchaser duly executed counterparts of the
Conveyance and the other documents and certificates to be delivered by Seller
under Section 9.2; 

                                                                                                                                                
                                                                                                                                                  (e)      HSR Act.  Any
waiting period applicable to the consummation of the transaction contemplated by
this Agreement under the HSR Act shall have lapsed or terminated (by early
termination or otherwise); and

                                                                                                                                                  
                                                                                                                                                    (f)        The sum of (i) the Allocated Value of the
Preference Properties for which holders of Preference Rights have elected prior
to Closing to exercise their Preference Rights, plus (ii) the adjustment to the
Purchase Price on account of the sum of all Title Defect Amounts for Title
Defects determined under Section 3.4(g) prior to Closing, less the sum of all
Title Benefit Amounts for Title Benefits determined under Section 3.4(h) prior
to the Closing, plus (iii)  the aggregate losses from casualties to the
Assets and takings of Assets under right of eminent domain, shall be less than
twenty-five percent (25%) of the Allocated Value of the Properties.


                                                                                                                                                    
                                                                                                                                                      (g)        Purchaser shall have received (i)  a release of any mortgages or liens covering or
affecting the Properties and any properties covered by that
certain Lease Amendment and Lease Royalty Conveyance Agreement between Ben
Fortson, Jr., et al. and Purchaser, of even date herewith, including the
Lease Amendments and Royalty Deeds, executed in recordable form, in form and
substance agreeable to Purchaser, and (ii) any required consents or approvals
from any holders of such mortgages or liens.

                                                                                                                                                      
                                                                                                                                                                                           ARTICLE
9
                                 
CLOSING

                                                                                                                                                        Section 9.1
Time and Place
of Closing.

                                                                                                                                                        
                                                                                                                                                          
                                                                                                                                                            
                                                                                                                                                              
                                                                                                                                                              

                                                                                                                                                            

                                                                                                                                                            
                                                                                                                                                              41

                                                                                                                                                              
                                                                                                                                                                

                                                                                                                                                              

                                                                                                                                                            

                                                                                                                                                            
                                                                                                                                                              
                                                                                                                                                              

                                                                                                                                                            

                                                                                                                                                          

                                                                                                                                                          (a)                         
Consummation of the
purchase and sale transaction as contemplated by this Agreement (the “Closing”),
shall, unless otherwise agreed to in writing by Purchaser and Seller, take place
at the offices of Kelly Hart & Hallman LLP, located at 201 Main Street,
Suite 2500, Fort Worth, Texas at 10:00 a.m., local time, on or before December
15, 2009, or if all conditions in Article 8 to be satisfied prior to Closing
have not yet been satisfied or waived, as soon thereafter as such conditions
have been satisfied or waived, subject to the rights of the Parties under
Article 10.

                                                                                                                                                           

                                                                                                                                                          (b)                         
The date on which the
Closing occurs is herein referred to as the “Closing Date.”

                                                                                                                                                           

                                                                                                                                                          Section 9.2
Obligations of
Seller at Closing.

                                                                                                                                                          
                                                                                                                                                            At the Closing, upon the terms and subject to the
conditions of this Agreement, Seller shall deliver or cause to be delivered to
Purchaser, the following:

                                                                                                                                                            
                                                                                                                                                              (a)                         
the Conveyance, in
sufficient duplicate originals to allow recording in all appropriate
jurisdictions and offices, duly executed by Seller;

                                                                                                                                                               

                                                                                                                                                              (b)                         
letters-in-lieu of
transfer orders covering the Assets, duly executed by Seller;

                                                                                                                                                               

                                                                                                                                                              (c)                         
a certificate, duly
executed by an authorized corporate officer of Seller, dated as of Closing,
certifying on behalf of Seller that the conditions set forth in Sections 8.2(a)
and 8.2(b) have been fulfilled; 

                                                                                                                                                               

                                                                                                                                                              (d)                         
one (1) original executed
statement described in Treasury Regulation §1.1445-2(b)(2) certifying that
Seller is not a foreign person within the meaning of the Code;

                                                                                                                                                               

                                                                                                                                                              (e)                         
the Lease Amendments, as
that term is defined in that certain letter agreement between Ben Fortson, Jr.,
et al. and Purchaser, of even date herewith; and

                                                                                                                                                               

                                                                                                                                                              (f)                          
the Royalty Deed, as that term is defined in that
certain letter agreement between Ben Fortson, Jr., et al. and Purchaser, of even
date herewith.     

                                                                                                                                                                   

                                                                                                                                                              Section 9.3
Obligations of
Purchaser at Closing.

                                                                                                                                                              
                                                                                                                                                                At the Closing, upon the terms and subject to the
conditions of this Agreement, Purchaser shall deliver or cause to be delivered
to Seller, the following:

                                                                                                                                                                
                                                                                                                                                                  (a)                         
a wire transfer of the
Closing Payment in same-day funds;

                                                                                                                                                                   

                                                                                                                                                                  (b)                         
the Conveyance, duly
executed by Purchaser;

                                                                                                                                                                   

                                                                                                                                                                  (c)                         
letters-in-lieu of
transfer orders covering the Assets, duly executed by Purchaser; 

                                                                                                                                                                  
                                                                                                                                                                    (d)                         
a certificate, duly
executed by an authorized corporate officer of Purchaser, dated as of Closing,
certifying on behalf of Purchaser that the conditions set forth in Sections
8.1(a) and 8.1(b) have been fulfilled; and

                                                                                                                                                                     

                                                                                                                                                                    (e)                         
the payment to the
“Lessors” as contemplated by that certain letter agreement between Ben Fortson,
Jr., et al. and Purchaser, of even date herewith.

                                                                                                                                                                     

                                                                                                                                                                    
                                                                                                                                                                      
                                                                                                                                                                        
                                                                                                                                                                        

                                                                                                                                                                      

                                                                                                                                                                      
                                                                                                                                                                        42

                                                                                                                                                                        
                                                                                                                                                                          

                                                                                                                                                                        

                                                                                                                                                                      

                                                                                                                                                                      
                                                                                                                                                                        
                                                                                                                                                                        

                                                                                                                                                                      

                                                                                                                                                                    

                                                                                                                                                                    Section 9.4
Closing Payment
& Post-Closing Purchase Price Adjustments.

                                                                                                                                                                    
                                                                                                                                                                      (a)                         
Not later than three (3) Business Days prior to the Closing Date, Seller
shall prepare and deliver to Purchaser, based upon the best information
available to Seller, a preliminary settlement statement estimating in good faith
the Adjusted Purchase Price after giving effect to all Purchase Price
adjustments provided for in this Agreement. The estimate delivered in accordance
with this Section 9.4(a) shall constitute the dollar amount to be paid by
Purchaser to Seller at the Closing (the “Closing Payment”).

