PURCHASE SALE AND PARTICIPATION
AGREEMENT


 



REGARDING


 


CERTAIN PROPERTIES IN LOUISIANA
AND TEXAS


 




BETWEEN


 


5 JAB, INC.


 


AS OPERATOR AND SELLER


 


AND


 


THREE FORKS, INC.


 


AS PARTICIPANT AND BUYER


 



DATED
AS OF FEBRUARY 27, 2013



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PURCHASE AND PARTICIPATION
AGREEMENT


FOR


SELECT PROPERTIES IN LOUISIANA
AND TEXAS


 


This Agreement (the “Agreement”)
is made and entered into as of the 27th day of February, 2013 by and between the following named Parties (the “Parties”)
whose addresses, telephone, and facsimile numbers are set forth with their respective names, to-wit:


 


Five J.A.B., Inc., (“Operator”)
or (“Seller)”


16202 Butera Rd .


Magnolia, TX 77355


Attention: James (“Bubba”) Bohannon


Telephone: (281) 356-7767


Fax: (281) 252-0575


 


and


 


THREE FORKS, INC. (“Participant”)
or (“Buyer”)


555 Eldorado Blvd., Suite 100


Broomfield, Colorado 80021


Attention: Donald
Walford, CEO


Telephone: (303)404-2160


Fax:


 


W I T N E S S E T H:


 


Précis. Five
J.A.B., Inc. (“Operator”) of Magnolia, Texas, is the owner and operator of certain oil and gas wells and leases (the
“Properties”) described in Exhibit “A”, attached hereto and made a part hereof. The Participant has reviewed
geological, engineering, and production data pertaining to the Properties and has made the determination to purchase an interest
in the Properties. The precise working interest and net revenue interest percentages (the “Interests”) to be purchased
by the Participant are identified in Exhibit “A”. In addition, the Participant has determined, in concurrence with
the Operator, that the production from the Properties can be enhanced by the application of a ten (10) well workover and development
program (the “Development Program”), described below. This Agreement sets forth the terms and conditions upon which
(i) the Participant agrees to purchase the Interests from the Operator and (ii) the parties describe the proposed Development Program
to develop the Properties.


 


1. The Properties. The
Properties are comprised of the oil and gas wells and leases described in the attached Exhibit “A”. The Properties
were acquired and are currently operated by the Operator.


 


2. Agreement to Purchase
the Interests. The Operator hereby agrees to sell, transfer and assign seventy-five percent (75.0%) all of the Seller’s
right title and interest to the following (such interests are collectively herein called the “Assets”):




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		(a).	the oil and gas leases, mineral executive interests, contractual
rights, rights to explore, produce and develop, rights to drain, wellbore interests and/or properties listed and described in
any manner on Exhibit A (including any renewals, extensions, ratifications and amendments to such interests whether or not such
renewals, extensions, ratifications or amendments are described on Exhibit A) (any such rights or interests individually referred
to as a “Lease” or collectively, the “Leases”);



		 	 



		(b).	all oil and gas wells, salt water disposal wells, injection
wells and other wells located on, or pooled or unitized with, any of the Leases, as listed on Exhibit A (collectively the “Wells”);



		 	 



		(c).	all structures, facilities, foundations, wellheads, tanks,
pumps ,compressors, separators, heater treaters, valves, fittings, equipment, machinery, fixtures, flowlines, pipelines, platforms,
tubular goods, materials, tools, supplies, improvements, and any other real, personal, immovable and mixed property located on,
used in the operation of, or relating to the production, treatment, non-regulated transportation, gathering, marketing, sale,
processing, handling or disposal of hydrocarbons, water, and associated substances produced or drained from the Leases (the “Facilities”),
but excluding all of Operator’s vehicles, equipment, supplies, tools and other personal property not used solely to operate
the Properties or used in Operator’s general business operations;



		 	 



		(d).	all natural gas, casinghead gas, drip gasoline, natural
gasoline, natural gas liquids, condensate, products, crude oil and other hydrocarbons, whether gaseous or liquid, produced or
drained from or allocable to the Assets (as defined above) on and after the Effective Date (the “Hydrocarbons”);



		 	 



		(e).	to the extent transferable, all contracts, permits, rights-of-way,
easements, licenses, servitudes, transportation agreements, pooling agreements, operating agreements, gas balancing agreements,
participation and processing agreements, confidentiality agreements, side letter agreements and any other agreement, document
or instrument listed on Exhibit A INSOFAR ONLY as they directly relate and are attributable to the Leases, Wells, Hydrocarbons,
or Facilities or the contractual and wellbore rights thereon or therein or the ownership or operation thereof, or the production,
treatment, non- regulated transportation, gathering, marketing, sale, processing, handling disposal, storage or transportation
of hydrocarbons, water, or substances associated therewith (the “Assumed Contracts”); and



		 	 



		(f).	copies of records relating to the Leases, Wells, Hydrocarbons,
Assumed Contracts and Facilities in the possession of Seller (the “Records”) and including as follows: all (i) lease,
mineral interest, land, and division order files (including any abstracts of title, title opinions, certificates of title, title
curative documents, and division orders contained therein), (ii) the Assumed Contracts; (iii) all well, facility, operational,
environmental, regulatory, compliance and historic production files and (iv) all geological and geophysical files relating to
the Leases (the “Geologic Data”), but not including any records which (i) Seller is prohibited from transferring to
Buyer by law or existing contractual relationship (including Geologic Data that is not transferable without payment of a fee or
other penalty to any third party which Buyer has not separately agreed in writing to pay). Operator’s general accounting,
legal, corporate and financial records shall be excluded from the Records. Such records listed in this Paragraph 2 (f) shall be
stored and maintained at the offices of the Seller and made available to the Buyer upon reasonable advance notice, during normal
business hours, for the purposes of perusal or





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		 	duplication at Buyer’s expense.



 


Reserved.


 


Conveyancing
Instruments. The Assets to be conveyed by Seller to Buyer shall be conveyed “AS IS, WHERE IS” with the express
conditions and limitations contained in this Agreement, and they shall be transferred pursuant to a Conveyance, Assignment and
Bill of Sale in substantially the form of Exhibit B (the “Assignment”) which shall contain a special warranty of title.
Such Special Warranty will limit the Seller’s covenants of warranty to encumbrances and defects caused by the Seller and
will require the Seller to warrant and defend title for claims by, through or under Seller, but against none other.


 


Purchase Price.
As partial consideration for the sale of the Assets, Buyer shall pay to Seller or its respective designee, three million seven
hundred fifty thousand US dollars ($3,750,000.00) (the “Purchase Price”), as set forth below. The Purchase Price as
adjusted in accordance with Section 2.5 shall be referred to as the “Adjusted Purchase Price”. The Adjusted Purchase
Price shall be paid at Closing by Buyer by completed wire transfer, in immediately available funds, as directed in writing by Seller.


 


Allocation of
Purchase Price. The Purchase Price shall be allocated for consent, defect and casualty loss adjustments as set forth in Schedule
2.4. Within 30 days after Closing, Buyer and Seller shall agree in writing as to the allocation of the Purchase Price among the
Assets for tax purposes under the methodology required by Section 1060 of the Internal Revenue Code of 1986, as amended (the “Code”)
and the Treasury Regulations promulgated thereunder. Such allocation may be revised, from time to time, by a mutual written consent
of Buyer and Seller, so as to reflect any matters that need updating (including Purchase Price adjustments, if any). Buyer and
Seller agree to be bound by such allocation of the Purchase Price for all tax purposes; to consistently report such allocations
for all federal, state and local income tax purposes (including for purposes of Internal Revenue Service Form 8594); and to timely
file all reports required by the Code concerning the Purchase.


 


Adjustments
to Purchase Price. The Purchase Price shall be adjusted in accordance with this Section 2.5.


 


		(a).	The Purchase Price shall be increased by the following
amounts (without duplication):



 


		 	(i) The amount of all expenses relating to the Assets incurred by Seller and attributable to
                                                                                  the period after the Effective Date, including, without limitation, (a) all operating expenditures, (b) all capital
                                                                                  expenditures, royalty disbursements, and severance and production tax payments, (c) all prepaid expenses paid by Seller and
                                                                                  attributable to the period after the Effective Date (other than delay rentals due prior to the Effective Date), and (d) all
                                                                                  other expenses under applicable operating agreements (including overhead chargeable thereunder), participation,
                                                                                  production handling, production processing, exploration and development agreements and other similar types of agreements
                                                                                  which cover or relate to any of the Assets between Seller and Buyer or any other unaffiliated third party (to the extent not
                                                                                  reimbursed by other parties and to the extent not related solely to the negotiations and consummation of this
                                                                                  Agreement);



 


			(ii) An amount equal to the value of all hydrocarbons in storage above the pipeline
                                                                            connection on the Effective Date that are produced from, attributable to, or otherwise credited to the Assets, priced at the
                                                                            closing spot price for Louisiana Light Sweet Crude three (3) days prior to the Closing;





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		 	(iii) The amount of any property or ad valorem taxes assessed against or related to the
                                                                                  Assets that were paid by Seller prior to the Effective Date but allocable to the period of time from and after the Effective
                                                                                  Date;



 


		(b).	The Purchase Price shall be decreased by the following
amounts:



 


			(i) If the average gross oil production attributable to the entire 8/8ths or 100% WI
                                                                           ownership position in the Leases at the end of the 15-day period immediately prior to the Effective Date is less than 100
                                                                           Barrels of Oil Equivalent Per Day (“BOEPD”), the Purchase Price payable to Seller shall be reduced by $31,250.00
                                                                           per barrel per barrel of oil equivalent deficiency as follows: the Purchase Price issued hereunder shall be adjusted by a
                                                                           reduction in Purchase Price of $31,250.00 per barrel of oil equivalent times the difference between 100 BOEPD and the
                                                                           actual average daily production. However, in no event shall the Purchase Price be reduced below $3,750,000.00. For the
                                                                           purposes hereof, 33 MMBTU of gas production per day shall equal 1 barrel of oil production per day. Buyer’s and
                                                                           Operator’s closing obligations are each contingent upon average daily production of 100 BOEPD for at least 15 days
                                                                           prior to closing; provided, however, that Buyer and Operator each reserve the right to waive their respective conditions to
                                                                           Close set forth in this Section 2.5(b);



 


			(ii) An amount equal to the gross proceeds received by Seller from the sale of Hydrocarbons
                                                                           produced from, attributable to, or otherwise credited to the Assets after the Effective Date;



		 	 



		 	(iii) The amount of any property or ad valorem taxes assessed against or related to the
                                                                                 Assets that will be paid by Buyer after the Effective Date but allocable to the period of time prior to the Effective
                                                                                 Date;



 


			(iv) Any other amount agreed upon by Seller and Buyer in writing.



 


Closing Statement.
Seller shall prepare and deliver to Buyer an accounting statement to be executed at Closing (the “Closing Statement”)
no later than two (2) business days prior to Closing that shall set forth the adjustments to the Purchase Price made in accordance
with this Agreement, it being understood and agreed that the Closing Statement shall contain reasonable estimates where actual
amounts are not known at the Closing and that as actual costs and revenues are known, these amounts will be taken into account
in the Final Accounting Statement. The Closing Statement shall be prepared in accordance with generally accepted accounting principles
used in the oil and gas industry.


 


Effective
Date of Sale. The effective date of the sale of the Properties described in Section 1.1, hereof, shall be April 1, 2013 (the
“Effective Date”).


 


Closing. The
closing of this transaction (the “Closing”) shall be on or before April 1, 2013, at the offices of the Operator, or
such other time and place as the Parties may agree or as adjusted pursuant to this Agreement. At the closing, Participant shall
deliver to Operator in good funds the Adjusted Purchase Price, together with an executed counterpart of the Operating Agreement
provided for in Section 6, below, and Operator shall execute and deliver to Participant the Assignment of Participant’s interest
in the Properties. At the closing, Participant agrees to indicate its acceptance of the Development Program by providing the signature
of its appropriate officer on the signatory line on the last page of each Stage of the Development Program. Within ninety (90)
days after the date of Closing, Seller shall prepare a final accounting statement for the adjustments to the Purchase Price provided
for in Section 2 and any other adjustments arising pursuant to this Agreement. Seller shall submit the Final Accounting Statement
to Buyer, along with copies of third party vendor invoices in




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excess of $10,000.00, or other
evidence of expenses agreed to by Seller and Buyer and Buyer shall have ten (10) days to review same and confirm accuracy thereof
(failure to deliver a written objection within such 10-day period shall be deemed agreement with the Final Accounting Statement).
Upon agreement by Seller and Buyer or upon the expiration of said ten (10) day period Seller or Buyer, whichever the case maybe
shall promptly pay to the other such sum as may be found due, after making adjustments for any payments made at Closing in accordance
with the Closing Statement.


 


Post-Closing
Actions for Development Program. The Development Program consists of the working over of, replacement of pumps in, or recompletion
of ten (10) wells, each of which is included in the Properties and has been determined by the Operator to possess enhanced production
potential. Operator may determine and propose the operations relating to the Development Program in accordance with the JOA. It
is anticipated that the initiation of the Development Program shall commence on or before April 21, 2013. However, the description
of the Development Program, and the timeframe for the operations contemplated by the Development Program, set forth herein, are
a present expression of intent only and shall not be binding on the parties. A binding commitment to participate in any operations
within the Development Program shall only arise pursuant to the JOA and proposals made thereunder.


 


3. Operating Agreement. There
is attached to this Agreement as Exhibit “C” a form of Joint Operating Agreement (the “JOA”) naming Operator
as “Operator”. The JOA shall be deemed effective by and between Operator and Participant at Closing. All operations
associated with the Properties shall be governed by the provisions of the JOA. In the event of a conflict between the provisions
contained in this Agreement and the JOA, or any other Annex attached hereto, the provisions of the JOA shall prevail.


 


4.
Assumption of Obligations of Operator by Participant; Mutual Indemnities.


 


(a). As a result of its
purchase of the Assets, the Participant shall own an undivided working interest in the Properties, thereby becoming obligated to
bear its pro rata share of the cost and expense of all of the duties, liabilities and burdens otherwise borne by Operator under
the terms and provisions of the Leases and any other related documents burdening the title, as it was acquired by Operator. If
the Closing occurs, then from and after the Closing, except for matters for which Seller indemnifies Buyer hereunder, Buyer shall
indemnify and hold harmless Seller (and its partners, affiliates, directors, officers, officers and agents) from and against any
Claims, damages, liabilities, losses, costs and expenses (including, without limitation, attorneys’ fees) of any kind arising
from or relating to (i) the ownership or operation of the Assets, whether arising before or after the Closing, (ii) the breach
of any representation or warranty of Buyer, and (iii) the breach of any of Buyer’s covenants hereunder. THE FOREGOING
ASSUMPTIONS AND INDEMNIFICATIONS SHALL APPLY WHETHER OR NOT SUCH DUTIES, OBLIGATIONS OR LIABILITIES, OR SUCH CLAIMS, ACTIONS, CAUSES
OF ACTION, LIABILITIES, DAMAGES, LOSSES, COSTS OR EXPENSES ARISE OUT OF (i) NEGLIGENCE (INCLUDING SOLE NEGLIGENCE, SIMPLE NEGLIGENCE,
CONCURRENT NEGLIGENCE, ACTIVE OR PASSIVE NEGLIGENCE, BUT EXPRESSLY NOT INCLUDING GROSS NEGLIGENCE) OF ANY INDEMNIFIED PARTY, OR
(ii) STRICT LIABILITY.


 


(b). If the Closing occurs,
then from and after the Closing, Seller shall indemnify and hold harmless Buyer (and its partners, affiliates, directors, officers,
officers and agents) from and against any Claims, damages, liabilities, losses, costs and expenses (including, without limitation,
attorneys’ fees) arising from or related to (i) the breach of Seller’s representations and warranties hereunder (limited
to the survival period of such representations and warranties), and (ii) the breach of Seller’s covenants hereunder. The
sole and exclusive remedy of Buyer with respect to the Assets shall be pursuant to the




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express provisions of this Agreement (and
the special warranty of title contained in the Assignment). Without limitation of the foregoing, the sole and exclusive
remedy of Buyer for any and all (a) claims relating to any representations, warranties, covenants and agreements contained in
this Agreement, (b) other claims pursuant to or in connection with this Agreement and (c) other claims relating to the Assets
and the purchase and sale thereof shall be any right to indemnification from such claims that is expressly provided in this
Agreement, and if no such right of indemnification is expressly provided, then such claims are hereby waived to the fullest
extent permitted by law (except claims arising under the special warranty of title in the Assignment). Notwithstanding
anything in this Agreement to the contrary, Seller shall never have any liability to Buyer under this Agreement, for breaches
of Seller’s representations or warranties, in excess of ten percent (10%) of the unadjusted Purchase Price, and
Seller’s indemnification obligations, for breaches of representations and/or warranties, shall be capped at such
maximum amount.


 


5.
Well Information. With respect to each Stage of the Development Program, Operator shall:


 


		a.	furnish Participant with all information, including daily reports, as such information becomes
available from the undertaking of Program activities;



 


		b.	permit Participant, its agents and representatives, access to the well sites associated with the
Development Program at all times; and



 


		c.	notify Participant in time for its representatives to be present when Operator plans to perform
any test on any Program-related well.



 


6. Relationship of the Parties.
It is not the intention or purpose of the Parties to create hereunder any partnership, mining or otherwise, joint venture or
association relationship or the relationship of agency or employer and employee, and neither this Agreement nor any of the operations
hereunder shall be construed as creating any such relationship. The Parties expressly agree that no Party shall be responsible
for the obligations of the other Party, each Party being severally responsible only for its obligations arising hereunder and liable
only for its proportionate share of the costs and expenses incurred hereunder.


 


7. Power and Authority. Each
Party represents hereby that it has all necessary and appropriate authority to execute, deliver, and fulfill the requirements imposed
by this Agreement.


 


8. Pending Litigation. Operator
represents that there are no pending suits, actions, notices of violations, or other governmental proceedings (collectively, “Claims”)
or to Operator’s knowledge, any such threatened Claims in which (i) Operator is or may be a party that relate to the Properties
or (ii) that affect the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby.


 


9 Basic Documents. The Operator
represents and warrants that, to the best of its knowledge, the following documents are in full force and effect and constitute
valid and binding obligations of the parties thereto:


 


		a.	the oil, gas and/or mineral leases which are included as part of the Oil and Gas Properties;



 


		b.	all contracts and agreements, licenses, permits and easements, rights-of-way and other rights-of-surface
use comprising any part of or otherwise relating to the Properties; and





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		c.	all contracts and agreements that are reasonably necessary to own, operate,
develop, or maintain the Properties in accordance with the prudent practices of the oil and gas industry.



 


No Notice of
Violation. Operator represents and warrants that it has received no written notice of violation from any person, (including,
without limitation, federal or state governmental agencies or owners of the surface of the lands covered by any Lease) alleging
or claiming that any of the Assets, or any of Operator’s operations with respect to the Assets, is in material violation
of any laws, orders or regulations pertaining to human health and the environment, waste materials or hazardous substances (“Environmental
Laws”).


 


Other
Compliance with Laws. The Operator represents and warrants:


 


		a.	that the ownership and operation of the Properties by Operator has been and
remains in conformity, in all material respects, with all applicable laws, rules, regulations guidelines and orders of all governmental
agencies having jurisdiction, relating to the Properties, other than Environmental Laws (which are addressed solely by Section
10.1 above); and



 


		b.	that all wells operated by Operator on the Properties that are shut in or
temporarily inactive are in material compliance with all applicable regulations, laws or rules other than Environmental
Laws (which are addressed solely by Section 10.1 above).



 


11. Buyer’s representations
and warranties. Buyer represents and warrants, as of the date of this Agreement and as of the Closing, that:


 


		a.	Buyer is acquiring the Assets for its own account and not with the intent
to make a distribution in violation of the Securities Act of 1933 as amended (and the rules and regulations pertaining thereto)
or in violation of any other applicable securities laws, rules or regulations.



 


		b.	Buyer has (and had prior to negotiations regarding the Assets) such knowledge
and experience in financial and business matters as to be able to evaluate the merits and risks of an investment in the Assets.
Buyer is able to bear the risks of an investment in the Assets and understands the risks of, and other considerations relating
to, a purchase of the Assets. Buyer is an “Accredited Investor” as that term is defined by Rule 501 of Regulation D
of the Securities and Exchange Commission, and understands the risks involved in an investment in the Assets, including that there
may be no market for Buyer to sell the Assets after Closing and that revenue therefrom is contingent and dependent upon many factors
which cannot be predicted with certainty. BUYER UNDERSTANDS THAT THESE ASSETS HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION, THE TEXAS SECURITIES BOARD, OR WITH THE SECURITIES COMMISSION OF ANY OTHER STATE AND MAY NOT BE RE- OFFERED
FOR SALE OR RESOLD UNLESS IT IS REGISTERED UNDER SUCH ACTS OR IN A TRANSACTION EXEMPT UNDER SUCH ACTS. NEITHER THE SECURITIES EXCHANGE
COMMISSION NOR THE TEXAS SECURITIES COMMISSIONER (NOR THE APPLICABLE AUTHORITY OF ANY OTHER STATE) RECOMMENDS NOR ENDORSES THE
PURCHASE OF THE ASSETS.





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12.
Buyer’s Due Diligence; Title and Environmental Defects.


 


		a.	Participant may, to the extent it deems appropriate, conduct, at its sole
cost, such title examination or other investigation as it may choose to conduct with respect to the Properties. To facilitate such
review, Operator shall, promptly after the execution of this Agreement, grant Buyer access to Operator’s title opinions,
abstracts, runsheets, and other title documentation relating to the Assets. Should, as a result of such examination and investigation,
or otherwise, matters come to Participant’s attention which would constitute “Defects” (as defined below) Participant
shall notify Operator in writing of such Defects at least ten (10) business days prior to the Closing. Such Defects of which Participant
so provides notice are herein called “Asserted Defects”. To be effective, the notice must describe the Asserted Defect(s)
with reasonable detail.



 


		b.	“Defects” shall mean any of the following:



 


(i)   Title. Seller’s
ownership of the working interest in a Lease or Well is clearly less than that set forth on Exhibit A.


 


(ii)   Liens. Seller’s
ownership of a Lease or Well is subject to a lien other than (A) a lien for taxes which are not yet delinquent or (B) a
mechanic’s or materialmen’s lien (or other similar lien), or a lien under an operating agreement or similar agreement, to the
extent the same relates to expenses incurred which are not yet delinquent or (C) liens which will be released at or before
Closing.


 


(iii)   Environmental Matters.
Except as disclosed on any Exhibit hereto, an Asset is in material violation of Environmental Laws.


 


Defects shall not include (i) defects
or irregularities that have been cured by the passage of time, including, without limitation, applicable statutes of limitation
or statutes for prescription; (ii) minor defects relating to capacity, authority, or marital status, (iii) defects or irregularities
in title that have not delayed or prevented Seller (or Seller’s predecessor) within the last 5 years, from receiving its share
of the proceeds of production from any unit or Well; or (iv) the presence or absence in Seller’s files of title opinions,
abstracts, records, documents, or other information, it being acknowledged and agreed that Buyer shall be responsible for obtaining
any title or other information it deems necessary for a complete evaluation of the Assets.


 


		c.	In the event that Participant notifies Operator of Asserted Defects, Operator
shall have the right (but not the obligation) to attempt to cure such Asserted Defects to the reasonable satisfaction of Participant,
and for the purpose of curing such Asserted Defects, Operator may on written notice to Participant elect to delay Closing as to
the Asset(s) directly affected by the Asserted Defects, for a period not to exceed 30 days, in which event the Purchase Price at
Closing shall be adjusted downward by the value allocated on Schedule 2.4 to the Asset(s) as to which Closing is delayed. If Operator
cures an Asserted Defect to the reasonable satisfaction of Participant within such time, the Parties shall hold a supplemental
closing as to the applicable cured Asset(s).



 


		d.	If Operator cannot or chooses not to cure any Asserted Defect, the Parties
shall attempt in good faith to agree upon an appropriate adjustment for the Asserted Defects. If the Parties are unable to agree
upon such adjustment amount, Operator may elect to exclude the affected Asset(s) from this transaction, in which event the Purchase
Price





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		 	shall be reduced by the value allocated thereto on Schedule 2.4, provided however that
                                                                                  Operator may elect to designate as an appropriate adjustment (which shall be deemed agreed to):



 


		(1)	for defects described in Section 12(b)(i), the deficiency in working interest, multiplied by the
allocated value of the affected Asset(s);



		(2)	for defects described in Section 12(b)(ii), the lesser of the amount required to remove the applicable
lien or the allocated value of the affected Asset(s);



		(3)	for defects described in Section 12(iii), the amount reasonably required to bring the affected
Asset(s) into material compliance with Environmental Law.



 


Notwithstanding the foregoing, there shall be no adjustment
for any uncured Asserted Defect except to the extent the amount of such adjustment exceeds $30,000.


 


13. Conditions Precedent
to the Obligations of the Parties to Close. The obligations of the Parties, respectively, to consummate the transactions contemplated
in this Agreement at Closing are subject to the following conditions:


 


		a.	Each and every representation and warranty of the other Party under this
Agreement shall be true and accurate in all material respects as of the date when made and, for the purposes of serving as a condition
to Close, shall be true and accurate in all material respects at and as of the time of Closing, as if it had been made again at
and as of the time of Closing.



		b.	The other Party shall have complied in all material respects with its covenants
under this Agreement.



		c.	The downward adjustments to the Purchase Price under Section 12 shall not
exceed ten percent (10%) of the unadjusted Purchase Price.



		d.	There has been average daily production of 100 BOEPD from the Assets for
at least 15 days prior to Closing.



 


If Buyer’s conditions to
close are unmet on the Closing Date, or if the Closing does not occur on the Closing Date and Buyer is not in material breach of
this Agreement, Buyer may terminate this Agreement. If Seller’s conditions to close are unmet on the Closing Date, or if
the Closing does not occur on the Closing Date and Seller is not in material breach of this Agreement, Seller may terminate this
Agreement. If either Party proceeds to Closing with knowledge that any of its conditions to closing are not met, such Party shall
be deemed to have waived all claims related to such condition(s).


 


14.
Disclaimers.


 


THE EXPRESS REPRESENTATIONS AND
WARRANTIES OF SELLER CONTAINED IN THIS AGREEMENT, AND THE SPECIAL WARRANTY OF TITLE IN THE ASSIGNMENT, ARE EXCLUSIVE AND ARE IN
LIEU OF ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AND SELLER EXPRESSLY DISCLAIMS ANY
AND ALL SUCH OTHER REPRESENTATIONS AND WARRANTIES, INCLUDING, WITHOUT LIMITATION AS TO THE CONDITION, QUANTITY, QUALITY, FITNESS
FOR A PARTICULAR PURPOSE, CONFORMITY TO MODELS OR SAMPLES OF MATERIALS OR MERCHANTABILITY OF EQUIPMENT OR ITS FITNESS FOR ANY PURPOSE,
AND, WITHOUT ANY EXPRESS, IMPLIED OR OTHER WARRANTY OR REPRESENTATION AS TO THE QUALITY OR QUANTITY OF HYDROCARBONS ATTRIBUTABLE
TO THE ASSETS OR THE ABILITY OF THE ASSETS TO




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PRODUCE HYDROCARBONS. WITHOUT
LIMITATION OF BUYER’S RIGHTS TO ASSERT DEFECTS AS PROVIDED HEREIN, BUYER SHALL HAVE INSPECTED, OR WAIVED (AND UPON CLOSING
SHALL BE DEEMED TO HAVE WAIVED) ITS RIGHT TO INSPECT THE PROPERTIES FOR ALL PURPOSES AND SATISFIED ITSELF AS TO THEIR PHYSICAL
AND ENVIRONMENTAL CONDITION, BOTH SURFACE AND SUBSURFACE, INCLUDING BUT NOT LIMITED TO CONDITIONS SPECIFICALLY RELATED TO THE PRESENCE,
RELEASE OR DISPOSAL OF HAZARDOUS SUBSTANCES, SOLID WASTES, ASBESTOS AND OTHER MAN MADE FIBERS, OR NATURALLY OCCURRING RADIOACTIVE
MATERIALS. BUYER IS RELYING SOLELY UPON ITS OWN INSPECTION OF THE PROPERTIES, AND BUYER SHALL ACCEPT ALL OF THE SAME IN THEIR “AS
IS”, “WHERE IS” CONDITION. ALL DATA, RECORDS, REPORTS, PROJECTIONS, INFORMATION AND OTHER MATERIALS (WRITTEN
OR ORAL) FURNISHED BY SELLER OR OTHERWISE MADE AVAILABLE OR DISCLOSED TO BUYER ARE PROVIDED BUYER AS A CONVENIENCE, AND SELLER
MAKES NO REPRESENTATION OR WARRANTY AS TO THE ACCURACY OF SUCH INFORMATION, WHICH SHALL NOT CREATE OR GIVE RISE TO ANY LIABILITY
OF OR AGAINST SELLER.


 


15.
Miscellaneous.


 


a. This document contains the
entire understanding of the Parties relative to the purchase of the Assets, and there is no other agreement, either oral or written,
between them governing the subject matter hereof (other than the JOA referred to above). This Agreement may be amended by the consent
of both of the parties to a written document setting forth the amendment. No rights of either of the parties may be waived without
a written waiver signed by the Party sought to be charged with the waiver.


 


b. Any notice required to be
given pursuant to this Agreement shall be in writing and shall be delivered in person, or by private courier service, with written
receipt of acceptance returned to the sender, or via registered mail, return receipt requested, postage prepaid, or by telecopier
(with confirmation of receipt by telecopier sent within one hour of completion of transmission, with the result that, if there
is no such confirmation of receipt by telecopy, the original notice sent by telecopier shall not be deemed effective notice) to
each of the Parties at the address, or at the telecopier number, set forth in the opening paragraph of this Agreement. The agent
for receipt of any notice shall be the individual who has executed this Agreement on behalf of each of the Parties. The agent and/or
address for each of the Parties may be unilaterally altered by either Party upon providing written notice thereof to the other
Party. Notice shall be deemed delivered when received at each of the addresses set forth in the opening paragraph of this Agreement,
except with respect to telecopies, which shall be deemed received as provided above in this section.


 


c. The failure of any party
to seek redress for any violation or to insist upon the strict performance, of any provision of this Agreement shall not prevent
any party from seeking redress for any subsequent act, or failure to act, or to insist upon the strict performance of this Agreement.
No single or partial exercise by a Party of any right or remedy hereunder shall preclude other, or further exercise thereof, or
the exercise of any other right or remedy.


 


d. This Agreement shall be
governed by the laws of the State of Texas, and venue for any litigation arising to resolve dispute arising hereunder shall lie
in Harris County, Texas.


 


e. This Agreement shall be
binding upon and shall inure to the benefit of each of the Parties and their respective, heirs, successors or assigns.




    	11



    	 



    

f.
Time is of the essence of this agreement.


 


g. The representations and warranties
made herein by the Parties shall terminate six (6) months after the Closing (provided that the special warranty of title in the
Assignment shall survive forever).


 


h. This Agreement may not be
assigned, in whole or in part, by either Party without the express written consent of the other Party (which may be withheld in
such Party’s sole discretion), and any assignment that is made without such consent shall be void.


 


i. NOTWITHSTANDING ANYTHING
HEREIN TO THE CONTRARY NEITHER PARTY SHALL HAVE ANY LIABILITY UNDER THIS AGREEMENT, OR OTHERWISE IN CONNECTION HEREWITH, FOR ANY
SPECIAL, CONSEQUENTIAL OR PUNITIVE DAMAGES.


 


Signature page follows




    	12



    	 



    


IN WITNESS WHEREOF, this Agreement is executed effective as
of the date first set forth above, (but the transfer of the Assets shall be effective as of the Effective Date, as provided above).


 



	OPERATOR:	PARTICIPANT:
	SELLER	BUYER
	Five J.A.B., Inc.	Three Forks, Inc.



 


	By:	 	 	By:	 	 
	James A. Bohannon, Jr.	 	Donald Walford	 
	President	 	Chief Executive Officer	 



 






    	13



    	 



    

EXHIBIT A


DESCRIPTION OF THE PROPERTIES, INTEREST AND
WELLS


 


(attached)




    	 



    	 



    




	Lessor’s
    Name	Lessee’s
    Name	Lease Date	Exhibit
    “A” to Purchase, Sale and Participation Agreement Part 1 - Leases 

Recording
    Information Legal Description	WELLS ASSOCIATED
    WITH THIS LEASE	SELLER WORKING
    INTEREST	WORKING
    INTEREST SOLD TO BUYER
	FENRIS FIELD
    PROPERTIES
	SOUTHERN OIL SYSTEMS
    L L C	FIVE JAB INC	6/1/2011	FILE NO. 587416 BOOK: 385 PAGE: 152 OF THE OFFICIAL
    PUBLIC RECORDS OF EVANGELINE PARISH, LOUISIANA	TRACT ONE: SW/4 OF THE SE/4 OF SECTION 29
    AND NW/4 OF SECTION 33, BOTH IN TOWNSHIP 5 SOUTH, RANGE 1 WEST, EVANGELINE PARISH, LOUISANA

 TRACT TWO: SE/4 OF THE
    SE/4 OF SECTION 29 AND THE NE/4 OF THE NE/4 OF SECTION 33, BOTH IN TOWNSHIP 5 SOUTH, RANGE 1 WEST, EVANGELINE PARISH, LOUISIANA


    TRACT THREE: SOUTHWEST CORNER OF SECTION 28, TOWNSHIP 5 SOUTH, RANGE 1 EVANGELINE PARISH, LOUISIANA	FRIO RA SUA; GUILLORY 0001-ALT 

FRIO RA SUA; RG BERZAS,
    ETUX 001 

LEE ROY FONTENOT SWD 001	100%	75%
	EAST BASILE
    PROPERTIES
	RICHARD
    LAFLEUR, ET AL	OLDFIELD OPERATING COMPANY	4/15/2010	FILE NO. 579283 BOOK: 369 PAGE:
    877 OF THE OFFICIAL PUBLIC RECORDS OF EVANGELINE PARISH, LOUISIANA	TRACT 1: SECTION 40 TOWNSHIP
    6 SOUTH, RANGE 2 WEST EVANGELINE PARISH, LOUISIANA 

TRACT 2: SECTIONS 1 AND 2, TOWNSHIP 6 SOUTH-RANGE 2 WEST, EVANGELINE
    PARISH, LOUISIANA	RICHARD LAFLEUR # 1

 LARRY LAFLEUR
    SWD # 1 

LARRY LAFLEUR B-1	100%	75%
	RANDALL
    LAFLEUR, ET AL	OLDFIELD OPERATING COMPANY	4/15/2010	FILE NO. 579284 BOOK: 369 PAGE:
    882 OF THE OFFICIAL PUBLIC RECORDS OF EVANGELINE PARISH, LOUISIANA	TRACT 1: SECTION 40 TOWNSHIP
    6 SOUTH, RANGE 2 WEST EVANGELINE PARISH, LOUISIANA

 TRACT 2: SECTIONS 1 AND 2, TOWNSHIP 6 SOUTH-RANGE 2 WEST, EVANGELINE
    PARISH, LOUISIANA	RICHARD LAFLEUR # 1 LARRY LAFLEUR
    SWD # 1 LARRY LAFLEUR B-1	100%	75%
	KATRINA
    LAFLEUR ROY, ET AL	OLDFIELD OPERATING COMPANY	4/15/2010	FILE NO. 579282 BOOK: 369 PAGE:
    872 OF THE OFFICIAL PUBLIC RECORDS OF EVANGELINE PARISH, LOUISIANA	TRACT 1: SECTION 40 TOWNSHIP
    6 SOUTH, RANGE 2 WEST EVANGELINE PARISH, LOUISIANA 

TRACT 2: SECTIONS 1 AND 2, TOWNSHIP 6 SOUTH-RANGE 2 WEST, EVANGELINE
    PARISH, LOUISIANA	RICHARD LAFLEUR # 1

 LARRY LAFLEUR
    SWD # 1 

LARRY LAFLEUR B-1	100%	75%





    	Page 1 of 6



    	 



    





	Lessor’s
    Name	Lessee’s
    Name	Lease Date	Exhibit
    “A” to Purchase, Sale and Participation Agreement Part 1 - Leases Recording
    Information Legal Description	WELLS ASSOCIATED
    WITH THIS LEASE	SELLER WORKING
    INTEREST	WORKING
    INTEREST SOLD TO BUYER
	RANDALL
    LAFLEUR, ET AL	OLDFIELD OPERATING
    COMPANY	4/15/2010	FILE NO. 579285
    BOOK: 369 PAGE: 888 OF THE OFFICIAL PUBLIC RECORDS OF EVANGELINE PARISH, LOUISIANA	TRACT 1: SECTION
    40 TOWNSHIP 6 SOUTH, RANGE 2 WEST EVANGELINE PARISH, LOUISIANA 

TRACT 2: SECTIONS 1 AND 2, TOWNSHIP 6 SOUTH-RANGE 2
    WEST, EVANGELINE PARISH, LOUISIANA	RICHARD LAFLEUR
    # 1

 LARRY LAFLEUR SWD # 1 

LARRY LAFLEUR B-1	100%	75%
	JOHN
    W. JENKINS	OLDFIELD OPERATING COMPANY	11/18/2010	ORIGINAL NOT RECORDED	TRACT 1: SECTION 40 TOWNSHIP
    6 SOUTH, RANGE 2 WEST EVANGELINE PARISH, LOUISIANA 

TRACT 2: SECTIONS 1 AND 2, TOWNSHIP 6 SOUTH-RANGE 2 WEST, EVANGELINE
    PARISH, LOUISIANA	RICHARD LAFLEUR # 1

 LARRY LAFLEUR
    SWD # 1 

LARRY LAFLEUR B-1	100%	75%
	PENNY UNVERZAGT STEFANSKI	OLDFIELD OPERATING COMPANY	10/25/2010	ORIGINAL NOT RECORDED	TRACT 1: SECTION 40 TOWNSHIP 6 SOUTH, RANGE 2 WEST EVANGELINE
    PARISH, LOUISIANA 

TRACT 2: SECTIONS 1 AND 2, TOWNSHIP 6 SOUTH-RANGE 2 WEST, EVANGELINE PARISH, LOUISIANA	RICHARD LAFLEUR # 1

 LARRY LAFLEUR SWD # 1 

LARRY LAFLEUR B-1	100%	75%
	CHARENTON FIELD
    PROPERTIES
	SHORE
    OIL CORPORATION	JNC, INC	6/17/1981	CONVEYANCE BOOK: 23-W, ENTRY
    NO. 189, PAGE: 786 OF THE CONVEYANCE RECORDS OF ST. MARY PARISH, LOUISIANA	SECTIONS 51 AND 52, TOWNSHIP
    14 SOUTH, RANGE 9 EAST AND SECTIONS 41 AND 43, TOWNSHIP 14 SOUTH, RANGE 10 EAST	SHORE OIL COMPANY # 1

 SHORE
    OIL COMPANY SWD # 1 

SHORE OIL COMPANY # 3

 SHORE OIL COMPANY # 4

 SHORE OIL COMPANY # 5

 SHORE OIL COMPANY # 9

 SHORE OIL COMPANY
    SWD # 2 

STERLING SUGARS # 1

 PARAMOUNT # 1	100%	75%
	STERLING
    SUGARS, INC	LGS EXPLORATION, INC	11/30/1983	CONVEYANCE BOOK: 26-T, ENTRY
    NO. 204089, PAGE/FOLIO: 753 OF THE CONVEYANCE RECORDS OF ST. MARY PARISH, LOUISIANA	SECTION 43, TOWNSHIP 14 SOUTH,
    RANGE 10 EAST AND SECTIONS 50, 51, 52 AND 53, EAST OF BAYOU TECHE	SHORE OIL COMPANY # 1

 SHORE
    OIL COMPANY SWD # 1 

SHORE OIL COMPANY # 3

 SHORE OIL COMPANY # 4

 SHORE OIL COMPANY # 5

 SHORE OIL COMPANY # 9

 SHORE OIL COMPANY
    SWD # 2 

STERLING SUGARS # 1

 PARAMOUNT # 1	100%	75%






    	Page 2 of 6



    	 



    




	Lessor’s
    Name	Lessee’s
    Name	Lease Date	Exhibit
    “A” to Purchase, Sale and Participation Agreement Part 1 - Leases Recording
    Information Legal Description	WELLS ASSOCIATED
    WITH THIS LEASE	SELLER WORKING
    INTEREST	WORKING
    INTEREST SOLD TO BUYER
	OXY USA INC	FIVE-J.A.B., INC	1/24/2013	BEING RECORDED - AWAITING RECORDED DOCUMENT VIA
    MAIL	SECTION 41, T14S-R10E	SHORE OIL COMPANY # 1

 SHORE OIL COMPANY # 3

 SHORE
    OIL COMPANY # 4	100%	75%
	JASPER FIELD PROPERTIES
	ATLANTIC
    RICHFIELD COMPANY	COLUMBIA GAS DEVELOPMENT CORP.	9/30/1992	UNRECORDED LEASE - SEE MEMORANDUM
    OF OIL AND GAS LEASE RECORDED IN BOOK 88, PAGE 643 OF THE DEED RECORDS OF JASPER COUNTY, TEXAS AND AMENDMENT OF OIL AND GAS
    LEASE EXECUTED TO BE EFFECTIVE SEPTEMBER 1, 1992	WILLIAM JORDAN SURVEY, A-320,
    THE OLIVE HARRALL SURVEY, A-173 AND THE JOHN MYERS SURVEY, A-387, JASPER COUNTY, TEXAS	ARCO FEE # 1

 ARCO FEE # 2

 ARCO
    FEE # 3 SWD 

ARCO FEE E-1	100%	75%
	ATLANTIC
    RICHFIELD COMPANY	BALLARD EXPLORATION COMPANY,
    INC	8/18/1985	ENTRY NO. 48494, BOOK 77 PAGE
    605 OF THE OFFICIAL PUBLIC RECORDS OF JASPER COUNTY, TEXAS	40 ACRES OUT OF THE MARTIN FLORES
    SURVEY, A-13, JASPER COUNTY, TEXAS BEING 40 ACRES AROUND THE ARCO FEE NO. E-1	ARCO FEE E-1	100%	75%
	BP
    AMERICA PRODUCTION COMPANY	W. DALE MORRIS, INC	6/29/2004	UNRECORDED	40 ACRES OUT OF THE WILLIAM
    JORDAN SURVEY, A-320, JASPER COUNTY, TEXAS	ARCO FEE # 2	100%	75%
	KENNETH
    R. & JUANITA B. GREGORY	SAM HOUSTON ELECTRIC COOPERATIVE	3/20/1991	UNRECORDED	BEING A STRIP OF LAND IN WIDTH
    OUT OF THAT CERTAIN 10.8 ACRES OF LAND SITUATED IN THE JOSEPH MILHOME SURVEY, A-448, JASPER COUNTY, TEXAS	ARCO FEE # 1

 ARCO FEE # 2

 ARCO
    FEE # 3

 SWD 

ARCO FEE E-1	100%	75%
	ATLANTIC
    RICHFIELD COMPANY	COLUMBIA GAS DEVELOPMENT CORP.	9/3/1993	ENTRY NO. 93-4046, VOL: 553
    PAGE: 463, FML-370 OF THE OFFICIAL PUBLIC RECORDS OF TYLER COUNTY, TEXAS	40 ACRES MORE OR LESS WITHIN
    THE ARCO FEE LJ UNIT AND OUT OF THE NORMAN HURD SURVEY, A-22 & LIMITED AS TO DEPTHS FROM SURFACE DOWN TO 8,102 FEET	ARCO FEE LJ # 1	100%	75%






    	Page 3 of 6



    	 



    