                                                                                                                                                                       

                                                                                                                                                                      (b)                         
As soon as reasonably practicable after the Closing but not later than
one hundred and twenty (120) days following the Closing Date, Seller shall
prepare and deliver to Purchaser a statement setting forth the final calculation
of the Adjusted Purchase Price and showing the calculation of each adjustment,
based, to the extent possible, on actual credits, charges, receipts and other
items before and after the Effective Time and taking into account all
adjustments provided for in this Agreement. Seller shall at Purchaser’s request
supply reasonable documentation available to support any credit, charge, receipt
or other item. As soon as reasonably practicable but not later than the 30th day
following receipt of Seller’s statement hereunder, Purchaser shall deliver to
Seller a written report containing any changes that Purchaser proposes be made
to such Statement. The Parties shall undertake to agree on the final statement
of the Adjusted Purchase Price no later than one hundred eighty (180) days after
the Closing Date. In the event that the Parties cannot reach agreement within
such period of time, either Party may refer the remaining matters in dispute to
a nationally-recognized independent accounting firm as may be accepted by
Purchaser and Seller, for review and final determination. The accounting firm
shall conduct the arbitration proceedings in Tarrant County, Texas in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
to the extent such rules do not conflict with the terms of this Section 9.4. The
accounting firm’s determination shall be made within thirty (30) days after
submission of the matters in dispute and shall be final and binding on both
Parties, without right of appeal. In determining the proper amount of any
adjustment to the Purchase Price, the accounting firm shall not increase the
Purchase Price more than the increase proposed by Seller nor decrease the
Purchase Price more than the decrease proposed by Purchaser, as applicable. The
accounting firm shall act as an expert for the limited purpose of determining
the specific disputed matters submitted by either Party and may not award
damages or penalties to either Party with respect to any matter. Seller and
Purchaser shall each bear its own legal fees and other costs of presenting its
case. Each Party shall bear one-half of the costs and expenses of the accounting
firm. Within ten (10) Business Days after the date on which the Parties or the
accounting firm, as applicable, finally determines the disputed matters, (x)
Purchaser shall pay to Seller the amount by which the Adjusted Purchase Price
exceeds the Closing Payment or (y) Seller shall pay to Purchaser the amount by
which the Closing Payment exceeds the Adjusted Purchase Price, as
applicable.

                                                                                                                                                                       

                                                                                                                                                                      (c)                         
All payments made or to be made hereunder to Seller shall be by
electronic transfer of immediately available funds to a bank and account
specified by Seller in writing to Purchaser, and all payments made or to be made
hereunder to Purchaser shall be by electronic transfer of immediately available
funds to a bank and account specified by Purchaser in writing to
Seller.

                                                                                                                                                                       

                                                                                                                                                                      
                                                                                                                                                                        
                                                                                                                                                                          
                                                                                                                                                                          

                                                                                                                                                                        

                                                                                                                                                                        
                                                                                                                                                                          43

                                                                                                                                                                          
                                                                                                                                                                            

                                                                                                                                                                          

                                                                                                                                                                        

                                                                                                                                                                        
                                                                                                                                                                          
                                                                                                                                                                          

                                                                                                                                                                        

                                                                                                                                                                      

                                                                                                                                                                                                            ARTICLE
10
                                   TERMINATION 

                                                                                                                                                                      Section 10.1             
Termination.

                                                                                                                                                                      Unless terminated earlier pursuant to other
provisions provided herein, this Agreement may be terminated at any time prior
to Closing: (i) by the mutual prior written consent of Seller and Purchaser; or
(ii) by Seller, if Closing has not occurred on or before December 31, 2009 other
than due to default by Seller, or (iii) by Purchaser, if Closing has not
occurred on or before December 31, 2009, other than due to default by
Purchaser.

                                                                                                                                                                      
                                                                                                                                                                        Section 10.2             
Effect of
Termination.

                                                                                                                                                                                   
If this Agreement is terminated pursuant to Section 10.1, this Agreement shall
become void and of no further force or effect (except for the provisions of
Sections 5.6, 6.5, 7.5, 11.4(b)(vi), 11.8, 11.9.(a), 11.9.(b), 12.7, 12.13 and
12.16 of this Agreement all of which shall continue in full force and effect)
and Seller shall be free immediately to enjoy all rights of ownership of the
Assets and to sell, transfer, encumber or otherwise dispose of the Assets to any
Party without any restriction under this Agreement.  Notwithstanding
anything to the contrary in this Agreement, except as provided in Section 10.3,
the termination of this Agreement under Section 10.1(ii) or 10.1(iii) shall not
relieve any Party from liability for any willful or negligent failure to perform
or observe in any material respect any of its agreements or covenants contained
herein which are to be performed or observed at or prior to Closing.  In
the event this Agreement terminates under Sections 10.1(ii) or 10.1(iii) because a Party has willfully
or negligently failed to perform or observe in any material respect any of its
agreements or covenants contained herein which are to be performed at or prior
to Closing, then the other Party shall be entitled to all remedies available at
law or in equity and shall be entitled to recover court costs and attorneys’
fees in addition to any other relief to which such Party may be entitled, except
as provided in Section 10.3.

                                                                                                                                                                        
                                                                                                                                                                          Section 10.3             
Distribution of
Deposit Upon Termination.

                                                                                                                                                                          (a)                         
If Seller terminates this
Agreement (i) because Purchaser wrongfully fails to tender performance at
Closing; or (ii) as the result of any default or breach by Purchaser of
Purchaser's obligations hereunder, and Seller is ready to tender performance at
Closing and is not in default or breach of this Agreement, then Seller may
retain the Deposit as liquidated damages, free of any claims by Purchaser or any
other Person with respect thereto. Purchaser’s failure to close shall not be
considered wrongful if Purchaser has validly terminated this Agreement under
Section 10.1(iii).  The remedy set forth herein shall be Seller’s sole
and exclusive remedy for Purchaser’s failure to close the transactions described
in this Agreement and Seller expressly waives any and all other remedies, legal
and equitable, that it otherwise may have had for Purchaser’s failure to close.
It is expressly stipulated by the Parties that the actual amount of damages
resulting from such a termination would be difficult if not impossible to
determine accurately because of the unique nature of this Agreement, the unique
nature of the Assets, the uncertainties of applicable commodity markets and
differences of opinion with respect to such matters, and that the liquidated
damages provided for herein are a reasonable estimate by the Parties of such
damages. 

                                                                                                                                                                           

                                                                                                                                                                          (b)                         
If this Agreement is
terminated for any reason other than the reasons set forth in Section 10.3(a),
then Seller shall deliver the Deposit to Purchaser, free of any claims by Seller
or any other Person with respect thereto.

                                                                                                                                                                           

                                                                                                                                                                          
                                                                                                                                                                            
                                                                                                                                                                              
                                                                                                                                                                              

                                                                                                                                                                            

                                                                                                                                                                            
                                                                                                                                                                              44

                                                                                                                                                                              
                                                                                                                                                                                

                                                                                                                                                                              

                                                                                                                                                                            

                                                                                                                                                                            
                                                                                                                                                                              
                                                                                                                                                                              

                                                                                                                                                                            

                                                                                                                                                                          

                                                                                                                                                                          (c)                         
Notwithstanding anything
to the contrary in this Agreement, Purchaser shall not be entitled to receive
interest on the Deposit, whether the Deposit is applied against the Purchase
Price or returned to Purchaser pursuant to this Section 10.3.

                                                                                                                                                                           

                                                                                                                                                                                                               ARTICLE
11
                            POST-CLOSING OBLIGATIONS;
INDEMNIFICATION;
                             LIMITATIONS; DISCLAIMERS AND WAIVERS

                                                                                                                                                                          Section 11.1             
Receipts.

                                                                                                                                                                          Except as otherwise provided in this Agreement, any
Hydrocarbons produced from or attributable to the Assets (and all products and
proceeds attributable thereto) and any other income, proceeds, receipts and
credits attributable to the Assets which are not reflected in the adjustments to
the Purchase Price following the final adjustment pursuant to Section 9.4(b)
shall be treated as follows: (a) all Hydrocarbons produced from or attributable
to the Assets (and all products and proceeds attributable thereto) and all other
income, proceeds, receipts and credits earned with respect to the Assets to
which Purchaser is entitled under Section 1.4 shall be the sole property and
entitlement of Purchaser, and, to the extent received by Seller, Seller shall
fully disclose, account for and remit the same promptly to Purchaser, and (b)
all Hydrocarbons produced from or attributable to the Assets (and all products
and proceeds attributable thereto) and all other income, proceeds, receipts and
credits earned with respect to the Assets to which Seller is entitled under
Section 1.4 shall be the sole property and entitlement of Seller and, to the
extent received by Purchaser, Purchaser shall fully disclose, account for and
remit  the same promptly to Seller.

                                                                                                                                                                          
                                                                                                                                                                            Section 11.2             
Expenses.

                                                                                                                                                                            Any Property Costs which are not reflected in the
adjustments to the Purchase Price following the final adjustment pursuant to
Section 9.4(b) shall be treated as follows: (a) all Property Costs for which
Seller is responsible under Section 1.4 shall be the sole obligation of Seller
and Seller shall promptly pay, or if paid by Purchaser, promptly reimburse
Purchaser for and hold Purchaser harmless from and against same; and (b) all
Property Costs for which Purchaser is responsible under Section 1.4 shall be the
sole obligation of Purchaser and Purchaser shall promptly pay, or if paid by
Seller, promptly reimburse Seller for and hold Seller harmless from and against
same. Seller is entitled to resolve all joint interest audits and other audits
of Property Costs covering periods for which Seller is in whole or in part
responsible, provided that Seller
shall not agree to any adjustments to previously assessed costs for which
Purchaser is liable without the prior written consent of Purchaser, such consent
not to be unreasonably withheld. Seller shall provide Purchaser with a copy of
all applicable audit reports and written audit agreements received by Seller and
relating to periods for which Purchaser is partially responsible.


                                                                                                                                                                            
                                                                                                                                                                              Section 11.3             
Assumed Seller
Obligations.

                                                                                                                                                                              Without limiting Purchaser’s rights to indemnity
under this Article 11, on the Closing Date, except as provided in this
Agreement, Purchaser shall assume and hereby agrees to fulfill, perform, pay and
discharge (or cause to be fulfilled, performed, paid or discharged) all of the
obligations and liabilities of Seller, known or unknown, with respect to the
Assets, regardless of whether such obligations or liabilities arose prior to, on
or after the Effective Time, including but not limited to, obligations to (i)
pay working interests, royalties, overriding royalties and other interests held
in suspense, to the extent shown on Schedule 11.3,
(ii) properly plug and abandon any and all wells, including inactive wells or
temporarily abandoned wells, drilled on the Properties or otherwise pursuant to
the Assets, (iii) replug any well, wellbore, or previously plugged well on the
Properties to the extent required by Governmental Body, (iv) dismantle, salvage
and remove any equipment, structures, materials, platforms, flowlines, and
property of whatever kind related to or associated with operations and
activities conducted on the Properties or otherwise pursuant to the Assets, (v)
clean up, restore and/or remediate the premises covered by or related to the
Assets in accordance with applicable agreements and Laws, and (vi) perform all
obligations applicable to or imposed on the lessee, owner, or operator under the
Leases and related contracts, or as required by applicable Laws or Environmental
Laws (all of said obligations and liabilities, subject to the exclusions below,
herein being referred to as the “Assumed Seller Obligations”); provided, however,
that Purchaser does not accrue any rights or assume any obligations or
liabilities of Seller to the extent that they are:

                                                                                                                                                                              
                                                                                                                                                                                
                                                                                                                                                                                  
                                                                                                                                                                                    
                                                                                                                                                                                    

                                                                                                                                                                                  

                                                                                                                                                                                  
                                                                                                                                                                                    45

                                                                                                                                                                                    
                                                                                                                                                                                      

                                                                                                                                                                                    

                                                                                                                                                                                  

                                                                                                                                                                                  
                                                                                                                                                                                    
                                                                                                                                                                                    

                                                                                                                                                                                  

                                                                                                                                                                                

                                                                                                                                                                                (i)        
attributable to or arise out of the Excluded Assets;
or

                                                                                                                                                                                
                                                                                                                                                                                  (ii)        the
continuing responsibility of the Seller under Sections 11.1 and 11.2 or matters
for which Seller is required to indemnify Purchaser under Section 11.4(c);
or

                                                                                                                                                                                  
                                                                                                                                                                                    (iii)       Claims (A) arising from Seller’s gross
negligence or willful misconduct; (B) relating to any matters listed on Schedule
5.7(a); or (C) relating to amounts owed to Seller’s employees, officers,
directors or Affiliates.

                                                                                                                                                                                    
                                                                                                                                                                                      For purposes of
determining the amount of any obligations and liabilities of Seller constituting
Assumed Seller Obligations, such amount shall be reduced by the amount of any
insurance benefits and proceeds paid or payable to or for the benefit of Seller
in respect of any Claims.

                                                                                                                                                                                      
                                                                                                                                                                                        Section 11.4             
Indemnities.

                                                                                                                                                                                        (a)                         
Definitions.

                                                                                                                                                                                        For purposes of this Agreement, the terms “Claim” or
“Claims” mean, unless specifically provided otherwise, all claims (including,
but not limited to, those for damage to property, bodily injury and death,
personal injury, illness, disease, maintenance, cure, loss of parental and 
spousal consortium, wrongful death, loss of support, and wrongful termination of
employment), damages, liabilities, losses, demands, liens, encumbrances, fines,
penalties, causes of action of any kind (including actions for indirect,
consequential, punitive and exemplary damages), obligations, costs (including
payment of all reasonable attorneys’ fees and costs of litigation), judgments,
interest, and awards or amounts, of any kind or character, whether under
judicial proceedings, administrative proceedings, investigation by a
Governmental Body or otherwise, or conditions in the premises of or attributable
to any Person or Persons or any Party or parties, breach of representation or
warranty (expressed or implied), under any theory of tort, contract, breach of
contract (including any Claims which arise by reason of indemnification or
assumption of liability contained in other contracts entered into by an
Indemnified Party hereunder), at law or in equity, under statute, or otherwise,
arising out of, or incident to or in connection with this Agreement or the
ownership or operation of the Assets.

                                                                                                                                                                                        
                                                                                                                                                                                          The phrase “REGARDLESS OF FAULT” means
WITHOUT REGARD TO THE CAUSE OR
CAUSES OF ANY CLAIM, INCLUDING, WITHOUT LIMITATION, EVEN THOUGH A CLAIM IS
CAUSED IN WHOLE OR IN PART BY:

                                                                                                                                                                                          
                                                                                                                                                                                            
                                                                                                                                                                                              
                                                                                                                                                                                                
                                                                                                                                                                                                

                                                                                                                                                                                              

                                                                                                                                                                                              
                                                                                                                                                                                                46

                                                                                                                                                                                                
                                                                                                                                                                                                  

                                                                                                                                                                                                

                                                                                                                                                                                              

                                                                                                                                                                                              
                                                                                                                                                                                                
                                                                                                                                                                                                

                                                                                                                                                                                              

                                                                                                                                                                                            

                                                                                                                                                                                            THE NEGLIGENCE
(WHETHER SOLE, JOINT, CONCURRENT, COMPARATIVE, CONTRIBUTORY, ACTIVE OR PASSIVE),
STRICT LIABILITY, OR OTHER FAULT OF PURCHASER INDEMNITEES, SELLER INDEMNITEES,
INVITEES AND/OR THIRD PARTIES (BUT EXCLUDING GROSS NEGLIGENCE AND WILLFUL
MISCONDUCT OF AN INDEMNITEE); AND/OR A PRE-EXISTING DEFECT, WHETHER PATENT OR
LATENT, OF THE PREMISES OF PURCHASER’S PROPERTY OR SELLER’S PROPERTY (INCLUDING
WITHOUT LIMITATION THE ASSETS), INVITEES AND/OR THIRD PARTIES; AND/OR THE
UNSEAWORTHINESS OF ANY VESSEL OR UNAIRWORTHINESS OF ANY AIRCRAFT OF A PARTY
WHETHER CHARTERED, OWNED, OR PROVIDED BY PURCHASER INDEMNITEES, SELLER
INDEMNITEES, INVITEES AND/OR THIRD PARTIES.