	Lessor’s
    Name	Lessee’s
    Name	Lease Date	Exhibit
    “A” to Purchase, Sale and Participation Agreement Part 1 - Leases Recording
    Information Legal Description	WELLS ASSOCIATED
    WITH THIS LEASE	SELLER WORKING
    INTEREST	WORKING
    INTEREST SOLD TO BUYER
	CROWN
    PINE TIMBER 3, L.P.	CHAPARRAL ENERGY,
    L.L.C.	1/24/2008	ENTRY NO. 08-2064,
    BOOK 916 PAGE 568 OF THE OFFICIAL PUBLIC RECORDS OF TYLER COUNTY, TEXAS	A 15 FOOT WIDE R-O-W
    AND EASEMENT FOR THE SOLE PURPOSE OF TRANSPORTING GAS THROUGH A 2.5 INCH PIPELINE UNDER, UPON, OVER AND THROUGH LANDS OF GRANTOR
    SITUATED IN THE NORMAN HURD SURVEY, A-22 AND THE THEOPHILUS CUSHING SURVEY, A-14 IN TYLER COUNTY, TEXAS	ARCO FEE LJ # 1	100%	75%
	BP
    AMERICA PRODUCTION COMPANY	W DALE MORRIS INC	12/6/2002	ENTRY NO. C-174649, VOL 733
    PAGE 811 OF THE OFFICIAL PUBLIC RECORDS OF TYLER COUNTY, TEXAS	40 ACRES, MORE OR LESS, OUT
    OF THE NORMAN HURD SURVEY, A-22	HURD # 1 

HURD # 15 SWD

 HURD
    # 40	100%	75%
	JUANITA
    GREGROY SPURLOCK ET AL	REA EXPLORATION COMPANY	8/30/1983	VOL 025 PAGE 563 OF THE OFFICIAL
    PUBLIC RECORDS OF TYLER COUNTY, TEXAS	15.563 ACRES OUT OF THE BBB&C
    RR CO SURVEY NO. 13, A-147, TYLER CO., TX	GREGORY # 1

 WIW GREGORY # 2	100%	75%
	OMAHA
    NATIONAL BANK TRUSTEE	REA EXPLORATION COMPANY	10/26/1983	BOOK 25 PAGE 376 OF THE OFFICIAL
    PUBLIC RECORDS OF TYLER COUNTY, TEXAS	24.437 ACRES OUT OF THE SOUTH
    200 ACRES OF A 400 ACRE TRACT OUT OF THE BBB&C RR CO SURVEY NO. 13, A- 147, LIMITED AS TO ALL DEPTHS FROM THE SURFACE
    OF THE EARTH DOWN TO 9,664 FEET, A-147 TYLER CO, TX	GREGORY # 1 WIW 

GREGORY # 2	100%	75%
	KIRBY
    LUMBER CORPORATION	REID PRODUCTION COMPANY	1/3/1977	BOOK 353 PAGE 201 OF THE OFFICIAL
    PUBLIC RECORDS OF TYLER COUNTY, TEXAS	160 ACRES OF LAND, MORE OR LESS,
    BEING A PART OF THE J.R. MCINNIS SURVEY, ABSTRACT NO. 1030, TYLER COUNTY, TEXAS	KIRBY MCINNIS # 1K 

KIRBY MCINNIS
    # 2 

KIRBY MCINNIS # 10D SWD	100%	75%





    	Page 4 of 6



    	 



    




	Lessor’s
    Name	Lessee’s
    Name	Lease Date	Exhibit
    “A” to Purchase, Sale and Participation Agreement Part 1 - Leases Recording
    Information Legal Description	WELLS ASSOCIATED
    WITH THIS LEASE	SELLER WORKING
    INTEREST	WORKING
    INTEREST SOLD TO BUYER
	KIRBY
    LUMBER CORPORATION	REID PRODUCTION
    COMPANY	7/6/1977	BOOK 366 PAGE 459
    OF THE OFFICIAL PUBLIC RECORDS OF TYLER COUNTY, TEXAS	A TRACT OF LAND
    CONTAINING 584.64 ACRES OF LAND, MORE OR LESS, COMPRISED OF ALL OF THE J. T. MCINNIS SURVEY, A-1030, AND ALL OF THE J. T.
    MCINNIS SURVEY, A-1031, TYLER COUNTY, TEXAS	KIRBY MCINNIS #
    1K 

KIRBY MCINNIS # 2 

KIRBY MCINNIS # 10D SWD	100%	75%







    	Page 5 of 6



    	 



    




	Lessor’s
    Name	Lessee’s
    Name	Lease Date	Exhibit “A”
    to Purchase, Sale and Participation Agreement Part 1 - Leases Recording Information
    Legal Description	WELLS ASSOCIATED
    WITH THIS LEASE	SELLER WORKING
    INTEREST	WORKING
    INTEREST SOLD TO BUYER
	CONROE
    FIELD PROPERTIES
	W.T.
    HOOPER AND RUBY LAURA HOOPER MARTIN	EPOCH
    OIL AND GAS, INC.	2/20/1998	ENTRY:
    9812625, 350-00-1416 OF THE OFFICIAL PUBLIC RECORDS OF MONTGOMERY COUNTY, TEXAS	THAT
    APPROXIMATLEY 80 ACRES OF LAND LYING IN MONTGOMERY COUNTY, TEXAS IN THE THE J. T. WATSON SURVEY, A-690, DESCRIBED WITH OTHER
    LANDS, IN THAT CERTAIN DEED DATED NOVEMBER 28, 1908 FROM W.P. MERCER, AS GRANTOR, TO W.N. HOOPER AS GRANTEE	FANNIE
    HOOPER SWD # 1 

FANNIE HOOPER # 2 

FANNIE HOOPER # 3 

FANNIE HOOPER SWD # 4 

FANNIE HOOPER # 5 

FANNIE HOOPER # 6	50%	37.50%






    	Page 6 of 6



    	 



    



	WELL
    NAME	WELL
    NUMBER	Exhibit
    A (part 2 - Wells)

 FIELD NAME        API # (IF AVAIL)	COUNTY/PARISH	STATE	SELLER
        WI SOLD TO 

WI      BUYER
	BERZAS PROPERTIES
	FRIO RA SUA; R G BERZAS ETUX	1	FENRIS	17039203970000	EVANGELINE PARISH	LA	100.00%	75.00%
	FRIO RA SUA; L GUILLORY	001-ALT	FENRIS	17039203360000	EVANGELINE PARISH	LA	100.00%	75.00%
	LEE ROY FONTENOT SWD	2	FENRIS	17039005830000	EVANGELINE PARISH	LA	100.00%	75.00%
	LAFLEUR PROPERTIES
	RICHARD LAFLEUR	1	BASILE, EAST	17039201460000	EVANGELINE PARISH	LA	100.00%	75.00%
	Y RA VUA; L LAFLEUR B	1	BASILE, EAST	17039202020000	EVANGELINE PARISH	LA	100.00%	75.00%
	LARRY LAFLEUR SWD	1	BASILE, EAST	17039201360000	EVANGELINE PARISH	LA	100.00%	75.00%
	CHARENTON FIELD
    PROPERTIES
	SHORE OIL COMPANY	1	CHARENTON	17101213620000	ST. MARY’S PARISH	LA	100.00%	75.00%
	SHORE OIL COMPANY SWD	1	CHARENTON	17101213700000	ST. MARY’S PARISH	LA	100.00%	75.00%
	SHORE OIL COMPANY	3	CHARENTON	17101214290000	ST. MARY’S PARISH	LA	100.00%	75.00%
	CH 6800 RA SU: STERLING SUGARS INC	1	CHARENTON	17101214420000	ST. MARY’S PARISH	LA	100.00%	75.00%
	SHORE OIL COMPANY	4	CHARENTON	17101214590000	ST. MARY’S PARISH	LA	100.00%	75.00%
	CH 6800 RA SU: SHORE OIL CO	5	CHARENTON	17101214930000	ST. MARY’S PARISH	LA	100.00%	75.00%
	CH 6800 RA SU: SHORE OIL CO	9	CHARENTON	17101216340000	ST. MARY’S PARISH	LA	100.00%	75.00%
	SHORE OIL COMPANY SWD	2	CHARENTON	17101216980000	ST. MARY’S PARISH	LA	100.00%	75.00%
	CH 6800 RA SU: PARAMOUNT PET CO	1	CHARENTON	17101218640000	ST. MARY’S PARISH	LA	100.00%	75.00%
	JASPER FIELD PROPERTIES
	ARCO FEE	1	CHAMPION, WEST (WILC OX 8610)	42-241-30519	JASPER COUNTY	TX	100.00%	75.00%
	ARCO FEE	2	CHAMPION (WILCOX 9050)	42-241-30376	JASPER COUNTY	TX	100.00%	75.00%
	ARCO FEE	3 SWD	CHAMPION	42-241-30544	JASPER COUNTY	TX	100.00%	75.00%
	ARCO FEE	E-1	RED BANK CREEK	42-241-30439	JASPER COUNTY	TX	100.00%	75.00%
	ARCO FEE LJ	1	JOES LAKE, W. (WILCOX) 	42-457-30471	JASPER COUNTY	TX	100.00%	75.00%
	GREGORY	1 - WIW	GREGORY (WILCOX)	42-457-30362	TYLER COUNTY	TX	100.00%	75.00%
	GREGORY	2	GREGORY (WILCOX)	42-457-30378	TYLER COUNTY	TX	100.00%	75.00%
	HURD	1	JOES LAKE, E. (1ST WILCOX) 	42-457-30360	TYLER COUNTY	TX	100.00%	75.00%
	HURD	15 SWD	JOES LAKE, E. (1ST WILCOX)	42-457-00284	TYLER COUNTY	TX	100.00%	75.00%






    	 



    	 



    



	WELL NAME	WELL NUMBER	FIELD NAME	API # (IF AVAIL)	COUNTY/PARISH	STATE	SELLER     WI SOLD TO

 WI      BUYER
	HURD	40	JOES LAKE, E. (1ST WILCOX)	42-457-00309	TYLER COUNTY	TX	100.00%	75.00%
	KIRBY-MCINNIS	1K	THEUVENINS CREEK (WILCOX 8400)	42-457-00220	TYLER COUNTY	TX	100.00%	75.00%
	KIRBY-MCINNIS	2	THEUVENINS CREEK (YEGUA 1-D)	42-457-00221	TYLER COUNTY	TX	100.00%	75.00%
	KIRBY-MCINNIS	10D SWD	THEUVENINS CREEK (YEGUA 1-D)	42-457-00228	TYLER COUNTY	TX	100.00%	75.00%
	CONROE FIELD PROPERTIES
	HOOPER, FANNIE SWD	1	CONROE (CONS U)	42-339-00556	MONTGOMERY COUNTY	TX	50.00%	37.50%
	HOOPER, FANNIE	2	CONROE (CONS U)	42-339-00557	MONTGOMERY COUNTY	TX	50.00%	37.50%
	HOOPER, FANNIE	3	CONROE (CONS U)	42-339-00558	MONTGOMERY COUNTY	TX	50.00%	37.50%
	HOOPER, FANNIE SWD	4	CONROE (CONS U)	42-339-00278	MONTGOMERY COUNTY	TX	50.00%	37.50%
	HOOPER, FANNIE	5	CONROE (CONS U)	42-339-00560	MONTGOMERY COUNTY	TX	50.00%	37.50%
	HOOPER, FANNIE	6	CONROE (CONS U)	42-339-30742	MONTGOMERY COUNTY	TX	50.00%	37.50%






    	 



    	 



    


Exhibit “B”


 


Attached to Purchase, Sale
and Participation Agreement by and between


Five J.A.B., Inc., and Three Forks, Inc.


 







 






    	1



    	 



    



NOTICE OF CONFIDENTIALITY
RIGHTS: IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR STRIKE ANY OF THE FOLLOWING INFORMATION FROM THIS INSTRUMENT BEFORE IT IS
FILED FOR RECORD IN THE PUBLIC RECORDS: YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER’S LICENSE NUMBER.


 



ASSIGNMENT, CONVEYANCE AND BILL OF SALE


 


STATES OF TEXAS/LOUISIANA


 


COUNTY/PARISH OF [               ]


 


THIS ASSIGNMENT,
CONVEYANCE AND BILL OF SALE (this “Assignment”) is between Five J.A.B., Inc., whose address is 16202
Butera Road, Magnolia, Texas 77355 (“Assignor”), and Three Forks, Inc., whose address is 555 Eldorado
Blvd., Suite 100, Bloomfield Colorado, 80021, (“Assignee”), effective as of the 1st day of April, 2013 (the
“Effective Date”).


 


WITNESSETH:


 


FOR AND
IN CONSIDERATION of One Hundred and No/100 Dollars ($100.00) and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Assignor does hereby GRANT, BARGAIN, SELL, TRANSFER, ASSIGN and CONVEY unto Assignee an undivided
seventy-five percent (75%) of Assignor’s right, title and interest to the following (collectively referred to herein as the
“Assets”):


 


(a) The
oil and gas leases, mineral executive interests, contractual rights, rights to explore, produce and develop, rights to drain, wellbore
interests and/or properties listed and described in any manner on Exhibit A (including any renewals, extensions, ratifications
and amendments to such interests whether or not such renewals, extensions, ratifications or amendments are described on Exhibit
A) (any such rights or interests individually referred to as a “Lease” or collectively, the “Leases”);


 


(b) All
oil and gas wells, salt water disposal wells, injection wells, and other wells located on, pooled or unitized with any of the Leases
listed on Exhibit A (collectively the “Wells”);


 


(c) All
structures, facilities, foundations, wellheads, tanks, pumps, compressors, separators, heater treaters, valves, fittings, equipment,
machinery, fixtures, flowlines, pipelines, platforms, tubular goods, materials, tools, supplies, improvements, and any other real,
personal, immovable and mixed property located on, used in the operation of, or relating to, the production, treatment, non-regulated
transportation, gathering, marketing, sale, processing, handling or disposal of hydrocarbons, water, and associated substances
produced or drained from the Leases (the “Facilities”), but EXCLUDING all of Assignor’s vehicles, equipment,
supplies, tools and other personal property not used solely to operate the Assets or used in Assignor’s general business
operations;


 


(d) All
natural gas, casinghead gas, drip gasoline, natural gasoline, natural gas liquids, condensate, products, crude oil and other hydrocarbons,
whether gaseous or liquid, produced or drained from or allocable to the Assets on and after the Effective Date (the “Hydrocarbons”);




    	2



    	 



    

(e) To
the extent transferable, all contracts, permits, rights-of-way, easements, licenses, servitudes, transportation agreements, pooling
agreements, operating agreements, gas balancing agreements, participation and processing agreements, confidentiality agreements,
side letter agreements and any other agreement, document or instrument listed on Exhibit A INSOFAR ONLY as they directly
relate and are attributable to the Leases, Wells, Hydrocarbons, or Facilities or the contractual and wellbore rights thereon or
therein or the ownership or operation thereof, or the production, treatment, non-regulated transportation, gathering, marketing,
sale, processing, handling disposal, storage or transportation of hydrocarbons, water, or substances associated therewith (the
“Assumed Contracts”); and


 


(f) Copies
of records relating to the Leases, Wells, Hydrocarbons, Assumed Contracts and Facilities in the possession of Assignor (the “Records”),
and including the following: (i) all lease, mineral interest, land, and division order files (including any abstracts of title,
title opinions, certificates of title, title curative documents, and division orders contained therein), (ii) the Assumed Contracts,
(iii) all well, facility, operational, environmental, regulatory, compliance and historic production files, and (iv) all geological
and geophysical files relating to the Leases (the “Geologic Data”); BUT NOT INCLUDING (x) any records which
Assignor is prohibited from transferring to Assignee by law or existing contractual relationship (including Geologic Data that
is not transferable without payment of a fee or other penalty to any third party which Assignee has not separately agreed in writing
to pay), and (y) Assignor’s general accounting, legal, corporate and financial records.


 


TO HAVE AND
TO HOLD the Properties assigned by Assignor herein, together with all rights, titles, interests, estates, remedies, powers and
privileges thereunto appertaining unto Assignee, its successors and assigns forever.


 


Assignor hereby
binds itself, its successors, legal representatives and assigns to warrant and forever defend the Properties unto Assignee, its
successors and assigns against all claims, liens, burdens and encumbrances arising by, through or under Assignor or its affiliates,
but not otherwise.


 


OTHER THAN
THOSE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET OUT IN THIS ASSIGNMENT OR IN THE PURCHASE AGREEMENT, ASSIGNOR HEREBY EXPRESSLY
DISCLAIMS ANY AND ALL REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE ASSETS OR THE TRANSACTION CONTEMPLATED HEREBY, AND ASSIGNEE
AGREES THAT THE ASSETS ARE BEING SOLD BY ASSIGNOR “WHERE IS” AND “AS IS”, WITH ALL FAULTS. SPECIFICALLY
AS A PART OF (BUT NOT IN LIMITATION OF) THE FOREGOING, ASSIGNEE ACKNOWLEDGES THAT, OTHER THAN THOSE REPRESENTATIONS AND WARRANTIES
EXPRESSLY SET OUT IN THIS ASSIGNMENT OR THE PURCHASE AGREEMENT, ASSIGNOR HAS NOT MADE, AND ASSIGNOR HEREBY EXPRESSLY DISCLAIMS,
ANY REPRESENTATION OR WARRANTY (EXPRESS, IMPLIED, UNDER COMMON LAW, BY STATUTE OR OTHERWISE) AS TO THE CONDITION OF THE SUBJECT
INTERESTS, INCLUDING WITHOUT LIMITATION, ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
OR REPRESENTATION AS TO THE QUALITY OR QUANTITY OF HYDROCARBONS ATTRIBUTABLE TO THE ASSETS OR THE ABILITY OF THE ASSETS TO PRODUCE
HYDROCARBONS.


 


This Assignment
is being delivered pursuant to, and is subject to the terms and provisions of, that certain Purchase, Sale and Participation Agreement
dated as of February 27, 2013, by and between Assignor and Assignee (the “Purchase Agreement”). The Purchase
Agreement contains certain representations, warranties, covenants and agreements which shall survive the execution and delivery
of




    	3



    	 



    

this instrument to the extent
provided in the Purchase Agreement, but third parties may conclusively rely on this Assignment to vest title to the Assets in Assignee.
Capitalized terms used but not defined herein have the meanings given to such terms in the Purchase Agreement. In the event of
any conflict between any provisions of the Purchase Agreement and this Conveyance, the provisions of the Purchase Agreement shall
control.


 


This Assignment may be executed in one
or more originals, but all of which together shall constitute one and the same instrument.


 


[Signature Pages Follow]




    	4



    	 



    

IN WITNESS WHEREOF, the undersigned
has executed this instrument on the date of such party’s acknowledgement, but effective as of the Effective Time.


 



ASSIGNOR:


 


Five J.A.B., Inc.


 




		By:	 
	 	Name: James A. Bohannon, Jr.
	 	Title: President



 


ACKNOWLEDGEMENTS


 




STATE OF                                          


 


COUNTY/PARISH OF                       


 


This instrument was acknowledged
before me on February , 2013, by James A. Bohannon, Jr. as President of Five J.A.B., Inc., a Texas corporation, on behalf
of such corporation.


 




		 	 
	 	Notary Public – State of Texas



 



	Attachments:	 	 
		 	 
	Exhibit A    Properties	 



 






    	5



    	 



    


		Exhibit
    “A” 

Attached to and made part of that certain Assignment, Conveyance
    and Bill of Sale by and between Five J.A.B., Inc., as Assignor, and Three Forks, Inc., as Assignee  	
	Lessor’s
    Name	Lessee’s Name	Lease
    Date	Recording Information	Legal
    Description	Wells
    Associated with Lease
	FENRIS FIELD PROPERTIES
	SOUTHERN OIL SYSTEMS
    L L C	FIVE JAB INC	6/1/2011	FILE NO. 587416 BOOK: 385 PAGE: 152 OF THE

 OFFICIAL
    PUBLIC RECORDS OF EVANGELINE

 PARISH, LOUISIANA	TRACT ONE: SW/4 OF THE SE/4 OF SECTION 29
    AND NW/4 OF SECTION 33, BOTH IN TOWNSHIP 5 SOUTH, RANGE 1 WEST, EVANGELINE PARISH, LOUISANA 

TRACT TWO: SE/4 OF THE
    SE/4 OF SECTION 29 AND THE NE/4 OF THE NE/4 OF SECTION 33, BOTH IN TOWNSHIP 5 SOUTH, RANGE 1 WEST, EVANGELINE PARISH, LOUISIANA
    

TRACT THREE: SOUTHWEST CORNER OF SECTION 28, TOWNSHIP 5 SOUTH, RANGE 1 EVANGELINE PARISH, LOUISIANA	FRIO RA SUA; GUILLORY 0001-ALT 

FRIO RA SUA; RG BERZAS,
    ETUX 001 

LEE ROY FONTENOT SWD 001
	EAST BASILE PROPERTIES
	RICHARD
    LAFLEUR, ET AL	OLDFIELD OPERATING COMPANY	4/15/2010	FILE NO. 579283 BOOK: 369 PAGE:
    877 OF THE

 OFFICIAL PUBLIC RECORDS OF EVANGELINE 

PARISH, LOUISIANA	TRACT 1: SECTION 40 TOWNSHIP
    6 SOUTH, RANGE 2 WEST EVANGELINE PARISH, LOUISIANA 

TRACT 2: SECTIONS 1 AND 2, TOWNSHIP 6 SOUTH-RANGE 2 WEST, EVANGELINE
    PARISH, LOUISIANA	RICHARD LAFLEUR # 1 

LARRY LAFLEUR
    SWD # 1 

LARRY LAFLEUR B-1
	RANDALL
    LAFLEUR, ET AL	OLDFIELD OPERATING COMPANY	4/15/2010	FILE NO. 579284 BOOK: 369 PAGE:
    882 OF THE

 OFFICIAL PUBLIC RECORDS OF EVANGELINE 

PARISH, LOUISIANA	TRACT 1: SECTION 40 TOWNSHIP
    6 SOUTH, RANGE 2 WEST EVANGELINE PARISH, LOUISIANA 

TRACT 2: SECTIONS 1 AND 2, TOWNSHIP 6 SOUTH-RANGE 2 WEST, EVANGELINE
    PARISH, LOUISIANA	RICHARD LAFLEUR # 1 

LARRY LAFLEUR
    SWD # 1 

LARRY LAFLEUR B-1
	KATRINA
    LAFLEUR ROY, ET AL	OLDFIELD OPERATING COMPANY	4/15/2010	FILE NO. 579282 BOOK: 369 PAGE:
    872 OF THE 

OFFICIAL PUBLIC RECORDS OF EVANGELINE 

PARISH, LOUISIANA	TRACT 1: SECTION 40 TOWNSHIP
    6 SOUTH, RANGE 2 WEST EVANGELINE PARISH, LOUISIANA 

TRACT 2: SECTIONS 1 AND 2, TOWNSHIP 6 SOUTH-RANGE 2 WEST, EVANGELINE
    PARISH, LOUISIANA	RICHARD LAFLEUR # 1 

LARRY LAFLEUR
    SWD # 1 

LARRY LAFLEUR B-1
	RANDALL
    LAFLEUR, ET AL	OLDFIELD OPERATING COMPANY	4/15/2010	FILE NO. 579285 BOOK: 369 PAGE:
    888 OF THE

 OFFICIAL PUBLIC RECORDS OF EVANGELINE 

PARISH, LOUISIANA	TRACT 1: SECTION 40 TOWNSHIP
    6 SOUTH, RANGE 2 WEST EVANGELINE PARISH, LOUISIANA 

TRACT 2: SECTIONS 1 AND 2, TOWNSHIP 6 SOUTH-RANGE 2 WEST, EVANGELINE
    PARISH, LOUISIANA	RICHARD LAFLEUR # 1 

LARRY LAFLEUR
    SWD # 1 

LARRY LAFLEUR B-1







    	Page 1 of 5



    	 



    






		Exhibit
    “A” 

Attached to and made part of that certain Assignment, Conveyance
    and Bill of Sale by and between Five J.A.B., Inc., as Assignor, and Three Forks, Inc., as Assignee 	
	Lessor’s
    Name	Lessee’s Name	Lease
    Date	Recording Information	Legal
    Description	Wells
    Associated with Lease
	JOHN
    W. JENKINS	OLDFIELD
    OPERATING COMPANY	11/18/2010	ORIGINAL
    NOT RECORDED	TRACT
    1: SECTION 40 TOWNSHIP 6 SOUTH, RANGE 2 WEST EVANGELINE PARISH, LOUISIANA 

TRACT 2: SECTIONS 1 AND 2, TOWNSHIP 6
    SOUTH-RANGE 2 WEST, EVANGELINE PARISH, LOUISIANA	RICHARD
    LAFLEUR # 1 

LARRY LAFLEUR SWD # 1 

LARRY LAFLEUR B-1
	PENNY
    UNVERZAGT STEFANSKI	OLDFIELD OPERATING
    COMPANY	10/25/2010	ORIGINAL NOT RECORDED	TRACT 1: SECTION
    40 TOWNSHIP 6 SOUTH, RANGE 2 WEST EVANGELINE PARISH, LOUISIANA 

TRACT 2: SECTIONS 1 AND 2, TOWNSHIP 6 SOUTH-RANGE 2
    WEST, EVANGELINE PARISH, LOUISIANA	RICHARD LAFLEUR # 1
    

LARRY LAFLEUR SWD # 1 

LARRY LAFLEUR B-1
	CHARENTON
    FIELD PROPERTIES
	SHORE
    OIL CORPORATION	JNC,
    INC	6/17/1981	CONVEYANCE
    BOOK: 23-W, ENTRY NO. 189, PAGE: 786 OF THE CONVEYANCE RECORDS OF ST. MARY PARISH, LOUISIANA	SECTIONS
    51 AND 52, TOWNSHIP 14 SOUTH, RANGE 9 EAST AND SECTIONS 41 AND 43, TOWNSHIP 14 SOUTH, RANGE 10 EAST	SHORE
    OIL COMPANY # 1

 SHORE OIL COMPANY SWD # 1

 SHORE OIL COMPANY # 3

 SHORE OIL COMPANY # 4

 SHORE OIL COMPANY # 5

 SHORE OIL COMPANY
    # 9

 SHORE OIL COMPANY SWD # 2

 STERLING SUGARS # 1 

PARAMOUNT # 1
	STERLING
    SUGARS, INC	LGS
    EXPLORATION, INC	11/30/1983	CONVEYANCE
    BOOK: 26-T, ENTRY NO. 204089, PAGE/FOLIO: 753 OF THE CONVEYANCE RECORDS OF ST. MARY PARISH, LOUISIANA	SECTION
    43, TOWNSHIP 14 SOUTH, RANGE 10 EAST AND SECTIONS 50, 51, 52 AND 53, EAST OF BAYOU TECHE	SHORE
    OIL COMPANY # 1

 SHORE OIL COMPANY SWD # 1

 SHORE OIL COMPANY # 3

 SHORE OIL COMPANY # 4

 SHORE OIL COMPANY # 5

 SHORE OIL COMPANY
    # 9

 SHORE OIL COMPANY SWD # 2

 STERLING SUGARS # 1 

PARAMOUNT # 1
	OXY
    USA INC	FIVE-J.A.B.,
    INC	1/24/2013	BEING
    RECORDED - AWAITING RECORDED DOCUMENT VIA MAIL	SECTION
    41, T14S-R10E	SHORE
    OIL COMPANY # 1

 SHORE OIL COMPANY # 3

 SHORE OIL COMPANY # 4








    	Page 2 of 5



    	 



    



		Exhibit
    “A” 

Attached to and made part of that certain Assignment, Conveyance
    and Bill of Sale by and between Five J.A.B., Inc., as Assignor, and Three Forks, Inc., as Assignee 	
	Lessor’s
    Name	Lessee’s Name	Lease
    Date	Recording Information	Legal
    Description	Wells
    Associated with Lease
	JASPER
    FIELD PROPERTIES
	ATLANTIC
    RICHFIELD COMPANY	COLUMBIA
    GAS DEVELOPMENT CORP.	9/30/1992	UNRECORDED
    LEASE - SEE MEMORANDUM OF OIL AND GAS LEASE RECORDED IN BOOK 88, PAGE 643 OF THE DEED RECORDS OF JASPER COUNTY, TEXAS AND
    AMENDMENT OF OIL AND GAS LEASE EXECUTED TO BE EFFECTIVE SEPTEMBER 1, 1992	WILLIAM
    JORDAN SURVEY, A-320, THE OLIVE HARRALL SURVEY, A- 173 AND THE JOHN MYERS SURVEY, A-387, JASPER COUNTY, TEXAS	ARCO
    FEE # 1

 ARCO FEE # 2

 ARCO FEE # 3 SWD

 ARCO FEE E-1
	ATLANTIC
    RICHFIELD COMPANY	BALLARD
    EXPLORATION COMPANY, INC	8/18/1985	ENTRY
    NO. 48494, BOOK 77 PAGE 605 OF THE OFFICIAL PUBLIC RECORDS OF JASPER COUNTY, TEXAS	40
    ACRES OUT OF THE MARTIN FLORES SURVEY, A-13, JASPER COUNTY, TEXAS BEING 40 ACRES AROUND THE ARCO FEE NO. E-1	ARCO
    FEE E-1
	BP
    AMERICA PRODUCTION COMPANY	W.
    DALE MORRIS, INC	6/29/2004	UNRECORDED	40
    ACRES OUT OF THE WILLIAM JORDAN SURVEY, A-320, JASPER COUNTY, TEXAS	ARCO
    FEE # 2
	KENNETH
    R. & JUANITA B. GREGORY	SAM
    HOUSTON ELECTRIC COOPERATIVE	3/20/1991	UNRECORDED	BEING
    A STRIP OF LAND IN WIDTH OUT OF THAT CERTAIN 10.8 ACRES OF LAND SITUATED IN THE JOSEPH MILHOME SURVEY, A-448, JASPER COUNTY,
    TEXAS	ARCO
    FEE # 1

 ARCO FEE # 2

 ARCO FEE # 3 SWD

 ARCO FEE E-1
	ATLANTIC
    RICHFIELD COMPANY	COLUMBIA
    GAS DEVELOPMENT CORP.	9/3/1993	ENTRY
    NO. 93-4046, VOL: 553 PAGE: 463, FML- 370 OF THE OFFICIAL PUBLIC RECORDS OF TYLER COUNTY, TEXAS	40
    ACRES MORE OR LESS WITHIN THE ARCO FEE LJ UNIT AND OUT OF THE NORMAN HURD SURVEY, A-22 & LIMITED AS TO DEPTHS FROM SURFACE
    DOWN TO 8,102 FEET	ARCO
    FEE LJ # 1
	CROWN
    PINE TIMBER 3, L.P.	CHAPARRAL
    ENERGY, L.L.C.	1/24/2008	ENTRY
    NO. 08-2064, BOOK 916 PAGE 568 OF THE OFFICIAL PUBLIC RECORDS OF TYLER COUNTY, TEXAS	A
    15 FOOT WIDE R-O-W AND EASEMENT FOR THE SOLE PURPOSE OF TRANSPORTING GAS THROUGH A 2.5 INCH PIPELINE UNDER, UPON, OVER AND
    THROUGH LANDS OF GRANTOR SITUATED IN THE NORMAN HURD SURVEY, A-22 AND THE THEOPHILUS CUSHING SURVEY, A-14 IN TYLER COUNTY,
    TEXAS	ARCO
    FEE LJ # 1







    	Page 3 of 5



    	 



    




	 	Exhibit
    “A” 

    Attached to and made part of that certain Assignment, Conveyance and Bill of Sale by and between
    Five J.A.B., Inc., as Assignor, and Three Forks, Inc., as Assignee 	
	Lessor’s
    Name	Lessee’s Name	Lease
    Date	Recording Information	Legal
    Description	Wells
    Associated with Lease
	BP
    AMERICA PRODUCTION COMPANY	W
    DALE MORRIS INC	12/6/2002	ENTRY
    NO. C-174649, VOL 733 PAGE 811 OF THE OFFICIAL PUBLIC RECORDS OF TYLER COUNTY, TEXAS	40
    ACRES, MORE OR LESS, OUT OF THE NORMAN HURD SURVEY, A-22	HURD
    # 1 

HURD # 15 SWD

 HURD # 40
	JUANITA
    GREGROY SPURLOCK ET AL	REA
    EXPLORATION COMPANY	8/30/1983	VOL
    025 PAGE 563 OF THE OFFICIAL PUBLIC RECORDS OF TYLER COUNTY, TEXAS	15.563
    ACRES OUT OF THE BBB&C RR CO SURVEY NO. 13, A-147, TYLER CO., TX	GREGORY
    # 1 WIW

 GREGORY # 2
	OMAHA
    NATIONAL BANK TRUSTEE	REA
    EXPLORATION COMPANY	10/26/1983	BOOK
    25 PAGE 376 OF THE OFFICIAL PUBLIC RECORDS OF TYLER COUNTY, TEXAS	24.437
    ACRES OUT OF THE SOUTH 200 ACRES OF A 400 ACRE TRACT OUT OF THE BBB&C RR CO SURVEY NO. 13, A-147, LIMITED AS TO ALL DEPTHS
    FROM THE SURFACE OF THE EARTH DOWN TO 9,664 FEET, A- 147 TYLER CO, TX	GREGORY
    # 1 WIW

 GREGORY # 2
	KIRBY
    LUMBER CORPORATION	REID
    PRODUCTION COMPANY	1/3/1977	BOOK
    353 PAGE 201 OF THE OFFICIAL PUBLIC RECORDS OF TYLER COUNTY, TEXAS	160
    ACRES OF LAND, MORE OR LESS, BEING A PART OF THE J.R. MCINNIS SURVEY, ABSTRACT NO. 1030, TYLER COUNTY, TEXAS	KIRBY
    MCINNIS # 1K 

KIRBY MCINNIS # 2

 KIRBY MCINNIS # 10D SWD
	KIRBY
    LUMBER CORPORATION	REID
    PRODUCTION COMPANY	7/6/1977	BOOK
    366 PAGE 459 OF THE OFFICIAL PUBLIC RECORDS OF TYLER COUNTY, TEXAS	A
    TRACT OF LAND CONTAINING 584.64 ACRES OF LAND, MORE OR LESS, COMPRISED OF ALL OF THE J. T. MCINNIS SURVEY, A-1030, AND ALL
    OF THE J. T. MCINNIS SURVEY, A-1031, TYLER COUNTY, TEXAS	KIRBY
    MCINNIS # 1K 

KIRBY MCINNIS # 2

 KIRBY MCINNIS # 10D SWD






    	Page 4 of 5



    	 



    




		Exhibit
“A” 

Attached to and made part of that certain Assignment,
Conveyance and Bill of Sale by and between Five J.A.B., Inc., as Assignor, and Three Forks, Inc., as Assignee
	
	Lessor’s
    Name	Lessee’s Name	Lease
    Date	Recording Information	Legal
    Description	Wells
    Associated with Lease
	CONROE
    FIELD PROPERTIES
	W.T.
    HOOPER AND RUBY LAURA HOOPER MARTIN	EPOCH
    OIL AND GAS, INC.	2/20/1998	ENTRY:
    9812625, 350-00-1416 OF THE OFFICIAL PUBLIC RECORDS OF MONTGOMERY COUNTY, TEXAS	THAT
    APPROXIMATLEY 80 ACRES OF LAND LYING IN MONTGOMERY COUNTY, TEXAS IN THE THE J. T. WATSON SURVEY, A-690, DESCRIBED WITH OTHER
    LANDS, IN THAT CERTAIN DEED DATED NOVEMBER 28, 1908 FROM W.P. MERCER, AS GRANTOR, TO W.N. HOOPER AS GRANTEE	FANNIE
    HOOPER SWD # 1 

FANNIE HOOPER # 2 

FANNIE HOOPER # 3 

FANNIE HOOPER SWD # 4 

FANNIE HOOPER # 5 

FANNIE HOOPER # 6






    	Page 5 of 5



    	 



    





EXHIBIT C


OPERATING AGREEMENT



 


(attached)




    	 



    	 



    


A.A.P.L. FORM 610 - 1989


 


MODEL FORM OPERATING AGREEMENT


 





OPERATING AGREEMENT


 


DATED


          ,         ,


year


 


	OPERATOR	5-J.A.B.,
Inc.



 



	CONTRACT AREA	FENRIS,
                                         BASILE EAST, CHARENTON, CHAMPION WEST (WILCOX 8610), CHAMPION (WILCOX 9050), CHAMPION,
                                         RED BANK CREEK, JOES LAKE, W. (WILCOX), GREGORY (WILCOX), JOES LAKE, E. (1ST WILCOX),
                                         THEUVENINS CREEK (WILCOX 8400), THEUVENINS CREEK (YEGUA 1-D) and
                                         CONROE (CONS U) Fields.
	 	



 


	COUNTY OR PARISH OF	Evangeline, St.
                                         Mary’s,

                                         Jasper, Tyler, and

                                         Montgomery	, STATE OF Louisiana/Texas



 




	 	COPYRIGHT 1989 – ALL
RIGHTS RESERVED AMERICAN ASSOCIATION OF PETROLEUM LANDMEN, 4100 FOSSIL CREEK BLVD. FORT WORTH, TEXAS, 76137, APPROVED FORM.	 
	 	A.A.P.L. NO. 610 – 1989	 







    	 



    	 



    


FORM 610 - MODEL FORM OPERATING AGREEMENT
- 1989


 


TABLE OF CONTENTS


 



	Article	 	 	Title	Page

	I.	DEFINITIONS	1
	II.	EXHIBITS	1
	III.	INTERESTS OF PARTIES	2
	 	A.	OIL AND GAS INTERESTS:	2
	 	B.	INTERESTS OF PARTIES IN COSTS AND PRODUCTION:	2
	 	C.	SUBSEQUENTLY CREATED INTERESTS:	2
	IV.	TITLES	2
	 	A.	TITLE EXAMINATION:	2
	 	B.	LOSS OR FAILURE OF TITLE:	3
	 	 	1.	Failure of Title	3
	 	 	2.	Loss by Non-Payment or Erroneous Payment of Amount Due	3
	 	 	3.	Other Losses	3
	 	 	4.	Curing Title	3
	V.	OPERATOR	4
	 	A.	DESIGNATION AND RESPONSIBILITIES OF OPERATOR:	4
	 	B.	RESIGNATION OR REMOVAL OF OPERATOR AND SELECTION OF SUCCESSOR:	4
		 	1.	Resignation or Removal of Operator	4
		 	2.	Selection of Successor Operator	4
		 	3.	Effect of Bankruptcy	4
		C.	EMPLOYEES AND CONTRACTORS:	4
		D.	RIGHTS AND DUTIES OF OPERATOR:	4
		 	1.	Competitive Rates and Use of Affiliates	4
	 	 	2.	Discharge of Joint Account Obligations	4
		 	3.	Protection from Liens	4
		 	4.	Custody of Funds	5
		 	5.	Access to Contract Area and Records	5
		 	6.	Filing and Furnishing Governmental Reports	5
		 	7.	Drilling and Testing Operations	5
		 	8.	Cost Estimates	5
		 	9.	Insurance	5
	VI.	DRILLING AND DEVELOPMENT	5
		A.	INITIAL WELL:	5
		B.	SUBSEQUENT OPERATIONS:	5
		 	1.	Proposed Operations	5
		 	2.	Operations by Less Than All Parties	6
		 	3.	Stand-By Costs	7
		 	4.	Deepening	8
		 	5.	Sidetracking	8
		 	6.	Order of Preference of Operations	8
		 	7.	Conformity to Spacing Pattern	9
		 	8.	Paying Wells	9
		C.	COMPLETION OF WELLS; REWORKING AND PLUGGING BACK:	9
		 	1.	Completion	9
		 	2.	Rework, Recomplete or Plug Back	9
		D.	OTHER OPERATIONS:	9
		E.	ABANDONMENT OF WELLS:	9
		 	1.	Abandonment of Dry Holes	9
		 	2.	Abandonment of Wells That Have Produced	10
		 	3.	Abandonment of Non-Consent Operations	10
		F.	TERMINATION OF OPERATIONS:	10
		G.	TAKING PRODUCTION IN KIND:	10
	 	 	(Option 1) Gas Balancing Agreement	10
	 	 	(Option 2) No Gas Balancing Agreement	11
	VII.	EXPENDITURES AND LIABILITY OF PARTIES	11
		A.	LIABILITY OF PARTIES:	11
		B.	LIENS AND SECURITY INTERESTS:	12
		C.	ADVANCES:	12
		D.	DEFAULTS AND REMEDIES:	12
		 	1.	Suspension of Rights	13
		 	2.	Suit for Damages	13
		 	3.	Deemed Non-Consent	13
		 	4.	Advance Payment	13
		 	5.	Costs and Attorneys’ Fees	13
		E.	RENTALS, SHUT-IN WELL PAYMENTS AND MINIMUM ROYALTIES:	13
		F.	TAXES:	13
	VIII.	ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST	14
		A.	SURRENDER OF LEASES:	14
		B.	RENEWAL OR EXTENSION OF LEASES:	14
		C.	ACREAGE OR CASH CONTRIBUTIONS:	14








    	i



    	 



    



A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT -
1989


 


TABLE OF CONTENTS


 


	 	D.	ASSIGNMENT; MAINTENANCE OF UNIFORM INTEREST:	15
	 	E.	WAIVER OF RIGHTS TO PARTITION:	15
	 	F.	PREFERENTIAL RIGHT TO PURCHASE	15
	IX.	INTERNAL REVENUE CODE ELECTION	15
	X.	CLAIMS AND LAWSUITS	15
	XI.	FORCE MAJEURE	16
	XII.	NOTICES	16
	XIII.	TERM OF AGREEMENT	16
	XIV.	COMPLIANCE WITH LAWS AND REGULATIONS	16
	 	A.	LAWS, REGULATIONS AND ORDERS:	16
	 	B.	GOVERNING LAW:	16
	 	C.	REGULATORY AGENCIES:	16
	XV.	MISCELLANEOUS	17
	 	A.	EXECUTION:	17
	 	B.	SUCCESSORS AND ASSIGNS:	17
	 	C.	COUNTERPARTS:	17
	 	D.	SEVERABILITY	17
	XVI.	OTHER PROVISIONS	17






    	ii



    	 



    


A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT
- 1989


 


OPERATING AGREEMENT


 


THIS
AGREEMENT, entered into by and between 5-J.A.B., Inc.
, hereinafter designated and referred to as “Operator,”
and the signatory party or parties other than Operator, sometimes hereinafter referred to individually as “Non-Operator,”
and collectively as “Non-Operators.”


 


WITNESSETH:


 


WHEREAS, the parties to this agreement are owners of
Oil and Gas Leases and/or Oil and Gas Interests in the land identified in Exhibit “A,” and the parties
hereto have reached an agreement to explore and develop these Leases and/or Oil and Gas Interests for the production of Oil and Gas
to the extent and as hereinafter provided,


 


NOW, THEREFORE, it is agreed as follows:


 


ARTICLE I.


DEFINITIONS


 


As used in this agreement, the following words and terms
shall have the meanings here ascribed to them:


 


A. The term “AFE” shall mean an Authority
for Expenditure prepared by a party to this agreement for the purpose of estimating the costs to be incurred in conducting an
operation hereunder.


 


B. The term “Completion” or “Complete”
shall mean a single operation intended to complete a well as a producer of Oil and Gas in one or more Zones, including, but not
limited to, the setting of production casing, perforating, well stimulation, multi-stage hydraulic
fracturing,   and production testing conducted in such operation(s).


 


C.
The term “Contract Area” shall mean all of the lands, Oil and Gas Leases and/or Oil and Gas Interests intended to
be developed and operated for Oil and Gas purposes under this
agreement. Such lands, Oil and Gas Leases and Oil and Gas Interests are described in Exhibit “A.”


 


D.
The term “Deepen” shall mean a single operation whereby a well is drilled to an objective Zone below the deepest Zone in which the well was previously drilled, or below
the Deepest Zone proposed in the associated AFE, whichever is the lesser.


 


E.
The terms “Drilling Party” and “Consenting Party” shall mean a party who agrees to join in and pay its
share of the cost of any operation conducted under the provisions of
this agreement.


 


F.
The term “Drilling Unit” shall mean the area fixed for the drilling of one well by order or rule of any state or federal body having authority. If a Drilling Unit is not fixed by
any such rule or order, a Drilling Unit shall be the drilling unit as established by the pattern of drilling in the Contract Area
unless fixed by express agreement of the Drilling Parties.


 


G.
The term “Drillsite” shall mean the Oil and Gas Lease or Oil and Gas Interest on which a proposed well is to be located.