                                                                                                                                                                                            
                                                                                                                                                                                              (b)                         
Purchaser Indemnity
Obligation. 
Subject only to Section 11.4(c) and
the limitations contained in Section 11.7, Purchaser shall be responsible for
and indemnify, defend, release and hold harmless Seller Indemnitees from and
against all Claims caused by, arising out of or resulting
from:

                                                                                                                                                                                              (i)        
the Assumed Seller Obligations, REGARDLESS OF FAULT;


                                                                                                                                                                                              
                                                                                                                                                                                                (ii)        the
ownership, use or operation of the Assets after the Effective Time, REGARDLESS OF FAULT;


                                                                                                                                                                                                
                                                                                                                                                                                                  (iii)      
Purchaser’s breach of any of Purchaser’s covenants or agreements contained in
Article 7, REGARDLESS OF
FAULT; 

                                                                                                                                                                                                  
                                                                                                                                                                                                    (iv) any
breach of any representation or warranty made by Purchaser contained in Article
6 of this Agreement or confirmed in the certificate delivered by Purchaser at
Closing pursuant to Section 9.3(d), REGARDLESS OF FAULT;


                                                                                                                                                                                                    
                                                                                                                                                                                                      (v)        the
release of materials into the environment or protection of human health, safety,
natural resources or the environment, or any other environmental condition of
the Assets, REGARDLESS OF
FAULT; and 

                                                                                                                                                                                                      
                                                                                                                                                                                                        (vi)       Purchaser
Indemnitees’ access under Section 4.1, Section 7.1, or otherwise, to the Assets,
the Records and other related activities or information prior to the Closing,
REGARDLESS OF
FAULT.

                                                                                                                                                                                                        
                                                                                                                                                                                                          (c)                         
Seller Indemnity
Obligation. 
Subject to the limitations contained in Section 11.7, Seller shall be
responsible for and indemnify, defend and hold harmless Purchaser against and
from all Claims caused by, arising out of or resulting from:

                                                                                                                                                                                                          (i)        
the ownership, use or operation of the Excluded Assets;


                                                                                                                                                                                                          
                                                                                                                                                                                                            (ii)       
Seller’s breach of any of Seller’s covenants or agreements contained in Article
7; and

                                                                                                                                                                                                            
                                                                                                                                                                                                              (iii)       any breach
of any representation or warranty made by Seller contained in Article 5 of this
Agreement or confirmed in the certificate delivered by Seller at Closing
pursuant to Section 9.2(c).

                                                                                                                                                                                                              
                                                                                                                                                                                                                (d)                         
Additional
Provisions.

                                                                                                                                                                                                                
                                                                                                                                                                                                                  
                                                                                                                                                                                                                    
                                                                                                                                                                                                                      
                                                                                                                                                                                                                      

                                                                                                                                                                                                                    

                                                                                                                                                                                                                    
                                                                                                                                                                                                                      47

                                                                                                                                                                                                                      
                                                                                                                                                                                                                        

                                                                                                                                                                                                                      

                                                                                                                                                                                                                    

                                                                                                                                                                                                                    
                                                                                                                                                                                                                      
                                                                                                                                                                                                                      

                                                                                                                                                                                                                    

                                                                                                                                                                                                                  

                                                                                                                                                                                                                  It is the intention of the Parties that this Article
11 shall govern the allocation of risks and liabilities between Purchaser and
Seller except to the extent that it is expressly stated (whether elsewhere in
this Article 11 or in some other Article hereof) that the provisions of such
other Article (or part thereof) shall control over the terms of all or part of
this Article 11.

                                                                                                                                                                                                                  
                                                                                                                                                                                                                    Notwithstanding anything to the contrary contained
in this Agreement, this Section 11.4 contains the Parties’ exclusive remedy
against each other with respect to breaches of the representations, warranties,
covenants and agreements of the Parties contained in Articles 5, 6 and Sections
7.1, 7.2, 7.3, 7.4, 7.5 and 7.6  and the affirmations of such
representations, warranties, covenants and agreements contained in the
certificate delivered by each Party at Closing pursuant to Sections 9.2(c) or
9.3(d), as applicable. 

                                                                                                                                                                                                                    
                                                                                                                                                                                                                      Claims
for Property Costs shall be exclusively handled pursuant to the Purchase Price
adjustments in Section 2.2, and pursuant to Section 11.2, and shall not be
subject to indemnification under this Section 11.4.

                                                                                                                                                                                                                      
                                                                                                                                                                                                                        In connection with Purchaser Indemnitees’ access to
the Assets prior to Closing, the Parties acknowledge that such access may be
subject to confidentiality agreements, releases or other agreements required by
Seller or the operator of non-Seller Operated Properties.  In the event of
a conflict between the provisions of such agreements and Section 11.4(b)(vi) of
this Agreement, Section 11.4(b)(vi) of this Agreement shall control.


                                                                                                                                                                                                                        
                                                                                                                                                                                                                          Section 11.5             
Indemnification
Actions.

                                                                                                                                                                                                                          All claims for indemnification under Section 11.4
shall be asserted and resolved as follows:

                                                                                                                                                                                                                          
                                                                                                                                                                                                                            (a)                         
For purposes of this Article 11, the term “Indemnifying Party” shall mean
the party or parties having an obligation to indemnify another party or parties
pursuant to the terms of this Agreement.  The term “Indemnified Party”
shall mean the Party or Parties having the right to be indemnified by another
Party or Parties pursuant to the terms of this Agreement.

                                                                                                                                                                                                                             

                                                                                                                                                                                                                            (b)                         
To make a claim for indemnification (“Indemnity Claim”) under Section
11.4,  and/or any other Article (or part thereof) expressly stating that it
controls over the terms of this Article 11, an Indemnified Party shall notify
the Indemnifying Party in writing of its Indemnity Claim, including the specific
details of and specific basis under this Agreement for its Indemnity Claim (the
“Claim Notice”).  The Indemnified Party shall provide its Claim Notice
promptly after the Indemnified Party has actual knowledge of the Claim for which
it seeks indemnification and shall enclose a copy of all papers (if any) served
with respect to the Claim; provided
that the failure of any Indemnified Party to give notice of a Claim as provided
in this Section 11.5 shall not relieve the Indemnifying Party of its obligations
under Section 11.4 except to the extent such failure results in insufficient
time being available to permit the Indemnifying Party to effectively defend
against the Claim or otherwise prejudices the Indemnifying Party’s ability to
defend against the Claim. In the event that the Indemnity Claim is based upon an
inaccuracy or breach of a representation, warranty, covenant or agreement, the
Claim Notice shall specify the representation, warranty, covenant or agreement
which was inaccurate or breached.

                                                                                                                                                                                                                             

                                                                                                                                                                                                                            (c)                         
The Indemnifying Party shall have thirty (30) days from its receipt of
the Claim Notice to notify the Indemnified Party whether it admits or denies its
liability to defend the Indemnified Party against the relevant Claim at the sole
cost and expense of the Indemnifying Party. The Indemnified Party is authorized,
prior to and during such 30-day period, to file any motion, answer or other
pleading that it shall deem necessary or appropriate to protect its interests or
those of the Indemnifying Party and that is not prejudicial to the Indemnifying
Party.

                                                                                                                                                                                                                             

                                                                                                                                                                                                                            
                                                                                                                                                                                                                              
                                                                                                                                                                                                                                
                                                                                                                                                                                                                                

                                                                                                                                                                                                                              

                                                                                                                                                                                                                              
                                                                                                                                                                                                                                48

                                                                                                                                                                                                                                
                                                                                                                                                                                                                                  

                                                                                                                                                                                                                                

                                                                                                                                                                                                                              

                                                                                                                                                                                                                              
                                                                                                                                                                                                                                
                                                                                                                                                                                                                                

                                                                                                                                                                                                                              

                                                                                                                                                                                                                            

                                                                                                                                                                                                                            (d)                         
If the Indemnifying Party admits its liability to indemnify the
Indemnified Party, it shall have the right and obligation to diligently defend,
at its sole cost and expense, the Claim. The Indemnifying Party shall have full
control of such defense and proceedings, including any compromise or settlement
thereof. If requested by the Indemnifying Party, the Indemnified Party agrees to
cooperate in contesting any Claim which the Indemnifying Party elects to
contest. The Indemnified Party may participate in, but not control, any defense
or settlement of any Claim controlled by the Indemnifying Party pursuant to this
Section 11.5(d). An Indemnifying Party shall not, without the written consent of
the Indemnified Party, (i) settle any Claim or consent to the entry of any
judgment with respect thereto which does not include an unconditional written
release of the Indemnified Party from all liability in respect of such Claim, or
(ii) settle any Claim or consent to the entry of any judgment with respect
thereto in any manner that may materially and adversely affect the Indemnified
Party (other than as a result of money damages covered by the
indemnity).

                                                                                                                                                                                                                             

                                                                                                                                                                                                                            (e)                         
If the Indemnifying Party does not admit its liability to indemnify the
Indemnified Party or admits its liability but fails to diligently prosecute or
settle the Claim, then the Indemnified Party shall have the right to defend
against the Claim at the sole cost and expense of the Indemnifying Party, with
counsel of the Indemnified Party’s choosing, subject to the right of the
Indemnifying Party to admit its liability and assume the defense of the Claim at
any time prior to settlement or final determination thereof. If the Indemnifying
Party has not yet admitted its liability for a Claim, the Indemnified Party
shall send written notice to the Indemnifying Party of any proposed settlement
and the Indemnifying Party shall have the option for ten (10) Business Days
following receipt of such notice to (i) admit in writing its liability to
indemnify the Indemnified Party from and against the Claim and (ii) if liability
is so admitted, reject, in its reasonable judgment, the proposed
settlement.

                                                                                                                                                                                                                             

                                                                                                                                                                                                                            Section 11.6             
Release.

                                                                                                                                                                                                                            
                                                                                                                                                                                                                              (a)                         
PURCHASER RELEASES, REMISES AND
FOREVER DISCHARGES SELLER INDEMNITEES FROM ANY AND ALL CLAIMS, KNOWN OR UNKNOWN,
WHETHER NOW EXISTING OR ARISING IN THE FUTURE, CONTINGENT OR OTHERWISE, WHICH
PURCHASER MIGHT NOW OR SUBSEQUENTLY MAY HAVE AGAINST SELLER INDEMNITEES,
RELATING DIRECTLY OR INDIRECTLY TO THE ASSETS, INCLUDING WITHOUT LIMITATION
CLAIMS ARISING OUT OF OR INCIDENT TO ENVIRONMENTAL LAWS, ENVIRONMENTAL
LIABILITIES, THE  RELEASE OF MATERIALS INTO THE ENVIRONMENT OR PROTECTION
OF HUMAN HEALTH, SAFETY, NATURAL RESOURCES OR THE ENVIRONMENT, INCLUDING,
WITHOUT LIMITATION, RIGHTS TO CONTRIBUTION UNDER THE COMPREHENSIVE ENVIRONMENTAL
RESPONSE, COMPENSATION, AND LIABILITY ACT OF 1980, AS AMENDED, REGARDLESS OF
FAULT, BUT EXCLUDING MATTERS FOR WHICH PURCHASER IS ENTITLED
TO INDEMNITY FROM SELLER. 

                                                                                                                                                                                                                              
                                                                                                                                                                                                                                (b)                         
Purchaser
covenants and agrees that it will not attempt to avoid the effect of the release
made by it hereinabove by later arguing that at the time of the release it did
not fully appreciate the extent of any such Claims, including without
limitation, environmental Claims.

                                                                                                                                                                                                                                 

                                                                                                                                                                                                                                
                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    

                                                                                                                                                                                                                                  

                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                    49

                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                      

                                                                                                                                                                                                                                    

                                                                                                                                                                                                                                  

                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                    

                                                                                                                                                                                                                                  

                                                                                                                                                                                                                                

                                                                                                                                                                                                                                Section 11.7             
Limitation on
Actions.

                                                                                                                                                                                                                                
                                                                                                                                                                                                                                  (a)                         
The representations and warranties of the parties in Articles 5 and 6
terminate one year after Closing, except that Section 6.11 shall
survive indefinitely.  The remainder of the representations, warranties,
covenants and agreements provided for in this Agreement shall survive
Closing for one (1) year except that covenants and agreements
contemplated to be complied with or performed following the Closing shall
survive indefinitely. Representations, warranties, covenants and agreements
shall be of no further force and effect after the date of their expiration,
provided that there shall be no termination of any bona fide Claim asserted
pursuant to this Agreement with respect to the breach of such a representation,
warranty, covenant or agreement on or before its expiration date.

                                                                                                                                                                                                                                   

                                                                                                                                                                                                                                  (b)                         
The indemnities in Sections 11.4(b)(iii) and 11.4(b)(iv) and 11.4(c)(ii) and 11.4(c)(iii) shall terminate as of the
termination date of each respective representation, warranty, covenant or
agreement that is subject to indemnification, except in each case as to Claims
asserted pursuant to this Agreement with respect to the breach of such
representation, warranty, covenant or agreement on or before such termination
date.  Purchaser’s indemnities in Sections 7.9(c), 11.4(b)(i), 11.4(b)(ii),
11.4(b)(v), and 11.4(b)(vi) and Seller’s indemnities under Sections 7.9(b) and 11.4(c)(i) shall
continue without time limit.

                                                                                                                                                                                                                                   

                                                                                                                                                                                                                                  (c)                         
Neither Seller nor Purchaser shall have any liability for any
indemnification under Section 11.4 until and unless the aggregate amount of the
liability for all Claims for which Claim Notices are delivered by Purchaser or
Seller, as applicable, exceeds ten percent (10%) of the Purchase Price, and then
only to the extent such damages exceed such ten percent (10%) of the Purchase
Price.  The adjustments to the Purchase Price under Section 2.2 and any
payments in respect thereof shall not be limited by this Section.

                                                                                                                                                                                                                                   

                                                                                                                                                                                                                                  (d)                         
Notwithstanding anything to the contrary contained elsewhere in this
Agreement, neither party shall be required to indemnify the other Party for
aggregate damages in excess of an amount equal to fifty percent (50%) of the
final Adjusted Purchase Price.

                                                                                                                                                                                                                                   

                                                                                                                                                                                                                                  Section 11.8             
Disclaimers.