 


H.
The term “Initial Well” shall mean the well required to be drilled by the parties hereto as provided in Article VI.A.


 


I.
The term “Non-Consent Well” shall mean a well in which less than all parties have conducted an operation as provided in Article VI.B.2.


 


J.
The terms “Non-Drilling Party” and “Non-Consenting Party” shall mean a party who elects not to participate
in a proposed operation.


 


K.
The term “Oil and Gas” shall mean oil, gas, casinghead gas, gas condensate, and/or all other liquid or gaseous hydrocarbons and other marketable substances produced therewith,
unless an intent to limit the inclusiveness of this term is specifically stated.


 


L.
The term “Oil and Gas Interests” or “Interests” shall mean unleased fee and mineral interests in Oil and
Gas in tracts of land lying within the Contract Area which are owned by
parties to this agreement.


 


M.
The terms “Oil and Gas Lease,” “Lease” and “Leasehold” shall mean the oil and gas leases or
interests therein covering tracts of land lying within the Contract Area which
are owned by the parties to this agreement.


 


N.
The term “Plug Back” shall mean a single operation whereby a deeper Zone is abandoned in order to attempt a Completion in a shallower Zone.


 


O.
The term “Recompletion” or “Recomplete” shall mean an operation whereby a Completion in one Zone is abandoned in order to attempt a Completion in a different Zone within
the existing wellbore.


 


P.
The term “Rework” shall mean an operation conducted in the wellbore of a well after it is Completed to secure, restore, or improve production in a Zone which is currently
open to production in the wellbore. Such operations include, but are not limited to, well stimulation operations,
including, without limitation, re-fracturing operations, and any operations conducted in the wellbore
of a well in order to improve production in a Zone which is currently open to production in the wellbore, but exclude
any routine repair or maintenance work or drilling, Sidetracking, Deepening, Completing, Recompleting, or Plugging Back of
a well.


 


Q.
The term “Sidetrack” shall mean the directional control and intentional deviation of a well from vertical so as to change the bottom hole location unless done to straighten
the hole or drill around junk in the hole to overcome other mechanical difficulties.


 


R.
The term “Zone” shall mean a stratum of earth containing or thought to contain a common accumulation of Oil and Gas separately producible from any other common accumulation
of Oil and Gas.


 


Unless the context otherwise clearly indicates, words used
in the singular include the plural, the word “person” includes natural and artificial persons, the plural includes the
singular, and any gender includes the masculine, feminine, and neuter.


 


ARTICLE II.


 


EXHIBITS


 


The following exhibits, as indicated below and attached
hereto, are incorporated in and made a part hereof:


 


X      A. Exhibit
“A,” shall include the following information:


 




(1)
Description of lands subject to this agreement,


 


(2)
Restrictions, if any, as to depths, formations, or substances,


 


(3)
Parties to agreement with addresses and telephone numbers for notice purposes,


 


(4)
Percentages or fractional interests of parties to this agreement,


 


(5)
Oil and Gas Leases and/or Oil and Gas Interests subject to this agreement,


 


(6)
Burdens on production.


 


         B. Exhibit
“B,” Form of Lease.


 


         X C. Exhibit
“C,” Accounting Procedure.


 




         X D. Exhibit
“D,” Insurance.


 



         E. Exhibit
“E,” Gas Balancing Agreement.


 


         X F. Exhibit “F,” Non-Discrimination and Certification
of Non-Segregated Facilities.


 



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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT
- 1989


 




         G. Exhibit
“G,” Tax Partnership.


 


         X H. Other: Memorandum
of Operating Agreement


 





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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT
- 1989


 


If any provision of any exhibit, except Exhibits “E,” “F”,
and “G,” is inconsistent with any provision contained in the body of this agreement, the
provisions in the body of this agreement shall prevail.


 


ARTICLE III.


INTERESTS OF PARTIES


A. Oil and Gas Interests:


 


If any party owns an Oil and Gas
Interest in the Contract Area, that Interest shall be treated for all purposes of this  agreement and during the term hereof
as if it were covered by the a mutually
agreeable form of Oil and Gas Lease attached
hereto as Exhibit “B,” and the owner thereof shall be deemed
to own both royalty interest in such lease and the interest of the lessee thereunder.


 


B.
Interests of Parties in Costs and Production:


 


Unless changed by other provisions,
all costs and liabilities incurred in operations under this agreement shall be borne and paid, and all equipment and
materials acquired in operations on the Contract Area shall be owned, by the parties as their interests are set forth in Exhibit
“A.” In the same manner, the parties shall also own all production of Oil and Gas from the Contract Area subject, however,
to the payment of royalties and other burdens on production as described hereafter.


 


Regardless of which party has contributed
any Oil and Gas Lease or Oil and Gas Interest on which royalty or other burdens may be payable and except
as otherwise expressly provided in this agreement, each party shall pay or deliver, or cause to be paid or delivered, all
burdens on its share of the production from the Contract Area up to, but not in excess of, twenty five percent (25%) and shall indemnify, defend and hold
the other parties free from any liability therefor. Except as otherwise expressly provided
in this agreement, if any party has contributed hereto any Lease or Interest which is burdened with any royalty, overriding
royalty, production payment or other burden on production in excess of the amounts stipulated above, such party so
burdened shall assume and alone bear all such excess obligations and shall indemnify, defend and hold the other parties hereto
harmless from any and all claims attributable to such excess burden. However, so long as the Drilling Unit for the productive
Zone(s) is identical with the Contract Area, each party shall pay or deliver, or cause to be paid or delivered, all burdens
on production from the Contract Area due under the terms of the Oil and Gas Lease(s) which such party has contributed
to this agreement, and shall indemnify, defend and hold the other parties free from any liability therefor.


 


No party shall ever be responsible,
on a price basis higher than the price received by such party, to any other party’s lessor or royalty owner, and if
such other party’s lessor or royalty owner should demand and receive settlement on a higher price basis, the party contributing
the affected Lease shall bear the additional royalty burden attributable to such higher price.


 


Nothing contained in this Article
III.B. shall be deemed an assignment or cross-assignment of interests covered hereby, and in the event two or more parties
contribute to this agreement jointly owned Leases, the parties’ undivided interests in said Leaseholds shall be deemed
separate leasehold interests for the purposes of this agreement.


 


C.
Subsequently Created Interests:


 


If any party has contributed hereto
a Lease or Interest that is burdened with an assignment of production given as security for the payment of money, or if,
after the date of this agreement, any party creates an overriding royalty, production payment, net profits interest, assignment
of production or other burden payable out of production attributable to its working interest hereunder, such burden
shall be deemed a “Subsequently Created Interest.” Further, if any party has contributed hereto a Lease or Interest burdened
with an overriding royalty, production payment, net profits interests, or other burden payable out of production created
prior to the date of this agreement, and such burden is not shown on Exhibit “A,” such burden also shall be deemed a Subsequently
Created Interest to the extent such burden causes the burdens on such party’s Lease or Interest to exceed the
amount stipulated in Article III.B. above.


 


The party whose interest is burdened
with the Subsequently Created Interest (the “Burdened Party”) shall assume and lone bear, pay and discharge the
Subsequently Created Interest and shall indemnify, defend and hold harmless the other parties from and against any liability
therefor. Further, if the Burdened Party fails to pay, when due, its share of expenses  chargeable hereunder, all provisions of Article VII.B. and Article XVI shall be enforceable
against the Subsequently Created Interest in the same manner as they are enforceable
against the working interest of the Burdened Party. If the Burdened Party is required under this agreement to assign or
relinquish to any other party, or parties, all or a portion of its working interest and/or the production attributable thereto,
said other party, or parties, shall receive said assignment and/or production free and clear of said Subsequently Created Interest,
and the Burdened Party shall indemnify, defend and hold harmless said other party, or parties, from any and all claims
and demands for payment asserted by owners of the Subsequently Created Interest.


 


ARTICLE IV.


TITLES


 


A. Title Examination:


 


Title examination shall be made
on the Drillsite of any proposed well prior to commencement of drilling operations and, if a
majority in interest of the Drilling Parties so request or Operator so elects, title examination shall be made
on the entire Drilling Unit, or maximum anticipated Drilling Unit, of the well. The opinion will include the ownership of the working interest, minerals, royalty, overriding
royalty and production payments under the applicable Leases. Each party contributing Leases and/or Oil and Gas Interests
to be included in the Drillsite or Drilling Unit, if appropriate, shall furnish to Operator ll abstracts (including federal
lease status reports), title opinions, title papers and curative material in its possession free of charge. All such information
not in the possession of or made available to Operator by the parties, but necessary for the examination of the title, shall
be obtained by Operator. Operator shall cause title to be examined by attorneys on its staff or by outside attorneys. Copies
of all title opinions shall be furnished to each Drilling Party. Costs incurred by Operator in procuring abstracts, fees paid outside
attorneys, 
lease brokers, title analysts or landmen for title examination (including preliminary, supplemental, shut-in royalty opinions and division order title
opinions) and other direct charges as provided in Exhibit “C” shall be borne by the Drilling Parties in the proportion that the
interest of each Drilling Party bears to the total interest of all Drilling Parties as such interests appear in Exhibit “A.”
Operator shall make no charge for services rendered by its staff attorneys or other personnel in the performance of the above
functions.


 


Each party shall be responsible
for securing curative matter and pooling amendments or agreements required in connection with Leases or Oil and
Gas Interests contributed by such party. Operator shall be responsible for the preparation and recording of pooling designations
or declarations and communitization agreements as well as the conduct of hearings before governmental agencies for
the securing of spacing or pooling orders or any other orders necessary or appropriate to the conduct of operations hereunder. This
shall not prevent any party from appearing on its own behalf at such hearings. Costs incurred by Operator, including
fees paid to outside attorneys, which are associated with hearings before governmental agencies, and which costs are
necessary and proper for the activities contemplated under this agreement, shall be direct charges to the joint account and shall
not be covered by the administrative overhead charges as provided in Exhibit “C.”




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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT
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Operator shall make no charge for
services rendered by its staff attorneys or other personnel in the performance of the above functions.


 


No well shall be drilled on the
Contract Area until after (1) the title to the Drillsite or Drilling Unit, if appropriate, has been examined as above provided,
and (2) the title has been approved by the examining attorney or title has been accepted by all
of the Drilling Parties in such well.


 


B. Loss or Failure of Title:


 


1. Failure
of Title: Should any Oil and Gas Interest or Oil and Gas Lease be lost through failure of title, which results in a reduction
of interest from that shown on Exhibit “A,” the party credited with contributing the affected Lease or Interest (including,
if applicable, a successor in interest to such party) shall have ninety (90) days from final determination of title failure
to acquire a new lease or other instrument curing the entirety of the title failure, which acquisition will not be subject to Article
VIII.B., and failing to do so, this agreement, nevertheless, shall continue in force as to all remaining Oil and Gas Leases and
Interests; and,


 



(a)
The party credited with contributing the Oil and Gas Lease or Interest affected by the title failure (including, if applicable,
a successor in interest to such party) shall bear alone the entire loss and it shall not be entitled to recover from Operator
or the other parties any development or operating costs which it may have previously paid or incurred, but there shall be
no additional liability on its part to the other parties hereto by reason of such title failure;


 


(b)
There shall be no retroactive adjustment of expenses incurred or revenues received from the operation of the Lease or
Interest which has failed, but the interests of the parties contained on Exhibit “A” shall be revised on an acreage basis, as
of the time it is determined finally that title failure has occurred, so that the interest of the party whose Lease or Interest
is affected by the title failure will thereafter be reduced in the Contract Area by the amount of the Lease or Interest failed;


 


(c)
If the proportionate interest of the other parties hereto in any producing well previously drilled on the Contract Area is
increased by reason of the title failure, the party who bore the costs incurred in connection with such well attributable to the Lease
or Interest which has failed shall receive the proceeds attributable to the increase in such interest (less costs and burdens
attributable thereto) until it has been reimbursed for unrecovered costs paid by it in connection with such well attributable
to such failed Lease or Interest;


(d)
Should any person not a party to this agreement, who is determined to be the owner of any Lease or Interest which has
failed, pay in any manner any part of the cost of operation, development, or equipment, such amount shall be paid to the party
or parties who bore the costs which are so refunded;


 


(e)
Any liability to account to a person not a party to this agreement for prior production of Oil and Gas which arises by reason
of title failure shall be borne severally by each party (including a predecessor to a current party) who received production
for which such accounting is required based on the amount of such production received, and each such party shall severally
indemnify, defend and hold harmless all other parties hereto for any such liability to account;


 


(f)
No charge shall be made to the joint account for legal expenses, fees or salaries in connection with the defense of the Lease
or Interest claimed to have failed, but if the party contributing such Lease or Interest hereto elects to defend its title it shall
bear all expenses in connection therewith; and


 


(g)
If any party is given credit on Exhibit “A” to a Lease or Interest which is limited solely to ownership of an interest
in the wellbore of any well or wells and the production therefrom, such party’s absence of interest in the remainder of the Contract
Area shall be considered a Failure of Title as to such remaining Contract Area unless that absence of interest is reflected
on Exhibit “A.”


 


2. Loss by Non-Payment or Erroneous
Payment of Amount Due: If, through mistake or oversight, any rental, shut-in well payment, minimum royalty or royalty
payment, or other payment necessary to maintain all or a portion of an Oil and Gas Lease or interest is not paid or
is erroneously paid, and as a result a Lease or Interest terminates, there shall be no monetary liability against the party who
failed to make such payment. Unless the party who failed to make the required payment secures a new Lease or Interest
covering the same interest within ninety (90) days from the discovery of the failure to make proper payment, which acquisition
will not be subject to Article VIII.B., the interests of the parties reflected on Exhibit “A” shall be revised on an acreage basis,
effective as of the date of termination of the Lease or Interest involved, and the party who failed to make proper payment
will no longer be credited with an interest in the Contract Area on account of ownership of the Lease or Interest which has
terminated. If the party who failed to make the required payment shall not have been fully reimbursed, at the time of the loss,
from the proceeds of the sale of Oil and Gas attributable to the lost Lease or Interest, calculated on an acreage basis,
for the development and operating costs previously paid on account of such Lease or Interest, it shall be reimbursed for unrecovered
actual costs previously paid by it (but not for its share of the cost of any dry hole previously drilled or wells previously
abandoned) from so much of the following as is necessary to effect reimbursement:


 


(a) Proceeds of Oil and Gas produced
prior to termination of the Lease or Interest, less operating expenses and lease burdens chargeable hereunder to
the person who failed to make payment, previously accrued to the credit of the lost Lease or Interest, on an acreage basis, up
to the amount of unrecovered costs;


 


(b) Proceeds of Oil and Gas, less
operating expenses and lease burdens chargeable hereunder to the person who failed to make payment, up to the amount
of unrecovered costs attributable to that portion of Oil and Gas thereafter produced and marketed (excluding production from
any wells thereafter drilled) which, in the absence of such Lease or Interest termination, would be attributable to the lost
Lease or Interest on an acreage basis and which as a result of such Lease or Interest termination is credited to other
parties, the proceeds of said portion of the Oil and Gas to be contributed by the other parties in proportion to their respective
interests reflected on Exhibit “A”; and,


 


(c) Any monies, up to the amount
of unrecovered costs, that may be paid by any party who is, or becomes, the owner of the Lease or Interest lost, for
the privilege of participating in the Contract Area or becoming a party to this agreement.


 


3. Other Losses: All losses of Leases or Interests committed to this agreement, other than those set forth
in Articles IV.B.1.
and IV.B.2. above, shall be joint losses and shall be borne by all parties in proportion to their interests shown
on Exhibit “A.” This shall
include but not be limited to the loss of any Lease or Interest through failure to develop or because express or implied covenants have
not been performed (other than performance which requires only the payment of money), and the loss of any Lease by expiration
at the end of its primary term if it is not renewed or extended. There shall be no readjustment of interests in the
remaining portion of the Contract Area on account of any joint loss.


 


4.
Curing Title: In the event of a Failure of Title under Article IV.B.1. or a loss of title under Article
IV.B.2. above, any Lease or Interest acquired by any party hereto (other than the party whose interest has failed or was lost)
during the ninety (90) day period provided by Article IV.B.1. and Article IV.B.2. above covering all or a portion of the interest
that has failed or was lost shall be offered at cost to the party whose interest has failed or was lost, and the provisions of
Article VIII.B. shall not apply to such acquisition.




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- 1989



 


ARTICLE V.


OPERATOR


 



A. Designation and Responsibilities
of Operator:




 


5-J.A.B., Inc.
shall be the Operator of the Contract Area, and shall conduct and direct and have full control of all operations on the
Contract Area as permitted and required by, and within the limits of this agreement. In its performance of services hereunder for
the Non-Operators, Operator shall be an independent contractor not subject to the control or direction of the Non-Operators except
as to the type of operation to be undertaken in accordance with the election procedures contained in this agreement. Operator shall
not be deemed, or hold itself out as, the agent of the Non-Operators with authority to bind them to any obligation or liability
assumed or incurred by Operator as to any third party. Operator shall conduct its activities under this agreement as a reasonable
prudent operator, in a good and workmanlike manner, with due diligence and dispatch, in accordance with good oilfield practice,
and in compliance with applicable law and regulation, but in no event shall it have any liability as Operator to the other parties
or their shareholders, members, owners, officers, directors, or agents for losses sustained
or liabilities incurred except such as may result from gross negligence or willful misconduct.


 


B. Resignation or Removal of Operator and
Selection of Successor:


 


1. Resignation or Removal of Operator: Operator
may resign at any time by giving written notice thereof to Non-Operators. If Operator terminates its legal existence, no longer
owns an interest hereunder in the Contract Area, or is no longer capable of serving as Operator, Operator shall be deemed to have
resigned without any action by Non-Operators, except the selection of a successor. Operator may be removed only for good cause
by the affirmative vote of two (2) or more Non-Operators owning a majority interest
based on ownership as shown on Exhibit “A” remaining after excluding the voting interest of Operator; such vote shall
not be deemed effective until a written notice has been delivered to the Operator by a Non-Operator detailing the alleged default
and Operator has failed to cure the default within thirty (30) days from its receipt of the notice or, if the default concerns
an operation then being conducted, within forty-eight (48) hours of its receipt of the notice. For purposes hereof, “good
cause” shall mean not only gross negligence or willful misconduct but also the material breach of or inability to meet the
standards of operation contained in Article V.A. or material failure or inability to perform its obligations under this agreement.


 


Subject to Article VII.D.1., such resignation
or removal shall not become effective until 7:00 o’clock A.M. on the first day of the calendar month following the expiration
of ninety (90) days after the giving of notice of resignation by Operator or action by the Non-Operators to remove Operator, unless
a successor Operator has been selected and assumes the duties of Operator at an earlier date. Operator, after effective date of
resignation or removal, shall be bound by the terms hereof as a Non-Operator. A change of a corporate name or structure of Operator
or transfer of Operator’s interest to any affiliate, single
subsidiary, parent or successor corporation shall not be the basis for removal of Operator.


 


2. Selection of Successor Operator: Upon
the resignation or removal of Operator under any provision of this agreement, a successor Operator shall be selected by the parties
including any successor to all or a portion of the interest of Operator. The successor
Operator shall be selected from the parties owning an interest in the Contract Area at the time such successor Operator is selected.
The successor Operator shall be selected by the ffirmative vote of two (2) or more parties owning a majority interest based on
ownership as shown on Exhibit “A”; provided, however, if an Operator which has been removed or is deemed to have resigned
fails to vote or votes only to succeed itself, the successor Operator shall be selected by the affirmative vote of the party or
parties owning a majority interest based on ownership as shown on Exhibit “A” remaining after excluding the voting
interest of the Operator that was removed or resigned provided further that the vote of the successor(s)
to Operator’s interest will not be excluded. The former Operator shall promptly deliver to the successor Operator
all records and data relating to the operations conducted by the former Operator to the extent such records and data are not already
in the possession of the successor operator. Any cost of obtaining or copying the former Operator’s records and data shall
be charged to the joint account.


 


3. Effect of Bankruptcy: If Operator
becomes insolvent, bankrupt or is placed in receivership, it shall be deemed to have resigned without any action by Non-Operators,
except the selection of a successor. If a petition for relief under the federal bankruptcy laws is filed by or against Operator,
and the removal of Operator is prevented by the federal bankruptcy court, all Non-Operators and Operator shall comprise an interim
operating committee to serve until Operator has elected to reject or assume this agreement pursuant to the Bankruptcy Code, and
an election to reject this agreement by Operator as a debtor in possession, or by a trustee in bankruptcy, shall be deemed a resignation
as Operator without any action by Non-Operators, except the selection of a successor. During the period of time the operating committee
controls operations, all actions shall require the approval of two (2) or more parties owning a majority interest based on ownership
as shown on Exhibit “A.” In the event there are only two (2) parties to this agreement, during the period of time the
operating committee controls operations, a third party acceptable to Operator, Non-Operator and the federal bankruptcy court shall
be selected as a member of the operating committee, and all actions shall require the approval of two (2) members of the operating
committee without regard for their interest in the Contract Area based on Exhibit “A.”


 


C. Employees and Contractors:


 


The number of employees or contractors used
by Operator in conducting operations hereunder, their selection, and the hours of labor and the compensation for services performed
shall be determined by Operator, and all such employees or contractors shall be the employees or contractors of Operator.


 


D. Rights and Duties of Operator:


 


1. Competitive Rates and Use of Affiliates:
All wells drilled on the Contract Area shall be drilled on a competitive contract basis at the usual rates prevailing in the
area. If it so desires, Operator may employ its own tools and equipment in the drilling of wells, but its charges therefor shall
not exceed the prevailing rates in the area and the rate of such charges shall be agreed upon
by the parties in writing before drilling operations are commenced, and such work shall be performed by Operator
under the same terms and conditions as are customary and usual in the area in contracts of independent contractors who are doing
work of a similar nature. All work performed or materials supplied by affiliates or related parties of Operator shall be performed
or supplied at competitive rates, pursuant to written agreement, and in accordance with customs and standards prevailing in the
industry.


 


2. Discharge of Joint Account Obligations:
Except as herein otherwise specifically provided, Operator shall promptly pay and discharge expenses incurred in the development
and operation of the Contract Area pursuant to this agreement and shall charge each of the parties hereto with their respective
proportionate shares upon the expense basis provided in Exhibit “C.” Operator shall keep an accurate record of the
joint account hereunder, showing expenses incurred and charges and credits made and received.


 


3. Protection from Liens: Operator shall
pay, or cause to be paid, as and when they become due and payable, all accounts of contractors and suppliers and wages and salaries
for services rendered or performed, and for materials supplied on, to or in respect of the Contract Area or any operations for
the joint account thereof, and shall keep the Contract Area free from




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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT
- 1989


 


liens and encumbrances resulting there from
except for those resulting from a bona fide dispute as to services rendered or materials supplied.


 


4. Custody of Funds: Operator shall
hold for the account of the Non-Operators any funds of the Non-Operators advanced or paid to the Operator, either for the conduct
of operations hereunder or as a result of the sale of production from the Contract Area, and such funds shall remain the funds
of the Non-Operators on whose account they are advanced or paid until used for their intended purpose or otherwise delivered to
the Non-Operators or applied toward the payment of debts as provided in Article VII.B. Nothing in this paragraph shall be construed
to establish a fiduciary relationship between Operator and Non-Operators for any purpose other than to account for Non-Operator
funds as herein specifically provided. Nothing in this paragraph shall require the maintenance by Operator of separate accounts
for the funds of Non-Operators unless the parties otherwise specifically agree.


 


5. Access to Contract Area and Records:
Operator shall, except as otherwise provided herein, permit each Consenting Party Non-Operator
or its duly authorized representative, at the Consenting Party’s
Non-Operator’s sole risk and cost, full and free access at all reasonable
times to ll operations of every kind and character being conducted for the joint account on the Contract Area and to the records
of operations conducted thereon or production there from, including Operator’s books and records relating thereto. Such access
rights shall not be exercised in a manner interfering with Operator’s conduct of an operation hereunder and shall not obligate
Operator to furnish any geologic or geophysical data of an interpretive nature unless the cost of preparation of such interpretive
data was charged to the joint account. Operator will furnish to each Consenting Party
Non-Operator upon request copies of any and all reports and information obtained
by Operator in connection with production and related items, including, without limitation, meter and chart reports, production
purchaser statements, run tickets and monthly gauge reports, but excluding purchase contracts and pricing information to the extent
not applicable to the production of the Consenting Party Non-Operator
seeking the information. Any audit of Operator’s records relating to amounts expended and the appropriateness
of such expenditures shall be conducted in accordance with the audit protocol specified in Exhibit “C.”


 


6. Filing and Furnishing Governmental Reports:
Operator will file, and upon written request promptly furnish copies to each requesting Consenting
Party Non-Operator not in default of its payment obligations, all operational notices, reports or applications
required to be filed by local, State, Federal or Indian agencies or authorities having jurisdiction over operations hereunder.
Each consenting Party Non-Operator shall provide to Operator on a timely basis all information
necessary to Operator to make such filings.


 


7. Drilling and Testing Operations:
The following provisions shall apply to each well drilled hereunder, including but not limited to the Initial Well:


 


(a) Operator will promptly advise Consenting
Parties Non-Operators of the date on which the well is spudded, or the date on which drilling operations are commenced.


 


(b) Operator will send to Consenting
Parties Non-Operators such reports, test results and notices regarding the progress of operations on the well as the
Consenting Parties Non-Operators shall reasonably request, including, but not limited
to, daily drilling reports, completion reports, and well logs.


 


(c) Operator shall adequately test all Zones
encountered which may reasonably be expected to be capable of producing Oil and Gas in paying quantities as a result of examination
of the electric log or any other logs or cores or tests conducted hereunder.


 


(d)
Notwithstanding anything in this Agreement to the contrary, the rights of a Non-Operator as set forth in Articles V.D.5, V.D.
6, and V.D.7 shall only apply in favor of those Non-Operator parties who are Consenting Parties with respect to a proposed operation,
until such time as the Consenting Parties are no longer entitled to the Non-Consenting Party’s share of production or
the proceeds there from, attributable to the proposed operation in which the Non-Consenting Parties did not participate. Any information
furnished to or obtained by a Non-Operator pursuant to Articles V.D.5, V.D.6, or V.D.7 shall be maintained as confidential
by the Non-Operator and shall not be disclosed by the Non-Operator without prior written consent of the Operator.


 


8. Cost Estimates: Upon request of any
Consenting Party, Operator shall furnish estimates of current and cumulative costs incurred for the joint account at reasonable
intervals during the conduct of any operation pursuant to this agreement. Operator shall not be held liable for errors in such
estimates so long as the estimates are made in good faith.


 


9. Insurance: At all times while operations
are conducted hereunder, Operator shall comply with the workers compensation law of the state where the operations are being conducted;
provided, however, that Operator may be a self-insurer for liability under said compensation laws in which event the only charge
that shall be made to the joint account shall be as provided in Exhibit “C.” Operator shall also carry or provide insurance
for the benefit of the joint account of the parties as outlined in Exhibit “D” attached hereto and made a part hereof.
Operator shall require all contractors engaged in work on or for the Contract Area to comply with the workers compensation law
of the state where the operations are being conducted and to maintain such other insurance as Operator may require.


 


In the event automobile liability insurance
is specified in said Exhibit “D,” or subsequently receives the approval of the parties, no direct charge shall be made
by Operator for premiums paid for such insurance for Operator’s automotive equipment.


 


ARTICLE VI.


DRILLING AND DEVELOPMENT


 


A. Initial Well:


 


On
or before the                 day of                ,                , Operator shall commence the drilling of the Initial Well at the following
location: and shall thereafter continue the drilling of the well with due diligence to the drilling of the Initial Well and
the participation therein by all parties is obligatory, subject to Article VI.C.1. as to participation in Completion
operations and Article VI.F. as to termination of operations and Article XI as to occurrence of force
majeure.


 


B. Subsequent Operations:


 


1. Proposed Operations: If any party
hereto should desire to drill any well on the Contract Area other than the Initial Well, or if any party should desire to Rework,
Sidetrack, Deepen, Recomplete or Plug Back a dry hole or a well no longer capable of




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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT
- 1989


 


producing in paying quantities in which such
party has not otherwise relinquished its interest in the proposed objective Zone under this agreement, the party desiring to drill,
Rework, Sidetrack, Deepen, Recomplete or Plug Back such a well shall give written notice of the proposed operation to the parties
who have not otherwise relinquished their interest in such objective Zone




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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT
- 1989


 


under this agreement and to all other parties
in the case of a proposal for Sidetracking or Deepening, specifying the work to be performed, the location, proposed depth, objective
Zone and the estimated cost of the operation. The parties to whom such a notice is delivered shall have thirty (30) days after
receipt of the notice within which to notify the party proposing to do the work whether they elect to participate in the cost of
the proposed operation. If a drilling rig is on location, notice of a proposal to Rework, Sidetrack, Recomplete, Plug Back or Deepen
may be given by telephone or electronic mail and the response period shall be limited
to forty- eight (48) hours, inclusive exclusive of Saturday, Sunday
and legal holidays. Failure of a party to whom such notice is delivered to reply within the period above fixed shall constitute
an election by that party not to participate in the cost of the proposed operation. Any proposal by a party to conduct an operation
conflicting with the operation initially proposed shall be delivered to all parties within the time and in the manner provided
in Article VI.B.6.


 


If all parties to whom such notice is delivered
elect to participate in such a proposed operation, the parties shall be contractually committed to participate therein provided
such operations are commenced within the time period hereafter set forth, and Operator shall, no later than ninety (90) days after
expiration of the notice period of thirty (30) days (or as promptly as practicable after the expiration of the forty-eight (48)
hour period when a drilling rig is on location, as the case may be), actually commence the proposed operation and thereafter complete
it with due diligence at the risk and expense of the parties participating therein; provided, however, said commencement date may
be extended upon written notice of same by Operator to the other parties, for a period of up to thirty (30) additional days if,
in the sole opinion of Operator, such additional time is reasonably necessary to obtain permits from governmental authorities,
surface rights (including rights-of-way) or appropriate drilling equipment, or to complete title examination or curative matter
required for title approval or acceptance. If the actual operation has not been commenced within the time provided (including any
extension thereof as specifically permitted herein or in the force majeure provisions of Article XI) and if any party hereto still
desires to conduct said operation, written notice proposing same must be resubmitted to the other parties in accordance herewith
as if no prior proposal had been made. Those parties that did not participate in the drilling of a well for which a proposal to
Deepen or Sidetrack is made hereunder shall, if such parties desire to participate in the proposed Deepening or Sidetracking operation,
reimburse the Drilling Parties in accordance with Article VI.B.4. in the event of a Deepening operation and in accordance with
Article VI.B.5. in the event of a Sidetracking operation.


 


2. Operations by Less Than All Parties:


 


(a) Determination of Participation. If
any party to whom such notice is delivered as provided in Article VI.B.1. or VI.C.1. (Option No. 2) elects not to participate in
the proposed operation, then, in order to be entitled to the benefits of this article, the party or parties giving the notice and
such other parties as shall elect to participate in the operation shall, no later than ninety (90) days after the expiration of
the notice period of thirty (30) days (or as promptly as practicable after the expiration of the forty-eight (48) hour period when
a drilling rig is on location, as the case may be) actually commence the proposed operation and complete it with due diligence. Nothing herein shall
prohibit Operator or the participating parties from actually commencing the proposed operation before the expiration of the notice
period, nor shall the timing of such commencement affect in any way the validity of a party’s election or deemed election.
Operator shall perform all work for the account of the Consenting Parties; provided, however, if no drilling rig or other
equipment is on location, and if Operator is a Non-Consenting Party, the Consenting Parties shall either: (i) request Operator
to perform the work required by such proposed operation for the account of the Consenting Parties, or (ii) designate one of the
Consenting Parties as Operator to perform such work. The rights and duties granted to and imposed upon the Operator under this
agreement are granted to and imposed upon the party designated as Operator for an operation in which the original Operator is a
Non-Consenting Party. Consenting Parties, when conducting operations on the Contract Area pursuant to this Article VI.B.2., shall
comply with all terms and conditions of this agreement.


 


If less than all parties approve any proposed
operation, the proposing party, immediately after the expiration of the applicable notice period, shall advise all Parties of the
total interest of the parties approving such operation and its recommendation as to whether the Consenting Parties should proceed
with the operation as proposed. Each Consenting Party, within forty-eight (48) hours (exclusive
inclusive of Saturday, Sunday, and legal holidays) after delivery of such notice, shall advise the proposing
party of its desire to (i) limit participation to such party’s interest as shown on Exhibit “A” or (ii) carry
only its proportionate part (determined by dividing such party’s interest in the Contract Area by the interests of all Consenting
Parties in the Contract Area) of Non-Consenting Parties’ interests, or (iii) carry its proportionate part (determined as
provided in (ii)) of Non-Consenting Parties’ interests together with all or a portion of its proportionate part of any Non-Consenting
Parties’ interests that any Consenting Party did not elect to take. Any interest of Non-Consenting Parties that is not carried
by a Consenting Party shall be deemed to be carried by the party proposing the operation if such party does not withdraw its proposal.
Failure to advise the proposing party within the time required shall be deemed an election under (i). In the event a drilling rig
is on location, notice may be given by telephone or electronic mail, and the time permitted
for such a response shall not exceed a total of forty-eight (48) hours (inclusive exclusive
of Saturday, Sunday and legal holidays). The proposing party, at its election, may withdraw such proposal if there
is less than 100% participation and shall notify all parties of such decision within ten (10) days, or within twenty-four (24)
hours if a drilling rig is on location, following expiration of the applicable response period. If 100% subscription to the proposed
operation is obtained, the proposing party shall promptly notify the Consenting Parties of their proportionate interests in the
operation and the party serving as Operator shall commence such operation within the period provided in Article VI.B.1., subject
to the same extension right as provided therein.


 


(b) Relinquishment of Interest for Non-Participation.
The entire cost and risk of conducting such operations shall be borne by the Consenting Parties in the proportions they have
elected to bear same under the terms of the preceding paragraph. Consenting Parties shall keep the leasehold estates involved in
such operations free and clear of all liens and encumbrances of every kind created by or arising from the operations of the Consenting
Parties. If such an operation results in a dry hole, then subject to Articles VI.B.6. and VI.E.3., the Consenting Parties shall
plug and abandon the well and restore the surface location at their sole cost, risk and expense; provided, however, that those
Non-Consenting Parties that participated in the drilling, Deepening or Sidetracking of the well shall remain liable for, and shall
pay, their proportionate shares of the cost of plugging and abandoning the well and restoring the surface location insofar only
as those costs were not increased by the subsequent operations of the Consenting Parties. If any well drilled, Reworked, Sidetracked,
Deepened, Recompleted or Plugged Back under the provisions of this Article results in a well capable of producing Oil and/or Gas
in paying quantities, the Consenting Parties shall Complete and equip the well to produce at their sole cost and risk, and the
well shall then be turned over to Operator (if the Operator did not conduct the operation) and shall be operated by it at the expense
and for the account of the Consenting Parties. Upon commencement of operations for the drilling, Reworking, Sidetracking, Recompleting,
Deepening or Plugging Back of any such well by Consenting Parties in accordance with the provisions of this Article, each Non-Consenting
Party shall be deemed to have relinquished to Consenting Parties, and the






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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT
- 1989


 


Consenting Parties shall own and be entitled
to receive, in proportion to their respective interests, all of such Non-Consenting Party’s interest in the well and share
of production therefrom or, in the case of a Reworking, Sidetracking, Deepening, Recompleting or Plugging Back, or a Completion
pursuant to Article VI.C.1. Option No. 2, all of such Non-Consenting Party’s interest in the production obtained from the
operation in which the Non-Consenting Party did not elect to participate. Such relinquishment shall be effective until the proceeds
of the sale of such share, calculated at the well, or market value thereof if such share is not sold (after deducting applicable
ad valorem, production, severance, and excise taxes, royalty, overriding royalty and other interests not excepted by Article III.C.
payable out of or measured by the production from such well accruing with respect to such interest until it reverts), shall equal
the total of the following:


 


(i) 300 % of each such Non-Consenting Party’s share of the
cost of any newly acquired surface equipment beyond the wellhead connections (including but not limited to stock tanks, separators,
treaters, pumping equipment and piping), plus 100% of each such Non-Consenting Party’s share of the cost of operation of
the well commencing with first production and continuing until each such Non-Consenting Party’s relinquished interest shall
revert to it under other provisions of this Article, it being agreed that each Non-Consenting Party’s share of such costs
and equipment will be that interest which would have been chargeable to such Non-Consenting Party had it participated in the well
from the beginning of the operations; and


 


(ii) 300 % of (a) that portion of the costs and expenses of drilling,
Reworking, Sidetracking, Deepening, Plugging Back, testing, Completing, and Recompleting, after deducting any cash contributions
received under Article VIII.C., and of (b) that portion of the cost of newly acquired equipment in the well (to and including the
wellhead connections), which would have been chargeable to such Non-Consenting Party if it had participated therein.


 


Notwithstanding anything to the contrary in
this Article VI.B., if the well does not reach the deepest objective Zone described in the notice proposing the well for reasons
other than the encountering of granite or practically impenetrable substance or other condition in the hole rendering further operations
impracticable, Operator shall give notice thereof to each Non-Consenting Party who submitted or voted for an alternative proposal
under Article VI.B.6. to drill the well to a shallower Zone than the deepest objective Zone proposed in the notice under which
the well was drilled, and each such Non-Consenting Party shall have the option to participate in the initial proposed Completion
of the well by paying its share of the cost of drilling the well to its actual depth, calculated in the manner provided in Article
VI.B.4.


 


(a). If any such Non-Consenting Party does
not elect to participate in the first Completion proposed for such well, the relinquishment provisions of this Article VI.B.2.


 


(b) shall apply to such party’s interest.


 


(c) Reworking, Recompleting or Plugging
Back. An election not to participate in the drilling, Sidetracking or Deepening of a well shall be deemed an election not to
participate in any Reworking or Plugging Back operation proposed in such a well, or portion thereof, to which the initial non-consent
election applied that is conducted at any time prior to full recovery by the Consenting Parties of the Non-Consenting Party’s
recoupment amount. Similarly, an election not to participate in the Completing or Recompleting of a well shall be deemed an election
not to participate in any Reworking operation proposed in such a well, or portion thereof, to which the initial non-consent election
applied that is conducted at any time prior to full recovery by the Consenting Parties of the Non-Consenting Party’s recoupment
amount. Any such Reworking, Recompleting or Plugging Back operation conducted during the recoupment period shall be deemed part
of the cost of operation of said well and there shall be added to the sums to be recouped by the Consenting Parties _300%
of that portion of the costs of the Reworking, Recompleting or Plugging Back operation which would have been chargeable to such
Non-Consenting Party had it participated therein. If such a Reworking, Recompleting or Plugging Back operation is proposed during
such recoupment period, the provisions of this Article VI.B. shall be applicable as between said Consenting Parties in said well.


 


(d) Recoupment Matters. During the period
of time Consenting Parties are entitled to receive Non-Consenting Party’s share of production, or the proceeds there from,
Consenting Parties shall be responsible for the payment of all ad valorem, production, severance, excise, gathering and other taxes,
and all royalty, overriding royalty and other burdens applicable to Non-Consenting Party’s share of production not excepted
by Article III.C.


 


In the case of any Reworking, Sidetracking,
Plugging Back, Recompleting or Deepening operation, the Consenting Parties shall be permitted to use, free of
cost, all casing, tubing and other equipment in the well, but the ownership of all such equipment shall remain unchanged; and upon
abandonment of a well after such Reworking, Sidetracking, Plugging Back, Recompleting or Deepening, the Consenting Parties shall
account for all such equipment to the owners thereof, with each party receiving its proportionate part in kind or in value, less
cost of salvage.


 


Within ninety (90) days after the completion
of any operation under this Article, the party conducting the operations for the Consenting Parties shall furnish each Non-Consenting
Party with an inventory of the equipment in and connected to the well, and an itemized statement of the cost of drilling, Sidetracking,
Deepening, Plugging Back, testing, Completing, Recompleting, and equipping the well for production; or, at its option, the operating
party, in lieu of an itemized statement of such costs of operation, may submit a detailed statement of monthly billings. Each month
thereafter, during the time the Consenting Parties are being reimbursed as provided above, the party conducting the operations
for the Consenting Parties shall furnish the Non-Consenting Parties with an itemized statement of all costs and liabilities incurred
in the operation of the well, together with a statement of the quantity of Oil and Gas produced from it and the amount of proceeds
realized from the sale of the well’s working interest production during the preceding month. In determining the quantity
of Oil and Gas produced during any month, Consenting Parties shall use industry accepted methods such as but not limited to metering
or periodic well tests. Any amount realized from the sale or other disposition of equipment newly acquired in connection with any
such operation which would have been owned by a Non-Consenting Party had it participated therein shall be credited against the
total unreturned costs of the work done and of the equipment purchased in determining when the interest of such Non-Consenting
Party shall revert to it as above provided; and if there is a credit balance, it shall be paid to such Non-Consenting Party.


 


If and when the Consenting Parties recover
from a Non-Consenting Party’s relinquished interest the amounts provided for above, the relinquished interests of such Non-Consenting
Party shall automatically revert to it as of 7:00 a.m. on the day following the day on which such recoupment occurs, and, from
and after such reversion, such Non-Consenting Party shall own the same interest in such well, the material and equipment in or
pertaining thereto, and the production there from as such Non-Consenting Party would have been entitled to had it participated
in the drilling, Sidetracking, Reworking, Deepening, Recompleting or Plugging Back of said well. Thereafter, such Non-Consenting
Party shall be charged with and shall pay its proportionate part of the further costs of the operation of said well in accordance
with the terms of this agreement and Exhibit “C” attached hereto.




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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT
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3. Stand-By Costs: When a well which
has been drilled or Deepened has reached its authorized depth and all tests have been completed and the results thereof furnished
to the parties, or when operations on the well have been otherwise terminated pursuant to Article VI.F., stand-by costs incurred
pending response to a party’s notice proposing a Reworking, Sidetracking, Deepening, Recompleting, Plugging Back or Completing
operation in such a well (including the period required under Article VI.B.6. to resolve competing proposals) shall be charged
and borne as part of the drilling or Deepening operation just completed. Stand-by costs subsequent to all parties responding, or
expiration of the response time permitted, whichever first occurs, and prior to agreement as to the participating interests of
all Consenting Parties pursuant to the terms of the second grammatical paragraph of Article VI.B.2. (a), shall be charged to and
borne as part of the proposed operation, but if the proposal is subsequently withdrawn because of insufficient participation, such
stand-by costs shall be allocated between the Consenting Parties in the proportion each Consenting Party’s interest as shown
on Exhibit “A” bears to the total interest as shown on Exhibit “A” of all Consenting Parties.


 


In the event that notice for a Sidetracking
operation is given while the drilling rig to be utilized is on location, any party may request and receive up to five (5) additional
days after expiration of the forty-eight hour response period specified in article VI.B.1. within which to respond by paying for
all stand-by costs and other costs incurred during such extended response period; Operator may require such party to pay the estimated
stand-by time in advance as a condition to extending the response period. If more than one party elects to take such additional
time to respond to the notice, standby costs shall be located between the parties taking additional time to respond on a day-to-day
basis in the proportion each electing party’s interest as shown on Exhibit “A” bears to the total interest as
shown on Exhibit “A” of all the electing parties.


 


4. Deepening: If less than all parties
elect to participate in a drilling, Sidetracking, or Deepening operation proposed pursuant to Article VI.B.1., the interest relinquished
by the Non-Consenting Parties to the Consenting Parties under Article VI.B.2. shall relate only and be limited to the lesser of
(i) the total depth actually drilled or (ii) the objective depth or Zone of which the parties were given notice under Article VI.B.1.
(“Initial Objective”). Such well shall not be deepened beyond the Initial Objective without first complying with this
Article to afford the Non-Consenting Parties the opportunity to participate in the Deepening operation.


 


In the event any Consenting Party desires to
drill or Deepen a Non-Consent Well to a depth below the Initial Objective, such party shall give notice thereof, complying with
the requirements of Article VI.B.1., to all parties (including Non-Consenting Parties). Thereupon, Articles VI.B.1. and 2. shall
apply and all parties receiving such notice shall have the right to participate or not participate in the Deepening of such well
pursuant to said Articles VI.B.1. and 2. If a Deepening operation is approved pursuant to such provisions, and if any Non-Consenting
Party elects to participate in the Deepening operation, such Non-Consenting party shall pay or make reimbursement (as the case
may be) of the following costs and expenses.