                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                    (a)                         
EXCEPT AS AND TO THE EXTENT EXPRESSLY
SET FORTH IN ARTICLE 5 OF THIS AGREEMENT, OR CONFIRMED IN THE CERTIFICATE OF
SELLER TO BE DELIVERED PURSUANT TO SECTION 9.2(c), OR IN THE CONVEYANCE, (I)
SELLER MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS, STATUTORY OR IMPLIED,
AND (II) SELLER EXPRESSLY DISCLAIMS ALL LIABILITY AND RESPONSIBILITY FOR ANY
REPRESENTATION, WARRANTY, STATEMENT OR INFORMATION MADE OR COMMUNICATED (ORALLY
OR IN WRITING) TO PURCHASER OR ANY OF ITS AFFILIATES, EMPLOYEES, AGENTS,
CONSULTANTS OR REPRESENTATIVES (INCLUDING, WITHOUT LIMITATION, ANY OPINION,
INFORMATION, PROJECTION OR ADVICE THAT MAY HAVE BEEN PROVIDED TO PURCHASER BY
ANY OFFICER, DIRECTOR, EMPLOYEE, AGENT, CONSULTANT, REPRESENTATIVE OR ADVISOR OF
SELLER OR ANY OF ITS AFFILIATES).

                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          

                                                                                                                                                                                                                                        

                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                          50

                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                            

                                                                                                                                                                                                                                          

                                                                                                                                                                                                                                        

                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                          

                                                                                                                                                                                                                                        

                                                                                                                                                                                                                                      

                                                                                                                                                                                                                                      (b)                         
EXCEPT AS EXPRESSLY REPRESENTED
OTHERWISE IN ARTICLE 5 OF THIS AGREEMENT, OR CONFIRMED IN THE CERTIFICATE OF
SELLER TO BE DELIVERED PURSUANT TO SECTION 9.2(c), OR IN THE CONVEYANCE, AND
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, SELLER EXPRESSLY DISCLAIMS ANY
REPRESENTATION OR WARRANTY, EXPRESS, STATUTORY OR IMPLIED, AS TO (I) TITLE TO
ANY OF THE ASSETS, (II) THE CONTENTS, CHARACTER OR NATURE OF ANY DESCRIPTIVE
MEMORANDUM, OR ANY REPORT OF ANY PETROLEUM ENGINEERING CONSULTANT, OR ANY
GEOLOGICAL OR SEISMIC DATA OR INTERPRETATION, RELATING TO THE ASSETS, (III) THE
QUANTITY, QUALITY OR  RECOVERABILITY OF PETROLEUM SUBSTANCES IN OR FROM THE
ASSETS, (IV) ANY ESTIMATES OF THE VALUE OF THE ASSETS OR FUTURE REVENUES
GENERATED BY THE ASSETS, (V) THE PRODUCTION OF HYDROCARBONS FROM THE ASSETS,
(VI) THE MAINTENANCE, REPAIR, CONDITION, QUALITY, SUITABILITY, DESIGN OR
MARKETABILITY OF THE ASSETS, (VII) THE CONTENT, CHARACTER OR NATURE OF ANY
DESCRIPTIVE MEMORANDUM, REPORTS, BROCHURES, CHARTS OR STATEMENTS PREPARED BY
THIRD PARTIES, (VIII) ANY OTHER MATERIALS OR INFORMATION THAT MAY HAVE BEEN MADE
AVAILABLE OR COMMUNICATED TO PURCHASER OR ITS AFFILIATES, OR ITS OR THEIR
EMPLOYEES, AGENTS, CONSULTANTS, REPRESENTATIVES OR ADVISORS IN CONNECTION WITH
THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY DISCUSSION OR
PRESENTATION RELATING THERETO, AND FURTHER DISCLAIMS ANY REPRESENTATION OR
WARRANTY, EXPRESS, STATUTORY OR IMPLIED, OF MERCHANTABILITY, FREEDOM FROM
REDHIBITORY VICES OR DEFECTS, FITNESS FOR A PARTICULAR PURPOSE OR CONFORMITY TO
MODELS OR SAMPLES OF MATERIALS OF ANY EQUIPMENT, IT BEING EXPRESSLY UNDERSTOOD
AND AGREED BY THE PARTIES HERETO THAT PURCHASER SHALL BE DEEMED TO BE OBTAINING
THE ASSETS IN THEIR PRESENT STATUS, CONDITION AND STATE OF REPAIR, “AS IS” AND
“WHERE IS” WITH ALL FAULTS AND THAT PURCHASER HAS MADE OR CAUSED TO BE 
MADE SUCH INSPECTIONS AS PURCHASER DEEMS APPROPRIATE, OR (IX) ANY IMPLIED OR
EXPRESS WARRANTY OF FREEDOM FROM PATENT OR TRADEMARK
INFRINGEMENT.

                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                        (c)                         
SELLER HAS NOT AND WILL NOT MAKE ANY
REPRESENTATION OR WARRANTY REGARDING ANY MATTER OR CIRCUMSTANCE RELATING TO
ENVIRONMENTAL LAWS, ENVIRONMENTAL LIABILITIES, THE RELEASE OF MATERIALS INTO THE
ENVIRONMENT OR THE PROTECTION OF HUMAN HEALTH, SAFETY, NATURAL RESOURCES OR THE
ENVIRONMENT, OR ANY OTHER ENVIRONMENTAL CONDITION OF THE ASSETS, AND NOTHING IN
THIS AGREEMENT OR OTHERWISE SHALL BE CONSTRUED AS SUCH A REPRESENTATION OR
WARRANTY, AND PURCHASER SHALL BE DEEMED TO BE TAKING THE ASSETS “AS IS” AND
“WHERE IS” FOR PURPOSES OF THEIR ENVIRONMENTAL CONDITION.

                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                          Section
11.9        
Waiver of Trade Practices Acts.

                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                       
(a)        It is the intention of the Parties
that Purchaser's rights and remedies with respect to this transaction and with
respect to all acts or practices of Seller, past, present or future, in
connection with this transaction shall be governed by legal principles other
than the Texas Deceptive Trade Practices--Consumer Protection Act, Tex. Bus.
& Com. Code Ann. § 17.41 et seq. (the "DTPA"). 
As such, Purchaser hereby waives the applicability of the DTPA to this
transaction and any and all duties, rights or remedies that might be imposed by
the DTPA, whether such duties, rights and remedies are applied directly by the
DTPA itself or indirectly in connection with other statutes; provided, however, Purchaser
does not waive § 17.555 of the DTPA.  Purchaser acknowledges, represents
and warrants that it is purchasing the goods and/or services covered by this
Agreement for commercial or business use; that it has assets of $5 million or
more according to its most recent financial statement prepared in accordance
with generally accepted accounting principles; that it has knowledge and
experience in financial and business matters that enable it to evaluate the
merits and risks of a transaction such as contemplated in this Agreement; and
that it is not in a significantly disparate bargaining position with
Seller.

                                                                                                                                                                                                                                            
                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  

                                                                                                                                                                                                                                                

                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                  51

                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                    

                                                                                                                                                                                                                                                  

                                                                                                                                                                                                                                                

                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  

                                                                                                                                                                                                                                                

                                                                                                                                                                                                                                              

                                                                                                                                                                                                                                              (b)       
Purchaser expressly recognizes that the price for which Seller has agreed to
perform its obligations under this Agreement has been predicated upon the
inapplicability of the DTPA and this waiver of the DTPA.  Purchaser further
recognizes that Seller, in determining to proceed with the entering into of this
Agreement, has expressly relied on this waiver and the inapplicability of the
DTPA.

                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                           
Section 11.10 Recording.

                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                  As soon as practicable after Closing, Purchaser
shall record the Conveyance in the appropriate counties and/or parishes and
provide Seller with copies of all recorded or approved
instruments.