 


(a) If the proposal to Deepen is made prior
to the Completion of such well as a well capable of producing in paying quantities, such Non-Consenting Party shall pay (or reimburse
Consenting Parties for, as the case may be) that share of costs and expenses incurred in connection with the drilling of said well
from the surface to the Initial Objective which Non-Consenting Party would have paid had such Non-Consenting Party agreed to participate
therein, plus the Non-Consenting Party’s share of the cost of Deepening and of participating in any further operations on
the well in accordance with the other provisions of this Agreement; provided, however, all costs for testing and Completion or
attempted Completion of the well incurred by Consenting Parties prior to the point of actual operations to Deepen beyond the Initial
Objective shall be for the sole account of Consenting Parties.


 


(b) If the proposal is made for a Non-Consent
Well that has been previously Completed as a well capable of producing in paying quantities, but is no longer capable of producing
in paying quantities, such Non-Consenting Party shall pay (or reimburse Consenting Parties for, as the case may be) its proportionate
share of all costs of drilling, Completing, and equipping said well from the surface to the Initial Objective, calculated in the
manner provided in paragraph (a) above, less those costs recouped by the Consenting Parties from the sale of production from the
well. The Non-Consenting Party shall also pay its proportionate share of all costs of re-entering said well. The Non-Consenting
Parties’ proportionate part (based on the percentage of such well Non-Consenting Party would





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have owned had it previously participated in
such Non-Consent Well) of the costs of salvable materials and equipment remaining in the hole and salvable surface equipment used
in connection with such well shall be determined in accordance with Exhibit “C.” If the Consenting Parties have recouped
the cost of drilling, Completing, and equipping the well at the time such Deepening operation is conducted, then a Non-Consenting
Party may participate in the Deepening of the well with no payment for costs incurred prior to re-entering the well for Deepening


 


The foregoing shall not imply a right of any
Consenting Party to propose any Deepening for a Non-Consent Well prior to the drilling of such well to its Initial Objective without
the consent of the other Consenting Parties as provided in Article VI.F.


 


5. Sidetracking: Any party having the
right to participate in a proposed Sidetracking operation that does not own an interest in the affected wellbore at the time of
the notice shall, upon electing to participate, tender to the wellbore owners its proportionate share (equal to its interest in
the Sidetracking operation) of the value of that portion of the existing wellbore to be utilized as follows:


 


(a) If the proposal is for Sidetracking an
existing dry hole, reimbursement shall be on the basis of the actual costs incurred in the initial drilling of the well down to
the depth at which the Sidetracking operation is initiated.


 


(b) If the proposal is for Sidetracking a well
which has previously produced, reimbursement shall be on the basis of such party’s proportionate share of drilling and equipping
costs incurred in the initial drilling of the well down to the depth at which the Sidetracking operation is conducted, calculated
in the manner described in Article VI.B.4(b) above. Such party’s proportionate share of the cost of the well’s salvable
materials and equipment down to the depth at which the Sidetracking operation is initiated shall be determined in accordance with
the provisions of Exhibit “C.”


 


6. Order of Preference of Operations. Except
as otherwise specifically provided in this agreement, if any party desires to 66 propose the conduct of an operation that conflicts
with a proposal that has been made by a party under this Article VI, such party shall have fifteen (15) days from delivery of the
initial proposal, in the case of a proposal to drill a well or to perform an operation on a well where no drilling rig is on location,
or twenty-four (24) hours, exclusive inclusive of Saturday, Sunday
and legal holidays, from delivery of the initial proposal, if a drilling rig is on location for the well on which such operation
is to be conducted, to deliver to all parties entitled to participate in the proposed operation such party’s alternative
proposal, such alternate proposal to contain the same information required to be included in the initial proposal. Each party receiving
such proposals shall elect by delivery of notice to Operator within five (5) days after expiration of the proposal period, or within





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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT
- 1989


 


twenty-four (24) hours (exclusive
inclusive of Saturday, Sunday and legal holidays) if a drilling rig is on location for the well that is
the subject of the proposals, to participate in one of the competing proposals. Any party not electing within the time required
shall be deemed not to have voted. The proposal receiving the vote of parties owning a supermajority
interest of at least eighty percent (80%) of the the largest aggregate percentage interest of the parties
voting shall have priority over all other competing proposals; in the case of a tie vote,
event neither proposal acheives an 80% supermajority the initial
Operator’s decision proposal shall prevail. Operator shall deliver notice of such
result to all parties entitled to participate in the operation within five (5) days after expiration of the election period (or within twenty-four (24) hours, exclusive
inclusive of Saturday, Sunday and legal holidays, if a drilling rig is on location). Each party shall then
have two (2) days (or twenty-four (24) hours if a rig is on location) from receipt of such notice to elect by delivery of notice
to Operator to participate in such operation or to relinquish interest in the affected well pursuant to the provisions of Article
VI.B.2.; failure by a party to deliver notice within such period shall be deemed an election not to participate in the prevailing
proposal.


 


7.Conformity
to Spacing Pattern. Notwithstanding the provisions of this Article VI.B.2., it is agreed that no wells shall be proposed
to be drilled to or Completed in or produced from a Zone from which a well located elsewhere on the Contract Area is producing,
unless such well conforms to the then-existing well spacing pattern for such Zone.


 


8. Paying Wells. No
party shall conduct any Reworking, Deepening, Plugging Back, Completion, Recompletion, or Sidetracking operation under this agreement
with respect to any well then capable of producing in paying quantities except with the consent of all parties that have not relinquished
interests in the well at the time of such operation.







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C. Completion
of Wells; Reworking and Plugging Back:


 


1.Completion: Without the consent of
all parties, no well shall be drilled, Deepened or Sidetracked, except any well drilled, Deepened or Sidetracked pursuant to the
provisions of Article VI.B.2. of this agreement. Consent to the drilling, 


Deepening or Sidetracking shall include:


 


x Option
No. 1: All necessary expenditures for the drilling, Deepening or Sidetracking, testing, Completing and equipping of the well,
including necessary tankage and/or surface facilities.


 


o
Option No. 2: All necessary expenditures for the drilling, Deepening or Sidetracking
and testing of the well. When such well has reached its authorized depth, and all logs, cores and other tests have been completed,
and the results thereof furnished to the parties, Operator shall give immediate notice to the Non-Operators having the right to
participate in a Completion attempt whether or not Operator recommends attempting to Complete the well, together
with Operator’s AFE for Completion costs if not previously provided. The parties receiving such notice shall have forty-eight
(48) hours (exclusive of Saturday, Sunday and legal holidays) in which to elect by delivery of notice to Operator to participate
in a recommended Completion attempt or to make a Completion proposal with an accompanying AFE. Operator shall deliver any such
Completion proposal, or any Completion proposal conflicting with Operator’s proposal, to the other parties entitled to participate
in such Completion in accordance with the procedures specified in Article VI.B.6. Election to participate in a Completion attempt
shall include consent to all necessary expenditures for the Completing and equipping of such well, including necessary tankage
and/or surface facilities but excluding any stimulation operation not contained on the Completion AFE. Failure of any party receiving
such notice to reply within the period above fixed shall constitute an election by that party not to participate
in the cost of the Completion attempt; provided, that Article VI.B.6. shall control in the case of conflicting Completion proposals.
If one or more, but less than all of the parties, elect to attempt a Completion, the provision of Article VI.B.2. hereof (the
phrase “Reworking, Sidetracking, Deepening, Recompleting or Plugging Back” as contained in Article VI.B.2. shall be
deemed to include “Completing”) shall apply to the operations thereafter conducted by less than all parties; provided,
however, that Article VI.B.2. shall apply separately to each separate Completion or Recompletion attempt undertaken hereunder,
and an election to become a Non-Consenting Party as to one Completion or Recompletion attempt shall not prevent a party from becoming
a Consenting Party in subsequent Completion or Recompletion attempts regardless whether the Consenting Parties as to earlier Completions
or Recompletion have recouped their costs pursuant to Article VI.B.2.; provided further, that anyrecoupment of costs by a Consenting
Party shall be made solely from the production attributable to the Zone in which the Completion attempt is made. Election by a
previous Non-Consenting party to participate in a subsequent Completion or Recompletion attempt shall require such party to pay
its proportionate share of the cost of salvable materials and equipment installed in the well pursuant to the previous Completion
or Recompletion attempt, insofar and only insofar as such materials and equipment benefit the Zone in which such
party participates in a Completion attempt.


 


2. Rework, Recomplete or Plug Back: No
well shall be Reworked, Recompleted or Plugged Back except a well Reworked, Recompleted, or Plugged Back pursuant to the provisions
of Article VI.B.2. of this agreement. Consent to the Reworking, Recompleting or Plugging Back of a well shall include all necessary
expenditures in conducting such operations and Completing and equipping of said well, including necessary tankage and/or surface
facilities.


 


D. Other Operations:


 


Operator
shall not undertake any single project reasonably estimated to require an expenditure in excess of Twenty
five thousand Dollars ($ 25,000) except in connection with the drilling,
Sidetracking, Reworking, Deepening, Completing, Recompleting or Plugging Back of a well that has been previously authorized by
or pursuant to this agreement; provided, however, that, in case of explosion, fire, flood or other sudden emergency, whether of
the same or different nature, Operator may take such steps and incur such expenses as in its opinion are required to deal with
the emergency to safeguard life and property but Operator, as promptly as possible, shall report the emergency to the other parties.
If Operator prepares an AFE for its own use, Operator shall furnish any Non-Operator so requesting an information copy thereof
for any single project costing in excess of twenty five thousand Dollars ($ 25,000
). Any party who has not relinquished its interest in a well shall have the right to propose that Operator perform
repair work or undertake the installation of artificial lift equipment or ancillary production facilities such as salt water disposal
wells or to conduct additional work with respect to a well drilled hereunder or other similar project (but not including the installation
of gathering lines or other transportation or marketing facilities, the installation of which shall be governed by separate agreement
between the parties) reasonably estimated to require an expenditure in excess of the amount first set forth above in this Article
VI.D. (except in connection with an operation required to be proposed under Articles VI.B.1. or VI.C.1. Option No. 2, which shall
be governed exclusively be those Articles). Operator shall deliver such proposal to all parties entitled to participate therein.
If within thirty (30) days thereof Operator secures the written consent of any party or parties owning at least 80
% of the interests of the parties entitled to participate in such operation, each party having the right to participate
in such project shall be bound by the terms of such proposal and shall be obligated to pay its proportionate share of the costs
of the proposed project as if it had consented to such project pursuant to the terms of the proposal.


 


E. Abandonment of Wells:


 


1. Abandonment of Dry Holes: Except
for any well drilled or Deepened pursuant to Article VI.B.2., any well which has been drilled or Deepened under the terms of this
agreement and is proposed to be completed as a dry hole shall not be





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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989


 


participating
in such well plugged and abandoned without the consent of all parties /. Should Operator, after diligent effort, be
unable to contact any party, or should any party fail to reply within forty-eight (48) hours (exclusive
inclusive of Saturday, Sunday and legal holidays) after delivery of notice of the proposal to plug and abandon
such well, such party shall be deemed to have consented to the proposed abandonment. All such wells shall be plugged and abandoned
in accordance with applicable regulations and at the cost, risk and expense of the parties who participated in the cost of
drilling or Deepening such well. Any party who objects to plugging and abandoning such well by notice delivered to Operator within
forty-eight (48) hours (inclusive exclusive of Saturday, Sunday and
legal holidays) after delivery of notice of the proposed plugging shall take over the well as of the end of such forty-eight (48)
hour notice period and conduct further operations in search of Oil and/or Gas subject to the provisions of Article VI.B.; failure
of such party to provide proof reasonably satisfactory to Operator of its financial capability to conduct such operations or to
take over the well within such period or thereafter to conduct operations on such well or plug and abandon such well shall entitle
Operator to retain or take possession of the well and plug and abandon the well. The party taking over the well shall indemnify
Operator (if Operator is an abandoning party) and the other abandoning parties against liability for any further operations conducted
on such well except for the costs of plugging and abandoning the well and restoring the surface, for which the abandoning parties
shall remain proportionately liable.


 


2. Abandonment
of Wells That Have Produced: Except for any well in which a Non-Consent operation has been conducted hereunder for which the
Consenting Parties have not been fully reimbursed as herein provided, any well which has been completed as a producer shall not
be plugged and abandoned without the consent of all parties. If all parties consent to such abandonment, the well shall be plugged
and abandoned in accordance with applicable regulations and at the cost, risk and expense of all the parties hereto. Failure of
a party to reply within sixty (60) days of delivery of notice of proposed abandonment shall be deemed an election to consent to
the proposal. If, within sixty (60) days after delivery of notice of the proposed abandonment of any well, all parties do not agree
to the abandonment of such well, those wishing to continue its operation from the Zone then open to production shall be obligated
to take over the well as of the expiration of the applicable notice period and shall indemnify Operator (if Operator is an abandoning
party) and the other abandoning parties against liability for any further operations on the well conducted by such parties. Failure
of such party or parties to provide proof reasonably satisfactory to Operator of their financial capability to conduct such operations
or to take over the well within the required period or thereafter to conduct operations on such well shall entitle operator to
retain or take possession of such well and plug and abandon the well.


 


Parties taking over a well as provided herein
shall tender to each of the other parties its proportionate share of the value of the well’s salvable material and equipment,
determined in accordance with the provisions of Exhibit “C,” less the estimated cost of salvaging and the estimated
cost of plugging and abandoning and restoring the surface; provided, however, that in the event the estimated plugging and abandoning
and surface restoration costs and the estimated cost of salvaging are higher than the value of the well’s salvable material
and equipment, each of the abandoning parties shall tender to the parties continuing operations their proportionate shares of the
estimated excess cost. Each abandoning party shall assign to the non-abandoning parties, without warranty, express or implied,
as to title or as to quantity, or fitness for use of the equipment and material, all of its interest in the wellbore of the well
and related equipment, together with its interest in the Leasehold insofar and only insofar as such Leasehold covers the right
to obtain production from that wellbore in the Zone then open to production. If the interest of the abandoning party is or includes
and Oil and Gas Interest, such party shall execute and deliver to the non-abandoning party or parties an oil and gas lease, limited
to the wellbore and the Zone then open to production, for a term of one (1) year and so long thereafter as Oil and/or Gas is produced
from the Zone covered thereby, such lease to be in a mutually agreeable form on the
form attached as Exhibit “B.” The assignments
or leases so limited shall encompass the Drilling Unit upon which the well is located. The payments by, and the assignments or
leases to, the assignees shall be in a ratio based upon the relationship of their respective percentage of participation in the
Contract Area to the aggregate of the percentages of participation in the Contract Area of all assignees. There shall be no readjustment
of interests in the remaining portions of the Contract Area.


 


Thereafter, abandoning parties shall have no
further responsibility, liability, or interest in the operation of or production from the well in the Zone then open other than
the royalties retained in any lease made under the terms of this Article. Upon request, Operator shall continue to operate the
assigned well for the account of the non-abandoning parties at the rates and charges contemplated by this agreement, plus any additional
cost and charges which may arise as the result of the separate ownership of the assigned well. Upon proposed abandonment of the
producing Zone assigned or leased, the assignor or lessor shall then have the option to repurchase its prior interest in the well
(using the same valuation formula) and participate in further operations therein subject to the provisions hereof.


 


3. Abandonment
of Non-Consent Operations: The provisions of Article VI.E.1. or VI.E.2. above shall be applicable as between Consenting Parties
in the event of the proposed abandonment of any well excepted from said Articles; provided, however, no well shall be permanently
plugged and abandoned unless and until all parties having the right to conduct further operations therein have been notified of
the proposed abandonment and afforded the opportunity to elect to take over the well in accordance with the provisions of this
Article VI.E.; and provided further, that Non-Consenting Parties who own an interest in a portion of the well shall pay their proportionate
shares of abandonment and surface restoration cost for such well as provided in Article VI.B.2.(b).


 


Failure of a party to
deliver written notice of an election to take over such well within 30 days of notification of proposed abandonment shall be deemed
an election to abandon the well.


 


F. Termination of Operations:


 


Upon the commencement of an operation for the
drilling, Reworking, Sidetracking, Plugging Back, Deepening, testing, Completion or plugging of a well, including but not limited
to the Initial Well, such operation shall not be terminated without consent of parties bearing 80%
of the costs of such operation; provided, however, that in the event granite or other practically impenetrable substance or condition
in the hole is encountered which renders further operations impractical, Operator may discontinue operations and give notice of
such condition in the manner provided in Article VI.B.1, and the provisions of Article VI.B. or VI.E. shall thereafter apply to
such operation, as appropriate.


 


G. Taking Production in Kind:


 


o
Option No. 1: Gas Balancing Agreement Attached


 



Each
party shall take in kind or separately dispose of its proportionate share of all Oil and Gas produced from the Contract Area,
exclusive of production which may be used in development and producing operations and in preparing and treating Oil and Gas for
marketing purposes and production unavoidably lost. Any extra expenditure incurred in the taking in kind or separate disposition
by any party of its proportionate share of the production shall be borne by such party. Any party taking its share of production
in kind shall be required to pay for only its proportionate share of such part of




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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT
- 1989


 


Operator’s surface
facilities which it uses.


Each
party shall execute such division orders and contracts as may be necessary for the sale of its interest in production from the
Contract Area, and, except as provided in Article VII.B., shall be entitled to receive payment





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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT
- 1989


 


directly from the purchaser
thereof for its share of all production.


 


If
any party fails to make the arrangements necessary to take in kind or separately dispose of its proportionate share of the Oil
produced from the Contract Area, Operator shall have the right, subject to the revocation at will by the party owning it, but
not the obligation, to purchase such Oil or sell it to others at any time and from time to time, for the account of the non-taking
party. Any such purchase or sale by Operator may be terminated by Operator upon at least ten (10) days written notice to the owner
of said production and shall be subject always to the right of the owner of the production upon at least ten (10) days written
notice to Operator to exercise at any time its right to take in kind, or separately dispose of, its share of all Oil not previously
delivered to a purchaser. Any purchase or sale by Operator of any other party’s share of Oil shall be only
for such reasonable periods of time as are consistent with the minimum needs of the industry under the particular circumstances,
but in no event for a period in excess of one (1) year.



 


Any such sale by Operator
shall be in a manner commercially reasonable under the circumstances but Operator shall have no duty to share any existing market
or to obtain a price equal to that received under any existing market. The sale or delivery by Operator of a non-taking party’s
share of Oil under the terms of any existing contract of Operator shall not give the non-taking party any interest in or make the
non-taking party a party to said contract. No purchase shall be made by Operator without first giving the non-taking party at least
ten (10) days written notice of such intended purchase and the price to be paid or the pricing basis to be used.


 



All parties shall give
timely written notice to Operator of their Gas marketing arrangements for the following month, excluding price, and shall notify
Operator immediately in the event of a change in such arrangements. Operator shall maintain records of all marketing
arrangements, and of volumes actually sold or transported, which records shall be made available to Non-Operators upon reasonable
request.





 


In the event one or
more parties’ separate disposition of its share of the Gas causes split-stream deliveries to separate pipelines and/or deliveries
which on a day-to-day basis for any reason are not exactly equal to a party’s respective proportionate share of total Gas
sales to be allocated to it, the balancing or accounting between the parties shall be in accordance with any Gas balancing agreement
between the parties hereto, whether such an agreement is attached as Exhibit “E” or is a separate agreement. Operator
shall give notice to all parties of the first sales of Gas from any well under this agreement.


 


x
Option No. 2: No Gas Balancing Agreement:


 


Each
party shall take in kind or separately dispose of its proportionate share of all Oil and Gas produced from the Contract Area,
exclusive of production which may be used in development and producing operations and in preparing and treating Oil and Gas for
marketing purposes and production unavoidably lost. Any extra expenditures incurred in the taking in kind or separate disposition
by any party of its proportionate share of the production shall be borne by such party. Any party taking its share of production
in kind shall be required to pay for only its proportionate share of such part of Operator’s surface facilities which it
uses.


 


Each party shall execute such division orders
and contracts as may be necessary for the sale of its interest in production from the Contract Area, and, except as provided in
Article VII.B., shall be entitled to receive payment directly from the purchaser thereof for its share of all production.


 


If any party fails to make the arrangements
necessary to take in kind or separately dispose of its proportionate share of the Oil and/or Gas produced from the Contract Area,
Operator shall have the right, subject to the revocation at will by the party owning it, but not the obligation, to purchase such
Oil and/or Gas or sell it to others t any time and from time to time, for the account of the non-taking party. Any such purchase
or sale by Operator may be terminated by Operator upon at least ten (10) days written notice to the owner of said production and
shall be subject always to the right of the owner of the production upon at least ten (10) days written notice to Operator to exercise
its right to take in kind, or separately dispose of, its share of all Oil and/or Gas not previously delivered to a purchaser; provided,
however, that the effective date of any such revocation may be deferred at Operator’s election for a period not to exceed
ninety (90) days if Operator has committed such production to a purchase contract having a term extending beyond such ten (10)
-day period. Any purchase or sale by Operator of any other party’s share of Oil and/or Gas shall be only for such reasonable
periods of time as are consistent with the minimum needs of the industry under the particular circumstances, but in no event for
a period in excess of one (1) year.


 


Any such sale by Operator shall be in a manner
commercially reasonable under the circumstances, but Operator shall have no duty to share any existing market or transportation
arrangement or to obtain a price or transportation fee equal to that received under any existing market or transportation arrangement.
The sale or delivery by Operator of a non-taking party’s share of production under the terms of any existing contract of
Operator shall not give the non-taking party any interest in or make the non-taking party a party to said contract. No purchase
of Oil and Gas and no sale of Gas shall be made by Operator without first giving the non-taking party ten days written notice of
such intended purchase or sale and the price to be paid or the pricing basis to be used. Operator shall give notice to all parties
of the first sale of Gas from any well under this Agreement.


 


All parties shall give timely written notice
to Operator of their Gas marketing arrangements for the following month, excluding price, and shall notify Operator immediately
in the event of a change in such arrangements. Operator shall maintain records of all marketing arrangements, and of volumes actually
sold or transported, which records shall be made available to Non-Operators upon reasonable request.


 


ARTICLE VII.


 


EXPENDITURES AND LIABILITY OF PARTIES


 


A.
Liability of Parties:


 


The
liability of the parties shall be several, not joint or collective. Each party shall be responsible only for its obligations,
and shall be liable only for its proportionate share of the costs of developing and operating the Contract Area. Accordingly,
the liens granted among the parties in Article VII.B. are given to secure only the debts of each severally, and no party shall
have any liability to third parties hereunder to satisfy the default of any other party in the payment of any expense or obligation
hereunder. It is not the intention of the parties to create, nor shall this agreement be construed as creating, a mining or other
partnership, joint venture, agency relationship or association, or to render the parties liable as partners, co-venturers, or
principals. In their relations with each other under this agreement, the parties shall not be considered fiduciaries or to have





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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT
- 1989


 


established a confidential relationship but
rather shall be free to act on an arm’s-length basis in accordance with their own respective self-interest, subject, however,
to the obligation of the parties to act in good faith in their dealings with each other with respect to activities hereunder.




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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT
- 1989


 


B. Liens and Security Interests:


 


Each
party grants to the other parties hereto a lien upon any interest it now owns or hereafter acquires in Oil and Gas Leases and
Oil and Gas Interests in the Contract Area, and a security interest and/or purchase money security interest in any interest it
now owns or hereafter acquires in the personal property and fixtures on or used or obtained for use in connection therewith, to
secure performance of all of its obligations under this agreement including but not limited to payment of expense, interest and
fees, the proper disbursement of all monies paid hereunder, the assignment or relinquishment of interest in Oil and Gas Leases
as required hereunder, and the proper performance of operations hereunder. Such lien and security interest granted by each party
hereto shall include such party’s leasehold interests, working interests, operating rights, and royalty and overriding royalty
interests in the Contract Area now owned or hereafter acquired and in lands pooled or unitized therewith or otherwise becoming
subject to this agreement, the Oil and Gas when extracted therefrom and equipment situated thereon or used or obtained for use
in connection therewith (including, without limitation, all wells, tools, and tubular goods), and accounts (including, without
limitation, accounts arising from gas imbalances or from the sale of Oil and/or Gas at the wellhead), contract rights, inventory
and general intangibles relating thereto or arising therefrom, and all proceeds and products of the foregoing.


 


To perfect the lien and security agreement
provided herein, each party hereto shall execute and acknowledge the recording supplement and/or any financing statement prepared
and submitted by any party hereto in conjunction herewith or at any time following execution hereof, and Operator is authorized
to file this agreement or the recording supplement executed herewith as lien or mortgage in the applicable real estate records
and as a financing statement with the proper officer under the Uniform Commercial Code in the state in which the Contract Area
is situated and such other states as Operator shall deem appropriate to perfect the security interest granted hereunder. Any party
may file this agreement, the recording supplement executed herewith, or such other documents as it deems necessary as a lien or
mortgage in the applicable real estate records and/or a financing statement with the proper officer under the Uniform Commercial
Code.


 


Each party represents and warrants to the other
parties hereto that the lien and security interest granted by such party to the other parties shall be a first and prior lien,
and each party hereby agrees to maintain the priority of said lien and security interest against all persons acquiring an interest
in Oil and Gas Leases and Interests covered by this agreement by, through or under such party. All parties acquiring an interest
in Oil and Gas Leases and Oil and Gas Interests covered by this agreement, whether by assignment, merger, mortgage, operation of
law, or otherwise, shall be deemed to have taken subject to the lien and security interest granted by this Article VII.B. as to
all obligations attributable to such interest hereunder whether or not such obligations arise before or after such interest is
acquired.


 


To the extent that parties have a security
interest under the Uniform Commercial Code of the state in which the Contract Area is situated, they shall be entitled to exercise
the rights and remedies of a secured party under the Code. The bringing of a suit and the obtaining of judgment by a party for
the secured indebtedness shall not be deemed an election of remedies or otherwise affect the lien rights or security interest as
security for the payment thereof. In ddition, upon default by any party in the payment of its share of expenses, interests or fees,
or upon the improper use of funds by the Operator, the other parties shall have the right, without prejudice to other rights or
remedies, to collect from the purchaser the proceeds from the sale of such defaulting party’s share of Oil and Gas until
the amount owed by such party, plus interest as provided in “Exhibit C,” has been received, and shall have the right
to offset the amount owed against the proceeds from the sale of such defaulting party’s share of Oil and Gas. All purchasers
of production may rely on a notification of default from the non-defaulting party or parties stating the amount due as a result
of the default, and all parties waive any recourse available against purchasers for releasing production proceeds as provided in
this paragraph.


 


If any party fails to pay its share of cost
within one hundred twenty (120) days after rendition of a statement therefore by Operator, the non-defaulting parties, including
Operator, shall upon request by Operator, pay the unpaid amount in the proportion that the interest of each such party bears to
the interest of all such parties. The amount paid by each party so paying its share of the unpaid amount shall be secured by the
liens and security rights described in Article VII.B., and each paying party may independently pursue any remedy available hereunder
or otherwise.


 


If any party does not perform all of its obligations
hereunder, and the failure to perform subjects such party to foreclosure or execution proceedings pursuant to the provisions of
this agreement, to the extent allowed by governing law, the defaulting party waives any available right of redemption from and
after the date of judgment, any required valuation or appraisement of the mortgaged or secured property prior to sale, any available
right to stay execution or to require a marshaling of assets and any required bond in the event a receiver is appointed. In addition,
to the extent permitted by applicable law, each party hereby grants to the other parties a power of sale as to any property that
is subject to the lien and security rights granted hereunder, such power to be exercised in the manner provided by applicable law
or otherwise in a commercially reasonable manner and upon reasonable notice.


 


Each party agrees that the other parties shall
be entitled to utilize the provisions of Oil and Gas lien law or other lien law of any state in which the Contract Area is situated
to enforce the obligations of each party hereunder. Without limiting the generality of the foregoing, to the extent permitted by
applicable law, Non-Operators agree that Operator may invoke or utilize the mechanics’ or materialmen’s lien law of
the state in which the Contract Area is situated in order to secure the payment to Operator of any sum due hereunder for services
performed or materials supplied by Operator.


 


C. Advances:


 


Operator, at its election, shall have the right
from time to time to demand and receive from one or more of the other parties payment in advance of their respective shares of
the estimated amount of the expense to be incurred in operations hereunder during the next succeeding month, which right may be
exercised only by submission to each such party of an itemized statement of such estimated expense, together with an invoice for
its share thereof. Each such statement and invoice for the payment in advance of estimated expense shall be submitted on or before
the 20th day of the next preceding month. Each party shall pay to Operator its proportionate share of such estimate within fifteen
(15) days after such estimate and invoice is received. If any party fails to pay its share of said estimate within said time, the
amount due shall bear interest as provided in Exhibit “C” until paid. Proper adjustment shall be made monthly between
advances and actual expense to the end that each party shall bear and pay its proportionate share of actual expenses incurred,
and no more.


 


D. Defaults and Remedies:


 


If any party fails to discharge any financial
obligation under this agreement, including without limitation the failure to make any advance under the preceding Article VII.C.
or any other provision of this agreement, within the period required for such payment hereunder, then in addition to the remedies
provided in Article VII.B. or elsewhere in this agreement, the remedies specified below shall be applicable. For purposes of this
Article VII.D., all notices and elections shall be delivered








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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT
- 1989


 


only by Operator, except that Operator shall
deliver any such notice and election requested by a non-defaulting Non-Operator, and when Operator is the party in default, the
applicable notices and elections can be delivered by any Non-Operator. Election of any one or more of the following remedies shall
not preclude the subsequent use of any other remedy specified below or otherwise available to a non-defaulting party.


 


1.
Suspension of Rights: Any party may deliver to the party in default a Notice of Default, which shall specify the default,
specify the action to be taken to cure the default, and specify that failure to take such action will result in the exercise of
one or more of the remedies provided in this Article. If the default is not cured within thirty (30) days of the delivery of such
Notice of Default, all of the rights of the defaulting party granted by this agreement may upon notice be suspended until the
default is cured, without prejudice to the right of the non-defaulting party or parties to continue to enforce the obligations
of the defaulting party previously accrued or thereafter accruing under this agreement. If Operator is the party in default, the
Non-Operators shall have in addition the right, by vote of Non-Operators owning a majority in interest in the Contract Area fter
excluding the voting interest of Operator, to appoint a new Operator effective immediately. The rights of a defaulting party that
may be suspended hereunder at the election of the non-defaulting parties shall include, without limitation, the right to receive
information as to any operation conducted hereunder during the period of such default, the right to elect to participate in an
operation proposed under Article VI.B. of this agreement, the right to participate in an operation being conducted under this
agreement even if the party has previously elected to participate in such operation, and the right to receive proceeds of production
from any well subject to this agreement.


 


2.
Suit for Damages: Non-defaulting parties or Operator for the benefit of non-defaulting parties may sue (at joint account
expense) to collect the amounts in default, plus interest accruing on the amounts recovered from the date of default until the
date of collection at the rate specified in Exhibit “C” attached hereto. Nothing herein shall prevent any party from
suing any defaulting party to collect consequential damages accruing to such party as a result of the default.


 


3. Deemed Non-Consent: The non-defaulting
party may deliver a written Notice of Non-Consent Election to the defaulting party at any time after the expiration of the thirty-day
cure period following delivery of the Notice of Default, in which event if the billing is for the drilling a new well or the Plugging
Back, Sidetracking, Reworking or Deepening of a well which is to be or has been plugged as a dry hole, or for the Completion or
Recompletion of any well, the defaulting party will be conclusively deemed to have elected not to participate in the operation
and to be a Non-Consenting Party with respect thereto under Article VI.B. or VI.C., as the case may be, to the extent of the costs
unpaid by such party, notwithstanding any election to participate theretofore made. If election is made to proceed under this provision,
then the non-defaulting parties may not elect to sue for the unpaid amount pursuant to Article VII.D.2.


 


Until the delivery of such Notice of Non-Consent
Election to the defaulting party, such party shall have the right to cure its default by paying its unpaid share of costs plus
interest at the rate set forth in Exhibit “C,” provided, however, such payment shall not prejudice the rights of the
non-defaulting parties to pursue remedies for damages incurred by the non-defaulting parties as a result of the default. Any interest
relinquished pursuant to this Article VII.D.3. shall be offered to the non-defaulting parties in proportion to their interests,
and the non-defaulting parties electing to participate in the ownership of such interest shall be required to contribute their
shares of the defaulted amount upon their election to participate therein.


 


4. Advance Payment: If a default is
not cured within thirty (30) days of the delivery of a Notice of Default, Operator, or Non-Operators if Operator is the defaulting
party, may thereafter require advance payment from the defaulting party of such defaulting party’s anticipated share of any
item of expense for which Operator, or Non-Operators, as the case may be, would be entitled to reimbursement under any provision
of this agreement, whether or not such expense was the subject of the previous default. Such right includes, but is not limited
to, the right to require advance payment for the estimated costs of drilling a well or Completion of a well as to which an election
to participate in drilling or Completion has been made. If the defaulting party fails to pay the required advance payment, the
non-defaulting parties may pursue any of the remedies provided in the Article VII.D. or any other default remedy provided elsewhere
in this agreement. Any excess of funds advanced remaining when the operation is completed and all costs have been paid shall be
promptly returned to the advancing party.


 


5. Costs and Attorneys’ Fees: In
the event any party is required to bring legal proceedings to enforce any financial obligation of a party hereunder, the prevailing
party in such action shall be entitled to recover all court costs, costs of


collection, and a reasonable attorney’s
fee, which the lien provided for herein shall also secure.


 


E. Rentals, Shut-in Well Payments and Minimum
Royalties:


 


Rentals, shut-in well payments and minimum
royalties which may be required under the terms of any lease shall be paid by the party or parties who subjected such lease to
this agreement at its or their expense. In the event two or more parties own and have contributed interests in the same lease to
this agreement, such parties may designate one of such parties to make said payments for and on behalf of all such parties. Any
party may request, and shall be entitled to receive, proper evidence of all such payments. In the event of failure to make proper
payment of any rental, shut-in well payment or minimum royalty through mistake or oversight where such payment is required to continue
the lease in force, any loss which results from such non-payment shall be borne in accordance with the provisions of Article IV.B.2.


 


Operator shall notify Non-Operators of the
anticipated completion of a shut-in well, or the shutting in or return to production of a producing well, at least five (5) days
(excluding inclusive of Saturday, Sunday, and legal holidays) prior
to taking such action, or at the earliest opportunity permitted by circumstances, but assumes no liability for failure to do so.
In the event of failure by Operator to so notify Non-Operators, the loss of any lease contributed hereto by Non-Operators for failure
to make timely payments of any shut-in well payment shall be borne jointly by the parties hereto under the provisions of Article
61 IV.B.3.


 


F. Taxes:


 


Beginning with the first calendar year after
the effective date hereof, Operator shall render for ad valorem taxation all property subject to this agreement which by law should
be rendered for such taxes, and it shall pay all such taxes assessed thereon before they become delinquent. Prior to the rendition
date, each Non-Operator shall furnish Operator information as to burdens (to include, but not be limited to, royalties, overriding
royalties and production payments) on Leases and Oil and Gas Interests contributed by such Non-Operator. If the assessed valuation
of any Lease is reduced by reason of its being subject to outstanding excess royalties, overriding royalties or production payments,
the reduction in ad valorem taxes resulting therefrom shall inure to the benefit of the owner or owners of such Lease, and Operator
shall adjust the charge to such owner or owners so as to reflect the benefit of such reduction. If the ad valorem taxes are based
in whole or in part upon separate valuations of each party’s working interest, then notwithstanding anything to the contrary
herein, charges to the joint account shall be made and paid by the parties hereto in accordance with the tax value generated by
each party’s working interest. Operator shall bill the other parties for their proportionate shares of all tax payments in
the manner provided in Exhibit “C.”




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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT
- 1989


 


If Operator considers any tax assessment improper,
Operator may, at its discretion, protest within the time and manner prescribed by law, and prosecute the protest to a final determination,
unless all parties agree to abandon the protest prior to final determination. During the pendency of administrative or judicial
proceedings, Operator may elect to pay, under protest, all such taxes and any interest and penalty. When any such protested assessment
shall have been finally determined, Operator shall pay the tax for the joint account, together with any interest and penalty accrued,
and the total cost shall then be assessed against the parties, and be paid by them, as provided in Exhibit “C.”


 


Each party shall pay or cause to be paid all
production, severance, excise, gathering and other taxes imposed upon or with respect to the production or handling of such party’s
share of Oil and Gas produced under the terms of this agreement.


 


ARTICLE VIII.


ACQUISITION, MAINTENANCE OR TRANSFER OF
INTEREST


 


A. Surrender of Leases:


 


The Leases covered by this agreement, insofar
as they embrace acreage in the Contract Area, shall not be surrendered in whole or in part unless all parties consent thereto.


 


However, should any party desire to surrender
its interest in any Lease or in any portion thereof, such party shall give written notice of the proposed surrender to all parties,
and the parties to whom such notice is delivered shall have thirty (30) days after delivery of the notice within which to notify
the party proposing the surrender whether they elect to consent thereto. Failure of a party to whom such notice is delivered to
reply within said 30-day period shall constitute a consent to the surrender of the Leases described in the notice. If all parties
do not agree or consent thereto, the party desiring to surrender shall assign, without express or implied warranty of title, all
of its interest in such Lease, or portion thereof, and any well, material and equipment which may be located thereon and any rights
in production thereafter secured, to the parties not consenting to such surrender. If the interest of the assigning party is or
includes an Oil and Gas Interest, the assigning party shall execute and deliver to the party or parties not consenting to such
surrender an oil and gas lease covering such Oil and Gas Interest for a term of one (1) year and so long thereafter as Oil and/or
Gas is produced from the land covered thereby, such lease to be on the form attached hereto as Exhibit “B.” Upon such
assignment or lease, the assigning party shall be relieved from all obligations thereafter accruing, but not theretofore accrued,
with respect to the interest assigned or leased and the operation of any well attributable thereto, and the assigning party shall
have no further interest in the assigned or leased premises and its equipment and production other than the royalties retained
in any lease made under the terms of this Article. The party assignee or lessee shall pay to the party assignor or lessor the reasonable
salvage value of the latter’s interest in any well’s salvable materials and equipment attributable to the assigned
or leased acreage. The value of all salvable materials and equipment shall be determined in accordance with the provisions of Exhibit
“C,” less the estimated cost of salvaging and the estimated cost of plugging and abandoning and restoring the surface.
If such value is less than such costs, then the party assignor or lessor shall pay to the party assignee or lessee the amount of
such deficit. If the assignment or lease is in favor of more than one party, the interest shall be shared by such parties in the
proportions that the interest of each bears to the total interest of all such parties. If the interest of the parties to whom the
assignment is to be made varies according to depth, then the interest assigned shall similarly reflect such variances.


 


Any assignment, lease or surrender made under
this provision shall not reduce or change the assignor’s, lessor’s or surrendering party’s interest as it was
immediately before the assignment, lease or surrender in the balance of the Contract Area; and the acreage assigned, leased or
surrendered, and subsequent operations thereon, shall not thereafter be subject to the terms and provisions of this agreement but
shall be deemed subject to an Operating Agreement in the form of this agreement.


 


B. Renewal or Extension of Leases:


 


If any party secures a renewal or replacement
of an Oil and Gas Lease or Interest subject to this agreement, then all other parties shall be notified promptly upon such acquisition
or, in the case of a replacement Lease taken before expiration of an existing Lease, promptly upon expiration of the existing Lease.
The parties notified shall have the right for a period of thirty (30) days following delivery of such notice in which to elect
to participate in the ownership of the renewal or replacement Lease, insofar as such Lease affects lands within the Contract Area,
by paying to the party who acquired it their proportionate shares of the acquisition cost allocated to that part of such Lease
within the Contract Area, which shall be in proportion to the interest held at that time by the parties in the Contract Area. Each
party who participates in the purchase of a renewal or replacement Lease shall be given an assignment of its proportionate interest
therein by the acquiring party.


 


If some, but less than all, of the parties
elect to participate in the purchase of a renewal or replacement Lease, it shall be owned by the parties who elect to participate
therein, in a ratio based upon the relationship of their respective percentage of participation in the Contract Area to the aggregate
of the percentages of participation in the Contract Area of all parties participating in the purchase of such renewal or replacement
Lease. The acquisition of a renewal or replacement Lease by any or all of the parties hereto shall not cause a readjustment of
the interests of the parties stated in Exhibit “A,” but any renewal or replacement Lease in which less than all parties
elect to participate shall not be subject to this agreement but shall be deemed subject to a separate Operating Agreement in the
form of this agreement.


 


If the interests of the parties in the Contract
Area vary according to depth, then their right to participate proportionately in renewal or replacement Leases and their right
to receive an assignment of interest shall also reflect such depth variances.


 


The provisions of this Article shall apply
to renewal or replacement Leases whether they are for the entire interest covered by the expiring Lease or cover only a portion
of its area or an interest therein. Any renewal or replacement Lease taken before the expiration of its predecessor Lease, or taken
or contracted for or becoming effective within six (6) months after the expiration of the existing Lease, shall be subject to this
provision so long as this agreement is in effect at the time of such acquisition or at the time the renewal or replacement Lease
becomes effective; but any Lease taken or contracted for more than six (6) months after the expiration of an existing Lease shall
not be deemed a renewal or replacement Lease and shall not be subject to the provisions of this agreement.


 


The provisions in this Article shall also be
applicable to extensions of Oil and Gas Leases.


 


C. Acreage or Cash Contributions:


 


While this agreement is in force, if any party
contracts for a contribution of cash towards the drilling of a well or any other operation on the Contract Area, such contribution
shall be paid to the party who conducted the drilling or other operation and shall be applied by it against the cost of such drilling
or other operation. If the contribution be in the form of acreage, the party to whom the contribution is made shall promptly tender
an assignment of the acreage, without warranty of title, to the Drilling Parties in the proportions said Drilling Parties shared
the cost of drilling the well. Such acreage shall become a separate Contract Area and, to the extent possible, be governed by provisions
identical to this agreement. Each party shall promptly notify all other parties of any acreage or cash contributions it may obtain
in support of any well or any other operation on the Contract Area. The above provisions shall also be applicable to optional rights
to earn acreage outside the Contract Area which are in support of well drilled inside Contract Area.




    	- 20 -



    	 



    



A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT
- 1989


 


If
any party contracts for any consideration relating to disposition of such party’s share of substances produced hereunder,
such consideration shall not be deemed a contribution as contemplated in this Article VIII.C.


 


D. Assignment; Maintenance of Uniform Interest:


 


For the purpose of maintaining uniformity of
ownership in the Contract Area in the Oil and Gas Leases, Oil and Gas Interests, wells, equipment and production
covered by this agreement no party shall sell, encumber, transfer or make other disposition of its interest in the Oil and Gas
Leases and Oil and Gas Interests embraced within the Contract Area or in wells, equipment and production unless such disposition
covers either:


 


1. the entire interest of the party in all
Oil and Gas Leases, Oil and Gas Interests, wells, equipment and production; or


 


2. an equal undivided percent of the party’s
present interest in all Oil and Gas Leases, Oil and Gas Interests, wells, equipment and production in the Contract Area.


 


Every sale, encumbrance, transfer or other
disposition made by any party shall be made expressly subject to this agreement and shall be made without prejudice to the right
of the other parties, and any transferee of an ownership interest in any Oil and Gas Lease or Interest shall be deemed a party
to this agreement as to the interest conveyed from and after the effective date of the transfer of ownership; provided, however,
that the other parties shall not be required to recognize any such sale, encumbrance, transfer or other disposition for any purpose
hereunder until thirty (30) days after they have received a copy of the instrument of transfer or other satisfactory evidence thereof
in writing from the transferor or transferee. No assignment or other disposition of interest by a party shall relieve such party
of obligations previously incurred by such party hereunder with respect to the interest transferred, including without limitation
the obligation of a party to pay all costs attributable to an operation conducted hereunder in which such party has agreed to participate
prior to making such assignment, and the lien and security interest granted by Article VII.B. shall continue to burden the interest
transferred to secure payment of any such obligations.


 


If, at any time the interest of any party is
divided among and owned by four or more co-owners, Operator, at its discretion, may require such co-owners to appoint a single
trustee or agent with full authority to receive notices, approve expenditures, receive billings for and approve and pay such party’s
share of the joint expenses, and to deal generally with, and with power to bind, the co-owners of such party’s interest within
the scope of the operations embraced in this agreement; however, all such co-owners shall have the right to enter into and execute
all contracts or agreements for the disposition of their respective shares of the Oil and Gas produced from the Contract Area and
they shall have the right to receive, separately, payment of the sale proceeds thereof.


 


E. Waiver of Rights to Partition:


 


If permitted by the laws of the state or states
in which the property covered hereby is located, each party hereto owning an undivided interest in the Contract Area waives any
and all rights it may have to partition and have set aside to it in severalty its undivided interest therein.


 


F. Preferential
Right to Purchase:


o
(Optional; Check if applicable.)


 


Should
any party desire to sell all or any part of its interests under this agreement, or its rights and interests in the Contract Area,
it shall promptly give written notice to the other parties, with full information concerning its proposed disposition, which shall
include the name and address of the prospective transferee (who must be ready, willing and able to purchase), the purchase price,
a legal description sufficient to identify the property, and all other terms of the offer. The other parties shall then have an
optional prior right, for a period of ten (10) days after the notice is delivered, to purchase for the stated consideration on
the same terms and conditions the interest which the other party proposes to sell; and, if this optional right is exercised, the
purchasing parties shall share the purchased interest in the proportions that the interest of each bears to the total interest
of all purchasing parties. However, there shall be no preferential right to purchase in those cases where any party wishes to
mortgage its interests, or to transfer title to its interests to its mortgagee in lieu of or pursuant to foreclosure of a mortgage
of its interests, or to dispose of its interests by merger, reorganization, consolidation, or by sale of all
or substantially all of its Oil and Gas assets to any party, or by transfer of its interests to a subsidiary or parent company
or to a subsidiary of a parent company, or to any company in which such party owns a majority of the stock.


 


ARTICLE IX.


INTERNAL REVENUE CODE ELECTION


 


If,
for federal income tax purposes, this agreement and the operations hereunder are regarded as a partnership, and if the parties
have not otherwise agreed to form a tax partnership pursuant to Exhibit “G” or other agreement between them, each
party thereby affected elects to be excluded from the application of all of the provisions of Subchapter “K,” Chapter
1, Subtitle “A,” of the Internal Revenue Code of 1986, as amended (“Code”), as permitted and authorized
by Section 761 of the Code and the regulations promulgated thereunder. Operator is authorized and directed to execute on behalf
of each party hereby affected such evidence of this election as may be required by the Secretary of the Treasury of the United
States or the Federal Internal Revenue Service, including specifically, but not by way of limitation, all of the returns, statements,
and the data required by Treasury Regulation §1.761. Should there be any requirement that each party hereby affected give
further evidence of this election, each such party shall execute such documents and furnish such other evidence as may be required
by the Federal Internal Revenue Service or as may be necessary to evidence this election. No such party shall give any notices
or take any other action inconsistent with the election made hereby. If any present or future income tax laws of the state or
states in which the Contract Area is located or any future income tax laws of the United States contain provisions similar to
those in Subchapter “K,” Chapter 1, Subtitle “A,” of the Code, under which an election similar to that
provided by Section 761 of the Code is permitted, each party hereby affected shall make such election as may be permitted or required
by such laws. In making the foregoing election, each such party states that the income derived by such party from operations hereunder
can be adequately determined without the computation of partnership taxable income.


 


ARTICLE X.


CLAIMS AND LAWSUITS


 


Operator
may settle any single uninsured third party damage claim or suit arising from operations hereunder if the expenditure does not
exceed twenty five thousand Dollars ($ 25,000 )
and if the payment is in complete settlement of such claim or suit. If the amount required for settlement exceeds the above amount,
the parties hereto shall assume and take over the further handling of the claim or suit, unless such authority is delegated to
Operator. All costs and expenses of handling settling, or otherwise discharging such claim or suit shall be a the joint expense
of the parties participating in the operation from which the claim or suit arises. If a claim is made against any party or if
any party issued on account of any matter arising from operations hereunder over which such individual has no control because
of the rights given Operator by this agreement, such party shall immediately notify all other parties, and the claim or suit shall
be treated as any other claim or suit involving operations hereunder.




    	- 21 -



    	 



    


A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT
- 1989


 


ARTICLE XI.


FORCE MAJEURE


 


If
any party is rendered unable, wholly or in part, by force majeure to carry out its obligations under this agreement, other than
the obligation to indemnify or make money payments or furnish security, that party shall give to all other parties prompt written
notice of the force majeure with reasonably full particulars concerning it; thereupon, the obligations of the party giving the
notice, so far as they are affected by the force majeure, shall be suspended during, but no longer than, the continuance of the
force majeure. The term “force majeure,” as here employed, shall mean an act of God, strike, lockout, or other industrial
disturbance, act of the public enemy, war, blockade, public riot, lightening, fire, storm, flood or other act of nature, explosion,
governmental action, governmental delay, restraint or inaction, unavailability of equipment, and any other cause, whether of the
kind specifically enumerated above or otherwise, which is not reasonably within the control of the party claiming suspension.


 


The
affected party shall use all reasonable diligence to remove the force majeure situation as quickly as practicable. The requirement
that any force majeure shall be remedied with all reasonable dispatch shall not require the settlement of strikes, lockouts, or
other labor difficulty by the party involved, contrary to its wishes; how all such difficulties shall be handled shall be entirely
within the discretion of the party concerned.


 


ARTICLE XII.


NOTICES


 


All
notices authorized or required between the parties by any of the provisions of this agreement, unless otherwise specifically provided,
shall be in writing and delivered in person or by United States mail, courier service, electronic
mail telegram, telex, telecopier or any other form of facsimile, postage or charges prepaid, and addressed to such
parties at the addresses listed on Exhibit “A.” All telephone or oral notices permitted by this agreement shall be
confirmed immediately thereafter by written notice. all telecopy or facsimile notices shall be
confirmed immediately by e-mail. The originating notice given under any provision hereof shall be deemed delivered
only when received by the party to whom such notice is directed, and the time for such party to deliver any notice in response
thereto shall run from the date the originating notice is received. “Receipt” for purposes of this agreement with
respect to written notice delivered hereunder shall be actual delivery of the notice to the address of the party to be notified
specified in accordance with this agreement, or to the telecopy, facsimile or telex machine of such party. The second or any responsive
notice shall be deemed delivered when e-mail deposited in the United States mail or at the office of the courier or telegraph
service, or upon transmittal by telex,  An electronic mail notice is deemed received when a response
is received by the sender of the e-mail message (not including automatically generated replies). Telecopy or facsimile,
or when personally delivered to the party to be notified, provided, that when response is required within 24 or 48 hours, such
response shall be given orally or by telephone, e-mail telex, telecopy or other facsimile
within such period. Each party shall have the right to change its address at any time, and from time to time, by giving written
notice thereof to all other parties. If a party is not available to receive notice orally or by telephone when a party attempts
to deliver a notice required to be delivered within 24 or 48 hours, the notice may be delivered in writing by any other method
specified herein and shall be deemed delivered in the same manner provided above for any responsive notice.


 


ARTICLE XIII.


TERM OF AGREEMENT


 


This
agreement shall remain in full force and effect as to the Oil and Gas Leases and/or Oil and Gas Interests subject hereto for the
period of time selected below; provided, however, no party hereto shall ever be construed as having any right, title or interest
in or to any Lease or Oil and Gas Interest contributed by any other party beyond the term of this agreement.


 


x
Option No. 1: So long as any of the Oil and Gas Leases subject to this agreement remain or are continued in force
as to any part of the Contract Area, whether by production, extension, renewal or otherwise.



 




Option
No. 2: In the event the well described in Article VI.A., or any subsequent well drilled under any provision
of this agreement, results in the Completion of a well as a well capable of production of
Oil and/or Gas in paying quantities, this agreement shall continue in force
so long as any such well is capable of production, and for an additional period of days thereafter; provided, however, if, prior to the expiration
of such additional period, one or more of the parties hereto are engaged in drilling, Reworking, Deepening, Sidetracking,
Plugging Back, testing or attempting to Complete or Re-complete a well or wells hereunder, this agreement shall continue
in force until such operations have been completed and if production results therefrom, this agreement shall continue in force
as provided herein. In the event the well described in Article VI.A., or any subsequent well drilled hereunder, results in a dry
hole, and no other well is capable of producing Oil and/or Gas from the Contract Area, this agreement shall terminate unless drilling,
Deepening, Sidetracking, Completing, Re- completing, Plugging Back or Reworking operations are commenced
within                  days
from                  
the                   date of abandonment of
said well. “Abandonment” for such purposes shall mean either (i) a decision
by all parties not to conduct any further operations on the well or (ii) the elapse of 180 days from the conduct of any operations
on the well, whichever first occurs.


 


The
termination of this agreement shall not relieve any party hereto from any expense, liability or other obligation or any remedy
therefor which has accrued or attached prior to the date of such termination.


 


Upon
termination of this agreement and the satisfaction of all obligations hereunder, in the event a memorandum of this Operating Agreement
has been filed of record, Operator is authorized to file of record in all necessary recording offices a notice of termination,
and each party hereto agrees to execute such a notice of termination as to Operator’s interest, upon request of Operator,
if Operator has satisfied all its financial obligations.


 


ARTICLE XIV.


COMPLIANCE WITH LAWS AND REGULATIONS


 


A.
Laws, Regulations and Orders:

 


This
agreement shall be subject to the applicable laws of the state in which the Contract Area is located, to the valid rules, regulations,
and orders of any duly constituted regulatory body of said state; and to all other applicable federal, state, and local laws,
ordinances, rules, regulations and orders.


 


B.
Governing Law:

 


This
agreement and all matters pertaining hereto, including but not limited to matters of performance, non-performance, breach, remedies,
procedures, rights, duties, and interpretation or construction, shall be governed and determined by the law of the state in which
the Contract Area is located. If the Contract Area is in two or more states, the law of the state of TEXAS
shall govern.


 




C. Regulatory Agencies:




    	- 22 -



    	 



    


A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT
- 1989


 


Nothing
herein contained shall grant, or be construed to grant, Operator the right or authority to waive or release any rights,
privileges, or obligations which Non-Operators may have under federal or state laws or under rules, regulations or




    	- 23 -



    	 



    


A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT
- 1989


 


orders promulgated under such laws in reference
to oil, gas and mineral operations, including the location, operation, or production of wells, on tracts offsetting or adjacent
to the Contract Area.


 


With respect to the operations hereunder, Non-Operators
agree to release Operator from any and all losses, damages, injuries, claims and causes of action arising
out of, incident to or resulting directly or indirectly from Operator’s interpretation or application of rules, rulings,
regulations or orders of the Department of Energy or Federal Energy Regulatory Commission or predecessor or successor agencies
to the extent such interpretation or application was made in good faith and does not constitute gross negligence. Each Non-Operator
further agrees to reimburse Operator for such Non-Operator’s share of production or any refund, fine, levy or other governmental
sanction that Operator may be required to pay as a result of such an incorrect interpretation or application, together with interest
and penalties thereon owing by Operator as a result of such incorrect interpretation or application.


 


ARTICLE XV.


MISCELLANEOUS


 


A. Execution:


 


This agreement shall be binding upon each Non-Operator
when this agreement or a counterpart thereof has been executed by such Non-Operator and Operator notwithstanding that this agreement
is not then or thereafter executed by all of the parties to which it is tendered or which are listed on Exhibit “A”
as owning an interest in the Contract Area or which own, in fact, an interest in the Contract Area. Operator
may, however, by written notice to all Non-Operators who have become bound by this
agreement as aforesaid, given at any time prior to the actual spud date of the Initial Well but in no event later than five days
prior to the date specified in Article VI.A. for commencement of the Initial Well, terminate this agreement if Operator in its
sole discretion determines that there is insufficient participation to justify commencement of drilling operations. In the event
of such a termination by Operator, all further obligations of the parties hereunder shall cease as of such termination. In the
event any Non-Operator has advanced or prepaid any share of drilling or other costs hereunder, all sums so advanced shall be returned
to such Non-Operator without interest. In the event Operator proceeds with drilling operations for the Initial Well without the
execution hereof by all persons listed on Exhibit “A” as having a current working interest in such well, Operator shall
indemnify Non-Operators with respect to all costs incurred for the Initial Well which would have been charged to such person under
this agreement if such person had executed the same and Operator shall receive all revenues which would have been received by such
person under this agreement if such person had executed the same.


 


B. Successors and Assigns:


 


This
agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, devisees, legal
representatives, successors and assigns, and the terms hereof shall be deemed to run with the Leases or Interests included within
the Contract Area.


 


C. Counterparts:


 


This
instrument may be executed in any number of counterparts, each of which shall be considered an original for all purposes.


 


D. Severability:


 


For
the purposes of assuming or rejecting this agreement as an executory contract pursuant to federal bankruptcy laws, this agreement
shall not be severable, but rather must be assumed or rejected in its entirety, and the failure of any party to this agreement
to comply with all of its financial obligations provided herein shall be a material default.


 


ARTICLE XVI.


OTHER PROVISIONS


 


See attached. Remainder
of page intentionally blank.




    	24



    	 



    

A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT
- 1989


 


IN
WITNESS WHEREOF, this agreement shall be effective as of the                         day
of                               ,
              .


 


Lucas A. LaVoy ,
who has prepared and circulated this form for execution, represents and warrants that the form was printed from and, with the exception(s)
listed below, is identical to the AAPL Form 610-1989 Model Form Operating Agreement, as published in computerized form
by Forms On-A-Disk, Inc. No changes, alterations, or modifications, other than those made by strikethrough
and/or insertion or are otherwise and / that are clearly recognizable as changes in


 


Articles ,
have been made to the form.


 



	ATTEST OR WITNESS:	 	 	OPERATOR
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	By	 
	 	 	 	 	 
	 	 	 	 
	 	 	 	Type or print name
	 	 	 	 	 
	 	 		Title	 
	 	 	 	 	 
	 	 		Date	 



 


	 	 		Tax ID or S.S. No.	 




 


NON-OPERATORS



 



	 	 	 	 	 
	 	 	 	 	 
	 	 	By	 
	 	 	 	 	 
	 	 	 	 
	 	 	 	Type or print name
	 	 	 	 	 
	 	 		Title	 
	 	 	 	 	 
	 	 		Date	 



 


	 	 		Tax ID or S.S. No.	 




 


	 	 	 	 	 
	 	 	 	 	 
	 	 	By	 
	 	 	 	 	 
	 	 	 	 
	 	 	 	Type or print name
	 	 	 	 	 
	 	 		Title	 
	 	 	 	 	 
	 	 		Date	 




 


	 	 		Tax ID or S.S. No.	 




 


	 	 	 	 	 
	 	 	 	 	 
	 	 	By	 
	 	 	 	 	 
	 	 	 	 
	 	 	 	Type or print name
	 	 	 	 	 
	 	 		Title	 
	 	 	 	 	 
	 	 		Date	 


 



	 	 		Tax ID or S.S. No.	 






    	- 25 -



    	 



    


A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT
- 1989


 


ACKNOWLEDGMENTS


 


Note:
The following forms of acknowledgment are the short forms approved by the Uniform Law on Notarial Acts.


 


The validity and effect of these forms in any state will
depend upon the statutes of that state.


 



	Individual acknowledgment:	 	 
	 	 	 
	State of	 	)	 
	 	 	 	 
	 	 	) ss.	 
	 	 	 	 
	County of	 	)	 



 


This
instrument was acknowledged before me on


 



	 	 	By	 
	 	 	 	 	 
	(Seal, if any)	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	Title (and Rank)
	 	 	 	 	 
	 	 		My commission expires: 	 




 


	Acknowledgment in representative capacity:
	 	 	 
	State of	 	)	 
	 	 	 	 
	 	 	) ss.	 
	 	 	 	 
	County of	 	)	 




 


This
instrument was acknowledged before me on


 



	 	 	By	 
	 	 	 	 	 





	 	of	 	 
	 	 	 	 	 



 


	(Seal, if any)	 	 	 
	 	 	 	 
	 	 		Title (and Rank)	 



 


	 	 		My commission expires: 	 






    	- 26 -



    	 



    


ARTICLE XVI.


 


OTHER
PROVISIONS


 


		A.	CONFLICT OF TERMS:



 


If any provisions of this Article
XVI are at variance or conflict with the main body of this Operating Agreement, the provisions of this Article XVI shall prevail
for all purposes. This Operating Agreement shall be construed as consistent with that certain Purchase, Sale and Participation
Agreement dated February 27, 2013, by and between Operator and Non- Operator (the “PSPA”), to the maximum extent possible.
Capitalized terms used but not defined herein have the meanings given to such terms in the PSPA. In the event of an unavoidable
conflict between the provisions of this Operating Agreement and the PSPA, the terms of this Operating Agreement shall control.


 


		B.	DEVELOPMENT PROGRAM:



 


The PSPA describes a “Development
Program”, which the Parties may undertake. The operations comprising the Development Program may be proposed in accordance
with this Operating Agreement (including, without limitation, the procedures of Article VI.B. for elections to participate and
consequences of any election not to participate in any operation within the Development Program). The approximate timeframe for
the operations contained within the Development Program is described in the PSPA, but Operator retains the right to determine,
in its reasonable judgment, the timing, manner, and other aspects of such operations, including, without limitation, the order
of operations conducted in connection with the Development Program. Without limitation of the foregoing, if a well drilled pursuant
hereto is in such a condition that, at the time the participating parties are considering any proposed operation pertaining thereto,
in the opinion of the Operator, a reasonable, prudent operator would not conduct the operations contemplated by a particular proposal
for fear of placing the hole, life, or property in jeopardy of losing same prior to completing such well at its objective depth,
Operator shall not be obligated to conduct such operation.


 


		C.	TERMINATION OF EXISTING JOA:



 


Operator and certain of the
Non-Operator parties hereto are parties to an existing operating agreement covering the Contract Area (the “Existing JOA”).
Operator and each Non- Operator party to such Existing JOA intend that this Operating Agreement shall supersede and replace such
Existing JOA for all purposes. Therefore, Operator and each Non-Operator agree that the Existing JOA (and any other JOA to which
they are a party and covering the Contract Area or any part thereof) is hereby terminated. All matters pertaining to the Contract
Area that were formerly governed by the Existing JOA shall be governed by this Operating Agreement from and after the date hereof:


 


		D.	AREA OF MUTUAL INTEREST:



 


The Contract
Area for this Agreement shall be considered an Area of Mutual Interest (“AMI”). Should a party, or its affiliate, member,
owner, director, officer, employee, agent, or their spouses or other immediate family member, acquire a lease or interest therein,
or mineral or other rights pertinent to the exploration for and/or production of oil, gas and other minerals within the Contract
Area through direct purchase, farmin or other exploration agreement, the party acquiring such lease or interest will give notice
within fifteen (15) days of such acquisition to the other parties in writing, furnishing copies of the instruments evidencing such
acquisition and advising the full consideration paid and/or obligations assumed. The parties receiving such notice will have fifteen
(15) days from the date of receipt of such notice within which to elect to pay their “Percentage Interest” share (as
set forth in Exhibit “A”) of all costs and considerations paid or obligations assumed and thereby be entitled to an
assignment of its Percentage Interest therein or to reject any rights to acquire such interest; however, if a well is then drilling
in the Contract Area, the results of which could affect the value of the offered interest, the party acquiring said interest will
so advise the other parties and the election must be made within 48 hours. Failure to reply within the period specified will constitute
an election to not participate in, and only in, that particular acquisition.




    	 



    	 



    




		E.	OBLIGATORY WELL(S):



 


Notwithstanding anything herein
to the contrary, in the event a proposal is made within six 6) months prior to the
expiration or termination of any right or interests subject to this Operating Agreement for the drilling, deepening, reworking,
plugging-back, sidetracking or recompleting of a well or wells, or any other operation, hereinafter referred to as “Obligatory
Operation”, which in Operator’s reasonable judgment is required to, or is the most efficient means to, (1) maintain
and perpetuate a lease or leases within the Contract Area, (2) maintain a unitized area or any portion thereof in force and effect,
(3) earn or preserve an interest or right in and to oil, gas and other minerals which may be owned by a third party or which, failing
such operations, shall revert to a third party, or (4) comply with an order issued by a regulatory body having jurisdiction over
the Contract Area, failing which certain right shall terminate within such period, the following terms shall be applicable:


 


		1.	Should less than all the parties elect to participate
and pay their proportionate part of the costs to be incurred in such Obligatory Operation as elsewhere herein provided, any party
desiring to participate shall have the right to do so at its sole cost, risk and expense.



 


		2.	Any party who did
NOT participate in the Obligatory Operation shall deliver to the party or parties who participated in the Obligatory Operation
an assignment of all of the right, title and interest of said non-participating party, limited as specified herein, in and to the
lease(s) and other rights and interests which are maintained, perpetuated or earned as a result of the Obligatory Operation. The
right, title and interest assigned and conveyed shall be shared by the participating parties in the proportion that the interest
of each bears to the total interest of all of the participating parties. Such assignment shall be executed and delivered within
thirty (30) days following the conclusion of the Obligatory Operation by each party not electing to participate and shall be in
a form acceptable to the participating party, free and clear of any overriding royalty interest, production payments, mortgages,
liens or other encumbrances placed thereupon or arising out of the assigning party’s ownership and operations subsequent to the
date of this Agreement, but otherwise without warranty of title, either express or implied.



 


		3.	The leases, rights
and interests, which are assigned pursuant to the terms hereof, shall no longer be subject to this Operating Agreement, but shall
be deemed to be subject to an agreement identical to this Operating Agreement modified only to reflect the proper interests of
the party or parties in said Obligatory Operation.



 


		4.	If more than one Obligatory Operation is proposed (whether
or not conflicting), any one of which would have the same effect, relative to continuing, maintaining, earning, or preserving
the same oil and gas related interest or complying with an order as provided above, the proposal receiving the vote of the party
or parties owning the largest aggregate percentage interest of the parties entitled to such interest or subject to such order
shall be considered and carried out in lieu of all other competing proposals.



 


		F.	EXCESS COST OPERATIONS:



 


In the event it is evident in
the reasonable judgment of any Consenting Party to an Initial Well or Subsequent Operation that AFE overruns (other than for Unavoidable
Costs, defined below) of more than thirty percent (30%) of the original AFE for such operations are likely to occur prior to completion
of the approved operations, then such party shall notify the other Consenting Parties and Operator shall immediately furnish to
the Consenting Parties a revised AFE for approval of such parties. This provision applies, without limitation, to operations conducted
in connection with the Development Program, and Non-Operators agree that Operator has not represented or warranted that any operations
contemplated by the Development Program will be “turnkey” operations. All parties receiving such a revised AFE shall
notify Operator whether or not they wish to consent to the revised AFE (the “Excess Cost Operation”) within forty-eight
(48) hours of receipt of




    	 



    	 



    


such AFE, inclusive of Saturday,
Sunday and legal holidays; however, if a rig is on location, such parties shall use their best efforts to reply within twenty-four
(24) hours. Failure to respond within the specified time period shall constitute an election to consent to the Excess Cost Operation.
If less than all parties consent to the Excess Cost Operation, Operator immediately after expiration of the forty-eight (48) hour
notice period, shall advise the parties consenting to the Excess Cost Operation (the “Excess Cost Operation Parties”)
of the total interest of the Excess Cost Operation Parties and its recommendation as to whether the Excess Cost Operation Parties
should proceed with the operation as proposed. Each Excess Cost Operation Party, within forty-eight (48) hours inclusive of Saturday,
Sunday and legal holidays after receipt of such notice, shall advise the Operator of its desire to (a) limit participation to such
party’s interest as shown on Exhibit “A”, or (b) carry its proportionate part of the Non-Consenting Parties’ interests,
and a failure to advise the Operator shall be deemed an election under (a). The Excess Cost Operations shall only proceed if the
Excess Cost Operation Parties agree to bear 100% of all of the costs thereof. Should less than all parties consent to the Excess
Cost Operation, and at least one Consenting Party commences operations under the revised AFE within forty-eight (48) hours after
expiration of the original forty-eight (48) hour notice period, the Non- Consenting Parties shall be subject to the non-consent
provisions of Article VI.B. hereof with respect to the Excess Cost Operation.


 


The Operator shall have responsibility
and authority to take any actions deemed necessary to conduct continuous operations of a well until such time as Operator receives
the required approval mentioned hereinabove. In the event no party elects to proceed under any such revised AFE, Operator shall
immediately proceed to abandon the applicable operation in accordance with the terms set forth herein.


 


This provision does not limit
a party’s obligation to pay all costs that are unavoidably incurred in connection with an operation to which such party consented,
such as costs associated with a blowout, environmental cleanup, containment, response or other compliance or any other unanticipated
operations reasonably deemed by the Operator necessary to comply with law or to limit damage to persons or property (“Unavoidable
Costs”). If a party that was a Consenting Party to the original operation elects not to pay its share of costs of the Excess
Cost Operation, but one or more parties elect to proceed with the operation, the Non-Consenting party shall be obligated only to
pay its share of costs for the operation that would have likely been incurred if the operation were terminated as promptly as possible
following the non-consent election.


 


		G.	BILLING OF ADDITIONAL INTEREST:



 


Notwithstanding the provisions
of this Operating Agreement and of the Accounting Procedure attached as Exhibit “C”, the parties to this Operating Agreement
specifically agree that in no event during the term of this contract shall Operator be required to make more than one billing for
the entire interest credited to each party on Exhibit “A”. If any original party to this Operating Agreement (hereinafter
referred to as “Selling Party”) disposes of all or a part of the interest credited to it on Exhibit “A”, the
Selling Party shall be solely responsible for billing its assignee or assignees, and shall make prompt payment to Operator for
the entire amount of statements and billings rendered to it. However, the Selling Party shall furnish to Operator written notice
of the conveyance including recorded or certified copies of the assignment by which the transfer was made. If Selling Party disposes
of all its interest as set out on Exhibit “A”, whether to one or several assignees, Operator shall continue to issue
statements and billings to the Selling Party for the interest conveyed until such time as Selling Party has designated and qualified
one assignee to receive the billings for the entire interest. In order to qualify one assignee to receive the billing for the entire
interest credited to Selling Party on Exhibit “A”, Selling Party shall furnish to Operator the following:


 


1.   Written notice of the conveyance
and photo static or certified copies of the assignments by which the transfer was made.


 


2.   The name of the assignee
to be billed and a written statement signed by the assignee to be billed in which it consents to receive statements and billings
for the entire interest credited to Selling Party on Exhibit “A” hereof; and, further, consents to handle any necessary
sub-




    	 



    	 



    


billings in the event it
does not own the entire interest credited to Selling Party on Exhibit “A”.


 


		H.	OPERATOR AS DISBURSING AGENT FOR NON-OPERATORS:



 


Each Non-Operator, by such
party’s execution of this agreement, designates Operator as the agent of such party to receive and disburse the proceeds derived
from the sale of oil, gas or other minerals produced from the Contract Area. Subject to the provisions of Article VII.B. of this
agreement, Operator shall remit to each Non-Operator its proportionate share of such proceeds within forty-five (45) days after
the receipt by Operator of such proceeds. Operator will use its best efforts to make such disbursements correctly, but will be
liable for incorrect disbursement only in the event of gross negligence or willful misconduct.


 


		I.	SECURITY:



 


The lien and security interest
granted by each Non-Operator to Operator and by Operator to the Non-Operators under Article VII.B. shall extend not only to such
party’s oil and gas rights in the Contract Area (which for greater certainty shall include all of each party’s leasehold
interest and leasehold estate in the Contract Area), the oil and/or gas when extracted and equipment (as mentioned in said Article)
but also to all accounts, contract rights, inventory and general intangibles constituting a part of, relating to or arising out
of said oil and gas rights, extracted oil and gas, and said equipment or which are otherwise owned or held by any such party in
the Contract Area. Further, the lien and security interest of each of said parties shall extend to all proceeds and products of
all of the property and collateral described in this paragraph and in Article VII.B. as being subject to said lien and security
interest. Any party, to the extent it deems necessary to perfect the lien and security interest provided herein, may file the Memorandum
of Operating Agreement, Mortgage and Financing Statement as a lien or mortgage in the applicable real estate records and as a financing
statement with the proper officer under the Uniform Commercial Code. Further, each party agrees on request of any other party,
to execute any financing statement, continuation statement or memorandum of this Operating Agreement necessary in order to perfect
the security interest and lien hereby granted under the applicable Uniform Commercial Code or State recording law.


 




		J.	BANKRUPTCY:



 


If, following the granting of
relief under the Bankruptcy Code to any party hereto as debtor hereunder, this Operating Agreement should be held to be an executory
contract within the meaning of 11 U.S.C. Section 365, then the Operator, or (if the Operator is the debtor in bankruptcy) any other
party, shall be entitled to a determination by debtor or any trustee or debtor within thirty (30) days from the date an order for
relief is entered under the Bankruptcy Code as to the rejection or assumption of this Operating Agreement. In the event of an assumption,
Operator or said other party shall be entitled to adequate assurances as to future performance of debtor’s obligations hereunder
and the protection of the interest of all other parties.


 


		K.	RIGHTS SUSPENDED:



 


If a lien conferred in Article
VII.B. has been enforced, for so long as the affected party remains in default it shall have no further access to the Contract
Area or information obtained in connection with operations hereunder and shall not be entitled to vote on any matter hereunder.
As to any proposed operation in which it otherwise would have the right to participate, such party shall have the right to be a
Consenting Party therein only if it pays the amount it is in default before the operation is commenced; otherwise, it automatically
shall be deemed a Non-Consenting Party to that operation.


 


		M.	TWENTY- FOUR-HOUR NOTICE:



 


At least twenty-four (24) hours
prior to conducting any testing, coring, logging, completing or abandoning operations, Operator shall notify the other parties
participating in the costs thereof so that they may have a representative present to witness such tests or operations if they so
desire.




    	 



    	 



    


		N.	CONFIDENTIALITY:



 


Except as otherwise provided herein,
the parties hereto agree that no party shall divulge to any third party or parties any geophysical data acquired, obtained or developed
by the parties hereto involving the Contract Area subsequent to the effective date of this Operating Agreement, or any drilling
information relative to any well or wells drilled as a result hereof, other than depth and information customarily publicized,
without first obtaining the written consent of the other parties to release any such information which consent shall not be unreasonably
withheld; provided, however, that such consent shall not be necessary for any party to divulge such information to any party or
parties from whom they may receive a contribution for the drilling of a well hereunder, or to any party or parties who is the record
owner of an interest in such a well, but only if such party or parties to whom the information is to be disclosed agrees in writing
to be subject to this provision prior to disclosure. All such information and data shall be treated as strictly confidential. Nothing
contained herein shall be deemed to prevent disclosure of any such information or data if applicable laws or rules and regulations
of any administrative or governmental agency or entity require such disclosure.


 


		O.	MULTIPLE COUNTERPARTS:



 


This Operating Agreement may
be executed in counterparts and, if so executed, shall be valid, binding, and have the same effect as if all parties hereto actually
joined and executed one and the same document.


 


		P.	MEMORANDUM OF JOINT OPERATING AGREEMENT:



 


The parties
agree that upon execution of this Operating Agreement, the parties will also execute a Memorandum of Operating Agreement, Mortgage
and Financing Statement for recordation in each County and Parish in which the Contract Area is located.


 


		Q.	MUTUALITY



 


The parties hereto acknowledge
and declare that this Operating Agreement is the result of extensive negotiations between themselves. Accordingly in the event
of any ambiguity in this Operating Agreement, there shall be no presumption that this instrument was prepared solely by either
party hereto.


 


		R.	ADDITIONAL LANGUAGE TO ARTICLE V - OPERATOR



 


THE FOLLOWING
PROVISIONS SHALL BE DEEMED CLEAR AND CONSPICUOUS AND SATISFY THE EXPRESS NEGLIGENCE RULE. AS PROVIDED FOR ABOVE, OPERATOR SHALL
HAVE NO LIABILITY FOR ORDINARY NEGLIGENCE IN REGARD TO ITS ACTIONS OR INACTIONS RELATED TO THE ADMINISTRATION OF THIS OPERATING
AGREEMENT OR OPERATIONS HEREUNDER, EXCEPT FOR CLAIMS ARISING FROM OPERATOR’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. FURTHERMORE,
IT SHALL HAVE NO LIABILITY FOR CONSEQUENTIAL OR PUNITIVE DAMAGES FOR CLAIMS ARISING FROM OR RELATED TO THIS OPERATING AGREEMENT.
OPERATOR IS NOT ACTING IN A FIDICIARY CAPACITY EXCEPT AS PROVIDED FOR IN Article V.D.4. OF THIS OPERATING AGREEMENT.


 


		S.	HEADINGS:



 


All headings in this Operating
Agreement are for reference purposes only and have no binding effect on the terms, conditions or provisions of this Operating Agreement.


 


		T.	ACCESS TO CONTRACT AREA AND INFORMATION:



 


Anything to the contrary hereinafter
notwithstanding, during the period Consenting Parties are entitled to receive Non-Consenting Party’s share of production,
or other proceeds therefrom, Non-Consenting Parties rights of access to the Contract Area and Information, as provided for herein,
shall be suspended.




    	 



    	 



    


		U.	DEFAULT ON PAYMENTS:



 


If any party (including the
Operator) fails to pay its share of any cost, including any advance which it is obligated to make under Article VII.C. or any other
provision of this agreement, within the period required for such payment hereunder, then in addition to the remedies provided in
Article VII.B. the Operator (or any Non-Operator if the Operator is the party in default) may pursue any of the following remedies:


 


		1.	Suspension of Rights: Operator (or the Non-Operators if Operator
is the party in default) may deliver to the party in default a Notice of Default, which shall specify the default, specify the
action to be taken to cure the default, and specify the failure to take such action will result in the exercise of one or more
of the remedies provided in this Article. If the default is not cured within thirty (30) days of the delivery of such Notice of
Default, Operator (or the Non-Operator if Operator is the party in default) may suspend any or all of the rights of the defaulting
party granted by this agreement until the default is cured, without prejudice to the right of the non-defaulting party to continue
to enforce the obligations of the defaulting party theretofore accrued or thereafter accruing under this agreement. If the Operator
is the party in default, the Non-Operators shall in addition have the right, by vote of Non-Operators owning a majority in interest
in the Contract Area after excluding the voting interest of Operator, to appoint a new Operator effective immediately.



 


		2.	Suit for Damages: Operator (or the Non-Operators if Operator is the
party in default) may sue to collect the amounts in default together with all consequential damages suffered by the non-defaulting
parties as a result of the default, plus interest accruing on the amounts recovered from the date of default until the date of
collection at the rate specified in Section I.3. of the Accounting Procedure attached hereto.



 


		3.	Deemed Non-Consent: Operator (or any Non-Operator if the Operator
is the party in default) may deliver a written Notice of Non-Consent Election to the defaulting party at any time after the expiration
of the thirty-day cure period following delivery of the Notice of Default, in which event if the billing is for the drilling of
a new well or the plugging back, sidetracking, reworking or deepening of a well which is to be or has been plugged as a dry hole,
or for the completion or recompletion of any well, the non-paying party will be conclusively deemed to have elected not to participate
in the operation and to be a Non-Consenting Party with respect thereto under Article VI.B., or VII.D.1. to the extent of the costs
unpaid by such party, notwithstanding any election to participate theretofore made. If an election is made to proceed under this
provision, then the non- defaulting party may not elect to sue for the unpaid amount pursuant to Article Until the
delivery of such Notice of Non-Consent Election to the non- paying party, such party shall have the right to cure its default
by paying the unpaid billing plus interest at the rate set forth in Section I.3. of the attached Accounting Procedure plus
any costs or damages incurred by the non-defaulting parties as a result of the default. Any interest relinquished pursuant to
this Article shall be offered by Operator (or by the Non-Operators if Operator is the defaulting party) to the non-defaulting
parties in proportion to their interest, and the non-defaulting parties electing to contribute their shares of the defaulted
amount.





 


		4.	Good-Faith Disputes: In the event a party disputes in good faith the
existence of a default on his party that is the subject of a Notice of Default, such party may avoid the imposition of the remedies
for such default contained in this agreement by paying the disputed amount into an account at a bank requiring the signatures of
both such party and the Operator (or, if the Operator is the party in default, a Non- Operator designed by the non-Operators) in
order to release such refunds. Such funds shall be released to the party entitled thereto upon the resolution of the issue raised
by the objecting party.



 


		5.	Costs and Attorneys’ Fees: In the event any party shall ever be required
to bring legal proceedings in order to collect any sums due from any other party or to





    	 



    	 



    


		 	enforce any other right under this agreement, then the prevailing party in such action shall
                                                                                  also be entitled to recover all court costs, costs of collection, and reasonable attorneys’ fees, which the lien
                                                                                  provided for herein shall also secure.



 


		V.	DRAG-ALONG/TAG-ALONG:



 


In the event either party (“Offeree
Party”) receives an offer to purchase all or any portion of its interest in the Contract Area (other than a sale or other
disposition to a person controlling, controlled by or under common control with such party), the Offeree Party will not consummate
any such sale unless the proposed third-party purchaser has also submitted a bona fide written offer to the other parties hereto
(the “Other Party”) to purchase an equivalent pro rata portion of the Other Party’s interest in the same portion
of the Contract Area on the same terms and conditions as those offered to the Offeree Party (except to the extent proportionately
adjusted to take into account the relative interest of the parties in such portion of the Contract Area). The Other Party shall
notify the Offeree Party, in writing, within fifteen (15) days of receipt of such notice whether the Other Party desires to sell
its interest in all or any portion of the Contract Area to such third party or parties. The failure of the Other Party to timely
deliver notice to the Offeree Party shall be deemed a waiver by the Other Party of its right to sell as provided in this Section.


 


In the event Operator receives
an offer to purchase all or any portion of its interest in the Contract Area (other than a sale or other disposition to a person
controlling, controlled by or under common control with the Operator), then if the Operator so elects, Non-Operator agrees that
it will sell an equivalent pro rata portion of Non-Operator’s interest in the same portion of the Contract Area on the same
terms and conditions as those offered to the Operator (except to the extent proportionately adjusted to take into account the relative
interests of the parties in such assets).


 


		W.	PREFERENTIAL RIGHT TO PURCHASE:



 


If any party desires to sell or
otherwise transfer all or any part of its interest in the contract Area, including, without limitation, its interest in any wells
or leases (collectively, a “Sale Interest”), or if any desires to enter into a transaction which involves a change
of control with respect to such party, such party ( “Selling Party”) shall promptly give written notice to the other
parties, which own an interest in the Contract Area, with full information concerning the proposed transaction. It is expressly
agreed that this preferential right shall not apply to any overriding royalty interest, net profits interest, royalty interest
or other non-working interests, and there shall be no preferential right to purchase in those cases where any party desires to
mortgage its interests, or to transfer title to its interests to its mortgagee in lieu of or pursuant to foreclosure of a mortgage
of its interests. The notice must also (a) include the name and address of the prospective transferee (who must be ready, willing
and able to purchase), the purchase price, and all other terms of the desired transaction (collectively the “Desired Terms”);
(b) include a copy of any proposed or executed written agreement the sets forth the Desired Terms, including all exhibits, schedules
and related agreements, and (c) be accompanied by a written purchase and sale (“Sale Offer”) signed by the Selling
Party that provides for sale of all of the Sales Interest or, if the desired transaction is a change of control, the Selling Party’s
interest in the Contract Area that will be affected by the change of control. The Sales Offer shall provide for the sale of the
Sales Interest to the other parties, in proportion to the interest owned by such other parties in the Contract Area, on the same
terms as the Desired Terms, provided that the Sales Offer shall not include any terms or conditions that were primarily included
for the purpose of defeating or avoiding this preferential purchase right. The other parties that own an interest in the Contract
Area shall then have the right, for a period of ten (10) days (“Exercise Period”) after the notice and Sales Offer
is delivered, to purchase the Sales Interest, which the Selling Party proposes to sell, on the Desired Terms except for any terms
or condition that were primarily included for the purpose of defeating or avoiding the preferential purchase right contained herein.
If this preferential purchase right is exercised, the purchasing parties shall share the purchased interest in the proportions
that the interest of each bears to the total interest of all purchasing parties in the Contract Area. A party is deemed to exercised
its preferential purchase right on the




    	 



    	 



    


date that (1) it executes
and returns the Sales Offer, or (2) it disputes (in writing) that the Sales Offer complies with the terms of this Operating Agreement.


 


If no party exercises its preferential
purchase right, then the Selling Party may enter into a binding agreement or proceed to close on any such agreement already executed
to transfer such Operating Interest or cause a change of control with any party, on terms and conditions no less favorable to the
Selling Party than the Desired Terms, during a period ending ninety (90) days after the Exercise Period. If however, no such binding
agreement is entered into during such time, then no sale or change of control may thereafter be entered into by the Selling Party
without first again complying with this Section.


 


In the case of a change of control
or package sale that includes all or part of Selling Party’s interest the Contract Area, the interest that is subject to
this preferential right shall be separately valued and the notice shall state the value attributed to such interest by the prospective
transferee and attributed to each of the other properties included in the proposed transaction. This preferential right shall apply
separately to each party interest in the Contract Area, regardless of whether it is included in the proposed transaction along
with other property, whether as a sale, lease, sublease, farmout, or like-kind exchange (and shall include a change in control
of such Selling Party of its parent company), and no provision in this Agreement shall be interpreted to defeat this preferential
right. A “change of control” means any person shall have become the beneficial owner of the Selling Party or shall
have acquired, directly or indirectly, securities or ownership interest of the Selling Party representing 50% or more (in addition
to his current holdings) of the combined voting power of the Selling Party’s then outstanding voting securities or interests.


 


		X.	ADVANCE PAYMENTS:



 


Notwithstanding the other
provisions of this Operating Agreement and without limitation of Operator’s right under Article VII.C. hereof, if
Operator desires or is requested by any Non-Operator to do so, Operator shall advance bill each Non-Operator who elects to
participate in any operation hereunder, one hundred percent (100%) of Non-Operator’s proportionate share of the
estimated costs attributable to the entire proposed operation. Non-Operators who have elected to participate in any such
operations shall remit to Operator within thirty (30) days of receipt of invoice therefor, or within forty-eight (48) hours
prior to the commencement of the proposed operation, whichever occurs first, one hundred percent (100%) of the estimated
amount so invoiced. The invoice may be included with the notice of a proposed operation and the thirty (30) day (48 hour)
period in which to pay may run simultaneously with the period in which to make an election in a proposed operation. If
advance payment is not received by Operator within said thirty (30) days, or forty-eight (48) hours, as the case may be,
Operator shall notify Non- Operator in writing that it has not received payment and grant Non-Operator an additional period
of ten (10) days in which to pay. If not received by Operator within the prescribed time, Operator may, without prejudice to
other existing remedies, at its option, consider such non-payment to constitute an election not to participate under this
Operating Agreement and the in the same manner, to the same extent and with the same force and effect that failure to
reply within the prescribed period constitutes an election not to participate. However, anything to the contrary contained
herein notwithstanding, in no event shall a Non-Operator be required to pre-pay its share of costs of an operation more than
thirty (30) days prior to the expected commencement of the operation. If Operator has underestimated the costs of any
operation, Operator may make subsequent advance billings regarding prepayment of any deficiency. In no event shall the
failure to correctly estimate the cost of any operation, be deemed a waiver of Operator’s right to receive one hundred
(100%) of each Non-Operator’s proportionate share of the actual cost of any Operation in which such Non-Operator
participates. If Operator reasonably estimates that the operation will takes more than 30 days to complete, then the Operator
will deposit the amount paid in advance in an interest bearing account and credit the interest earned to the Joint
Account.


 


In addition to other direct charges
to the Joint Account under Article II of the Accounting Procedure, Operator may make a direct charge for fees for outside legal
services (including, but not limited to title opinions, negotiations of contracts, negotiations with




    	 



    	 



    

surface or mineral owners,
and matters of taxation), title costs, expenses in connection with preparation and presentation of evidence at Railroad Commission
hearings, and preparation and handling of applications to and hearings before the Federal Regulatory Commission and any other governmental
authorities.