                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                    The conveyance in the form attached as Exhibit B is
intended to convey all of the Properties being conveyed pursuant to this
Agreement.  Certain Properties or specific portions of the Properties that
are leased from, or require the approval to transfer by, a governmental entity
are conveyed under the Conveyance and also are described and covered other
separate assignments made by Seller to Purchaser on officially approved forms,
or forms acceptable to such entity, in sufficient multiple originals to satisfy
applicable statutory and regulatory requirements.  The interests conveyed by such
separate assignments are the same, and not in addition to, the interests
conveyed in the Conveyance attached as Exhibit B. 
Further, such assignments shall be deemed to contain the special warranty of
title of Seller and all of the exceptions, reservations, rights, titles, power
and privileges set forth herein and in the Conveyance as fully and only to the
extent as though they were set forth in each such separate assignment.


                                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                                                                              ARTICLE
12
                                    MISCELLANEOUS

                                                                                                                                                                                                                                                      Section 12.1             
Counterparts.

                                                                                                                                                                                                                                                      This Agreement may be executed in counterparts, each
of which shall be deemed an original instrument, but all such counterparts
together shall constitute but one agreement. 

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                      Section 12.2             
Notice.

                                                                                                                                                                                                                                                      All notices which are required or may be given
pursuant to this Agreement shall be sufficient in all respects if given in
writing and delivered personally, by telecopy or by registered or certified
mail, postage prepaid, as follows:

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                      If to
Purchaser:                      
Vanguard Permian, LLC

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                                                                     
7700 San Felipe, Suite 465

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                                                                     
Houston, Texas 77063

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                                                                     
Attn:     Scott W. Smith

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                                                                     
Telephone:      (832)
327-2259

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                                                                     
Telecopy:        (832)
327-2260

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                                 
           


                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                          

                                                                                                                                                                                                                                                        

                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                          52

                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                            

                                                                                                                                                                                                                                                          

                                                                                                                                                                                                                                                        

                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                          

                                                                                                                                                                                                                                                        

                                                                                                                                                                                                                                                      

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                      With a copy
to:           
            J. Patrick
Doherty

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                                                                     
Doherty & Doherty LLP

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                                                                     
1717 St. James Place, Suite 520

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                                                                     
Houston, Texas 77056

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                                                                     
Telephone:      (713)
572-1000

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                                                                     
Telecopy:        (713)
572-1001

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                                 


                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                      If to
Seller       
:                      
Fortson Production Company

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                                                                     
301 Commerce St., Suite 2900

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                                                                     
Fort Worth, Texas 76102  

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                                                                     
Attn:     David
Frazier

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                                                                     
Telephone:      (817)
335-5641

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                                                                     
Telecopy:        (817)
336-4853

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                      With a copy
to:                       
Robert C. Grable

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                                                                     
Kelly Hart & Hallman LLP

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                                                                     
201 Main Street, Suite 2500

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                                                                     
Fort Worth, Texas 76102

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                                                                     
Telephone:     (817) 878-3550

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                                                                     
Telecopy:       (817)
878-9280           
           


                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                                                                                                   


                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                      Either
Party may change its address for notice by notice to the other in the manner set
forth above.  All notices shall be deemed to have been duly given at the
time of receipt by the Party to which such notice is
addressed.

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                      Section 12.3             
Sales or Use
Tax Recording Fees and Similar Taxes and Fees.

                                                                                                                                                                                                                                                      Purchaser shall bear any sales, use, excise, real
property transfer or gain, gross receipts, goods and services, registration,
capital, documentary, stamp or transfer Taxes, recording fees and similar Taxes
and fees incurred and imposed upon, or with respect to, the property transfers
or other transactions contemplated hereby. Seller will determine, and Purchaser
agrees to cooperate with Seller in determining, sales tax, if any, that is due
in connection with the sale of Assets and Purchaser agrees to pay any such tax
to Seller at Closing.  If such transfers or transactions are exempt from
any such taxes or fees upon the filing of an appropriate certificate or other
evidence of exemption, Purchaser will timely furnish to Seller such certificate
or evidence.

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                      Section 12.4             
Expenses.

                                                                                                                                                                                                                                                      Except as provided in Section 12.3, all expenses
incurred by Seller in connection with or related to the authorization,
preparation or execution of this Agreement, the Conveyance delivered hereunder
and the Exhibits and Schedules hereto and thereto, and all other matters related
to the Closing, including without limitation, all fees and expenses of counsel,
accountants and financial advisers employed by Seller, shall be borne solely and
entirely by Seller, and all such expenses incurred by Purchaser shall be borne
solely and entirely by Purchaser.

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                          

                                                                                                                                                                                                                                                        

                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                          53

                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                            

                                                                                                                                                                                                                                                          

                                                                                                                                                                                                                                                        

                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                          

                                                                                                                                                                                                                                                        

                                                                                                                                                                                                                                                      

                                                                                                                                                                                                                                                      Section 12.5             
Change of
Name.

                                                                                                                                                                                                                                                      As promptly as practicable, but in any case within
thirty (30) days after the Closing Date, Purchaser shall eliminate the names
“Fortson Oil Company,” “Fortson Production Company” and any variants thereof
from the Assets acquired pursuant to this Agreement and, except with respect to
such grace period for eliminating existing usage, shall have no right to use any
logos, trademarks or trade names belonging to Seller or any of its
Affiliates.

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                      Section 12.6             
Replacement of
Bonds, Letters of Credit and Guarantees.

                                                                                                                                                                                                                                                      The Parties understand that none of the Bonds,
letters of credit and guarantees, if any, posted by Seller with Governmental
Bodies and relating to the Assets may be transferable to Purchaser. 
Promptly following Closing, Purchaser shall obtain, or cause to be obtained in
the name of Purchaser, replacements for such Bonds, letters of credit and
guarantees, to the extent such replacements are necessary to permit the
cancellation of the Bonds, letters of credit and guarantees posted by Seller or
to consummate the transactions contemplated by this
Agreement.

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                      Section 12.7             
Governing Law
and Venue.

                                                                                                                                                                                                                                                      THIS AGREEMENT AND THE LEGAL RELATIONS BETWEEN THE
PARTIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS OTHERWISE
APPLICABLE TO SUCH DETERMINATIONS.  JURISDICTION AND VENUE WITH RESPECT TO
ANY DISPUTES ARISING HEREUNDER SHALL BE PROPER ONLY IN TARRANT  COUNTY,
TEXAS.

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                      Section 12.8             
Captions.

                                                                                                                                                                                                                                                      The captions in this Agreement are for convenience
only and shall not be considered a part of or affect the construction or
interpretation of any provision of this Agreement. 


                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                      Section 12.9             
Waivers.

                                                                                                                                                                                                                                                      Any failure by any Party or Parties to comply with
any of its or their obligations, agreements or conditions herein contained may
be waived in writing, but not in any other manner, by the Party or Parties to
whom such compliance is owed. No waiver of, or consent to a change in, any of
the provisions of this Agreement shall be deemed or shall constitute a waiver
of, or consent to a change in, other provisions hereof (whether or not similar),
nor shall such waiver constitute a continuing waiver unless otherwise expressly
provided.

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                      Section 12.10          
Assignment.

                                                                                                                                                                                                                                                      No Party shall assign all or any part of this
Agreement, nor shall any Party assign or delegate any of its rights or duties
hereunder, without the prior written consent of the other Party and any
assignment or delegation made without such consent shall be void. This Agreement
shall be binding upon and inure to the benefit of the Parties hereto and their
respective successors and permitted assigns.