 


		Y.	FILINGS WITH GOVERNMENTAL AGENCIES:



 


The parties hereto authorize the
Operator to prepare and submit to any governmental authority such filings, applications, reports or other documents as the Operator
may deem necessary in connection with the Contract Area. Notwithstanding anything to the contrary in Exhibit C Accounting Procedure
or the other provisions of this Operation Agreement, all costs and expenses, including without limitation legal and attorney expenses,
associated with the gathering, submitting and presenting of such filings, applications, reports or other documents shall be a direct
charge to the joint account, regardless of whether the services are performed by outside parties or by the Operator’s own personnel.


 


		Z.	SUCCESSORS AND ASSIGNS:



 


Each party hereto covenants and
agrees for itself, its successors and assigns, that any sale, assignment sublease, mortgage, pledge or other instrument affecting
the leases and lands subject to this instrument (whether of an operating or non-operating interest or a mortgage, pledge or other
security interest) will be made and accepted subject to this instrument. The party acquiring the interest or security shall be
furnished a copy of this agreement and any amendments thereto, and shall expressly agree to be bound by all of its terms and provisions.
It is provided, however, that a mortgagee, pledgee or person holding only a security interest shall not incur any obligations under
this Operating Agreement although its rights may be affected or limited hereby. In the event of the foreclosure of the mortgage
or security interest, any sale will be expressly made and accepted subject to all of the terms and provisions of this Operating
Agreement. Any party hereto (and any successor of a party hereto) who executed any instrument in favor of any party without complying
with the provisions of this paragraph shall indemnify, defend and hold the other parties hereto harmless for and against any and
all claims or causes of action by any person whomsoever or for any losses sustained as a result of the failure of such party to
comply with these provisions. This indemnity shall also include reimbursement for reasonable attorney’s fees incurred in connection
with the assertion of the rights herein granted such parties.


 


		AA.	OPTIONAL OPERATOR SALE OF PRODUCTION:



 


IF OPERATOR SELLS ANY OIL OR
GAS OF A NON-OPERATOR PURSUANT TO ARTICLE VI.G., OPERATOR SHALL CONCLUSIVELY BE DEEMED TO HAVE SATISFIED ALL ITS OBLIGATIONS WITH
RESPECT TO ANY OIL OR GAS SOLD BY OPERATOR FOR A NON-OPERATOR, IF (1) THE NET PRICE RECEIVED BY THE NON-OPERATOR FOR THE SALE OF
SUCH OIL OR GAS IS NOT LESS THAN THE PRICE RECEIVED BY OPERATOR FOR OIL OR GAS (AS APPLICABLE) PRODUCED FROM THE SAME WELL, AND
(2) ANY CHARGES, COSTS OR FEES PAID BY OPERATOR TO AN AFFILIATE FOR SERVICES IN CONNECTION WITH THE SALE OF SUCH OIL OR GAS AND
DEDUCTED FROM PRICE RECEIVED BY THE NON-OPERATOR ARE NOT GREATER THAN THOSE CHARGED BY SUCH AFFILIATE TO OTHERS IN ARM’S-LENGTH
TRANSACTIONS.


 


The failure of Operator to obtain
such net price or the incurrence of affiliated charges greater than those specified above shall not be deemed to prove any breach
of Operator’s obligations.


 


		BB.	ADDITIONAL DEFINITIONS:



 


1.     The term “deepen”
shall also mean a single operation whereby a horizontal well is drilled to a targeted horizontal distance beyond the horizontal
distance proposed in the associated AFE, whichever is lesser.




    	 



    	 



    

2.     The term “horizontal
well” shall mean any well defined as a horizontal well under the rules and regulations of the regulatory agency having jurisdiction,
or which is proposed to have one or more horizontal drainholes having a displacement of at least 100 feet from the penetration
point in the objective formation to the terminus of the horizontal component, shall be considered a horizontal well for the purposes
of this agreement.




    	 



    	 



    

Exhibit “A”


to Joint Operating Agreement dated by
and between


5 JAB, INC. as Operator, and the
other Non-Operator signatory parties thereto


 


I.
Description of lands subject to this agreement:


 


The lands described on Exhibit A-1 attached hereto.


 


II.
Parties to agreement with addresses and telephone numbers for notice purposes:


 


FIVE J.A.B., INC., (“Operator”)
or (“Seller)”


16202 Butera Rd.


Magnolia, TX 77355


Attention: James (“Bubba”) Bohannon


Telephone: (281) 356-7767


Fax: (281) 252-0575


 


THREE FORKS, INC. (“Non-Operator”)


555 Eldorado Blvd., Suite 100


Broomfield, Colorado 80021


Attention: Donald Walford,
CEO


Telephone: (303)404-2160


E-mail:


 


III.
Percentages or fractional interests of parties to this agreement:


 


[This Exhibit shall display the record title of
each party in and to the interests within the Contract Area]


 


IV.
Oil and Gas Leases, Wells, and/or Oil and Gas Interests subject to this agreement:


 


See leases and wells described on Exhibit A-1 attached
hereto.




    	 



    	 



    

Exhibit A-1


 


List of Leases and Wells


 


[attached]




    	 



    	 



    

 





	Lessor’s
    Name	Lessee’s
    Name	Exhibit
    “A” 

    Attached to and made part of that certain Operating Agreement by and between Five J.A.B., Inc.,
    as Operator, and Three Forks, Inc., as Non-Operator

     Lease Date    Recording Information    Legal Description	Wells
    Associated with Lease
	FENRIS FIELD PROPERTIES
	SOUTHERN OIL SYSTEMS
    L L C	FIVE JAB INC	6/1/2011	FILE NO. 587416 BOOK: 385 PAGE: 152 OF THE OFFICIAL
    PUBLIC RECORDS OF EVANGELINE PARISH, LOUISIANA	TRACT ONE: SW/4 OF THE SE/4 OF SECTION 29
    AND NW/4 OF SECTION 33, BOTH IN TOWNSHIP 5 SOUTH, RANGE 1 WEST, EVANGELINE PARISH, LOUISANA 

TRACT TWO: SE/4 OF THE
    SE/4 OF SECTION 29 AND THE NE/4 OF THE NE/4 OF SECTION 33, BOTH IN TOWNSHIP 5 SOUTH, RANGE 1 WEST, EVANGELINE PARISH, LOUISIANA
    

TRACT THREE: SOUTHWEST CORNER OF SECTION 28, TOWNSHIP 5 SOUTH, RANGE 1 EVANGELINE PARISH, LOUISIANA	FRIO RA SUA; GUILLORY 0001-ALT

 FRIO RA SUA; RG BERZAS,
    ETUX 001 LEE ROY FONTENOT SWD 001
	EAST BASILE PROPERTIES
	RICHARD
    LAFLEUR, ET AL	OLDFIELD OPERATING COMPANY	4/15/2010	FILE NO. 579283 BOOK: 369 PAGE:
    877 OF THE OFFICIAL PUBLIC RECORDS OF EVANGELINE PARISH, LOUISIANA	TRACT 1: SECTION 40 TOWNSHIP
    6 SOUTH, RANGE 2 WEST EVANGELINE PARISH, LOUISIANA 

TRACT 2: SECTIONS 1 AND 2, TOWNSHIP 6 SOUTH-RANGE 2 WEST, EVANGELINE
    PARISH, LOUISIANA	RICHARD LAFLEUR # 1 

LARRY LAFLEUR
    SWD # 1 

LARRY LAFLEUR B-1
	RANDALL
    LAFLEUR, ET AL	OLDFIELD OPERATING COMPANY	4/15/2010	FILE NO. 579284 BOOK: 369 PAGE:
    882 OF THE OFFICIAL PUBLIC RECORDS OF EVANGELINE PARISH, LOUISIANA	TRACT 1: SECTION 40 TOWNSHIP
    6 SOUTH, RANGE 2 WEST EVANGELINE PARISH, LOUISIANA 

TRACT 2: SECTIONS 1 AND 2, TOWNSHIP 6 SOUTH-RANGE 2 WEST, EVANGELINE
    PARISH, LOUISIANA	RICHARD LAFLEUR # 1 

LARRY LAFLEUR
    SWD # 1 

LARRY LAFLEUR B-1
	KATRINA
    LAFLEUR ROY, ET AL	OLDFIELD OPERATING COMPANY	4/15/2010	FILE NO. 579282 BOOK: 369 PAGE:
    872 OF THE OFFICIAL PUBLIC RECORDS OF EVANGELINE PARISH, LOUISIANA	TRACT 1: SECTION 40 TOWNSHIP
    6 SOUTH, RANGE 2 WEST EVANGELINE PARISH, LOUISIANA 

TRACT 2: SECTIONS 1 AND 2, TOWNSHIP 6 SOUTH-RANGE 2 WEST, EVANGELINE
    PARISH, LOUISIANA	RICHARD LAFLEUR # 1 

LARRY LAFLEUR
    SWD # 1 

LARRY LAFLEUR B-1
	RANDALL
    LAFLEUR, ET AL	OLDFIELD OPERATING COMPANY	4/15/2010	FILE NO. 579285 BOOK: 369 PAGE:
    888 OF THE OFFICIAL PUBLIC RECORDS OF EVANGELINE PARISH, LOUISIANA	TRACT 1: SECTION 40 TOWNSHIP
    6 SOUTH, RANGE 2 WEST EVANGELINE PARISH, LOUISIANA 

TRACT 2: SECTIONS 1 AND 2, TOWNSHIP 6 SOUTH-RANGE 2 WEST, EVANGELINE
    PARISH, LOUISIANA	RICHARD LAFLEUR # 1 

LARRY LAFLEUR
    SWD # 1 

LARRY LAFLEUR B-1





    	Page 1 of 5



    	 



    



	Lessor’s
    Name	Lessee’s
    Name	Exhibit
    “A” 

Attached to and made part of that certain Operating Agreement by
    and between Five J.A.B., Inc., as Operator, and Three Forks, Inc., as Non-Operator 

Lease
    Date   Recording Information     Legal Description	Wells
    Associated with Lease
	JOHN
    W. JENKINS	OLDFIELD
    OPERATING COMPANY	11/18/2010	ORIGINAL
    NOT RECORDED	TRACT
    1: SECTION 40 TOWNSHIP 6 SOUTH, RANGE 2 WEST EVANGELINE PARISH, LOUISIANA 

TRACT 2: SECTIONS 1 AND 2, TOWNSHIP 6
    SOUTH-RANGE 2 WEST, EVANGELINE PARISH, LOUISIANA	RICHARD
    LAFLEUR # 1 

LARRY LAFLEUR SWD # 1 

LARRY LAFLEUR B-1
	PENNY
    UNVERZAGT STEFANSKI	OLDFIELD OPERATING COMPANY	10/25/2010	ORIGINAL NOT RECORDED	TRACT 1: SECTION
    40 TOWNSHIP 6 SOUTH, RANGE 2 WEST EVANGELINE PARISH, LOUISIANA 

TRACT 2: SECTIONS 1 AND 2, TOWNSHIP 6 SOUTH-RANGE 2
    WEST, EVANGELINE PARISH, LOUISIANA	RICHARD LAFLEUR # 1
    

LARRY LAFLEUR SWD # 1 

LARRY LAFLEUR B-1
	CHARENTON
    FIELD PROPERTIES
	SHORE
    OIL CORPORATION	JNC,
    INC	6/17/1981	CONVEYANCE
    BOOK: 23-W, ENTRY NO. 189, PAGE: 786 OF THE CONVEYANCE RECORDS OF ST. MARY PARISH, LOUISIANA	SECTIONS
    51 AND 52, TOWNSHIP 14 SOUTH, RANGE 9 EAST AND SECTIONS 41 AND 43, TOWNSHIP 14 SOUTH, RANGE 10 EAST	SHORE
    OIL COMPANY # 1

 SHORE OIL COMPANY SWD # 1

 SHORE OIL COMPANY # 3

 SHORE OIL COMPANY # 4

 SHORE OIL COMPANY # 5

 SHORE OIL COMPANY
    # 9

 SHORE OIL COMPANY SWD # 2

 STERLING SUGARS # 1 

PARAMOUNT # 1
	STERLING
    SUGARS, INC	LGS
    EXPLORATION, INC	11/30/1983	CONVEYANCE
    BOOK: 26-T, ENTRY NO. 204089, PAGE/FOLIO: 753 OF THE CONVEYANCE RECORDS OF ST. MARY PARISH, LOUISIANA	SECTION
    43, TOWNSHIP 14 SOUTH, RANGE 10 EAST AND SECTIONS 50, 51, 52 AND 53, EAST OF BAYOU TECHE	SHORE
    OIL COMPANY # 1 SHORE OIL COMPANY SWD # 1 SHORE OIL COMPANY # 3 SHORE OIL COMPANY # 4 SHORE OIL COMPANY # 5 SHORE OIL COMPANY
    # 9 SHORE OIL COMPANY SWD # 2 STERLING SUGARS # 1 PARAMOUNT # 1
	OXY
    USA INC	FIVE-J.A.B.,
    INC	1/24/2013	BEING
    RECORDED - AWAITING RECORDED DOCUMENT VIA MAIL	SECTION
    41, T14S-R10E	SHORE
    OIL COMPANY # 1 SHORE OIL COMPANY # 3 SHORE OIL COMPANY # 4







    	Page 2 of 5



    	 



    



	Lessor’s
    Name	Lessee’s
    Name	Exhibit
    “A”

 Attached to and made part of that certain Operating Agreement by
    and between Five J.A.B., Inc., as Operator, and Three Forks, Inc., as Non-Operator 

Lease
    Date    Recording Information     Legal Description	Wells
    Associated with Lease
	JASPER FIELD PROPERTIES
	ATLANTIC
    RICHFIELD COMPANY	COLUMBIA GAS DEVELOPMENT
    CORP.	9/30/1992	UNRECORDED LEASE
    - SEE MEMORANDUM OF OIL AND GAS LEASE RECORDED IN BOOK 88, PAGE 643 OF THE DEED RECORDS OF JASPER COUNTY, TEXAS AND AMENDMENT
    OF OIL AND GAS LEASE EXECUTED TO BE EFFECTIVE SEPTEMBER 1, 1992	WILLIAM JORDAN SURVEY,
    A-320, THE OLIVE HARRALL SURVEY, A- 173 AND THE JOHN MYERS SURVEY, A-387, JASPER COUNTY, TEXAS	ARCO FEE # 1

 ARCO
    FEE # 2

 ARCO FEE # 3 SWD

 ARCO FEE E-1
	ATLANTIC
    RICHFIELD COMPANY	BALLARD EXPLORATION COMPANY,
    INC	8/18/1985	ENTRY NO. 48494, BOOK 77 PAGE
    605 OF THE OFFICIAL PUBLIC RECORDS OF JASPER COUNTY, TEXAS	40 ACRES OUT OF THE MARTIN FLORES
    SURVEY, A-13, JASPER COUNTY, TEXAS BEING 40 ACRES AROUND THE ARCO FEE NO. E-1	ARCO FEE E-1
	BP
    AMERICA PRODUCTION COMPANY	W. DALE MORRIS, INC	6/29/2004	UNRECORDED	40 ACRES OUT OF THE WILLIAM
    JORDAN SURVEY, A-320, JASPER COUNTY, TEXAS	ARCO FEE # 2
	KENNETH
    R. & JUANITA B. GREGORY	SAM HOUSTON ELECTRIC COOPERATIVE	3/20/1991	UNRECORDED	BEING A STRIP OF LAND IN WIDTH
    OUT OF THAT CERTAIN 10.8 ACRES OF LAND SITUATED IN THE JOSEPH MILHOME SURVEY, A-448, JASPER COUNTY, TEXAS	ARCO FEE # 1

 ARCO FEE # 2

 ARCO
    FEE # 3 SWD

 ARCO FEE E-1
	ATLANTIC
    RICHFIELD COMPANY	COLUMBIA GAS DEVELOPMENT CORP.	9/3/1993	ENTRY NO. 93-4046, VOL: 553
    PAGE: 463, FML- 370 OF THE OFFICIAL PUBLIC RECORDS OF TYLER COUNTY, TEXAS	40 ACRES MORE OR LESS WITHIN
    THE ARCO FEE LJ UNIT AND OUT OF THE NORMAN HURD SURVEY, A-22 & LIMITED AS TO DEPTHS FROM SURFACE DOWN TO 8,102 FEET	ARCO FEE LJ # 1
	CROWN
    PINE TIMBER 3, L.P.	CHAPARRAL ENERGY, L.L.C.	1/24/2008	ENTRY NO. 08-2064, BOOK 916
    PAGE 568 OF THE OFFICIAL PUBLIC RECORDS OF TYLER COUNTY, TEXAS	A 15 FOOT WIDE R-O-W AND EASEMENT
    FOR THE SOLE PURPOSE OF TRANSPORTING GAS THROUGH A 2.5 INCH PIPELINE UNDER, UPON, OVER AND THROUGH LANDS OF GRANTOR SITUATED
    IN THE NORMAN HURD SURVEY, A-22 AND THE THEOPHILUS CUSHING SURVEY, A-14 IN TYLER COUNTY, TEXAS	ARCO FEE LJ # 1






    	Page 3 of 5



    	 



    



	Lessor’s
    Name	Lessee’s
    Name	Exhibit
    “A” 

Attached to and made part of that certain Operating Agreement by
    and between Five J.A.B., Inc., as Operator, and Three Forks, Inc., as Non-Operator 

Lease
    Date     Recording Information       Legal Description	Wells
    Associated with Lease
	BP
    AMERICA PRODUCTION COMPANY	W DALE MORRIS INC	12/6/2002	ENTRY NO. C-174649,
    VOL 733 PAGE 811 OF THE OFFICIAL PUBLIC RECORDS OF TYLER COUNTY, TEXAS	40 ACRES, MORE OR
    LESS, OUT OF THE NORMAN HURD SURVEY, A-22	HURD # 1 

HURD #
    15 SWD

 HURD # 40
	JUANITA
    GREGROY SPURLOCK ET AL	REA EXPLORATION COMPANY	8/30/1983	VOL 025 PAGE 563 OF THE OFFICIAL
    PUBLIC RECORDS OF TYLER COUNTY, TEXAS	15.563 ACRES OUT OF THE BBB&C
    RR CO SURVEY NO. 13, A-147, TYLER CO., TX	GREGORY # 1 WIW

 GREGORY # 2
	OMAHA
    NATIONAL BANK TRUSTEE	REA EXPLORATION COMPANY	10/26/1983	BOOK 25 PAGE 376 OF THE OFFICIAL
    PUBLIC RECORDS OF TYLER COUNTY, TEXAS	24.437 ACRES OUT OF THE SOUTH
    200 ACRES OF A 400 ACRE TRACT OUT OF THE BBB&C RR CO SURVEY NO. 13, A-147, LIMITED AS TO ALL DEPTHS FROM THE SURFACE OF
    THE EARTH DOWN TO 9,664 FEET, A- 147 TYLER CO, TX	GREGORY # 1 WIW

 GREGORY # 2
	KIRBY
    LUMBER CORPORATION	REID PRODUCTION COMPANY	1/3/1977	BOOK 353 PAGE 201 OF THE OFFICIAL
    PUBLIC RECORDS OF TYLER COUNTY, TEXAS	160 ACRES OF LAND, MORE OR LESS,
    BEING A PART OF THE J.R. MCINNIS SURVEY, ABSTRACT NO. 1030, TYLER COUNTY, TEXAS	KIRBY MCINNIS # 1K

                                                                                KIRBY MCINNIS # 2

 KIRBY MCINNIS # 10D SWD

	KIRBY
    LUMBER CORPORATION	REID PRODUCTION COMPANY	7/6/1977	BOOK 366 PAGE 459 OF THE OFFICIAL
    PUBLIC RECORDS OF TYLER COUNTY, TEXAS	A TRACT OF LAND CONTAINING 584.64
    ACRES OF LAND, MORE OR LESS, COMPRISED OF ALL OF THE J. T. MCINNIS SURVEY, A-1030, AND ALL OF THE J. T. MCINNIS SURVEY, A-1031,
    TYLER COUNTY, TEXAS	KIRBY MCINNIS # 1K

 KIRBY MCINNIS
    # 2

 KIRBY MCINNIS # 10D SWD








    	Page 4 of 5



    	 



    




	Lessor’s
    Name	Lessee’s
    Name	Exhibit “A”
    

Attached to and made part of that certain Operating Agreement by and between Five J.A.B., Inc., as Operator, and Three Forks,
    Inc., as Non-Operator 

Lease Date      Recording Information     Legal Description	Wells
    Associated with Lease
	CONROE
    FIELD PROPERTIES
	W.T.
    HOOPER AND RUBY LAURA HOOPER MARTIN	EPOCH
    OIL AND GAS, INC.	2/20/1998	ENTRY:
    9812625, 350-00-1416 OF THE OFFICIAL PUBLIC RECORDS OF MONTGOMERY COUNTY, TEXAS	THAT
    APPROXIMATLEY 80 ACRES OF LAND LYING IN MONTGOMERY COUNTY, TEXAS IN THE THE J. T. WATSON SURVEY, A-690, DESCRIBED WITH OTHER
    LANDS, IN THAT CERTAIN DEED DATED NOVEMBER 28, 1908 FROM W.P. MERCER, AS GRANTOR, TO W.N. HOOPER AS GRANTEE	FANNIE
    HOOPER SWD # 1 

FANNIE HOOPER # 2

 FANNIE HOOPER # 3 

FANNIE HOOPER SWD # 4 

FANNIE HOOPER # 5 

FANNIE HOOPER # 6







    	Page 5 of 5



    	 



    






	 	 	 
		Exhibit
    ” c ” 

ACCOUNTING PROCEDURE

    JOINT OPERATIONS	COPAS
                                         2005 Accounting Procedure Recommended by COPAS

         







 



Attached to and made part
of that certain Operating Agreement dated [ ] by and between Five J.A.B., Inc., as Operator, and
Three Forks, Inc., as Non-Operator.


 


 



 


 




 


 




 


 I.
GENERAL PROVISIONS


 


IF THE PARTIES FAIL TO SELECT
EITHER ONE OF COMPETING “ALTERNATIVE” PROVISIONS, OR SELECT ALL THE COMPETING “ALTERNATIVE”
PROVISIONS, ALTERNATIVE 1 IN EACH SUCH INSTANCE SHALL BE DEEMED TO HAVE BEEN ADOPTED BY THE PARTIES AS A RESULT
OF ANY SUCH OMISSION OR DUPLICATE NOTATION.


 


IN THE EVENT THAT ANY
“OPTIONAL” PROVISION OF THIS ACCOUNTING PROCEDURE IS NOT ADOPTED BY THE PARTIES TO THE AGREEMENT BY A TYPED,
PRINTED OR HANDWRITTEN INDICATION, SUCH PROVISION SHALL NOT FORM A PART OF THIS ACCOUNTING PROCEDURE, AND NO INFERENCE SHALL
BE MADE CONCERNING THE INTENT OF THE PARTIES IN SUCH EVENT.


 


		1.	DEFINITIONS



 


All
terms used in this Accounting Procedure shall have the following meaning, unless otherwise expressly defined in the Agreement:


 


“Affiliate” means for a person, another person
that controls, is controlled by, or is under common control with that person. In this definition, (a) control means the ownership
by one person, directly or indirectly, of more than fifty percent (50%) of the voting securities of a corporation or, for other
persons, the equivalent ownership interest (such as partnership interests), and (b) “person” means an individual,
corporation, partnership, trust, estate, unincorporated organization, association, or other legal entity.


 


“Agreement” means
the operating agreement, farmout agreement, or other contract between the Parties to which this Accounting Procedure is
attached.


 


“Controllable Material” means Material
that, at the time of acquisition or disposition by the Joint Account, as applicable, is so classified in the Material
Classification Manual most recently recommended by the Council of Petroleum Accountants Societies (COPAS).


 


“Equalized
Freight” means the procedure of charging transportation cost to the Joint Account based upon the distance from the
nearest Railway Receiving Point to the property.


 


“Excluded Amount” means a specified
excluded trucking amount most recently recommended by COPAS.


 


“Field
Office” means a structure, or portion of a structure, whether a temporary or permanent installation, the primary function
of which is to directly serve daily operation and maintenance activities of the Joint Property and which serves as a staging area
for directly chargeable field personnel.


 


“First
Level Supervision” means those employees whose primary function in Joint Operations is the direct oversight of the Operator’s
field employees and/or contract labor directly employed On-site in a field operating capacity. First Level Supervision functions
may include, but are not limited to:


 


		•	Responsibility for field employees and contract labor
engaged in activities that can include field operations, maintenance, construction, well remedial work, equipment movement and
drilling



		•	Responsibility for day-to-day direct oversight of rig
operations



		•	Responsibility for day-to-day direct oversight of construction
operations



		•	Coordination of job priorities and approval of work procedures



		•	Responsibility for optimal resource utilization (equipment,
Materials, personnel)



		•	Responsibility for meeting production and field operating
expense targets



		•	Representation of the Parties in local matters involving
community, vendors, regulatory agents and landowners, as an incidental part of the supervisor’s operating responsibilities





		•	Responsibility for all emergency responses with field
staff



		•	Responsibility for implementing safety and environmental
practices



		•	Responsibility for field adherence to company policy



		•	Responsibility for employment decisions and performance
appraisals for field personnel



		•	Oversight of sub-groups for field functions such as electrical,
safety, environmental, telecommunications, which may have group or team leaders.



 


“Joint Account” means the
account showing the charges paid and credits received in the conduct of the Joint Operations that are to be shared by the
Parties, but does not include proceeds attributable to hydrocarbons and by-products produced under the Agreement.


 


“Joint
Operations” means all operations necessary or proper for the exploration, appraisal, development, production,
protection, maintenance, repair, abandonment, and restoration of the Joint Property.


 




COPYRIGHT © 2005 by Council of Petroleum Accountants
Societies, Inc. (COPAS)






    	1



    	 



    


			COPAS 2005 Accounting Procedure Recommended by COPAS Inc.


 


“Joint
Property” means the real and personal property subject to the Agreement.


 


“Laws”
means any laws, rules, regulations, decrees, and orders of the United States of America or any state thereof and all other
governmental bodies, agencies, and other authorities having jurisdiction over or affecting the provisions contained in or the
transactions contemplated by the Agreement or the Parties and their operations, whether such laws now exist or are hereafter amended,
enacted, promulgated or issued.


 


“Material” means personal
property, equipment, supplies, or consumables acquired or held for use by the Joint Property.


 


“Non-Operators” means the
Parties to the Agreement other than the Operator.


 


“Offshore Facilities” means
platforms, surface and subsea development and production systems, and other support systems such as oil and gas handling facilities,
living quarters, offices, shops, cranes, electrical supply equipment and systems, fuel and water storage and piping, heliport,
marine docking installations, communication facilities, navigation aids, and other similar facilities necessary in the conduct
of offshore operations, all of which are located offshore.


 


“Off-site” means any location
that is not considered On-site as defined in this Accounting Procedure.


 


“On-site” means on the Joint
Property when in direct conduct of Joint Operations. The term “On-site” shall also include that portion of Offshore
Facilities, Shore Base Facilities, fabrication yards, and staging areas from which Joint Operations are conducted, or other facilities
that directly control equipment on the Joint Property, regardless of whether such facilities are owned by the Joint Account.


 


“Operator” means the Party
designated pursuant to the Agreement to conduct the Joint Operations.


 


“Parties” means legal entities
signatory to the Agreement or their successors and assigns. Parties shall be referred to individually as “Party.”


 


“Participating Interest” means
the percentage of the costs and risks of conducting an operation under the Agreement that a Party agrees, or is otherwise obligated,
to pay and bear.


 


“Participating Party” means
a Party that approves a proposed operation or otherwise agrees, or becomes liable, to pay and bear a share of the costs and risks
of conducting an operation under the Agreement.


 


“Personal Expenses” means
reimbursed costs for travel and temporary living expenses.


 


“Railway Receiving Point” means
the railhead nearest the Joint Property for which freight rates are published, even though an actual railhead may not exist.


 


“Shore Base Facilities” means
onshore support facilities that during Joint Operations provide such services to the Joint Property as a receiving and transshipment
point for Materials; debarkation point for drilling and production personnel and services; communication, scheduling and dispatching
center; and other associated functions serving the Joint Property.


 


“Supply Store” means a recognized
source or common stock point for a given Material item.


 


“Technical Services” means
services providing specific engineering, geoscience, or other professional skills, such as those performed by engineers, geologists,
geophysicists, and technicians, required to handle specific operating conditions and problems for the benefit of Joint Operations;
provided, however, Technical Services shall not include those functions specifically identified as overhead under the second paragraph
of the introduction of Section III (Overhead). Technical Services may be provided by the Operator, Operator’s Affiliate,
Non- Operator, Non-Operator Affiliates, and/or third parties.


 


		2.	STATEMENTS AND BILLINGS



 


The Operator shall bill Non-Operators on or
before the last day of the month for their proportionate share of the Joint Account for the preceding month. Such bills shall be
accompanied by statements that identify the AFE (authority for expenditure), lease or facility, and all charges and credits summarized
by appropriate categories of investment and expense. Controllable Material shall be separately identified and fully described in
detail, or at the Operator’s option, Controllable Material may be summarized by major Material classifications. Intangible
drilling costs, audit adjustments, and unusual charges and credits shall be separately and clearly identified.


 


The Operator may make available to Non-Operators
any statements and bills required under Section I.2 and/or Section I.3.A (Advances and Payments by the Parties) via
email, electronic data interchange, internet websites or other equivalent electronic media in lieu of paper copies. The Operator
shall provide the Non-Operators instructions and any necessary information to access and receive the statements and bills within
the timeframes specified herein. A statement or billing shall be deemed as delivered twenty-four (24) hours (exclusive of weekends
and holidays) after the Operator notifies the Non-Operator that the statement or billing is available on the website and/or sent
via email or electronic data interchange transmission. Each Non-Operator individually shall elect to receive statements and billings
electronically, if available from the Operator, or request paper copies. Such election may be changed upon thirty (30) days prior
written notice to the Operator.



 


COPYRIGHT © 2005 by Council of Petroleum Accountants
Societies, Inc. (COPAS)



    	2



    	 



    

			COPAS 2005 Accounting Procedure Recommended by COPAS Inc.



 




		3.	ADVANCES AND PAYMENTS BY THE PARTIES



 


		A.	Unless otherwise provided for in the Agreement, the Operator
may require the Non-Operators to advance their share of the estimated cash outlay for the succeeding month’s operations
within fifteen (15) days after receipt of the advance request or by the first day of the month for which the advance is required,
whichever is later. The Operator shall adjust each monthly billing to reflect advances received from the Non-Operators for such
month. If a refund is due, the Operator shall apply the amount to be refunded to the subsequent month’s billing or advance,
unless the Non-Operator sends the Operator a written request for a cash refund. The Operator shall remit the refund to the Non-Operator
within fifteen (15) days of receipt of such written request.



 


		B.	Except as provided below, each Party shall pay its proportionate
share of all bills in full within fifteen (15) days of receipt date. If payment is not made within such time, the unpaid balance
shall bear interest compounded monthly at the prime rate published by the Wall Street Journal on the first day of each
month the payment is delinquent, plus three percent (3%), per annum, or the maximum contract rate permitted by the applicable
usury Laws governing the Joint Property, whichever is the lesser, plus attorney’s fees, court costs, and other costs in
connection with the collection of unpaid amounts. If the Wall Street Journal ceases to be published or discontinues publishing
a prime rate, the unpaid balance shall bear interest compounded monthly at the prime rate published by the Federal Reserve plus
three percent (3%), per annum. Interest shall begin accruing on the first day of the month in which the payment was due. Payment
shall not be reduced or delayed as a result of inquiries or anticipated credits unless the Operator has agreed. Notwithstanding
the foregoing, the Non-Operator may reduce payment, provided it furnishes documentation and explanation to the Operator at the
time payment is made, to the extent such reduction is caused by: 20



 


		(1)	being billed at an incorrect working interest or Participating
Interest that is higher than such Non-Operator’s actual working interest or Participating Interest, as applicable; or



		(2)	being billed for a project or AFE requiring approval of
the Parties under the Agreement that the Non-Operator has not approved or is not otherwise obligated to pay under the Agreement;
or



		(3)	being billed for a property in which the Non-Operator
no longer owns a working interest, provided the Non-Operator has furnished the Operator a copy of the recorded assignment or letter
in-lieu. Notwithstanding the foregoing, the Non-Operatorshall remain responsible for paying bills attributable to the interest
it sold or transferred for any bills rendered during the thirty (30) day period following the Operator’s receipt of such
written notice; or



		(4)	charges outside the adjustment period, as provided in
Section I.4 (Adjustments).



 


		4.	ADJUSTMENTS



 


		A.	Payment of any such bills shall not prejudice the right
of any Party to protest or question the correctness thereof; however, all bills and statements, including payout statements, rendered
during any calendar year shall conclusively be presumed to be true and correct, with respect only to expenditures, after twenty-four
(24) months following the end of any such calendar year, unless within said period a Party takes specific detailed written exception
thereto making a claim for adjustment. The Operator shall provide a response to all written exceptions, whether or not contained
in an audit report, within the time periods prescribed in Section I.5 (Expenditure Audits).



 


		B.	All adjustments initiated by the Operator, except those
described in items (1) through (4) of this Section I.4.B, are limited to the twenty-four (24) month period following the end of
the calendar year in which the original charge appeared or should have appeared on the Operator’s Joint Account statement
or payout statement. Adjustments that may be made beyond the twenty-four (24) month period are limited to adjustments resulting
from the following:



 


		(1)	a physical inventory of Controllable Material as provided
for in Section V (Inventories of Controllable Material), or



		(2)	an offsetting entry (whether in whole or in part) that
is the direct result of a specific joint interest audit exception granted by the Operator relating to another property, or



		(3)	a government/regulatory audit, or



		(4)	a working interest ownership or Participating Interest
adjustment.



 


		5.	EXPENDITURE AUDITS



 


		A.	A Non-Operator, upon written notice to the Operator and
all other Non-Operators, shall have the right to audit the Operator’s accounts and records relating to the Joint Account
within the twenty-four (24) month period following the end of such calendar year in which such bill was rendered; however, conducting
an audit shall not extend the time for the taking of written exception to and the adjustment of accounts as provided for in Section
I.4 (Adjustments). Any Party that is subject to payout accounting under the Agreement shall have the right to audit the
accounts and records of the Party responsible for preparing the payout statements, or of the Party furnishing information to the
Party responsible for preparing payout statements. Audits of payout accounts may include the volumes of hydrocarbons produced
and saved and proceeds received for such hydrocarbons as they pertain to payout accounting required under the Agreement. Unless
otherwise provided in the Agreement, audits of a payout account shall be conducted within the twenty-four (24) month period following
the end of the calendar year in which the payout statement was rendered.



 


		 	Where there are two or more Non-Operators, the Non-Operators
shall make every reasonable effort to conduct a joint audit in a manner that will result in a minimum of inconvenience to the
Operator. The Operator shall bear no portion of the Non-Operators’ audit cost incurred under this paragraph unless agreed
to by the Operator. The audits shall not be conducted more than once each year without prior approval of the Operator, except
upon the resignation or removal of the Operator, and shall be made at the expense of



 



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those
Non-Operators approving such audit.


 


The Non-Operator leading the audit
(hereinafter “lead audit company”) shall issue the audit report within ninety (90) days after completion of the audit
testing and analysis; however, the ninety (90) day time period shall not extend the twenty-four (24) month requirement for taking
specific detailed written exception as required in Section I.4.A (Adjustments) above. All claims shall be supported with
sufficient documentation.


 


A timely filed written exception
or audit report containing written exceptions (hereinafter “written exceptions”) shall, with respect to the claims
made therein, preclude the Operator from asserting a statute of limitations defense against such claims, and the Operator hereby
waives its right to assert any statute of limitations defense against such claims for so long as any Non-Operator continues to
comply with the deadlines for resolving exceptions provided in this Accounting Procedure. If the Non-Operators fail to comply with
the additional deadlines in Section I.5.B or I.5.C, the Operator’s waiver of its rights to assert a statute of limitations
defense against the claims brought by the Non-Operators shall lapse, and such claims shall then be subject to the applicable statute
of limitations provided that such waiver shall not lapse in the event that the Operator has failed to comply with the deadlines
in Section I.5.B or I.5.C.


 


		B.	The Operator shall provide a written response to all exceptions
in an audit report within one hundred eighty (180) days after Operator receives such report. Denied exceptions should be accompanied
by a substantive response. If the Operator fails to provide substantive response to an exception within this one hundred eighty
(180) day period, the Operator will owe interest on that exception or portion thereof, if ultimately granted, from the date it
received the audit report. Interest shall be calculated using the rate set forth in Section I.3.B (Advances and Payments by
the Parties).



 


		C.	The lead audit company shall reply to the Operator’s
response to an audit report within ninety (90) days of receipt, and the Operator shall reply to the lead audit company’s
follow-up response within ninety (90) days of receipt; provided, however, each Non-Operator shall have the right to represent
itself if it disagrees with the lead audit company’s position or believes the lead audit company is not adequately fulfilling
its duties. Unless otherwise provided for in Section I.5.E, if the Operator fails to provide substantive response to an exception
within this ninety (90) day period, the Operator will owe interest on that exception or portion thereof, if ultimately granted,
from the date it received the audit report. Interest shall be calculated using the rate set forth in Section I.3.B (Advances
and Payments by the Parties).



 


		D.	If any Party fails to meet the deadlines in Sections I.5.B
or I.5.C or if any audit issues are outstanding fifteen (15) months after Operator receives the audit report, the Operator or
any Non-Operator participating in the audit has the right to call a resolution meeting, as set forth in this Section I.5.D or
it may invoke the dispute resolution procedures included in the Agreement, if applicable. The meeting will require one month’s
written notice to the Operator and all Non-Operators participating in the audit. The meeting shall be held at the Operator’s
office or mutually agreed location, and shall be attended by representatives of the Parties with authority to resolve such outstanding
issues. Any Party who fails to attend the resolution meeting shall be bound by any resolution reached at the meeting. The lead
audit company will make good faith efforts to coordinate the response and positions of the Non-Operator participants throughout
the resolution process; however, each Non-Operator shall have the right to represent itself. Attendees will make good faith efforts
to resolve outstanding issues, and each Party will be required to present substantive information supporting its position. A resolution
meeting may be held as often as agreed to by the Parties. Issues unresolved at one meeting may be discussed at subsequent meetings
until each such issue is resolved.



 


If the Agreement contains no dispute
resolution procedures and the audit issues cannot be resolved by negotiation, the dispute shall be submitted to mediation. In such
event, promptly following one Party’s written request for mediation, the Parties to the dispute shall choose a mutually acceptable
mediator and share the costs of mediation services equally. The Parties shall each have present at the mediation at least one individual
who has the authority to settle the dispute. The Parties shall make reasonable efforts to ensure that the mediation commences within
sixty (60) days of the date of the mediation request. Notwithstanding the above, any Party may file a lawsuit or complaint (1)
if the Parties are unable after reasonable efforts, to commence mediation within sixty (60) days of the date of the mediation request,
(2) for statute of limitations reasons, or (3) to seek a preliminary injunction or other provisional judicial relief, if in its
sole judgment an injunction or other provisional relief is necessary to avoid irreparable damage or to preserve the status quo.
Despite such action, the Parties shall continue to try to resolve the dispute by mediation.


 


E.
o (Optional Provision – Forfeiture Penalties)


 


If
the Non-Operators fail to meet the deadline in Section I.5.C, any unresolved exceptions that were not addressed by the Non-Operators
within one (1) year following receipt of the last substantive response of the Operator shall be deemed to have been withdrawn
by the Non-Operators. If the Operator fails to meet the deadlines in Section I.5.B or I.5.C, any unresolved exceptions that were
not addressed by the Operator within one (1) year following receipt of the audit report or receipt of the last substantive response
of the Non-Operators, whichever is later, shall be deemed to have been granted by the Operator and adjustments shall be made,
without interest, to the Joint Account.


 


		6.	APPROVAL BY PARTIES



 


		A.	GENERAL MATTERS



 


Where an approval or other agreement
of the Parties or Non-Operators is expressly required under other Sections of this Accounting Procedure and if the Agreement to
which this Accounting Procedure is attached contains no contrary provisions in regard thereto, the


 


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Operator shall notify all Non-Operators
of the Operator’s proposal and the agreement or approval of a majority in interest of the Non-Operators shall be controlling
on all Non-Operators.


 


This Section I.6.A applies to specific
situations of limited duration where a Party proposes to change the accounting for charges from that prescribed in this Accounting
Procedure. This provision does not apply to amendments to this Accounting Procedure, which are covered by Section I.6.B.


 


		B.	AMENDMENTS



 


If the Agreement to which this
Accounting Procedure is attached contains no contrary provisions in regard thereto, this Accounting Procedure can be amended by an affirmative vote of two ( 2 )
or more Parties, one of which is the Operator, having a combined working interest of at least fifty-one percent ( 51
%), which approval shall be binding on all Parties, provided, however, approval of at least one (1) Non-Operator shall
be required.


 


		C.	AFFILIATES



 


For the purpose of administering
the voting procedures of Sections I.6.A and I.6.B, if Parties to this Agreement are Affiliates of each other, then such Affiliates
shall be combined and treated as a single Party having the combined working interest or Participating Interest of such Affiliates.


 


For the purposes of administering
the voting procedures in Section I.6.A, if a Non-Operator is an Affiliate of the Operator, votes under Section I.6.A shall require
the majority in interest of the Non-Operator(s) after excluding the interest of the Operator’s Affiliate.


 


II. DIRECT CHARGES


 


The Operator shall charge the Joint
Account with the following items:


 


		1.	RENTALS AND ROYALTIES



 


Lease rentals and royalties paid
by the Operator, on behalf of all Parties, for the Joint Operations.


 


		2.	LABOR



 


		A.	Salaries and wages, including incentive compensation programs
as set forth in COPAS MFI-37 (“Chargeability of Incentive Compensation Programs”), for:



 


		(1)	Operator’s field employees directly employed On-site
in the conduct of Joint Operations,
	 	 	 



		(2)	Operator’s employees directly employed on Shore
Base Facilities, Offshore Facilities, or other facilities serving the Joint Property if such costs are not charged under Section
II.6 (Equipment and Facilities Furnished by Operator) or are not a function covered under Section III (Overhead),



		 	 



		(3)	Operator’s employees providing First Level Supervision,



		 	 



		(4)	Operator’s employees providing On-site Technical
Services for the Joint Property if such charges are excluded from the overhead rates in Section III (Overhead),



		 	 



		(5)	Operator’s employees providing Off-site Technical
Services for the Joint Property if such charges are excluded from the overhead rates in Section III (Overhead).



 


Charges for the Operator’s
employees identified in Section II.2.A may be made based on the employee’s actual salaries and wages, or in lieu thereof,
a day rate representing the Operator’s average salaries and wages of the employee’s specific job category.


 


Charges for personnel chargeable
under this Section II.2.A who are foreign nationals shall not exceed comparable compensation paid to an equivalent U.S. employee
pursuant to this Section II.2, unless otherwise approved by the Parties pursuant to Section I.6.A (General Matters).


 


		B.	Operator’s cost of holiday, vacation, sickness,
and disability benefits, and other customary allowances paid to employees whose salaries and wages are chargeable to the Joint
Account under Section II.2.A, excluding severance payments or other termination allowances. Such costs under this Section II.2.B
may be charged on a “when and as-paid basis” or by “percentage assessment” on the amount of salaries and
wages chargeable to the Joint Account under Section II.2.A. If percentage assessment is used, the rate shall be based on the Operator’s
cost experience.



		 	 



		C.	Expenditures or contributions made pursuant to assessments
imposed by governmental authority that are applicable to costs chargeable to the Joint Account under Sections II.2.A and B.



 



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		D.	Personal Expenses of personnel whose salaries and wages
are chargeable to the Joint Account under Section II.2.A when the expenses are incurred in connection with directly chargeable
activities.



		 	 



		E.	Reasonable relocation costs incurred in transferring to
the Joint Property personnel whose salaries and wages are chargeable to the Joint Account under Section II.2.A. Notwithstanding
the foregoing, relocation costs that result from reorganization or merger of a Party, or that are for the primary benefit of the
Operator, shall not be chargeable to the Joint Account. Extraordinary relocation costs, such as those incurred as a result of
transfers from remote locations, such as Alaska or overseas, shall not be charged to the Joint Account unless approved by the
Parties pursuant to Section I.6.A (General Matters).



		 	 



		F.	Training costs as specified in COPAS MFI-35 (“Charging
of Training Costs to the Joint Account”) for personnel whose salaries and wages are chargeable under Section II.2.A. This
training charge shall include the wages, salaries, training course cost, and Personal Expenses incurred during the training session.
The training cost shall be charged or allocated to the property or properties directly benefiting from the training. The cost
of the training course shall not exceed prevailing commercial rates, where such rates are available.



		 	 



		G.	Operator’s current cost of established plans for
employee benefits, as described in COPAS MFI-27 (“Employee Benefits Chargeable to Joint Operations and Subject to Percentage
Limitation”), applicable to the Operator’s labor costs chargeable to the Joint Account under Sections II.2.A and B
based on the Operator’s actual cost not to exceed the employee benefits limitation percentage most recently recommended
by COPAS.



		 	 



		H.	Award payments to employees, in accordance with COPAS
MFI-49 (“Awards to Employees and Contractors”) for personnel whose salaries and wages are chargeable under Section
II.2.A.



 


		3.	MATERIAL



 


Material purchased or furnished
by the Operator for use on the Joint Property in the conduct of Joint Operations as provided under Section IV (Material Purchases,
Transfers, and Dispositions). Only such Material shall be purchased for or transferred to the Joint Property as may be required
for immediate use or is reasonably practical and consistent with efficient and economical operations. The accumulation of surplus
stocks shall be avoided.


 


		4.	TRANSPORTATION



 


		A.	Transportation of the Operator’s, Operator’s
Affiliate’s, or contractor’s personnel necessary for Joint Operations.



		 	 



		B.	Transportation of Material between the Joint Property
and another property, or from the Operator’s warehouse or other storage point to the Joint Property, shall be charged to
the receiving property using one of the methods listed below. Transportation of Material from the Joint Property to the Operator’s
warehouse or other storage point shall be paid for by the Joint Property using one of the methods listed below:



 


		(1)	If the actual trucking charge is less than or equal to
the Excluded Amount the Operator may charge actual trucking cost or a theoretical charge from the Railway Receiving Point to the
Joint Property. The basis for the theoretical charge is the per hundred weight charge plus fuel surcharges from the Railway Receiving
Point to the Joint Property.. The Operator shall consistently apply the selected alternative.



		 	 



		(2)	If the actual trucking charge is greater than the Excluded
Amount, the Operator shall charge Equalized Freight. Accessorial charges such as loading and unloading costs, split pick-up costs,
detention, call out charges, and permit fees shall be charged directly to the Joint Property and shall not be included when calculating
the Equalized Freight.



 


		5.	SERVICES



 


The cost of contract services,
equipment, and utilities used in the conduct of Joint Operations, except for contract services, equipment, and utilities covered
by Section III (Overhead), or Section II.7 (Affiliates), or excluded under Section II.9 (Legal Expense). Awards
paid to contractors shall be chargeable pursuant to COPAS MFI-49 (“Awards to Employees and Contractors”).


 


The costs of third party Technical
Services are chargeable to the extent excluded from the overhead rates under Section III (Overhead).


 


		6.	EQUIPMENT AND FACILITIES FURNISHED BY OPERATOR



 


In the absence of a separately
negotiated agreement, equipment and facilities furnished by the Operator will be charged as follows:


 


		A.	The Operator shall charge the Joint Account for use of
Operator-owned equipment and facilities, including but not limited to production facilities, Shore Base Facilities, Offshore Facilities,
and Field Offices, at rates commensurate with the costs of ownership and operation. The cost of Field Offices shall be chargeable
to the extent the Field Offices provide direct service to personnel who are chargeable pursuant to Section II.2.A (Labor).
Such rates may include labor, maintenance, repairs, other operating expense, insurance, taxes, depreciation using straight line
depreciation method, and interest on gross investment less accumulated depreciation not to exceed twelve percent ( 12 %) per
annum; provided, however, depreciation shall not be charged when the



 



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equipment
and facilities investment have been fully depreciated. The rate may include an element of the estimated cost for abandonment,
reclamation, and dismantlement. Such rates shall not exceed the average commercial rates currently prevailing in the immediate
area of the Joint Property.


 


		B.	In lieu of charges in Section II.6.A above, the Operator
may elect to use average commercial rates prevailing in the immediate area of the Joint Property, less twenty percent (20%). If
equipment and facilities are charged under this Section II.6.B, the Operator shall adequately document and support commercial
rates and shall periodically review and update the rate and the supporting documentation. For automotive equipment, the Operator
may elect to use rates published by the Petroleum Motor Transport Association (PMTA) or such other organization recognized by
COPAS as the official source of rates.



 


		7.	AFFILIATES



 


		A.	Charges for an Affiliate’s goods and/or services
used in operations requiring an AFE or other authorization from the Non-Operators may be made without the approval of the Parties
provided (i) the Affiliate is identified and the Affiliate goods and services are specifically detailed in the approved AFE or
other authorization, and (ii) the total costs for such Affiliate’s goods and services billed to such individual project
do not exceed $ 25,000 If the total costs for an Affiliate’s goods and services
charged to such individual project are not specifically detailed in the approved AFE or authorization or exceed such amount, charges
for such Affiliate shall require approval of the Parties, pursuant to Section I.6.A (General Matters).



		 	 



		B.	For an Affiliate’s goods and/or services used in operations not requiring an AFE or
                                                                              other authorization from the Non-Operators, charges for such Affiliate’s goods and services shall require approval of
                                                                              the Parties, pursuant to Section I.6.A (General Matters), if the charges exceed $ 25,000
                                                                              in a given calendar year.



		 	 



		C.	The cost of the Affiliate’s goods or services shall
not exceed average commercial rates prevailing in the area of the Joint Property, unless the Operator obtains the Non-Operators’
approval of such rates. The Operator shall adequately document and support commercial rates and shall periodically review and
update the rate and the supporting documentation; provided, however, documentation of commercial rates shall not be required if
the Operator obtains Non-Operator approval of its Affiliate’s rates or charges prior to billing Non-Operators for such Affiliate’s
goods and services. Notwithstanding the foregoing, direct charges for Affiliate-owned communication facilities or systems shall
be made pursuant to Section II.12 (Communications).



 


If the Parties fail to designate an amount in Sections II.7.A or
II.7.B, in each instance the amount deemed adopted by the Parties as a result of such omission shall be the amount established
as the Operator’s expenditure limitation in the Agreement. If the Agreement does not contain an Operator’s expenditure
limitation, the amount deemed adopted by the Parties as a result of such omission shall be zero dollars ($ 0.00).


 


		8.	DAMAGES AND LOSSES TO JOINT PROPERTY



 


All costs or expenses necessary for the repair or replacement of
Joint Property resulting from damages or losses incurred, except to the extent such damages or losses result from a Party’s
or Parties’ gross negligence or willful misconduct, in which case such Party or Parties shall be solely liable.


 


The Operator shall furnish the Non-Operator written notice of damages
or losses incurred as soon as practicable after a report has been received by the Operator.


 


		9.	LEGAL EXPENSE



 


Recording fees and costs of handling, settling, or otherwise discharging
litigation, claims, and liens incurred in or resulting from operations under the Agreement, or necessary to protect or recover
the Joint Property, to the extent permitted under the Agreement. Costs of the Operator’s or Affiliate’s legal staff
or outside attorneys, including fees and expenses, are not chargeable unless approved by the Parties pursuant to Section I.6.A
(General Matters) or otherwise provided for in the Agreement.


 


Notwithstanding the foregoing paragraph, costs for procuring abstracts,
fees paid to outside attorneys for title examinations (including preliminary, supplemental, shut-in royalty opinions, division
order title opinions), and curative work shall be chargeable to the extent permitted as a direct charge in the Agreement.


 


		10.	TAXES AND PERMITS



 


All taxes and permitting fees of every kind and nature, assessed
or levied upon or in connection with the Joint Property, or the production there from, and which have been paid by the Operator
for the benefit of the Parties, including penalties and interest, except to the extent the penalties and interest result from the
Operator’s gross negligence or willful misconduct.


 


If ad valorem taxes paid by the Operator are based in whole or in
part upon separate valuations of each Party’s working interest, then notwithstanding any contrary provisions, the charges
to the Parties will be made in accordance with the tax value generated by each Party’s working interest.


 



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Costs of tax consultants or advisors, the Operator’s employees,
or Operator’s Affiliate employees in matters regarding ad valorem or other tax matters, are not permitted as direct charges
unless approved by the Parties pursuant to Section I.6.A (General Matters).


 


Charges to the Joint Account resulting from sales/use tax audits,
including extrapolated amounts and penalties and interest, are permitted, provided the Non-Operator shall be allowed to review
the invoices and other underlying source documents which served as the basis for tax charges and to determine that the correct
amount of taxes were charged to the Joint Account. If the Non-Operator is not permitted to review such documentation, the sales/use
tax amount shall not be directly charged unless the Operator can conclusively document the amount owed by the Joint Account.


 


		11.	INSURANCE



 


Net premiums paid for insurance required to be carried for Joint
Operations for the protection of the Parties. If Joint Operations are conducted at locations where the Operator acts as self-insurer
in regard to its worker’s compensation and employer’s liability insurance obligation, the Operator shall charge the
Joint Account manual rates for the risk assumed in its self-insurance program as regulated by the jurisdiction governing the Joint
Property. In the case of offshore operations in federal waters, the manual rates of the adjacent state shall be used for personnel
performing work On-site, and such rates shall be adjusted for offshore operations by the U.S. Longshoreman and Harbor Workers (USL&H)
or Jones Act surcharge, as appropriate.


 


		12.	COMMUNICATIONS



 


Costs of acquiring, leasing, installing, operating, repairing, and
maintaining communication facilities or systems, including satellite, radio and microwave facilities, between the Joint Property
and the Operator’s office(s) directly responsible for field operations in accordance with the provisions of COPAS MFI-44
(“Field Computer and Communication Systems”). If the communications facilities or systems serving the Joint Property
are Operator-owned, charges to the Joint Account shall be made as provided in Section II.6 (Equipment and Facilities
Furnished by Operator). If the communication facilities or systems serving the Joint Property are owned by the Operator’s
Affiliate, charges to the Joint Account shall not exceed average commercial rates prevailing in the area of the Joint Property.
The Operator shall adequately document and support commercial rates and shall periodically review and update the rate and the supporting
documentation.


 


		13.	ECOLOGICAL, ENVIRONMENTAL, AND SAFETY



 


Costs incurred for Technical Services and drafting to comply with
ecological, environmental and safety Laws or standards recommended by Occupational Safety and Health Administration (OSHA) or other
regulatory authorities. All other labor and functions incurred for ecological, environmental and safety matters, including management,
administration, and permitting, shall be covered by Sections II.2 (Labor), II.5 (Services), or Section III (Overhead),
as applicable.


 


Costs to provide or have available pollution containment and removal
equipment plus actual costs of control and cleanup and resulting responsibilities of oil and other spills as well as discharges
from permitted outfalls as required by applicable Laws, or other pollution containment and removal equipment deemed appropriate
by the Operator for prudent operations, are directly chargeable.


 


		14.	ABANDONMENT AND RECLAMATION



 


Costs incurred for abandonment and reclamation of the Joint Property,
including costs required by lease agreements or by Laws.


 


		15.	OTHER EXPENDITURES



 


Any other expenditure not covered or dealt with in the foregoing
provisions of this Section II (Direct Charges), or in Section III (Overhead) and which is of direct benefit to the
Joint Property and is incurred by the Operator in the necessary and proper conduct of the Joint Operations. Charges made under
this Section II.15 shall require approval of the Parties, pursuant to Section I.6.A (General Matters).


 



III. OVERHEAD


 



As compensation for costs not
specifically identified as chargeable to the Joint Account pursuant to Section II (Direct Charges), the Operator shall charge
the Joint Account in accordance with this Section III.


 


Functions included in the overhead
rates regardless of whether performed by the Operator, Operator’s Affiliates or third parties and regardless of location,
shall include, but not be limited to, costs and expenses of:


 


		•	warehousing, other than for warehouses that are jointly
owned under this Agreement



		•	design and drafting (except when allowed as a direct charge
under Sections II.13, III.1.A(ii), and III.2, Option B)



		•	inventory costs not chargeable under Section V (Inventories
of Controllable Material)



		•	procurement



		•	administration



		•	accounting and auditing



		•	gas dispatching and gas chart integration



 



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		•	human resources



		•	management



		•	supervision not directly charged under Section II.2 (Labor)



		•	legal services not directly chargeable under Section II.9
(Legal Expense)



		•	taxation, other than those costs identified as directly
chargeable under Section II.10 (Taxes and Permits)



		•	preparation and monitoring of permits and certifications;
preparing regulatory reports; appearances before or meetings with governmental agencies or other authorities having jurisdiction
over the Joint Property, other than On-site inspections; reviewing, interpreting, or submitting comments on or lobbying with respect
to Laws or proposed Laws.





 


Overhead
charges shall include the salaries or wages plus applicable payroll burdens, benefits, and Personal Expenses of personnel performing
overhead functions, as well as office and other related expenses of overhead functions.


 


		1.	OVERHEAD—DRILLING AND PRODUCING OPERATIONS



 


As
compensation for costs incurred but not chargeable under Section II (Direct Charges) and not covered by other provisions
of this Section III, the Operator shall charge on either:


 


xo (Alternative
1) Fixed Rate Basis, Section III.1.B.


 


o
(Alternative 2) Percentage Basis, Section III.1.C.


 


		A.	TECHNICAL SERVICES



 


		(i)	Except
as otherwise provided in Section II.13 (Ecological Environmental, and Safety) and Section III.2 (Overhead – Major
Construction and Catastrophe), or by approval of the Parties pursuant to Section I.6.A (General Matters), the salaries,
wages, related payroll burdens and benefits, and Personal Expenses for On-site Technical Services, including third
party Technical Services:



 


 xo (Alternative
1 – Direct) shall be charged direct to the Joint Account.


 


o
(Alternative 2 – Overhead) shall be covered by the overhead
rates.


 


		(ii)	Except
as otherwise provided in Section II.13 (Ecological, Environmental, and Safety) and Section III.2 (Overhead – Major
Construction and Catastrophe), or by approval of the Parties pursuant to Section I.6.A (General Matters), the salaries,
wages, related payroll burdens and benefits, and Personal Expenses for Off-site Technical Services, including third
party Technical Services:



 


 xo (Alternative
1 – All Overhead) shall be covered by the overhead rates.


 


o
(Alternative 2 – All Direct) shall be charged direct
to the Joint Account.


 


o
(Alternative 3 – Drilling Direct) shall be charged direct
to the Joint Account, only to the extent such Technical Services are directly attributable to drilling,
redrilling, deepening, or sidetracking operations, through completion, temporary abandonment, or abandonment if a dry hole. Off-site
Technical Services for all other operations, including workover, recompletion, abandonment of producing wells, and the construction
or expansion of fixed assets not covered by Section


 


		III.2	(Overhead - Major Construction and Catastrophe)
shall be covered by the overhead rates.



 


Notwithstanding anything to the
contrary in this Section III, Technical Services provided by Operator’s Affiliates are subject to limitations set forth in
Section II.7 (Affiliates). Charges for Technical personnel performing non-technical work shall not be governed by this Section
III.1.A, but instead governed by other provisions of this Accounting Procedure relating to the type of work being performed.


 


		B.	OVERHEAD—FIXED RATE BASIS



 


		(1)	The Operator shall charge the Joint Account at the following
rates per well per month:



 


Drilling Well Rate per month
$ 5,000            (prorated for less than a full month)


 


 Producing
Well Rate per month $ 750          


 


		(2)	Application of Overhead—Drilling Well Rate shall
be as follows:



 


		(a)	Charges for onshore drilling wells shall begin on the
spud date and terminate on the date the drilling and/or completion equipment used on the well is released, whichever occurs later.
Charges for offshore and inland waters drilling wells shall begin on the date the drilling or completion equipment arrives on
location and terminate on the date the drilling or completion equipment moves off location, or is released, whichever occurs first.
No charge shall be made during suspension of drilling and/or completion operations for fifteen (15) or more consecutive calendar
days.



 



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		(b)	Charges for any well undergoing any type of workover,
recompletion, and/or abandonment for a period of five (5) or more consecutive work–days shall be made at the Drilling Well
Rate. Such charges shall be applied for the period from date operations, with rig or other units used in operations, commence
through date of rig or other unit release, except that no charges shall be made during suspension of operations for fifteen (15)
or more consecutive calendar days.



 


		(3)	Application of Overhead—Producing Well Rate shall
be as follows:



 


		(a)	An active well that is produced, injected into for recovery
or disposal, or used to obtain water supply to support operations for any portion of the month shall be considered as a one-well
charge for the entire month.



		 	 



		(b)	Each active completion in a multi-completed well shall
be considered as a one-well charge provided each completion is considered a separate well by the governing regulatory authority.



		 	 



		(c)	A one-well charge shall be made for the month in which
plugging and abandonment operations are completed on any well, unless the Drilling Well Rate applies, as provided in Sections
III.1.B.(2)(a) or (b). This one-well charge shall be made whether or not the well has produced.



		 	 



		(d)	An active gas well shut in because of overproduction or
failure of a purchaser, processor, or transporter to take production shall be considered as a one-well charge provided the gas
well is directly connected to a permanent sales outlet.



		 	 



		(e)	Any well not meeting the criteria set forth in Sections
III.1.B.(3) (a), (b), (c), or (d) shall not qualify for a producing overhead charge.



 


		(4)	The well rates shall be adjusted on the first day of April
each year following the effective date of the Agreement; provided, however, if this Accounting Procedure is attached to or otherwise
governing the payout accounting under a farmout agreement, the rates shall be adjusted on the first day of April each year following
the effective date of such farmout agreement. The adjustment shall be computed by applying the adjustment factor most recently
published by COPAS. The adjusted rates shall be the initial or amended rates agreed to by the Parties increased or decreased by
the adjustment factor described herein, for each year from the effective date of such rates, in accordance with COPAS MFI-47 (“Adjustment
of Overhead Rates”).



 


		C.	OVERHEAD—PERCENTAGE BASIS



 


		(1)	Operator shall charge the Joint Account at the
following rates:



 


		(a)	Development Rate percent ( ) % of the cost
of development of the Joint Property, exclusive of costs provided under Section II.9 (Legal Expense) and all Material
salvage credits.



 


		(b)	Operating Rate percent ( %) of the cost
of operating the Joint Property, exclusive of costs provided under Sections II.1 (Rentals and Royalties) and II.9
(Legal Expense); all Material salvage credits; the value of substances purchased for enhanced recovery; all property and
ad valorem taxes, and any other taxes and assessments that are levied, assessed, and paid upon the mineral interest in and to
the Joint Property.



 


		(2)	Application of Overhead—Percentage Basis
shall be as follows:



 


		(a)	The Development Rate shall be applied to all costs
in connection with:



 


		[i]	drilling, redrilling, sidetracking, or deepening
of a well
	 	 	 



		[ii]	a well undergoing plugback or workover operations
for a period of five (5) or more consecutive work–days
	 	 	 



		[iii]	preliminary expenditures necessary in preparation
for drilling
	 	 	 



		[iv]	expenditures incurred in abandoning when the well
is not completed as a producer
	 	 	 



		[v]	construction or installation of fixed assets,
the expansion of fixed assets and any other project clearly discernible as a fixed asset, other than Major Construction or Catastrophe
as defined in Section III.2 (Overhead-Major Construction and Catastrophe).



 


		(b)	The Operating Rate shall be applied to all other
costs in connection with Joint Operations, except those subject to Section III.2 (Overhead-Major Construction and Catastrophe).



 


		2.	OVERHEAD—MAJOR CONSTRUCTION AND CATASTROPHE



 


To compensate the Operator for
overhead costs incurred in connection with a Major Construction project or Catastrophe, the Operator shall either negotiate a rate
prior to the beginning of the project, or shall charge the Joint Account for overhead based on the following rates for any Major
Construction project in excess of the Operator’s expenditure limit under the Agreement, or for any Catastrophe regardless
of the amount. If the Agreement to which this Accounting Procedure is attached does not contain an expenditure limit, Major Construction
Overhead shall be assessed for any single Major Construction project costing in excess of $100,000 gross.


 


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Major Construction shall mean the construction
and installation of fixed assets, the expansion of fixed assets, and any other project clearly discernible as a fixed asset required
for the development and operation of the Joint Property, or in the dismantlement, abandonment, removal, and restoration of platforms,
production equipment, and other operating facilities.


 


Catastrophe is defined as a sudden calamitous
event bringing damage, loss, or destruction to property or the environment, such as an oil spill, blowout, explosion, fire, storm,
hurricane, or other disaster. The overhead rate shall be applied to those costs necessary to restore the Joint Property to the
equivalent condition that existed prior to the event.


 


		A.	If the Operator absorbs the engineering, design and drafting
costs related to the project:



 


		(1)	     5      % of total
costs if such costs are less than $100,000; plus



		 	 



		(2)	     3      % of total
costs in excess of $100,000 but less than $1,000,000; plus



		 	 



		(3)	     2      % of total
costs in excess of $1,000,000.



 


		B.	If the Operator charges engineering, design and drafting
costs related to the project directly to the Joint Account:



 


		(1)	     5      % of total
costs if such costs are less than $100,000; plus



		 	 



		(2)	     3      % of total
costs in excess of $100,000 but less than $1,000,000; plus



		 	 



		(3)	     2      % of total
costs in excess of $1,000,000.



 


Total
cost shall mean the gross cost of any one project. For the purpose of this paragraph, the component parts of a single Major Construction
project shall not be treated separately, and the cost of drilling and workover wells and purchasing and installing pumping units
and downhole artificial lift equipment shall be excluded. For Catastrophes, the rates shall be applied to all costs associated
with each single occurrence or event.


 


On each project, the Operator shall advise
the Non-Operator(s) in advance which of the above options shall apply.


 


For the purposes of calculating Catastrophe
Overhead, the cost of drilling relief wells, substitute wells, or conducting other well operations directly resulting from the
catastrophic event shall be included. Expenditures to which these rates apply shall not be reduced by salvage or insurance recoveries.
Expenditures that qualify for Major Construction or Catastrophe Overhead shall not qualify for overhead under any other overhead
provisions.


 


In the event of any conflict between the provisions
of this Section III.2 and the provisions of Sections II.2 (Labor), II.5 (Services), or II.7 (Affiliates),
the provisions of this Section III.2 shall govern.


 


		3.	AMENDMENT OF OVERHEAD RATES



 


The overhead rates provided for in this Section
III may be amended from time to time if, in practice, the rates are found to be insufficient or excessive, in accordance with the
provisions of Section I.6.B (Amendments).


 



 IV.
MATERIAL PURCHASES, TRANSFERS, AND DISPOSITIONS


 


The Operator is responsible for
Joint Account Material and shall make proper and timely charges and credits for direct purchases, transfers, and dispositions.
The Operator shall provide all Material for use in the conduct of Joint Operations; however, Material may be supplied by the Non-
Operators, at the Operator’s option. Material furnished by any Party shall be furnished without any express or implied warranties
as to quality, fitness for use, or any other matter.


 


		1.	DIRECT PURCHASES



 


Direct purchases shall be charged
to the Joint Account at the price paid by the Operator after deduction of all discounts received. The Operator shall make good
faith efforts to take discounts offered by suppliers, but shall not be liable for failure to take discounts except to the extent
such failure was the result of the Operator’s gross negligence or willful misconduct. A direct purchase shall be deemed to
occur when an agreement is made between an Operator and a third party for the acquisition of Material for a specific well site
or location. Material provided by the Operator under “vendor stocking programs,” where the initial use is for a Joint
Property and title of the Material does not pass from the manufacturer, distributor, or agent until usage, is considered a direct
purchase. If Material is found to be defective or is returned to the manufacturer, distributor, or agent for any other reason,
credit shall be passed to the Joint Account within sixty (60) days after the Operator has received adjustment from the manufacturer,
distributor, or agent.


 



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		2.	TRANSFERS



 


A transfer is determined to
occur when the Operator (i) furnishes Material from a storage facility or from another operated property, (ii) has assumed liability
for the storage costs and changes in value, and (iii) has previously secured and held title to the transferred Material. Similarly,
the removal of Material from the Joint Property to a storage facility or to another operated property is also considered a transfer;
provided, however, Material that is moved from the Joint Property to a storage location for safe-keeping pending disposition may
remain charged to the Joint Account and is not considered a transfer. Material shall be disposed of in accordance with Section
IV.3 (Disposition of Surplus) and the Agreement to which this Accounting Procedure is attached.



 


		A.	PRICING



 


The value of Material transferred to/from the
Joint Property should generally reflect the market value on the date of physical transfer. Regardless of the pricing method used,
the Operator shall make available to the Non-Operators sufficient documentation to verify the Material valuation. When higher than
specification grade or size tubulars are used in the conduct of Joint Operations, the Operator shall charge the Joint Account at
the equivalent price for well design specification tubulars, unless such higher specification grade or sized tubulars are approved
by the Parties pursuant to Section I.6.A (General Matters). Transfers of new Material will be priced using one of the following
pricing methods; provided, however, the Operator shall use consistent pricing methods, and not alternate between methods for the
purpose of choosing the method most favorable to the Operator for a specific transfer:


 


		(1)	Using published prices in effect on date of movement as
adjusted by the appropriate COPAS Historical Price Multiplier (HPM) or prices provided by the COPAS Computerized Equipment Pricing
System (CEPS).



 


		(a)	For oil country tubulars and line pipe, the published
price shall be based upon eastern mill carload base prices (Houston, Texas, for special end) adjusted as of date of movement,
plus transportation cost as defined in Section IV.2.B (Freight).



		 	 



		(b)	For other Material, the published price shall be the published
list price in effect at date of movement, as listed by a Supply Store nearest the Joint Property where like Material is normally
available, or point of manufacture plus transportation costs as defined in Section IV.2.B (Freight).



 


		(2)	Based on a price quotation from a vendor that reflects
a current realistic acquisition cost.



 


		(3)	Based on the amount paid by the Operator for like Material
in the vicinity of the Joint Property within the previous twelve (12) months from the date of physical transfer.



		 	 



		(4)	As agreed to by the Participating Parties for Material
being transferred to the Joint Property, and by the Parties owning the Material for Material being transferred from the Joint
Property.



 


		B.	FREIGHT



 


Transportation costs shall be added to the
Material transfer price using the method prescribed by the COPAS Computerized Equipment Pricing System (CEPS). If not using CEPS,
transportation costs shall be calculated as follows:


 


		(1)	Transportation costs for oil country tubulars and line
pipe shall be calculated using the distance from eastern mill to the Railway Receiving Point based on the carload weight basis
as recommended by the COPAS MFI-38 (“Material Pricing Manual”) and other COPAS MFIs in effect at the time of the transfer.



		 	 



		(2)	Transportation costs for special mill items shall be calculated
from that mill’s shipping point to the Railway Receiving Point. For transportation costs from other than eastern mills, the 30,000-pound
interstate truck rate shall be used. Transportation costs for macaroni tubing shall be calculated based on the interstate truck
rate per weight of tubing transferred to the Railway Receiving Point.



		 	 



		(3)	Transportation costs for special end tubular goods shall
be calculated using the interstate truck rate from Houston, Texas, to the Railway Receiving Point.



		 	 



		(4)	Transportation costs for Material other than that described
in Sections IV.2.B.(1) through (3), shall be calculated from the Supply Store or point of manufacture, whichever is appropriate,
to the Railway Receiving Point



 


Regardless of whether using CEPS or manually
calculating transportation costs, transportation costs from the Railway Receiving Point to the Joint Property are in addition to
the foregoing, and may be charged to the Joint Account based on actual costs incurred. All transportation costs are subject to
Equalized Freight as provided in Section II.4 (Transportation) of this Accounting Procedure.


 


		C.	TAXES



 


Sales and use taxes shall be added to the Material
transfer price using either the method contained in the COPAS Computerized Equipment Pricing System (CEPS) or the applicable tax
rate in effect for the Joint Property at the time and place of transfer. In either case, the Joint Account shall be charged or
credited at the rate that would have governed had the Material been a direct purchase.


 



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		D.	CONDITION




 



		(1)	Condition “A” – New and unused Material
in sound and serviceable condition shall be charged at one hundred percent (100%) of the price as determined in Sections IV.2.A
(Pricing), IV.2.B (Freight), and IV.2.C (Taxes). Material transferred from the Joint Property that was not
placed in service shall be credited as charged without gain or loss; provided, however, any unused Material that was charged to
the Joint Account through a direct purchase will be credited to the Joint Account at the original cost paid less restocking fees
charged by the vendor. New and unused Material transferred from the Joint Property may be credited at a price other than the price
originally charged to the Joint Account provided such price is approved by the Parties owning such Material, pursuant to Section
I.6.A (General Matters). All refurbishing costs required or necessary to return the Material to original condition or to
correct handling, transportation, or other damages will be borne by the divesting property. The Joint Account is responsible for
Material preparation, handling, and transportation costs for new and unused Material charged to the Joint Property either through
a direct purchase or transfer. Any preparation costs incurred, including any internal or external coating and wrapping, will be
credited on new Material provided these services were not repeated for such Material for the receiving property.



		 	 



		(2)	Condition “B” – Used Material in sound
and serviceable condition and suitable for reuse without reconditioning shall be priced by multiplying the price determined in
Sections IV.2.A (Pricing), IV.2.B (Freight), and IV.2.C (Taxes) by seventy-five percent (75%).



		 	 



		 	Except as provided in Section IV.2.D(3), all reconditioning costs required to return the
                                                                                  Material to Condition “B” or to correct handling, transportation or other damages will be borne by the divesting
                                                                                  property.



		 	 



		 	If the Material was originally charged to the Joint Account as used Material and placed in
                                                                                  service for the Joint Property, the Material will be credited at the price determined in Sections IV.2.A (Pricing),
                                                                                  IV.2.B (Freight), and IV.2.C (Taxes) multiplied by sixty-five percent (65%).



		 	 



		 	Unless otherwise agreed to by the Parties that paid for such Material, used Material
                                                                                  transferred from the Joint Property that was not placed in service on the property shall be credited as charged without gain
                                                                                  or loss.



		 	 



		(3)	Condition “C” – Material that is not
in sound and serviceable condition and not suitable for its original function until after reconditioning shall be priced by multiplying
the price determined in Sections IV.2.A (Pricing), IV.2.B (Freight), and IV.2.C (Taxes) by fifty percent
(50%).



		 	 



		 	The cost of reconditioning may be charged to the receiving property to the extent Condition
                                                                                  “C” value, plus cost of reconditioning, does not exceed Condition “B” value.



		 	 



		(4)	Condition “D” – Material that (i) is
no longer suitable for its original purpose but useable for some other purpose, (ii) is obsolete, or (iii) does not meet original
specifications but still has value and can be used in other applications as a substitute for items with different specifications,
is considered Condition “D” Material. Casing, tubing, or drill pipe used as line pipe shall be priced as Grade A and
B seamless line pipe of comparable size and weight. Used casing, tubing, or drill pipe utilized as line pipe shall be priced at
used line pipe prices. Casing, tubing, or drill pipe used as higher pressure service lines than standard line pipe, e.g., power
oil lines, shall be priced under normal pricing procedures for casing, tubing, or drill pipe. Upset tubular goods shall be priced
on a non-upset basis. For other items, the price used should result in the Joint Account being charged or credited with the value
of the service rendered or use of the Material, or as agreed to by the Parties pursuant to Section 1.6.A (General Matters).



		 	 



		(5)	Condition “E” – Junk shall be priced
at prevailing scrap value prices.



 


		E.	OTHER PRICING PROVISIONS



 


		(1)	Preparation Costs



 


Subject to Section II
(Direct Charges) and Section III (Overhead) of this Accounting Procedure, costs incurred by the Operator in
making Material serviceable including inspection, third party surveillance services, and other similar services will be
charged to the Joint Account at prices which reflect the Operator’s actual costs of the services. Documentation must be
provided to the Non-Operators upon request to support the cost of service. New coating and/or wrapping shall be considered a
component of the Materials and priced in accordance with Sections IV.1 (Direct Purchases) or IV.2.A (Pricing),
as applicable. No charges or credits shall be made for used coating or wrapping. Charges and credits for inspections shall be
made in accordance with COPAS MFI-38 (“Material Pricing Manual”).


 


		(2)	Loading and Unloading Costs



 


Loading and unloading costs related
to the movement of the Material to the Joint Property shall be charged in accordance with the methods specified in COPAS MFI-38
(“Material Pricing Manual”).


 


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		3.	DISPOSITION OF SURPLUS



 


Surplus Material is that Material, whether new or used, that is
no longer required for Joint Operations. The Operator may purchase, but shall be under no obligation to purchase, the interest
of the Non-Operators in surplus Material.


 


Dispositions for the purpose of this procedure are considered to
be the relinquishment of title of the Material from the Joint Property to either a third party, a Non-Operator, or to the Operator.
To avoid the accumulation of surplus Material, the Operator should make good faith efforts to dispose of surplus within twelve
(12) months through buy/sale agreements, trade, sale to a third party, division in kind, or other dispositions as agreed to by
the Parties.


 


Disposal of surplus Materials shall be made in accordance with the
terms of the Agreement to which this Accounting Procedure is attached. If the Agreement contains no provisions governing disposal
of surplus Material, the following terms shall apply:


 


		•	The Operator may, through a sale to an unrelated third
party or entity, dispose of surplus Material having a gross sale value that is less than or equal to the Operator’s expenditure
limit as set forth in the Agreement to which this Accounting Procedure is attached without the prior approval of the Parties owning
such Material.



		 	 



		•	If the gross sale value exceeds the Agreement expenditure
limit, the disposal must be agreed to by the Parties owning such Material.



		 	 



		•	Operator may purchase surplus Condition “A”
or “B” Material without approval of the Parties owning such Material, based on the pricing methods set forth in Section
IV.2 (Transfers).



		 	 



		•	Operator may purchase Condition “C” Material
without prior approval of the Parties owning such Material if the value of the Materials, based on the pricing methods set forth
in Section IV.2 (Transfers), is less than or equal to the Operator’s expenditure limitation set forth in the Agreement.
The Operator shall provide documentation supporting the classification of the Material as Condition C.



		 	 



		•	Operator may dispose of Condition “D” or “E”
Material under procedures normally utilized by Operator without prior approval of the Parties owning such Material.



 


		4.	SPECIAL PRICING PROVISIONS



 


		A.	PREMIUM PRICING



 


Whenever Material is available only at inflated prices due to national
emergencies, strikes, government imposed foreign trade restrictions, or other unusual causes over which the Operator has no control,
for direct purchase the Operator may charge the Joint Account for the required Material at the Operator’s actual cost incurred
in providing such Material, making it suitable for use, and moving it to the Joint Property. Material transferred or disposed of
during premium pricing situations shall be valued in accordance with Section IV.2 (Transfers) or Section IV.3 (Disposition
of Surplus), as applicable.


 


		B.	SHOP-MADE ITEMS



 


Items fabricated by the Operator’s employees, or by contract
laborers under the direction of the Operator, shall be priced using the value of the Material used to construct the item plus the
cost of labor to fabricate the item. If the Material is from the Operator’s scrap or junk account, the Material shall be
priced at either twenty-five percent (25%) of the current price as determined in Section IV.2.A (Pricing) or scrap value,
whichever is higher. In no event shall the amount charged exceed the value of the item commensurate with its use.


 


		C.	MILL REJECTS



 


Mill rejects purchased as “limited service” casing or
tubing shall be priced at eighty percent (80%) of K-55/J-55 price as determined in Section IV.2 (Transfers). Line pipe converted
to casing or tubing with casing or tubing couplings attached shall be priced as K-55/J- 55 casing or tubing at the nearest size
and weight.


 


V. INVENTORIES OF CONTROLLABLE MATERIAL


 



The Operator shall maintain records
of Controllable Material charged to the Joint Account, with sufficient detail to perform physical inventories.


 


Adjustments to the Joint Account
by the Operator resulting from a physical inventory of Controllable Material shall be made within twelve (12) months following
the taking of the inventory or receipt of Non-Operator inventory report. Charges and credits for overages or shortages will be
valued for the Joint Account in accordance with Section IV.2 (Transfers) and shall be based on the Condition “B”
prices in effect on the date of physical inventory unless the inventorying Parties can provide sufficient evidence another Material
condition applies.


 


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		1.	DIRECTED INVENTORIES



 


Physical
inventories shall be performed by the Operator upon written request of a majority in working interests of the Non-Operators (hereinafter,
“directed inventory”); provided, however, the Operator shall not be required to perform directed inventories more frequently
than once every five (5) years. Directed inventories shall be commenced within one hundred eighty (180) days after the Operator
receives written notice that a majority in interest of the Non-Operators has requested the inventory. All Parties shall be governed
by the results of any directed inventory.


 


Expenses
of directed inventories will be borne by the Joint Account; provided, however, costs associated with any post-report follow-up
work in settling the inventory will be absorbed by the Party incurring such costs. The Operator is expected to exercise judgment
in keeping expenses within reasonable limits. Any anticipated disproportionate or extraordinary costs should be discussed and agreed
upon prior to commencement of the inventory. Expenses of directed inventories may include the following:


 


		A.	A per diem rate for each inventory person, representative
of actual salaries, wages, and payroll burdens and benefits of the personnel performing the inventory or a rate agreed to by the
Parties pursuant to Section I.6.A (General Matters). The per diem rate shall also be applied to a reasonable number of
days for pre-inventory work and report preparation.



 


		B.	Actual transportation costs and Personal Expenses for
the inventory team.



 


		C.	Reasonable charges for report preparation and distribution
to the Non-Operators.



 


		2.	NON-DIRECTED INVENTORIES



 


		A.	OPERATOR INVENTORIES



 


Physical inventories that are
not requested by the Non-Operators may be performed by the Operator, at the Operator’s discretion. The expenses of conducting
such Operator-initiated inventories shall not be charged to the Joint Account.


 


		B.	NON-OPERATOR INVENTORIES



 


Subject to the terms of the Agreement
to which this Accounting Procedure is attached, the Non-Operators may conduct a physical inventory at reasonable times at their
sole cost and risk after giving the Operator at least ninety (90) days prior written notice. The Non-Operator inventory report
shall be furnished to the Operator in writing within ninety (90) days of completing the inventory fieldwork.


 


		C.	SPECIAL INVENTORIES



 


The
expense of conducting inventories other than those described in Sections V.1 (Directed Inventories), V.2.A (Operator
Inventories), or V.2.B (Non-Operator Inventories), shall be charged to the Party requesting such inventory; provided,
however, inventories required due to a change of Operator shall be charged to the Joint Account in the same manner as described
in Section V.1 (Directed Inventories).


 



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of Petroleum Accountants Societies, Inc. (COPAS)






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Exhibit “D”


 


Attached to and made part
of that certain Operating Agreement dated [         ] by and 

between Five J.A.B., Inc., as Operator, and Three Forks, Inc., as Non-Operator.


 


At all times
while operations are conducted under this agreement, Operator shall maintain for the benefit of all parties hereto, insurance of
the types and in the maximum amounts as set forth below:


 


		A.	Workers’
                                         Compensation and Employer’s Liability Insurance covering all employees, including
                                         partners and officers, who perform work for the joint account.



 


		a.	Statutory
                                         Workers’ Compensation coverage as required by the laws of the state in which operations
                                         are conducted.



 


		b.	Employer’s
                                         Liability limits of $1,000,000 each accident, $1,000,000 each employee/disease, and $1,000,000
                                         policy limit.



 


		B.	Commercial
                                         General Liability Insurance



 


$1,000,000 limit per occurrence
and general aggregate to cover damages to third parties because of bodily injury or property damage caused by an occurrence. The
policy shall be written on an occurrence form and shall include, but not be limited to, the following coverages: premises/operations,
products and completed operations with a separate aggregate if available, personal and advertising injury, broad form contractual,
underground resources liability, and sudden and accidental pollution liability without a sunset clause. There shall be no exclusions
under the policy for the following: employees of the Operator for liabilities assumed by the Operator under a covered contract,
punitive or exemplary damages, cross liability. Non-Operator will either be named as an Additional Insured or the policy will definitively
extend coverage to Non-Operator either within the policy wording or by endorsement, including coverage for Non-Operator’s
contractual assumption of their proportionate share of losses (including defense costs) under this Joint Operating Agreement.


 


		3.	Business
                                         Automobile Liability Insurance



 


$1,000,000 limit per accident
combined single limit for bodily injury and/or property damage to third parties covering owned, leased, hired and non-owned vehicles,
including trailers, used in the joint operations.


 


		4.	Umbrella
                                         or Excess Liability Insurance



 


$10,000,000 per occurrence
and general aggregate in excess of Employer’s Liability, Commercial General Liability, and Automobile Liability. The policy
shall be written on an occurrence form and shall contain a drop-down provision in the event of exhaustion of underlying limits
or aggregates and shall apply on a follow-form basis including those coverages specifically described in 1., 2. and 3. above.


 


Non-Operator
may elect to be self-insured as to the insurance coverages for Commercial General Liability Insurance (provision 2. above) and
Umbrella or Excess Liability Insurance (provision 4. above), in which event the only charges to the joint account shall be for
Workers’ Compensation and Employer’s Liability Insurance (provision 1. above) and Business Automobile Liability Insurance
(provision 3 above). The insurance carried under this exhibit shall be primary for the Joint Operations. Each party to the Operating
Agreement shall have the right to acquire at its own expense such additional insurance coverage as it desires to protect itself
against any liability not covered by the insurance described above which is maintained by Operator for the joint account. All insurance
maintained by any party to this Operating Agreement shall name Non-Operator as additional insureds and contain a waiver by the
insurance company of all rights of subrogation in favor of the parties to the Operating Agreement. To the extent Non-Operator is
named as additional insured, the coverage afforded




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thereby shall be primary to
any other insurance, and will not be affected by the unenforceability of any indemnity provisions.


 


The foregoing
insurance shall be placed with carriers that are acceptable to the parties to this agreement; shall be maintained in full
force and effect during the term of this agreement; and shall not be cancelled or materially altered such that coverage is
reduced without 30 days prior notice to the parties. Operator agrees to have a certificate of insurance issued by its
insurance broker evidencing that such coverage is in place at each policy renewal. Prior to commencing operations under this
Operating Agreement, Operator shall cause a certificate of the coverage to be delivered to Non-Operator. Such certificate
shall describe the coverage obtained, any exclusions from such coverage, and the parties insured thereunder. Premium for
Commercial General Liability Insurance and Umbrella or Excess Liability Insurance referenced above shall be charged to the
Joint Account. Otherwise, all insurance costs shall be for Operator’s account.


 


Nothing contained
in this Exhibit shall operate as a limitation on a party’s proportionate liability under the Operating Agreement. Any loss
not covered by the above-specified policies shall be borne by the Operator and Non-Operator in the same proportions as they bear
costs and expenses under the Operating Agreement at the time of such loss. For example, but not by way of limitation, losses not
covered by these policies that occur while drilling a well will be borne by each Party in the same proportion that such Party is
bearing the drilling costs for that well. If the Operating Agreement covers two or more wells, then the cost-bearing proportions
will be those applicable to the well that is most closely related to the loss.


 


Deductibles on the foregoing insurances
shall not exceed $10,000.00 per occurrence.




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Exhibit “F”


 


Attached to and made part
of that certain Operating Agreement dated [        ] by and

 between Five J.A.B., Inc., as Operator, and Three Forks, Inc., as Non-Operator.


 



Unless exempted
by Federal law, regulation or order, the following terms and conditions shall apply during the performance of this contract:


 


A.                
Equal Opportunity Clause (41 CFR 60-1.4). (Applicable only to contracts or purchase orders for more than $10,000.00).


 


During the performance of this
contract, Operator agrees as follows:


 


(1)              
Operator will not discriminate against any employee or applicant for employment because of race, color, religion, sex or
national origin. Operator will take affirmative action to ensure that applicants are employed, and that employees are treated during
employment, without regard to race, color, religion, sex or national origin. Such action shall include, but not be limited to the
following: employment, upgrading, demotion or transfer, recruitment or recruitment advertising, layoff or termination, including
apprenticeship. Operator agrees to post in conspicuous places, available to employees and applicants for employment, notices to
be provided by the contracting officer setting forth the provisions of this nondiscrimination clause.