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                          

                                                                                                                                                                                                                                                        

                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                          54

                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                            

                                                                                                                                                                                                                                                          

                                                                                                                                                                                                                                                        

                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                          

                                                                                                                                                                                                                                                        

                                                                                                                                                                                                                                                      

                                                                                                                                                                                                                                                      Section 12.11          
Entire
Agreement.

                                                                                                                                                                                                                                                      The Confidentiality Agreement, this Agreement and
the Exhibits and Schedules attached hereto, and the documents to be executed
hereunder constitute the entire agreement between the Parties pertaining to the
subject matter hereof, and supersede all prior agreements, understandings,
negotiations and discussions, whether oral or written, of the Parties pertaining
to the subject matter hereof.

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                      Section 12.12          
Amendment.

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                      (a)                         
This Agreement may be
amended or modified only by an agreement in writing executed by both
Parties.

                                                                                                                                                                                                                                                      (b)                         
No waiver of any right
under this Agreement shall be binding unless executed in writing by the Party to
be bound thereby.

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                      Section 12.13          
No Third-Party
Beneficiaries.

                                                                                                                                                                                                                                                      Nothing in this Agreement shall entitle any Person
other than Purchaser and Seller to any Claims, remedy or right of any kind,
except as to those rights expressly provided to Seller Indemnitees and Purchaser
Indemnitees (provided, however, any claim for indemnity hereunder on behalf of a
Seller Indemnitee or a Purchaser Indemnitee must be made and administered by a
Party to this Agreement).

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                      Section 12.14          
References.

                                                                                                                                                                                                                                                      In this Agreement:

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                      (a)                         
References to any gender
includes a reference to all other genders;

                                                                                                                                                                                                                                                      (b)                         
References to the
singular includes the plural, and vice versa;

                                                                                                                                                                                                                                                      (c)                         
Reference to any Article
or Section means an Article or Section of this Agreement; 

                                                                                                                                                                                                                                                      (d)                         
Reference to any Exhibit
or Schedule means an Exhibit or Schedule to this Agreement, all of which are
incorporated into and made a part of this Agreement;

                                                                                                                                                                                                                                                      (e)                         
Unless expressly provided
to the contrary, “hereunder”, “hereof’, “herein” and words of similar import are
references to this Agreement as a whole and not any particular Section or other
provision of this Agreement; and

                                                                                                                                                                                                                                                      (f)                          
“Include” and “including”
shall mean include or including without limiting the generality of the
description preceding such term.

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                      Section 12.15          
Construction.

                                                                                                                                                                                                                                                      Purchaser is a Party capable of making such
investigation, inspection, review and evaluation of the Assets as a prudent
purchaser would deem appropriate under the circumstances including with respect
to all matters relating to the Assets, their value, operation and suitability.
Each of Seller and Purchaser has had substantial input into the drafting and
preparation of this Agreement and has had the opportunity to exercise business
discretion in relation to the negotiation of the details of the transactions
contemplated hereby. This Agreement is the result of arm’s-length negotiations
from equal bargaining positions.  In the event of a dispute over the
meaning or application of this Agreement, it shall be construed fairly and
reasonably and neither more strongly for nor against either
Party.

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                          

                                                                                                                                                                                                                                                        

                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                          55

                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                            

                                                                                                                                                                                                                                                          

                                                                                                                                                                                                                                                        

                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                          

                                                                                                                                                                                                                                                        

                                                                                                                                                                                                                                                      

                                                                                                                                                                                                                                                      Section 12.16          
Limitation on Damages.

                                                                                                                                                                                                                                                      Notwithstanding any other provision contained
elsewhere in this Agreement to the contrary, the Parties acknowledge that this
Agreement does not authorize one Party to sue for or collect from the other
Party its own punitive damages, or its own consequential or indirect damages in
connection with this Agreement and the transactions contemplated hereby and each
Party expressly waives for itself and on behalf of its Affiliates, any and all
Claims it may have against the other Party for its own such damages in
connection with this Agreement and the transactions contemplated
hereby.

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                      Section 12.17          
Conspicuousness.

                                                                                                                                                                                                                                                      The Parties agree that provisions in this Agreement
in "bold" type satisfy any requirements of the "express negligence rule" and any
other requirements at law or in equity that provisions be conspicuously marked
or highlighted.

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                      Section 12.18          
Severability.

                                                                                                                                                                                                                                                      If any term or other provisions of this Agreement is
held invalid, illegal or incapable of being enforced under any rule of law, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in a materially adverse manner
with respect to either Party.

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                      Section 12.19          
Time of
Essence.

                                                                                                                                                                                                                                                      Time is of the essence in this Agreement.  If
the date specified in this Agreement for giving any notice or taking any action
is not a Business Day (or if the period during which any notice is required to
be given or any action taken expires on a date which is not a Business Day),
then the date for giving such notice or taking such action (and the expiration
date of such period during which notice is required to be given or action taken)
shall be the next day which is a Business Day.

                                                                                                                                                                                                                                                       

                                                                                                                                                                                                                                                      [SIGNATURES BEGIN ON THE FOLLOWING
PAGE]

                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                          

                                                                                                                                                                                                                                                        

                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                          56

                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                            

                                                                                                                                                                                                                                                          

                                                                                                                                                                                                                                                        

                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                          

                                                                                                                                                                                                                                                        

                                                                                                                                                                                                                                                      

                                                                                                                                                                                                                                                    



                                                                                                                                                                                                                                                    IN
WITNESS WHEREOF, this Agreement has been signed by each of the Parties hereto on
the date first above written.

                                                                                                                                                                                                                                                     

                                                                                                                                                                                                                                                    Purchaser:

                                                                                                                                                                                                                                                     

                                                                                                                                                                                                                                                    VANGUARD PERMIAN,
LLC

                                                                                                                                                                                                                                                     

                                                                                                                                                                                                                                                    By Vanguard
Natural Gas, LLC, manager

                                                                                                                                                                                                                                                     

                                                                                                                                                                                                                                                    By:  /s/ Scott W.
Smith

                                                                                                                                                                                                                                                     

                                                                                                                                                                                                                                                     

                                                                                                                                                                                                                                                     

                                                                                                                                                                                                                                                    Title:
Manager

                                                                                                                                                                                                                                                     

                                                                                                                                                                                                                                                     

                                                                                                                                                                                                                                                     

                                                                                                                                                                                                                                                     

                                                                                                                                                                                                                                                    SELLER:

                                                                                                                                                                                                                                                     

                                                                                                                                                                                                                                                    Fortson Production
Company

                                                                                                                                                                                                                                                     

                                                                                                                                                                                                                                                     

                                                                                                                                                                                                                                                     

                                                                                                                                                                                                                                                    By:       /s/ Ben
Fortson

                                                                                                                                                                                                                                                     

                                                                                                                                                                                                                                                     

                                                                                                                                                                                                                                                     

                                                                                                                                                                                                                                                    Title:    President

                                                                                                                                                                                                                                                     

                                                                                                                                                                                                                                                     

                                                                                                                                                                                                                                                     

                                                                                                                                                                                                                                                     

                                                                                                                                                                                                                                                     

                                                                                                                                                                                                                                                     

                                                                                                                                                                                                                                                    Benco ENERGY,
Inc.

                                                                                                                                                                                                                                                     

                                                                                                                                                                                                                                                    By:       /s/ Ben
Fortson

                                                                                                                                                                                                                                                     

                                                                                                                                                                                                                                                    Title:    President

                                                                                                                                                                                                                                                     

                                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                        

                                                                                                                                                                                                                                                      

                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                        57