 


(2)              
Operator will, in all solicitations or advertisements for employees placed by or on behalf of Operator, state that all qualified
applicants will receive consideration for employment without regard to race, color, religion, sex or national origin.


 


(3)              
Operator will send to each labor union or representative of workers with which it has a collective bargaining agreement
or other contract or understanding, a notice to be provided by the agency contracting officer, advising the labor union or worker’s
representative of Operator’s commitments under section 202 of Executive Order 11246 of September 24, 1965, and shall post
copies of the notice in conspicuous places available to employees and applicants for employment.


 


(4)              
Operator will comply with all provisions of Executive Order 11246 of September 24, 1965, and of the rules, regulations and
relevant orders of the Secretary of Labor.


 


(5)              
Operator will furnish all information and reports required by Executive Order 11246 of September 24, 1965, and by rules,
regulations and orders of the Secretary of Labor, or pursuant thereto, and will permit access to its books, records and accounts
by the contracting agency and the Secretary of Labor for purposes of investigation to ascertain compliance with such rules, regulations,
and orders.


 


(6)              
In the event of Operator’s noncompliance with the nondiscrimination clauses of this contract or with any such rules,
regulations and orders, this contract may be canceled, terminated or suspended in whole or in part and Operator may be declared
ineligible for further government contracts in accordance with procedures authorized by Executive Order 11246 of September 24,
1965, and such other sanctions as may be imposed and remedies invoked as provided in Executive Order 11246 of September 24, 1965,
or by rule, regulation or order of the Secretary of Labor, or as otherwise provided by law.


 


(7)              
Operator will include the provisions of paragraph (1) through (7) in every subcontract or purchase order unless exempted
by rules, regulations and orders of the Secretary of Labor issued pursuant to section 204 of Executive Order 11246 of September
24, 1965, so that such provisions will be binding upon such subcontractor or vendor. Operator will take such action with respect
to any subcontract or purchase order as the contracting agency may direct as a means of enforcing such provisions including sanctions
for noncompliance; provided, however, that in the event Operator becomes involved in, or is threatened with, litigation
with a subcontractor or vendor as a result of such direction by the contracting agency, Operator may request the United States
to enter into such litigation to protect the interest of the United States.


 


B.                
Certification of Nonsegregated Facilities (41 CFR 60-1.8). (Applicable only to contracts or purchase orders which
are not exempt from the provisions of the Equal Opportunity Clause set out above).




    	3



    	 



    

Operator certifies
that it does not, and will not, maintain or provide for its employees any segregated facilities at any of its establishments,
and that it does not, and will not, permit its employees to perform such services at any location under its control, where
segregated facilities are maintained. Operator agrees that a breach of this certification is a violation of the Equal
Opportunity Clause in this contract or purchase order. As used in this certification, the term “segregated
facilities” means any waiting room, work areas, rest rooms and wash rooms, restaurant and other eating areas, time
clocks, locker rooms and other storage or dressing areas, parking lots, drinking fountains, recreation or entertainment area,
transportation, and housing facilities provided for employees which are segregated by explicit directive or are in fact
segregated on the basis of race, creed, color or national origin, because of habit, local custom or otherwise. Operator
further agrees that (except where it has obtained identical certification from proposed subcontractors or specific time
periods) it will obtain identical certifications from proposed subcontractors prior to the award of subcontracts exceeding
$10,000.00 which are exempt from the provisions of the Equal Opportunity Clause; that will retain such certifications in its
files; and that it will forward the following notice to such proposed subcontracts (except where the proposed subcontractors
have submitted identical certifications for specific time periods): NOTICE TO PROSPECTIVE SUBCONTRACTORS OF REQUIREMENT
FOR CERTIFICATION OF NONSEGREGATED FACILITIES. A Certification of Nonsegregated Facilities as required by the May 9,
1967, order on Elimination of Segregated Facilities, by the Secretary of Labor (32 F.R. 7439, May 19, 1967), and as
required by the regulations of the Secretary of Labor set out in 41 CFR Chapter 60, and as they may be amended, must be
submitted prior to the award of a subcontract exceeding $10,000.00 which is not exempt from the provisions of the Equal
Opportunity Clause. The certification may be submitted either for each subcontractor or all subcontracts during a period
(i.e., quarterly, semiannually, or annually).


 


C.                
Affirmative Action Compliance Program (41 CFR 60-1.40). (Applicable) only if (a) Operator has 50 or more employees
and (b) the contract or purchase order is for $50,000.00 or more.)


 


Operator
shall develop a written affirmative action program for each of its establishments, and, within 120 days from the effectiveness
of this contract or purchase order, shall maintain a copy of separate programs for each establishment, including evaluation of
utilization of minority group personal and the job classification tables, at each local office responsible for the personnel matters
of such establishment.


 


D.                
Employer Information Report (41 CFR 60-1.7). (Applicable only if (a) Operator has 50 or more employees, (b) Operator
is not exempt (pursuant to Section 60-1.5 of Title 41 of the Code of Federal Regulations) from the requirements of filing
Employer Information Report EEO-1 and (c) the contract or purchase order is for $50,000.00 or more.)


 


Operator
agrees to file with the appropriate Federal agency annually, on or before the 31st day of March, complete and accurate reports
on Standard Form 100 (EEO-1) promulgated jointly by the Office of Federal Contract Compliance, the Equal Opportunity Commission
and Plans for Progress of such from as may hereafter be promulgated in its place.


 


E.                 
Affirmative Action for Disabled Veterans and Veterans of the Vietnam Era (41 CFR 60-250). (Applicable only to
contracts or purchase orders for $10,000.00 or more.)


 


The affirmative
action clause prescribed in Sections 60-250.4 of Title 41 of the Code of Federal Regulations is incorporated herein by reference
(as permitted by section 60-250.22 of said Regulations) as if set out in full at this point. If Operator (a) has 50 or more employees
and (b) this contract or purchase order is for $50,000.00 or more, then, within 120 days from the effectiveness of this contract
or purchase order, Operator shall prepare and maintain an affirmative action program at each establishment, which program shall
set forth Operator’s policies, practices and procedures in accordance with section 60-250.6 of said Regulations.


 


F.                 
Affirmative Action for Handicapped Workers (41 CFR 60-741.4). (Applicable only to contracts or purchase orders
for $2,500.00 or more.)


 


The affirmative
action clause prescribed in Sections 60-741.4 of Title 41 of the Code of Federal Regulations is incorporated herein by reference
(as permitted by section 60-741.22 of said Regulation) as if set out in full at this point. If Operator (a) has 50 or more employees
and (b) this contract or purchase order is for $50,000.00 or more, then, within 120 days of the effective date of this contract
or purchase order, Operator shall prepare and maintain an affirmative action program at each establishment, which program shall
set forth Operator’s policies, practices and procedures in accordance with section 60-741.6 of said Regulations.




    	4



    	 



    

Exhibit “H”


Form of Memorandum of
Operating Agreement


 


Attached to and made part
of that certain Operating Agreement dated [      ] by and 

between Five J.A.B., Inc., as Operator, and Three Forks, Inc., as Non-Operator.


 


 



 



    	5



    	 



    

MEMORANDUM
OF OPERATING AGREEMENT AND FINANCING STATEMENT


 




	THE STATE OF TEXAS/LOUISIANA	§	 
	 	 	§	 
	COUNTY/PARISH OF	 	§	 





 


THIS AGREEMENT,
entered into by and among Five J.A.B., Inc., whose address is 16202 Butera Road, Magnolia, Texas 77355, hereinafter referred
to as “Operator”, and Three Forks, Inc., whose address is 555 Eldorado Blvd., Suite 100, Bloomfield Colorado,
80021, hereinafter referred to as “Non-Operator”.


 


WHEREAS, the
parties to this agreement are owners of Oil and Gas Leases and/or Oil and Gas Interests in the land identified in Exhibit “A”
(said land, Leases and Interests being hereinafter called the “Contract Area”), and in any instance in which
the Leases or Interests of a party are not of record, the record owner and the party hereto that owns the interest or rights therein
are reflected on Exhibit “A”;


 


WHEREAS, the
parties hereto have executed an Operating Agreement dated February [ ], 2013 (the “Operating Agreement”), covering
the Contract Area for the purpose of exploring and developing such lands, Leases and Interests for Oil and Gas; and


 


WHEREAS, the
parties hereto have executed this agreement for the purpose of imparting notice to all persons of the rights and obligations of
the parties under the Operating Agreement and for the further purpose of perfecting those rights capable of perfection.


 


NOW, THEREFORE,
in consideration of the mutual rights and obligations of the parties hereto, it is agreed as follows:


 


1                  
This agreement
supplements the Operating Agreement, which Agreement in its entirety is incorporated herein by reference, and all terms used herein
shall have the meaning ascribed to them in the Operating Agreement.


 


2.                 
The parties do hereby agree that:


 


A.               
The Oil and Gas Leases and/or Oil and Gas Interests of the parties comprising the Contract
Area shall be subject to and burdened with the terms and provisions of this agreement and the Operating Agreement, and the parties
do hereby commit such Leases and Interests to the performance thereof.


 


B.                
The exploration and development of the Contract Area for Oil and Gas shall be governed by
the terms and provisions of the Operating Agreement, as supplemented by this agreement.


 


C.                
All costs and liabilities incurred in operations under this agreement and the Operating Agreement
shall be borne and paid, and all equipment and materials acquired in operations on the Contract Area shall be owned, by the parties
hereto, as provided in the Operating Agreement.


 


D.               
Regardless of the record title ownership to the Oil and Gas Leases and/or Oil and Gas Interests
identified on Exhibit “A”, all production of Oil and Gas from the Contract Area shall be owned by the parties
as provided in the Operating Agreement; provided nothing contained in this agreement shall be deemed an assignment or cross- assignment
of interests covered hereby.


 


E.                
Each party shall pay or deliver, or cause to be paid or delivered, all burdens on its share
of the production from the Contract Area as provided in the Operating Agreement.


 


F.                 
An overriding royalty, production payment, net profits interest or other burden payable out
of production hereafter created, assignments of production given as security for the payment of money and those overriding royalties,
production payments and other burdens payable out of production heretofore created and defined as




    	6



    	 



    

Subsequently Created Interests
in the Operating Agreement shall be (i) borne solely by the party whose interest is burdened therewith, (ii) subject to suspension
if a party is required to assign or relinquish to another party an interest which is subject to such burden, and (iii) subject
to the lien and security interest hereinafter provided if the party subject to such burden fails to pay its share of expenses chargeable
hereunder and under the Operating Agreement, all upon the terms and provisions and in the times and manner provided by the Operating
Agreement.


 


G.               
The Oil and Gas Leases and/or Oil and Gas Interests which are subject hereto may not be assigned
or transferred except in accordance with those terms, provisions and restrictions in the Operating Agreement regulating such transfers.
This agreement and the Operating Agreement shall be binding upon and shall inure to the benefit of the parties hereto, and their
respective heirs, devisees, legal representatives, and assigns, and the terms hereof shall be deemed to run with the leases or
interests included within the lease Contract Area.


 


H.               
The parties shall have the right to acquire an interest in renewal, extension and replacement
leases, leases proposed to be surrendered, wells proposed to be abandoned, and interests to be relinquished as a result of non-participation
in subsequent operations, all in accordance with the terms and provisions of the Operating Agreement.


 


I.                  
The rights and obligations of the parties and the adjustment of interests among them in the
event of a failure or loss of title, each party’s right to propose operations, obligations with respect to participation in operations
on the Contract Area and the consequences of a failure to participate in operations, the rights and obligations of the parties
regarding the marketing of production, and the rights and remedies of the parties for failure to comply with financial obligations
shall be as provided in the Operating Agreement.


 


J.                  
Each party’s interest under this agreement and under the Operating Agreement shall be subject
to relinquishment for its failure to participate in subsequent operations and each party’s share of production and costs shall
be reallocated on the basis of such relinquishment, all upon the terms and provisions provided in the Operating Agreement.


 


K.               
All other matters with respect to exploration and development of the Contract Area and the
ownership and transfer of the Oil and Gas Leases and/or Oil and Gas Interest therein shall be governed by the terms and provisions
of the Operating Agreement.


 


		3.	The parties hereby grant reciprocal liens and security interests
as follows:



 


A.               
Each party grants to the other parties hereto a lien upon any interest it now owns or hereafter
acquires in Oil and Gas Leases and Oil and Gas Interests in the Contract Area, and a security interest and/or purchase money security
interest in any interest it now owns or hereafter acquires in the personal property and fixtures on or used or obtained for use
in connection therewith, to secure performance of all of its obligations under this agreement and the Operating Agreement including
but not limited to payment of expense, interest and fees, the proper disbursement of all monies paid under this agreement and the
Operating Agreement, the assignment or relinquishment of interest in Oil and Gas Leases as required under this agreement and the
Operating Agreement, and the proper performance of operations under this agreement and the Operating Agreement. Such lien and security
interest granted by each party hereto shall include such party’s leasehold interests, working interests, operating rights, and
royalty and overriding royalty interests in the Contract Area now owned or hereafter acquired and in lands pooled or unitized therewith
or otherwise becoming subject to this agreement and the Operating Agreement, the Oil and Gas when extracted therefrom and equipment
situated thereon or used or obtained for use in connection therewith (including, without limitation, all wells, tools, and tubular
goods), and accounts (including, without limitation, accounts arising from the sale of production at the wellhead), contract rights,
inventory and general intangibles relating thereto or arising therefrom, and all proceeds and products of the foregoing.




    	7



    	 



    

B.                
Each party represents and warrants to the other parties hereto that the lien and security
interest granted by such party to the other parties shall be a first and prior lien, and each party hereby agrees to maintain the
priority of said lien and security interest against all persons acquiring an interest in Oil and Gas Leases and Interests covered
by this agreement and the Operating Agreement by, through or under such party. All parties acquiring an interest in Oil and Gas
Leases and Oil and Gas Interests covered by this agreement and the Operating Agreement, whether by assignment, merger, mortgage,
operation of law, or otherwise, shall be deemed to have taken subject to the lien and security interest granted by the Operating
Agreement and this instrument as to all obligations attributable to such interest under this agreement and the Operating Agreement
whether or not such obligations arise before or after such interest is acquired.


 


C.                
To the extent that the parties have a security interest under the Uniform Commercial Code
of the state in which the Contract Area is situated, they shall be entitled to exercise the rights and remedies of a secured party
under the Code. The bringing of a suit and the obtaining of judgment by a party for the secured indebtedness shall not be deemed
an election of remedies or otherwise affect the lien rights or security interest as security for the payment thereof. In addition,
upon default by any party in the payment of its share of expenses, interest or fees, or upon the improper use of funds by the Operator,
the other parties shall have the right, without prejudice to other rights or remedies, to collect from the purchaser the proceeds
from the sale of such defaulting party’s share of Oil and Gas until the amount owed by such party, plus interest, has been received,
and shall have the right to offset the amount owed against the proceeds from the sale of such defaulting party’s share of Oil and
Gas. All purchasers of production may rely on a notification of default from the non-defaulting party or parties stating the amount
due as a result of the default, and all parties waive any recourse available against purchasers for releasing production proceeds
as provided in this paragraph.


 


D.               
If any party fails to pay its share of expense within one hundred (120) days after rendition
of a statement therefor by Operator the non-defaulting parties, including Operator, shall, upon request by Operator, pay the unpaid
amount in the proportion that the interest of each such party bears to the interest of all such parties. The amount paid by each
party so paying its share of the unpaid amount shall be secured by the liens and security rights described in this paragraph 3
and in the Operating Agreement, and each paying party may independently pursue any remedy available under the Operating Agreement
or otherwise.


 


E.                
If any party does not perform all of its obligations under this agreement or the Operating
Agreement, and the failure to perform subjects such party to foreclosure or execution proceedings pursuant to the provisions of
this agreement or the Operating Agreement, to the extent allowed by governing law, the defaulting party waives any available right
of redemption from and after the date of judgment, any required valuation or appraisement of the mortgaged or secured property
prior to sale, any available right to stay execution or to require a marshalling of assets and any required bond in the event a
receiver is appointed. In addition, to the extent permitted by applicable law, each party hereby grants to the other parties a
power of sale as to any property that is subject to the lien and security rights granted hereunder or under the Operating Agreement,
such power to be exercised in the manner provided by applicable law or otherwise in a commercially reasonable manner and upon reasonable
notice.


 


F.                 
The lien and security interest granted by this paragraph 3 supplements identical rights granted
under the Operating Agreement.


 


G.               
To the extent permitted by applicable law, Non-Operator agrees that Operator may invoke or
utilize the mechanics’ or materialmen’s lien law of the state in which the Contract Area is situated in order to secure the payment
to Operator of any sum due under this agreement and the Operating Agreement for services performed or materials supplied by Operator.


 


H.               
The above described security will be financed at the wellhead of the well or wells located
on the Contract Area and this Recording Supplement may be filed in the land records in the County or Parish in which the Contract
Area is located, and as a financing statement in all recording offices required under the Uniform Commercial




    	8



    	 



    

Code or other applicable
state statutes to perfect the above-described security interest, and any party hereto may file a continuation statement as necessary
under the Uniform Commercial Code, or other state laws.


 


I.                  
The lien and security interest granted by each Non-Operator to Operator and by Operator to
the Non-Operators under Article VII.B. of the Operating Agreement shall extend not only to such party’s oil and gas rights
in the Contract Area (which for greater certainty shall include all of each party’s leasehold interest and leasehold estate
in the Contract Area), the oil and/or gas when extracted and equipment (as mentioned in said Article) but also to all accounts,
contract rights, inventory and general intangibles constituting a part of, relating to or arising out of said oil and gas rights,
extracted oil and gas, and said equipment or which are otherwise owned or held by any such party in the Contract Area. Further,
the lien and security interest of each of said parties shall extend to all proceeds and products of all of the property and collateral
described in this paragraph and in Article VII.B. of the Operating Agreement as being subject to said lien and security interest.


 


4.                 
This agreement shall be effective as of the date of the Operating Agreement as above recited.
Upon termination of this agreement and the Operating Agreement and the satisfaction of all obligations thereunder, Operator is
authorized to file of record in all necessary recording offices a notice of termination, and each party hereto agrees to execute
such a notice of termination as to Operator’s interest, upon the request of Operator, if Operator has complied with all of its
financial obligations.


 


5.                 
This agreement and the Operating Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective heirs, devisees, legal representatives, successors and assigns. No sale, encumbrance,
transfer or other disposition shall be made by any party of any interest in the Leases or Interests subject hereto except as expressly
permitted under the Operating Agreement and, if permitted, shall be made expressly subject to this agreement and the Operating
Agreement and without prejudice to the rights of the other parties. If the transfer is permitted, the assignee of an ownership
interest in any Oil and Gas Lease shall be deemed a party to this agreement and the Operating Agreement as to the interest assigned
from and after the effective date of the transfer of ownership; provided, however, that the other parties shall not be required
to recognize any such sale, encumbrance, transfer or other disposition for any purpose hereunder until thirty (30) days after they
have received a copy of the instrument of transfer or other satisfactory evidence thereof in writing from the transferor or transferee.
No assignment or other disposition of interest by a party shall relieve such party of obligations previously incurred by such party
under this agreement or the Operating Agreement with respect to the interest transferred, including without limitation the obligation
of a party to pay all costs attributable to an operation conducted under this agreement and the Operating Agreement in which such
party has agreed to participate prior to making such assignment, and the lien and security interest granted by Article VII.B. and
Article XVI of the Operating Agreement and hereby shall continue to burden the interest transferred to secure payment of any such
obligations.


 


6.                 
In the event of a conflict between the terms and provisions of this agreement and the terms
and provisions of the Operating Agreement, then, as between the parties, the terms and provisions of the Operating Agreement shall
control.


 


7.                 
This agreement shall be binding upon each Non-Operator when this agreement or a counterpart
thereof has been executed by such Non-Operator and Operator notwithstanding that this agreement is not then or thereafter executed
by all of the parties to which it is tendered or which are listed on Exhibit “A” to this agreement as owning an
interest in the Contract Area or which own, in fact, an interest in the Contract Area


 


8.                 
In the event that any provision herein is illegal or unenforceable, the remaining provisions
shall not be affected, and shall be enforced as if the illegal or unenforceable provision did not appear herein.




    	9



    	 



    



		2012.	IN WITNESS WHEREOF, this agreement shall be effective as
of the              day of February,



 


	 	 	OPERATOR
	 	 	 	 	 
	WITNESSED:	 	Five J.A.B., Inc.
	 	 	 	 	 
	 	 	 	 	 
	 	 	By	 
	 	 	Name: James A. Bohannon, Jr.
	 	 	Title: President





 


ACKNOWLEDGMENT


 




	STATE OF	 	§	 
	 	 	 	§	 
	COUNTY/PARISH OF	 	§	 




 


Be
it known, that on this              day of the month of February 2013, before me, the undersigned authority, personally came and appeared
James A. Bohannon, Jr., the President of Five J.A.B., Inc., to me personally known and known by me to be the person whose genuine
signature is affixed to the foregoing document, who signed said document before me and in the presence of the two witnesses, whose
names are thereto subscribed as such, being competent witnesses, and who acknowledged, in my presence and in the presence of said
witnesses, that he signed the above and foregoing document as his own free act and deed and for the uses and purposes therein set
forth and apparent.


 


In witness
whereof, the said appearer has signed those presents and I have hereunto affixed my hand and seal, together with the said witnesses
on the day and date first above written.


 



	My commission expires:	 	Notary Public





 




	 	 	 	 
	(Seal,
    if any)	 	Title:	 








    	10



    	 



    





	 	 	NON-OPERATOR
	 	 	 	 	 
	WITNESSED:	 	Three Forks, Inc.
	 	 	 	 	 
	 	 	By	 
	 	 	Name: Donald
Walford
	 	 	Title:
Chief Executive Officer




 






ACKNOWLEDGMENT


 


	STATE OF	 	§	 
	 	 	 	§	 
	COUNTY/PARISH OF	 	§	 



 


Be
it known, that on this day of the month of February 2013, before me, the undersigned authority, personally came and appeared
Donald Walford, the Chief Executive Officer of Three Forks, Inc., to me personally known and known by me to be the person whose
genuine signature is affixed to the foregoing document, who signed said document before me and in the presence of the two witnesses,
whose names are thereto subscribed as such, being competent witnesses, and who acknowledged, in my presence and in the presence
of said witnesses, that he signed the above and foregoing document as his own free act and deed and for the uses and purposes therein
set forth and apparent.


 


In witness
whereof, the said appearer has signed those presents and I have hereunto affixed my hand and seal, together with the said witnesses
on the day and date first above written.


 



	My
    commission expires:	 	Notary
    Public



 


	 	 	 	 
	(Seal,
    if any)	 	Title:	 








    	11



    	 



    

Exhibit “A”


 


Attached to and made part
of that certain Memorandum of Operating Agreement dated

 February [      ], 2013.


 



		A.	Lands subject to this
agreement:



 


The lands covered by the Leases identified
below.



 


		B.	Leases subject to this agreement:



 


See following pages




    	12



    	 



    


	Lessor’s Name	Exhibit “A” 

Attached to and made part of that certain Memorandum of Operating Agreement by and between Five J.A.B., Inc., as Operator, and Three Forks, Inc., as Non-Operator

 Lessee’s Name     Lease Date      Recording Information     Legal Description	Wells Associated with Lease
	FENRIS FIELD PROPERTIES
	SOUTHERN OIL SYSTEMS L L C	FIVE JAB INC	6/1/2011	FILE NO. 587416 BOOK: 385 PAGE: 152 OF THE OFFICIAL PUBLIC RECORDS OF EVANGELINE PARISH, LOUISIANA	TRACT ONE: SW/4 OF THE SE/4 OF SECTION 29 AND NW/4 OF SECTION 33, BOTH IN TOWNSHIP 5 SOUTH, RANGE 1 WEST, EVANGELINE PARISH, LOUISANA 

TRACT TWO: SE/4 OF THE SE/4 OF SECTION 29 AND THE NE/4 OF THE NE/4 OF SECTION 33, BOTH IN TOWNSHIP 5 SOUTH, RANGE 1 WEST, EVANGELINE PARISH, LOUISIANA 

TRACT THREE: SOUTHWEST CORNER OF SECTION 28, TOWNSHIP 5 SOUTH, RANGE 1 EVANGELINE PARISH, LOUISIANA	FRIO RA SUA; GUILLORY 0001-ALT 

FRIO RA SUA; RG BERZAS, ETUX 001

 LEE ROY FONTENOT SWD 001
	EAST BASILE PROPERTIES
	RICHARD LAFLEUR, ET AL	OLDFIELD OPERATING COMPANY	4/15/2010	FILE NO. 579283 BOOK: 369 PAGE: 877 OF THE OFFICIAL PUBLIC RECORDS OF EVANGELINE PARISH, LOUISIANA	TRACT 1: SECTION 40 TOWNSHIP 6 SOUTH, RANGE 2 WEST EVANGELINE PARISH, LOUISIANA 

TRACT 2: SECTIONS 1 AND 2, TOWNSHIP 6 SOUTH-RANGE 2 WEST, EVANGELINE PARISH, LOUISIANA	RICHARD LAFLEUR # 1 

LARRY LAFLEUR SWD # 1 

LARRY LAFLEUR B-1
	RANDALL LAFLEUR, ET AL	OLDFIELD OPERATING COMPANY	4/15/2010	FILE NO. 579284 BOOK: 369 PAGE: 882 OF THE OFFICIAL PUBLIC RECORDS OF EVANGELINE PARISH, LOUISIANA	TRACT 1: SECTION 40 TOWNSHIP 6 SOUTH, RANGE 2 WEST EVANGELINE PARISH, LOUISIANA 

TRACT 2: SECTIONS 1 AND 2, TOWNSHIP 6 SOUTH-RANGE 2 WEST, EVANGELINE PARISH, LOUISIANA	RICHARD LAFLEUR # 1 

LARRY LAFLEUR SWD # 1 

LARRY LAFLEUR B-1
	KATRINA LAFLEUR ROY, ET AL	OLDFIELD OPERATING COMPANY	4/15/2010	FILE NO. 579282 BOOK: 369 PAGE: 872 OF THE OFFICIAL PUBLIC RECORDS OF EVANGELINE PARISH, LOUISIANA	TRACT 1: SECTION 40 TOWNSHIP 6 SOUTH, RANGE 2 WEST EVANGELINE PARISH, LOUISIANA 

TRACT 2: SECTIONS 1 AND 2, TOWNSHIP 6 SOUTH-RANGE 2 WEST, EVANGELINE PARISH, LOUISIANA	RICHARD LAFLEUR # 1 

LARRY LAFLEUR SWD # 1 

LARRY LAFLEUR B-1
	RANDALL LAFLEUR, ET AL	OLDFIELD OPERATING COMPANY	4/15/2010	FILE NO. 579285 BOOK: 369 PAGE: 888 OF THE OFFICIAL PUBLIC RECORDS OF EVANGELINE PARISH, LOUISIANA	TRACT 1: SECTION 40 TOWNSHIP 6 SOUTH, RANGE 2 WEST EVANGELINE PARISH, LOUISIANA 

TRACT 2: SECTIONS 1 AND 2, TOWNSHIP 6 SOUTH-RANGE 2 WEST, EVANGELINE PARISH, LOUISIANA	RICHARD LAFLEUR # 1 

LARRY LAFLEUR SWD # 1 

LARRY LAFLEUR B-1






    	Page 1 of 5



    	 



    



	Lessor’s
    Name	Exhibit
    “A” 

Attached to
    and made part of that certain Memorandum of Operating Agreement by and between Five J.A.B., Inc., as Operator, and Three Forks,
    Inc., as Non-Operator 

Lessee’s Name      Lease Date        Recording Information    
    Legal Description	Wells
    Associated with Lease
	JOHN
    W. JENKINS	OLDFIELD
    OPERATING COMPANY	11/18/2010	ORIGINAL
    NOT RECORDED	TRACT
    1: SECTION 40 TOWNSHIP 6 SOUTH, RANGE 2 WEST EVANGELINE PARISH, LOUISIANA 

TRACT 2: SECTIONS 1 AND 2, TOWNSHIP 6
    SOUTH-RANGE 2 WEST, EVANGELINE PARISH, LOUISIANA	RICHARD
    LAFLEUR # 1 

LARRY LAFLEUR SWD # 1 

LARRY LAFLEUR B-1
	PENNY
    UNVERZAGT STEFANSKI	OLDFIELD
    OPERATING COMPANY	10/25/2010	ORIGINAL
    NOT RECORDED	TRACT
    1: SECTION 40 TOWNSHIP 6 SOUTH, RANGE 2 WEST EVANGELINE PARISH, LOUISIANA 

TRACT 2: SECTIONS 1 AND 2, TOWNSHIP 6
    SOUTH-RANGE 2 WEST, EVANGELINE PARISH, LOUISIANA	RICHARD
    LAFLEUR # 1 

LARRY LAFLEUR SWD # 1 

LARRY LAFLEUR B-1
	CHARENTON
    FIELD PROPERTIES
	SHORE
    OIL CORPORATION	JNC,
    INC	6/17/1981	CONVEYANCE
    BOOK: 23-W, ENTRY NO. 189, PAGE: 786 OF THE CONVEYANCE RECORDS OF ST. MARY PARISH, LOUISIANA	SECTIONS
    51 AND 52, TOWNSHIP 14 SOUTH, RANGE 9 EAST AND SECTIONS 41 AND 43, TOWNSHIP 14 SOUTH, RANGE 10 EAST	SHORE
    OIL COMPANY # 1

 SHORE OIL COMPANY SWD # 1

 SHORE OIL COMPANY # 3

 SHORE OIL COMPANY # 4

 SHORE OIL COMPANY # 5

 SHORE OIL COMPANY
    # 9

 SHORE OIL COMPANY SWD # 2

 STERLING SUGARS # 1 

PARAMOUNT # 1
	STERLING
    SUGARS, INC	LGS
    EXPLORATION, INC	11/30/1983	CONVEYANCE
    BOOK: 26-T, ENTRY NO. 204089, PAGE/FOLIO: 753 OF THE CONVEYANCE RECORDS OF ST. MARY PARISH, LOUISIANA	SECTION
    43, TOWNSHIP 14 SOUTH, RANGE 10 EAST AND SECTIONS 50, 51, 52 AND 53, EAST OF BAYOU TECHE	SHORE
    OIL COMPANY # 1

 SHORE OIL COMPANY SWD # 1

 SHORE OIL COMPANY # 3

 SHORE OIL COMPANY # 4

 SHORE OIL COMPANY # 5

 SHORE OIL COMPANY
    # 9

 SHORE OIL COMPANY SWD # 2

 STERLING SUGARS # 1 

PARAMOUNT # 1
	OXY
    USA INC	FIVE-J.A.B.,
    INC	1/24/2013	BEING
    RECORDED - AWAITING RECORDED DOCUMENT VIA MAIL	SECTION
    41, T14S-R10E	SHORE
    OIL COMPANY # 1

 SHORE OIL COMPANY # 3

 SHORE OIL COMPANY # 4







    	Page 2 of 5



    	 



    


	Lessor’s
    Name	Exhibit
    “A” 

Attached to
    and made part of that certain Memorandum of Operating Agreement by and between Five J.A.B., Inc., as Operator, and Three Forks,
    Inc., as Non-Operator 

Lessee’s Name Lease Date Recording Information
    Legal Description	Wells
    Associated with Lease
	JASPER
    FIELD PROPERTIES
	ATLANTIC
    RICHFIELD COMPANY	COLUMBIA
    GAS DEVELOPMENT CORP.	9/30/1992	UNRECORDED
    LEASE - SEE MEMORANDUM OF OIL AND GAS LEASE RECORDED IN BOOK 88, PAGE 643 OF THE DEED RECORDS OF JASPER COUNTY, TEXAS AND
    AMENDMENT OF OIL AND GAS LEASE EXECUTED TO BE EFFECTIVE SEPTEMBER 1, 1992	WILLIAM
    JORDAN SURVEY, A-320, THE OLIVE HARRALL SURVEY, A- 173 AND THE JOHN MYERS SURVEY, A-387, JASPER COUNTY, TEXAS	ARCO
    FEE # 1

 ARCO FEE # 2

 ARCO FEE # 3 SWD

 ARCO FEE E-1
	ATLANTIC
    RICHFIELD COMPANY	BALLARD
    EXPLORATION COMPANY, INC	8/18/1985	ENTRY
    NO. 48494, BOOK 77 PAGE 605 OF THE OFFICIAL PUBLIC RECORDS OF JASPER COUNTY, TEXAS	40
    ACRES OUT OF THE MARTIN FLORES SURVEY, A-13, JASPER COUNTY, TEXAS BEING 40 ACRES AROUND THE ARCO FEE NO. E-1	ARCO
    FEE E-1
	BP
    AMERICA PRODUCTION COMPANY	W.
    DALE MORRIS, INC	6/29/2004	UNRECORDED	40
    ACRES OUT OF THE WILLIAM JORDAN SURVEY, A-320, JASPER COUNTY, TEXAS	ARCO
    FEE # 2
	KENNETH
    R. & JUANITA B. GREGORY	SAM
    HOUSTON ELECTRIC COOPERATIVE	3/20/1991	UNRECORDED	BEING
    A STRIP OF LAND IN WIDTH OUT OF THAT CERTAIN 10.8 ACRES OF LAND SITUATED IN THE JOSEPH MILHOME SURVEY, A-448, JASPER COUNTY,
    TEXAS	ARCO
    FEE # 1

 ARCO FEE # 2

 ARCO FEE # 3 SWD

 ARCO FEE E-1
	ATLANTIC
    RICHFIELD COMPANY	COLUMBIA
    GAS DEVELOPMENT CORP.	9/3/1993	ENTRY
    NO. 93-4046, VOL: 553 PAGE: 463, FML- 370 OF THE OFFICIAL PUBLIC RECORDS OF TYLER COUNTY, TEXAS	40
    ACRES MORE OR LESS WITHIN THE ARCO FEE LJ UNIT AND OUT OF THE NORMAN HURD SURVEY, A-22 & LIMITED AS TO DEPTHS FROM SURFACE
    DOWN TO 8,102 FEET	ARCO
    FEE LJ # 1
	CROWN
    PINE TIMBER 3, L.P.	CHAPARRAL
    ENERGY, L.L.C.	1/24/2008	ENTRY
    NO. 08-2064, BOOK 916 PAGE 568 OF THE OFFICIAL PUBLIC RECORDS OF TYLER COUNTY, TEXAS	A
    15 FOOT WIDE R-O-W AND EASEMENT FOR THE SOLE PURPOSE OF TRANSPORTING GAS THROUGH A 2.5 INCH PIPELINE UNDER, UPON, OVER AND
    THROUGH LANDS OF GRANTOR SITUATED IN THE NORMAN HURD SURVEY, A-22 AND THE THEOPHILUS CUSHING SURVEY, A-14 IN TYLER COUNTY,
    TEXAS	ARCO
    FEE LJ # 1







    	Page 3 of 5



    	 



    



	Lessor’s
    Name	Exhibit
    “A” 

    Attached to and made part of that certain Memorandum of Operating Agreement by and between Five
    J.A.B., Inc., as Operator, and Three Forks, Inc., as Non-Operator 

    Lessee’s Name     Lease Date    Recording Information
        Legal Description	Wells
    Associated with Lease
	BP
    AMERICA PRODUCTION COMPANY	W
    DALE MORRIS INC	12/6/2002	ENTRY
    NO. C-174649, VOL 733 PAGE 811 OF THE OFFICIAL PUBLIC RECORDS OF TYLER COUNTY, TEXAS	40
    ACRES, MORE OR LESS, OUT OF THE NORMAN HURD SURVEY, A-22	HURD
    # 1

 HURD # 15 SWD

 HURD # 40
	JUANITA
    GREGROY SPURLOCK ET AL	REA
    EXPLORATION COMPANY	8/30/1983	VOL
    025 PAGE 563 OF THE OFFICIAL PUBLIC RECORDS OF TYLER COUNTY, TEXAS	15.563
    ACRES OUT OF THE BBB&C RR CO SURVEY NO. 13, A-147, TYLER CO., TX	GREGORY
    # 1 WIW

 GREGORY # 2
	OMAHA
    NATIONAL BANK TRUSTEE	REA
    EXPLORATION COMPANY	10/26/1983	BOOK
    25 PAGE 376 OF THE OFFICIAL PUBLIC RECORDS OF TYLER COUNTY, TEXAS	24.437
    ACRES OUT OF THE SOUTH 200 ACRES OF A 400 ACRE TRACT OUT OF THE BBB&C RR CO SURVEY NO. 13, A-147, LIMITED AS TO ALL DEPTHS
    FROM THE SURFACE OF THE EARTH DOWN TO 9,664 FEET, A- 147 TYLER CO, TX	GREGORY
    # 1 WIW

 GREGORY # 2
	KIRBY
    LUMBER CORPORATION	REID
    PRODUCTION COMPANY	1/3/1977	BOOK
    353 PAGE 201 OF THE OFFICIAL PUBLIC RECORDS OF TYLER COUNTY, TEXAS	160
    ACRES OF LAND, MORE OR LESS, BEING A PART OF THE J.R. MCINNIS SURVEY, ABSTRACT NO. 1030, TYLER COUNTY, TEXAS	KIRBY
    MCINNIS # 1K

 KIRBY MCINNIS # 2

 KIRBY MCINNIS # 10D SWD
	KIRBY
    LUMBER CORPORATION	REID
    PRODUCTION COMPANY	7/6/1977	BOOK
    366 PAGE 459 OF THE OFFICIAL PUBLIC RECORDS OF TYLER COUNTY, TEXAS	A
    TRACT OF LAND CONTAINING 584.64 ACRES OF LAND, MORE OR LESS, COMPRISED OF ALL OF THE J. T. MCINNIS SURVEY, A-1030, AND ALL
    OF THE J. T. MCINNIS SURVEY, A-1031, TYLER COUNTY, TEXAS	KIRBY
    MCINNIS # 1K

 KIRBY MCINNIS # 2

 KIRBY MCINNIS # 10D SWD






    	Page 4 of 5



    	 



    


	Lessor’s
    Name	Exhibit “A”
    

Attached to and made part of that certain Memorandum of Operating Agreement by and between Five J.A.B., Inc., as Operator,
    and Three Forks, Inc., as Non-Operator 

Lessee’s Name Lease Date Recording Information
    Legal Description	Wells
    Associated with Lease
	CONROE
    FIELD PROPERTIES
	W.T.
    HOOPER AND RUBY LAURA HOOPER MARTIN	EPOCH
    OIL AND GAS, INC.	2/20/1998	ENTRY:
    9812625, 350-00-1416 OF THE OFFICIAL PUBLIC RECORDS OF MONTGOMERY COUNTY, TEXAS	THAT
    APPROXIMATLEY 80 ACRES OF LAND LYING IN MONTGOMERY COUNTY, TEXAS IN THE THE J. T. WATSON SURVEY, A-690, DESCRIBED WITH OTHER
    LANDS, IN THAT CERTAIN DEED DATED NOVEMBER 28, 1908 FROM W.P. MERCER, AS GRANTOR, TO W.N. HOOPER AS GRANTEE	FANNIE
    HOOPER SWD # 1 

FANNIE HOOPER # 2

 FANNIE HOOPER # 3

 FANNIE HOOPER SWD # 4 

FANNIE HOOPER # 5

 FANNIE HOOPER # 6







    	Page 5 of 5



    	 



    



	Schedule
    2.4 to Purchase, Sale and Participation Agreement
	FIVE-J.A.B.,
    INC PURCHASE PRICE ALLOCATION BY WELL
	WELL
    NAME	WELL
    NUMBER	FIELD
    NAME	API
    # (IF AVAIL)	75%
    WI SALE PRICE
	BERZAS
    PROPERTIES
	FRIO
    RA SUA; R G BERZAS ETUX	001	FENRIS	17039203970000	$260,156.25
	FRIO
    RA SUA; L GUILLORY	001-ALT	FENRIS	17039203360000	$202,343.75
	LEE
    ROY FONTENOT SWD	002	FENRIS	17039005830000	$100,000.00
	FENRIS
    FIELD TOTALS	 	 	 	$562,500.00
	LAFLEUR
    PROPERTIES
	RICHARD
    LAFLEUR	001	BASILE,
    EAST	17039201460000	$50,000.00
	Y
    RA VUA; L LAFLEUR B	001	BASILE,
    EAST	17039202020000	$137,500.00
	LARRY
    LAFLEUR SWD	001	BASILE,
    EAST	17039201360000	$75,000.00
	EAST
    BASILE FIELD TOTALS	 	 	 	$262,500.00
	CHARENTON
    FIELD PROPERTIES
	SHORE
    OIL COMPANY	001	CHARENTON	17101213620000	$50,000.00
	SHORE
    OIL COMPANY SWD	001	CHARENTON	17101213700000	$75,000.00
	SHORE
    OIL COMPANY	003	CHARENTON	17101214290000	$50,000.00
	CH
    6800 RA SU: STERLING SUGARS INC	001	CHARENTON	17101214420000	$424,999.98
	SHORE
    OIL COMPANY	004	CHARENTON	17101214590000	$50,000.00
	CH
    6800 RA SU: SHORE OIL CO	005	CHARENTON	17101214930000	$283,333.32
	CH
    6800 RA SU: SHORE OIL CO	009	CHARENTON	17101216340000	$50,000.00
	SHORE
    OIL COMPANY SWD	002	CHARENTON	17101216980000	$75,000.00
	CH
    6800 RA SU: PARAMOUNT PET CO	001	CHARENTON	17101218640000	$141,666.70
	CHARENTON
    FIELD TOTALS	 	 	 	$1,200,000.00
	JASPER
    FIELD PROPERTIES
	ARCO
    FEE	1	CHAMPION,
    WEST (WILCOX 8610)	42-241-30519	$50,000.00
	ARCO
    FEE	2	CHAMPION
    (WILCOX 9050)	42-241-30376	$29,545.44
	ARCO
    FEE	3 SWD	CHAMPION	42-241-30544	$50,000.00
	ARCO
    FEE	E-1	RED
    BANK CREEK	42-241-30439	$73,863.60
	ARCO
    FEE LJ	1	JOES
    LAKE, W. (WILCOX)	42-457-30471	$147,727.20
	GREGORY	1 - WIW	GREGORY
    (WILCOX)	42-457-30362	$50,000.00
	GREGORY	2	GREGORY
    (WILCOX)	42-457-30378	$59,090.88
	HURD	1	JOES
    LAKE, E. (1ST WILCOX)	42-457-30360	$147,727.20
	HURD	15 SWD	JOES
    LAKE, E. (1ST WILCOX)	42-457-00284	$75,000.00
	HURD	40	JOES
    LAKE, E. (1ST WILCOX)	42-457-00309	$50,000.00
	KIRBY-MCINNIS	1K	THEUVENINS
    CREEK (WILCOX 8400)	42-457-00220	$221,590.80
	KIRBY-MCINNIS	2	THEUVENINS
    CREEK (YEGUA 1-D)	42-457-00221	$132,954.88
	KIRBY-MCINNIS	10D SWD	THEUVENINS
    CREEK (YEGUA 1-D)	42-457-00228	$75,000.00
	JASPER
    FIELD TOTALS	 	 	 	$1,162,500.00
	CONROE
    FIELD PROPERTIES
	HOOPER,
    FANNIE SWD	1	CONROE
    (CONS U)	42-339-00556	$20,000.00
	HOOPER,
    FANNIE	2	CONROE
    (CONS U)	42-339-00557	$20,000.00
	HOOPER,
    FANNIE	3	CONROE
    (CONS U)	42-339-00558	$75,000.00
	HOOPER,
    FANNIE SWD	4	CONROE
    (CONS U)	42-339-00278	$20,000.00
	HOOPER,
    FANNIE	5	CONROE
    (CONS U)	42-339-00560	$20,000.00
	HOOPER,
    FANNIE	6	CONROE
    (CONS U)	42-339-30742	$407,500.00
	CONROE
    FIELD TOTALS	 	 	 	$562,500.00
	 	 	 	 	 
	TOTALS	 	 	 	$3,750,000.00